Classroom Experiments on Technology Licensing: Royalty Stacking, Cross-Licensing and Patent Pools

Abstract

We present two classroom experiments on technology licensing. The first classroom experiment introduces the concept of royalty stacking. The students learn that non-cooperative pricing of royalties for complementary intellectual property rights leads to a double-marginalization effect. Cooperation solves the problem and is welfare improving. The second classroom experiment introduces students to cross-licensing. It shows that reciprocal royalty payments dampen competition. The classroom experiments stimulate discussions of technology licensing, intellectual property rights, different royalty structures, patent pools and technology standards. We present the experimental procedures, and suggests routes for the discussion.