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Field-of-use restrictions in licensing agreements (2007)
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BibTeX
@MISC{Schuett07field-of-userestrictions,
author = {Florian Schuett and Florian Schuett},
title = {Field-of-use restrictions in licensing agreements},
year = {2007}
}
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Abstract
A widely used clause in license contracts – the field-of-use restriction (FOUR) – precludes licensees from operating outside of the specified technical field. When a technology has several distinct applications, FOUR allow the licensor to slice up his rights and attribute them to the lowest-cost producer in each field of use. This can improve production efficiency. However, with complex technologies, the boundaries of fields of use may be difficult to codify, entailing a risk of overlap of licensees’ rights. We explore how this affects the optimal license contract in a moral hazard framework where the licensor’s effort determines the probability of overlap. We show that depending on the contracting environment, the license agreement may include output restrictions and nonlinear royalty schemes.
Keyphrases
field-of-use restriction licensing agreement licensor effort several distinct application license contract license agreement contracting environment output restriction lowest-cost producer specified technical field nonlinear royalty scheme production efficiency optimal license contract complex technology moral hazard framework licensee right
