An Empirical Analysis of Pricing in Patent Licensing Contracts

We empirically examine the determinants of the price of patent licensing. We find factors affecting the profitability of patents and bargaining power of licensors and licensees are good predictors of the royalty rate of patent licensing, while proxies for the reservation price of licensors are less informative. Our findings suggest large licensors' adverse selection to license only small and unprofitable inventions. Large, technology-intensive licensees appear to have greater bargaining power, whereas research organizations exercise weak bargaining power. More appropriable patents command higher prices