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  What is holding back tech licensing? 

Moreira, Solon; Cabaleiro, Goretti; Reichstein, Toke
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"Eureka! A new discovery! And now we'll hoard it!"

Unfortunately, the truth is that today's technology owners may be reluctant to license out their new discoveries, limiting potential applications in their fields. A study by IESE's Solon Moreira, working with Goretti Cabaleiro and Toke Reichstein, helps identify why this is happening and what might be done about it.

Looking at technology-licensing agreements in the U.S. pharmaceuticals industry, the research identifies increases in two factors -- competition and sunk costs -- as discouraging licensing deals, while "openness to external knowledge" tends to encourage them.

The benefits of sharing
Technology owners who license out their technologies can make more money, which helps justify their research and development (R&D) budgets. On top of that, licensors can learn from licensees and reap other strategic benefits. And yet Moreira's research, which observes 227 pharma firms with licensing agreements over several years, finds that increasing competition and higher sunk costs are two factors that curb licensing.

The good news is that firms' "openness to external knowledge" is associated with greater willingness to sign tech-licensing contracts. The researchers look for managers who "see value in accessing knowledge and capabilities from other firms, instead of relying solely on in-house development." And where they find them, they find more licensing deals, and more benefits from open innovation strategies.

The professors acknowledge that the industry they chose, pharmaceuticals, is particularly reliant on external knowledge and licensing. Yet there's reason to believe their study sheds light on aspects of licensing that can benefit managers and policymakers.

On the policy front, they note that when markets get increasingly competitive, policymakers would be wise to add special measures to help boost tech licensing and the flow of knowledge from one firm to another.

And for managers, Moreira's study points to "evidence that open innovation strategies will benefit firms by not only making them better able to absorb external knowledge but also improving their capacity to benefit from knowledge outflows." In other words, openness helps companies not only absorb external knowledge, but share their internal knowledge for broader gains.
This article is based on:  Licensing Decision: A Rent Dissipation Lens Applied to Product Market Competition, Openness to External Knowledge and Exogenous Sunk Costs
Publisher:  Oxford University Press
Year:  2019
Language:  English