Grantbacks, Territorial Restraints, and Innovation

We analyse the effect of grantback clauses in licensing contracts. While competition authorities fear that grantback clauses might decrease the licensee's ex post incentives to innovate, a standard defence is that grantback clauses are required for the patent-owner to agree to license its technology in the first place. We examine the validity of this “but for” defence and the equilibrium effect of grantback clauses on the innovation incentives of the licensee for both non-severable and severable innovations, which roughly correspond to infringing and non-infringing innovations. We show that grantback clauses do not increase the patent-holder's incentives to license when non-severable innovations are at stake but they do when severable innovations are concerned – suggesting that the “but for” defence might be valid for severable innovations but not for non-severable ones, in direct contradiction to regulation in some jurisdictions. Moreover we show that, for severable innovations, grantback clauses can increase the range of parameters for which follow-on innovation by the licensee occurs. Our work extends the large literature on sequential innovation to an environment where information diffuses through licensing rather than through the mere act of patenting. In this different informational set up we show that Green and Scotchmer (1995)’s conclusion that the initial innovator should have a patent of infinite breadth no longer holds

Further Reasons for the “But for” Defense of a Grant-Back Clause and the Attribute of Innovation

This study investigates the effect of grant-back clauses in licensing agreements using a different analytical manner from that of Ambashi, Régibeau, and Rockett (2019) (abbreviated by “ARR”). Both this study and theirs focus on attributes of innovations categorized as either “severable” (noninfringing) or “nonseverable” (infringing). The European Commission's 2004 Technology Transfer Guidelines consider a grant-back clause applied to nonseverable innovation innocuous. In contrast, those guidelines indicate that a grant-back clause that applies to severable innovation should be treated with much greater skepticism. However, this study reveals that this guidance requires further debate concerning prohibitions on territorial restraints and multiple heterogeneous licensees, as well as other factors noted in the work of ARR

Theoretical Analysis of University Research and Teaching in the Presence of External Research Funding

Revised: December 2021This paper theoretically investigates how university research and teaching activities interact to generate research output and student enrollment under a setting in which a university earns tuition revenue and obtains external research funding. The main analytical finding is that while research funding can increase both research output and student enrollment when the tuition fee is fixed and university capacity is not fully used (“multiplier effect”), student enrollment is crowded out when a university operates at full capacity (“crowding-out effect”). In particular, this paper shows that when a tuition fee is controlled to maximize tuition revenue, a marginal amount of research funding never positively affect student enrollment due to the emergence of a “binary divide” among universities, namely, multiple equilibria generating a “large university” or a “small college.

Technological Competition, Cumulative Innovation, and Technological Development Schemes

Revised: September 2021This study investigates which technological development schemes are most desirable for technological competition and cumulative innovation, including follow-on innovation, under uncertainty conditions. Technological competition is likely to generate a social overincentive for innovations; it does so for follow-on innovation, especially when the consumer surplus is negligible. This study determines that a contract with a grant-back clause combined with an appropriate profit distribution mitigates social overinvestment in both initial and follow-on innovation; and therefore, improves social welfare. Moreover, this study demonstrates that if a government can specify a particular profit distribution between firms, the socially optimal investment in initial innovation can be realized. Conversely, assuming a significantly positive consumer surplus instead, this study reveals that competition in follow-on innovation creates a higher level of social welfare

Essays on Competition, Innovation, and Public Policy

Competition and innovation, which comprise the driving force of modern economies, have long been an issue in the economics literature. This thesis mainly highlights these two factors in relation to public policy as applied to various analytical frameworks: (i) technology transfer scheme including a grant-back clause when innovation is cumulative (Chapters 1 and 2); (ii) universities that conduct both research and teaching activities (Chapter 3); and (iii) the relationship between competition and productivity (Chapter 4). Chapter 1 considers desirable technology transfer in a stream of cumulative innovation. Technology competition is likely to generate social overincentives for innovation. It is demonstrated that a grant-back clause with an appropriate distribution of profits can mitigate social overinvestment in the initial and follow-on technologies. Chapter 2 analyzes the effect of a grant-back clause on incentives to innovate in accordance with the attributes of innovation: severable (non-infringing) and non-severable (infringing). It is illustrated that a grant-back clause under severable innovation can be socially beneficial because it increases the original licensor’s incentive to license. In Chapter 3, a higher education industry model is examined, where universities conduct research and teaching activities to generate research output and student enrollment. The paradoxical result is that when there is strong substitutability between these two activities, a reduction in not only student enrollment but also research output can occur in response to an increase in research funds. Additionally, this theoretical analysis is motivated by the empirical challenge using the U.S. higher educational institutions data. Chapter 4 investigates the causal relationship between the effect of competition and TFP growth based on the Japanese industry-level panel data. It finds that although a positive effect of competition is observable in manufacturing industries, such an effect in non-manufacturing industries may be negative in part of the sample period

Prediction Errors of Macroeconomic Indicators and Economic Shocks for ASEAN Member States, 1990‒2021

In this study, we analyze how economic shocks affect six ASEAN Member States --Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam --in three dimensions: global, domestic, and uncertainty shocks. We collect macroeconomic indicators for 1990-2021 and calculate macroeconomic shocks based on the prediction errors of real GDP growth rates. First, we demonstrate that countries were significantly subjected to unforeseen negative economic shocks on average. Second, we show high synchronization of economic fluctuations and shocks within these countries and with the world. Third, by conducting regression analyses separately, we derive the following: (i) positive association between variations of the global real GDP growth rates and countries' economic shocks; (ii) different quantitative significance of previous estimates among countries; (iii) country-specific domestic shocks; and (iv) correlation of global- and country-level uncertainty indices with negative economic shocks in some AMS. Our results highlight the relative importance of global, domestic, and uncertainty shocks in the AMS as 56.3%, 39.6%, and 2.8%, respectively. Finally, based on this dataset and conducted analysis, we also review the effect of the COVID-19 pandemic on these countries