1Patent Licensing in a Leadership Structure By

This paper studies the question of optimal licensing contract in a leadership structure when the patent holder is a non-producer. We assume that the size of the innovation is exogenous and the patent holder has three alternative licensing strategies, viz., fee, royalty and auction. We show that when the innovation is small, royalty dominates other contracts. But for larger innovations while fee dominates royalty, auction is the equilibrium decision. Depending on the size of the innovation the license is given either to leader or to follower or to both. Hence identity of the licensee becomes an important variable