Value capture through patent licensing: Strategic selection of licensing target in the value chain

Patent licensing constitutes a way to capture value from innovation via the Market for Technology (MFT). We distinguish two modes of patent licensing: integrated licensing, where the licensee is the original implementer of the patented knowledge; and bifurcated licensing, where the licensee is downstream from the original implementer. Drawing on transaction cost and anchoring theory, we hypothesize which factors render bifurcated licensing more likely. We present empirical findings from a mixed-methods study drawing on 35 interviews and 3,255 patent licenses. Our methods allow us to quantify the prevalence of bifurcated licensing and also unveil underlying mechanisms. Bifurcated licensing turns out to be relatively rare overall, but highly prevalent in selected industries: 50% in business services (e.g., software or computer services) vs. 12% in the overall sample. In multivariate analysis, we find bifurcated licensing to be associated with complex technologies, open standards covered by standard-essential patents, and product patents, and negatively correlated with cross-licensing. We contribute theoretically to research on value capture by suggesting antecedents of bifurcated licensing and discuss policy implications arising from the relative efficiency of the two licensing modes. For managers, we identify the need to adjust defensive patent strategies against bifurcated licensing.