Royalty Contract Research Articles

Licensing of a cost-reducing innovation in a Stackelberg-differentiated duopoly

This study investigates the licensing of a cost-reducing innovation by a firm to its direct competitor in a Stackelberg-differentiated duopoly. We find that the licensor's market position coupled with the product's nature and innovation size play an important role in framing the licensing agreement and its welfare impact. When acting as the market leader in determining output, the licensor offers its competitor a pure ad valorem royalty contract if the products are close substitutes for each other or if the innovation is sufficiently large in the case of distant substitutes; otherwise, a per-unit royalty combined with a fixed fee is preferred. However, if the licensor acts as a follower in the product market, the licence comprises a per-unit royalty, sometimes combined with a fixed payment. Compared with the pre-licensing context, licensing by a market follower is never welfare-reducing, whereas licensing by a market leader is only welfare-reducing when products are extremely close substitutes. Optimal licensing with complementary products is also studied, which could result in a per-unit subsidy.

SEC confidential treatment and regulatory filing reviews

We study the interplay between the redaction of information from regulatory filings and SEC monitoring of the redacting firms. We find that redactions are associated with more intense SEC monitoring, as evidenced by higher incidence of comment letters and a longer letter resolution process. Hand collected data indicate seller firms that redact information from their sales, licensing, and royalty contracts are more likely to receive revenue recognition-related comment letters, suggesting spurious correlation is not a likely explanation of the inference. We supplement our findings by providing evidence that redacting firms tend to manage proprietary information disclosure, withholding proprietary information that should be made public under extant rules and regulations. Our findings shed light on how various SEC monitoring processes interact and support one another, offering a novel look on the interaction between a firm’s management of proprietary information disclosure and regulatory oversight.

Optimal patent licensing—Two or three‐part tariff

AbstractWe look into technology transfer by an insider patentee in a spatial duopoly model under three types of licensing contracts—(i) two‐part tariff with fixed fee and per‐unit royalty, (ii) two‐part tariff with fixed fee and ad‐valorem royalty and (iii) general three‐part tariff with fixed fee, per‐unit and ad‐valorem royalties. Under two‐part tariff contracts, the licenser is better off with the per‐unit royalty contract but the general contract does better than the other contracts. In contrast to the existing literature, all three licensing contracts may make the consumers worse‐off compared to no licensing, with the lowest consumer surplus achieved under the general licensing contract. Welfare under the general licensing contract is equal to the welfare under two‐part tariff with ad‐valorem royalty and it is higher than the welfare under no licensing but lower than the welfare under two‐part tariff with per‐unit royalty. Hence, the general three‐part licensing contract is privately optimal but not socially optimal. Similar conclusions hold also under a nonspatial linear demand model with differentiated products.

Legal Relation Between Royalty Contracts and Subcontracting

Madenler, devletin hükmü ve tasarrufu altında olan, kamu malı niteliğine sahip olduğu ikrâr edilen kaynaklar ve doğal servetlerdir. Devletin tasarrufu altında bulunan madenler, gerekli şartları taşıyanların elde ettiği izinler ve ruhsatlar uyarınca işletilebilir. İşte bu şekilde maden ruhsatından ve doğrudan kanundan doğan hak ve yükümlülüklerin yekûnüne maden hakkı denmektedir. 
 Maden hakkına sahip olan kişi, maden sahasını direkt olarak kendisi işletebilir veyahut bu hakkın kullanımını üçüncü bir kişiye devredebilir. Bu devir rödovans müessesesi ile mümkündür ve ortaya konulan bir rödovans sözleşmesi ile mevcudiyet kazanır. Öyleyse, ruhsat alanlarındaki madenlerin işletilmesi için üçüncü şahıslara tasarruf hakkı kazandırmak gayesiyle ruhsat alanının bütünü veyahut bir bölümü üzerinde ruhsat sahibi kişilerin bu üçüncü şahıslarla yaptıkları sözleşmeye rödovans sözleşmesi denir. Bu sözleşme maden endüstrisinde yaygın bir şekilde tercih edilen işletim yöntemidir.
 Elinizdeki çalışmada, rödovans sözleşmesinin bir alt işverenlik ilişkisi kurup kurmadığı değerlendirilmiştir. Ayrıca Yargıtay’ın yaklaşımı uyarınca rödovans sözleşmesi değerlendirilirken hasılat kirasına ait hükümlerin uygulanıp uygulamayacağı hususu incelenmiştir. Bu sebeple çalışmamızda öncelikle; rödovans sözleşmesi, alt işverenlik ve ürün kirası müesseseleri genel hatlarıyla incelenmiş ve netice itibarıyla rödovans sözleşmesinin bir alt işverenlik ilişkisi kurup kurmadığı sorusunun cevabı verilmiştir.

Blockchain-based royalty contract transactions scheme for Industry 4.0 supply-chain management

Industry 4.0-based oil and gas supply-chain (OaG-SC) industry automates and efficiently executes most of the processes by using cloud computing (CC), artificial intelligence (AI), Internet of things (IoT), and industrial Internet of things (IIoT). However, managing various operations in OaG-SC industries is a challenging task due to the involvement of various stakeholders. It includes landowners, Oil and Gas (OaG) company operators, surveyors, local and national level government bodies, financial institutions, and insurance institutions. During mining, OaG company needs to pay incentives as a royalty to the landowners. In the traditional existing schemes, the process of royalty transaction is performed between the OaG company and landowners as per the contract between them before the start of the actual mining process. These contracts can be manipulated by attackers (insiders or outsiders) for their advantages, creating an unreliable and un-trusted royalty transaction. It may increase disputes between both parties. Hence, a reliable, cost-effective, trusted, secure, and tamper-resistant scheme is required to execute royalty contract transactions in the OaG industry. Motivated from these research gaps, in this paper, we propose a blockchain-based scheme, which securely executes the royalty transactions among various stakeholders in OaG industries. We evaluated the performance of the proposed scheme and the smart contracts’ functionalities and compared it with the existing state-of-the-art schemes using various parameters. The results obtained illustrate the superiority of the proposed scheme compared to the existing schemes in the literature.

Blockchain-based scheme for the mobile number portability

Regular up-gradation in the standards of the wireless networks and to sustain in the market with the best services, are the key challenges to the services providers of the telecommunication industries. Traditional mobile number portability system (TMNPS) is based on the manual process, in which existing service provider and the new service provider have to undergo certain transfers once a porting request is generated by the user. Slow processing of request, lack of transparency among the entities involved, and delay during the verification are the major challenges in the TMNPS. Moreover, a third-party is required to ensure the security of the stored and regulated data. Motivated from these facts, in this paper, we propose a blockchain-based mobile number portability scheme, which uses an Ethereum blockchain technology and call routing mechanism to handle the request of the user. The secured royalty contract transactions and secure call routing mechanism are the potential part of the proposed scheme. We then evaluated the performance of the proposed scheme and functionalities of the proposed smart contracts (SCs) using experimental setup with respect to various parameters. Results show that the transition time taken by the proposed scheme is only 4 seconds for 200 blocks and TMNPS took 6 seconds to execute the 200 blocks.

Licensing under Cournot vs Bertrand competition

In this paper we consider, on one hand, a differentiated Cournot model, and, on the other hand, a differentiated Bertrand model, when one of the firms engages in an R&D process that gives an endogenous cost-reducing innovation. The aim of the present paper is two-fold. The first is to study the licensing of the cost-reduction by a per-unit royalty and a fixed-fee in these Cournot and Bertrand models. The second is to do a direct comparison between Cournot model and Bertrand model. We analyse the implications of these types of licensing contracts over the R&D effort, the profits of the firms, the consumer surplus and the social welfare. We show that some previous results for two-part tariff licensing are not robust, in the sense that they can be not true for just either a per-unit royalty contract or a fixed-fee contract. Furthermore, by using comparative static analysis, we conclude that the degree of the differentiation of the goods assumes a great importance in the results. We also discuss the optimal licensing, meaning that which licensing method is preferred, in each of the duopoly models considered.

Luxury Brand Licensing: Free Money or Brand Dilution?

Marketing research has traditionally focused on centralized brand-extension strategies where a brand expands its product offerings by controlling the design, production, marketing and sales of new products `in-house'. However, luxury brands frequently use `brand licensing' as a decentralized brand-extension strategy under which a brand licenses its brand name to an `external licensee' that designs, produces and sells the new product. Licensing is a time-efficient and cost-effective brand-extension strategy for luxury brands to reach out to their aspirational, low-end consumers (`followers') who value a brand more when more high-end consumers (`snobs') purchase the brand's primary product (i.e., `positive popularity effect'). On the other hand, over-licensing might dilute the brand for snobs who value brand exclusivity (i.e., `negative popularity effect'). We develop a game-theoretic model to study luxury brand licensing in the presence of these two countervailing forces. First, in the monopoly setting (a benchmark), we find that the monopoly brand should license only when the negative popularity effect is not too high, and it should prefer `royalty licensing' over `fixed-fee licensing' when the negative popularity effect is intermediate. Second, to explicate our analysis, we study the duopoly setting under fixed-fee contracts. In contrast to the monopoly setting, we find that fixed-fee licensing can `soften' price competition between brands so that licensing is `always' profitable for both brands under competition. Interestingly, in equilibrium under fixed-fee contracts, competing brands face a prisoner's dilemma and both brands prefer not to license, even though both would be better off if they could commit to fixed-fee licensing. Finally, we expand our analysis of the duopoly model by incorporating royalty licensing in addition to fixed-fee licensing. We find that, in contrast to fixed-fee licensing, royalty licensing can `intensify' price competition so that both brands have to lower their prices. Consequently, when the positive popularity effect is sufficiently strong, fixed-fee licensing `dominates' royalty licensing. We also show that, under competition, luxury brands should adopt royalty contracts only when the licensing market is large, and positive and negative popularity effects are small enough.

A comparison of milestone contract and royalty contract under critical value criterion in R&D alliance

This paper attempts to better understand contract type and risk attitude in RD nevertheless, the marketer should offer the first-best contract. Furthermore, investigating the impacts of information asymmetry on the marketer’s profits under two information structures, we find that dual asymmetric information harms the marketer’s profit, especially when the innovator’s effort marginal efficiency is higher. Finally, by comparing the marketer’s profits in two types of contracts, we give the specific regions that milestone contract or royalty contract benefits the marketer better under different information structures.

Risk measurement of international oil and gas projects based on the Value at Risk method

International oil and gas projects feature high capital-intensity, high risks and contract diversity. Therefore, in order to help decision makers make more reasonable decisions under uncertainty, it is necessary to measure the risks of international oil and gas projects. For this purpose, this paper constructs a probabilistic model that is based on the traditional economic evaluation model, and introduces value at risk (VaR) which is a valuable risk measure tool in finance, and applies VaR to measure the risks of royalty contracts, production share contracts and service contracts of an international oil and gas project. Besides, this paper compares the influences of different risk factors on the net present value (NPV) of the project by using the simulation results. The results indicate: (1) risks have great impacts on the project’s NPV, therefore, if risks are overlooked, the decision may be wrong. (2) A simulation method is applied to simulate the stochastic distribution of risk factors in the probabilistic model. Therefore, the probability is related to the project’s NPV, overcoming the inherent limitation of the traditional economic evaluation method. (3) VaR is a straightforward risk measure tool, and can be applied to evaluate the risks of international oil and gas projects. It is helpful for decision making.

Intercompetitor Licensing and Product Innovation

This article explores how intercompetitor licensing between an incumbent and an entrant affects market competition and the entrant’s optimal product quality. In the model, the incumbent has a noncore technology that is used for the noncore attribute of the final product, and the entrant has a new core technology to introduce a new, higher-quality product. For the noncore technology of its product, the entrant can either license it from the incumbent or develop it in-house. The authors show that a royalty licensing contract of the noncore technology between the incumbent and the entrant has a competition-alleviating effect. More important, the effect of such licensing on the entrant’s optimal quality depends on whether its core technology can significantly or only incrementally increase its product quality over the incumbent’s product quality. The royalty contract will tend to increase the entrant’s optimal quality when the entrant’s core technology can offer a significant quality improvement over the incumbent’s. By contrast, if the entrant’s technology can raise its product quality only incrementally over the incumbent’s product quality, the royalty contract will tend to reduce the entrant’s optimal quality. A wide range of royalty licensing contracts are mutually acceptable; the incumbent (entrant) can benefit from such a contract even when the entrant pays a total royalty fee that is lower (higher) than its alternative research-and-development cost. These results hold even when the incumbent endogenously chooses its royalty licensing fee. The main results are robust to several alternative modeling assumptions (e.g., alternative game sequence, endogenous quality decision by the incumbent, alternative licensing contract).

Technology transfer in prescription drug market

PurposeMany people in developing countries are suffering from serious diseases, such as HIV and tuberculosis. On the other hand, drug patents impact the availability of the drug for patients. Pharmaceutical technology transfer is widely used by domestic and foreign pharmaceutical enterprises because it promotes the availability of the drug for patients. The purpose of this paper, which is on drug technology transfer, is mainly to discuss how to solve the conflict between drug patent protection and public health from the perspective of the law, but not from the perspective of economics. To fill this gap, the authors introduce a model in the prescription drug market and analyze how a foreign manufacturer that produces brand name drugs authorizes a domestic enterprise that produces common drugs.Design/methodology/approachIn this paper, the authors consider a situation that if the patent holders are provided a certain amount of compensation, then whether compulsory licensing would be an effective tool to promote competition and improve the availability of drugs. Furthermore, they also consider three different cooperation mechanisms, namely, fixed-fee contract, royalty contract and two-part tariff contract, under the case of technology transfer and give the condition of which contract would be better under different scenarios.FindingsIt is found that the product differentiation and the agent behavior of doctor in the domestic market have a deep impact on the foreign enterprise’s decision on technology transfer. If both fixed-fee contract and royalty contract are permitted, foreign enterprise will choose different transfer contracts under different conditions. Under two-part tariff contract, it is equivalent to a fixed-fee or royalty contract under certain conditions. Furthermore, all contracts can improve patients’ benefits, while the royalty contract and the two-part tariff contract would reduce importer’s social welfare under certain conditions.Originality/valuePrescription drugs can treat many acute diseases and improve people’s quality of life. On the other hand, it requires investment in pharmaceutical research and development and is hard to afford the drug for the people living in poverty. This paper tries to solve the problem by introducing three cooperation contracts. The authors consider an innovative drug company and a regular drug company. The regular drug company can improve the quality of its drug by signing a technology transfer agreement with the innovative company. Three contracts are discussed in this paper; they are fixed-fee contract, royalty contract and two-part tariff contract. The authors examine the impact of different contracts on the companies’ profit, patients’ benefit and social welfare. It is found that quality differentiation of drugs and doctor behaviors can have large impacts on the company’s decision about technology adoption as well as contract choice strategies. In all of the three contracts, patients’ benefit improves, while the profit of the two companies and social welfare can increase or decrease under different contracts.

Inter-Competitor Licensing and Product Innovation

ABSTRACT This paper studies how inter-competitor licensing between an incumbent and an entrant affects market competition and the entrant's optimal product quality. In the model, the incumbent has developed some non-core technology that is used for the non-core attribute of the final product, and the entrant has a new core technology to introduce a new higher-quality product. For the non-core technology of its product, the entrant can either license it from the incumbent or incur an R&D cost to develop it in-house. The authors show that a royalty licensing contract of the non-core technology between the incumbent and the entrant has a competition-alleviation effect. More importantly, the effect of such licensing on the entrant's optimal quality depends on whether the entrant's core technology can significantly or only incrementally increase its quality over the incumbent's product. The royalty contract will tend to increase the entrant's optimal quality when the entrant's core technology can allow for a s...

Cooperation royalty contract design in research and development alliances: Help vs. knowledge-sharing

We study a cooperation royalty contract design problem in a three-party research and development (R&D) alliance: A marketer offers royalty contract to hire innovator A to conduct the research stage of this process and innovator B to conduct the development stage of this process. Both innovators need to exert costly effort, which is unobservable to the marketer. Innovator A may (i) not be involved in the development stage (the non-cooperation contract); (ii) directly help innovator B by exerting effort during the development stage (the help contract); or (iii) share task-related knowledge with innovator B that would lower the latter’s costs (the knowledge-sharing contract). To capture the inherent incentive alignment problems under moral hazard and evaluate the efficiency of cooperation, we compare the efficiency of the non-cooperation contract, the help contract and the knowledge-sharing contract and identify the conditions under which the marketer benefits most. We find that when the efficiency of knowledge-sharing is high, regardless of how efficient help is, the marketer prefers the knowledge-sharing contract. Interestingly, when the efficiency of help is low and the efficiency of knowledge-sharing is moderate, the marketer prefers the help contract. In addition, when the efficiencies of both types of cooperation are low, the non-cooperation contract would benefit the marketer most. Furthermore, for an R&D task with high technical risk, the best strategy for the marketer is to offer the knowledge-sharing contract.

Inter-Competitor Licensing and Product Innovation

This paper studies how licensing of non-core technology between an incumbent and an entrant affects market competition and the entrant's optimal product quality. We show that a royalty licensing contract between the incumbent and the entrant will soften competition. More importantly, the effect of such licensing on the entrant’s optimal quality depends on whether the entrant’s core technology can significantly or only incrementally increase its quality over the incumbent’s product. The royalty contract will tend to increase the entrant’s optimal quality when the entrant’s core technology can allow for a significant quality improvement over the incumbent. By contrast, if the entrant’s technology can raise its product quality only incrementally over the incumbent’s product, the royalty licensing contract will tend to reduce the entrant’s optimal quality. A wide range of royalty contracts are mutually acceptable; the incumbent (entrant) can benefit from a licensing contract even when the entrant pays a total royalty fee that is lower (higher) than its alternative R&D cost. These results hold even when the incumbent endogenously chooses its royalty licensing fee. We show that our main results are robust to several alternative modeling assumptions, e.g., alternative game sequence, endogenous quality decision by the incumbent, and alternative licensing contract.

The effects of logic replacement in coal-mining disaster: the case of Soma

PurposeDrawing from the institutional logics and organizational disaster literature, this paper aims to illustrate that the replacement of logics can be problematic in a high-risk industry such as coal mining by adding an institutional perspective to the understanding of disasters.Design/methodology/approachThis paper investigated the field of coal mining in Turkey historically from archival data resources. A comprehensive, qualitative inquiry of a single-case study was then conducted.FindingsThe findings suggest that a shift from social welfare logic to business logic in the coal-mining industry can lead to coal-mining disasters, resulting from changing practices through an increase in the number of private enterprises through royalty contracts, the use of an increased labor force instead of mechanical methods and systems and the maximization of profit by underestimating the effects of taking almost no occupational safety measures.Practical implicationsThe connection between institutional logics and organizational disasters could lead institutional actors to question their understanding of institutional logics.Originality/valueThis paper provides original research evidence for the relationship between industrial disasters and institutional logics.

Contract Concerns Loom Over Iraq’s Upstream Outlook

Middle East Special Section Iraq is producing oil at record levels this year but low oil prices have cast doubts on the economic feasibility of its licensing contracts, which some analysts and policy advisers say are holding back higher output. International oil companies (IOCs) in Iraq operate under cost-plus contracts that require them to make upfront investments before seeking government reimbursements and a per-barrel fee for their profit. This model has enabled the country to reach a new production benchmark of 4.8 million B/D—an achievement diminished by the fact that Iraq’s export revenues have plummeted by more than two-thirds in the past 2 years. As a result, reimbursements owed to the IOCs have ballooned from around 10% of the national budget to 25%. Luay Al-Khatteeb, executive director of the Iraq Energy Institute and a fellow at the Columbia Center on Global Energy Policy, said both the government and the IOCs failed to prepare for the consequences of a possible downturn in the industry when they entered into the contracts in 2009–2010. “They were signed on the basis of high oil prices and were very much technical service contracts with no risk-sharing aspect to them,” he explained. “So everything is being paid by the government, and because high oil prices helped in accommodating such huge repayments, the IOCs in general accepted that.” In response to its cash flow problems, which include a costly war, the government has held off on funding major infrastructure projects and ordered IOCs to reduce their spending programs. These decisions may limit the ability of IOCs to deliver any new supplies of crude while they are still waiting on billions of dollars from the government. Last year, the government paid USD 9 billion in arrears to IOCs for work done in 2014. This year, Iraq must make good on another USD 3.6 billion in arrears, according to the terms of a new loan agreement it secured with the International Monetary Fund. As an adviser to the Iraqi parliament and the prime minister’s office, Al-Khatteeb is recommending that new licensing rounds be issued with production-sharing agreements or tax royalty contracts to drive higher output from the areas operated by IOCs.

Licensing Under Bertrand Competition Revisited

This note indicates that the derivation of the royalty contract for licensing in Wang and Yang (Australian Economic Papers, 39 (1999) 106–119) is not correct. As a consequence, the profits of the innovator in the case of royalty licensing are underestimated.

Optimal licensing of uncertain patents in the shadow of litigation

This paper investigates the choice of a licensing mechanism by the holder of a patent whose validity is uncertain. We provide sufficient conditions of a general nature under which the licensor prefers to use a per-unit royalty contract. In particular we show that this is the case for the holders of weak patents if the strategic effect of an increase in a potential licensee's unit cost on the equilibrium industry profit is positive. The latter condition is shown to hold in a Cournot (resp. Bertrand) oligopoly with homogeneous (resp. differentiated) products under general assumptions on the demands faced by firms. As a byproduct of our analysis, we contribute to the literature on the cost paradox in oligopoly by offering some new insights of independent interest regarding the effects of cost variations on Cournot and Bertrand equilibria.

Optimal Forestry Contracts under Asymmetry of Information

AbstractIn this paper, I analyze optimal royalty contracts in forestry when the harvesting firm has private information on the cost of harvesting. This infinite horizon forest rotation model with asymmetry of information on the cost parameter results in a dynamic incentive problem. Depending on whether the costs are correlated over time or not, the firm either receives rent or receives no rent, associated with the continuation part of the rotation choice. I characterize the optimal contract explicitly in both cases. I also examine the loss in expected welfare surplus resulting from the use of a linear contract instead of the more general non‐linear contract.