What are the Conditions for High Tech Firms to Exchange Technology through Unilateral and Cross licensing?

Prior licensing literature has uncovered pair-level characteristics that influence the licensor's preference for either cross or unilateral licensing. In addition to these factors, we investigate how the licensor technology market diversification and differences in the licensor and licensee technology diversification influence the licensor licensing preference. At the firm level, we argue that the capabilities that firms accrue from operating in multiple markets and the imperative to capitalise on the benefit of these capabilities determine their licensing preference. Whereas at the pair level, the licensor licensing preference is influenced by the magnitude of competition that it faces from licensing its technology to licensees of different sizes and market diversification. Using data from Chipless firms operating in the semiconductor industry from 1985 to 2005, we find support for our arguments that, with increasing levels of market diversification, licensors tend to prefer to engage in bilateral exchange rather than unilateral licensing. When licensors are less diversified than licensees, licensors are more likely to prefer to engage in cross licensing as the licensing mechanism enables them to alleviate the effect of increased competition. The study also shows that licensors past experiences in cross and unilateral licensing are important determinants for the licensing agreement that they use in the future for exchanging technology. These findings have important managerial implications, as the type of licensing agreement that licensors use to exchange technology influences the amount of rent they extract from their technology.

Keywords: technology licensing preference, unilateral licensing, cross licensing, partnership, learning, competition