The protection of intellectual property rights stands as a pivotal concern for businesses. In recent times， a surge in patent infringement and disputes has been observed both domestically and internationally. Central to this issue is the often-unreasonable nature of patent licensing agreements between patent technology providers and assignees. A crucial element affecting these agreements is the asymmetry of information. Manufacturers， positioned at the downstream end of the supply chain， are privy to in-depth market demand information， whereas patent technology providers lack such critical information. Moreover， patent technology providers， equipped with advanced technological and patent leverage， effectively restrict manufacturers in terms of distribution power. To lessen their reliance on upstream patent technology providers， manufacturers frequently escalate their investments in technological innovation to enhance their own innovative capacities. Nonetheless， the underlying link between patent licensing and the technological investments of manufacturers remains unclear. It probes into the optimal design of patent licensing contracts and the manufacturers’ technology investments in a scenario of asymmetric information in this paper， focusing on the spillover effects of manufacturers’ technological investments.
A two-tier supply chain system is considered， consisting of a patent technology provider and a manufacturer. The patent technology provider licenses patents to the manufacturer under specific contracts， enabling it to produce and market products. Given its closer connection to the market， the manufacturer has a more accurate grasp of market demand， which is presumed to be its private information. Additionally， the manufacturer invests in technological innovation to curtail production costs. To effectively discern the private information， patent technology provider is necessitated to devise optimal patent licensing contracts， encompassing both unit sales commission and one-time fixed transfer payment.
Utilizing the principles of information economics and mechanism design theory， a dynamic game model between patent technology provider and manufacturer is constructed. Employing backward induction for the analysis， the pricing and investment level decisions of the manufacturer in response to the licensing contracts set by patent technology provider are studied. It then evaluates the optimal licensing strategies of patent technology providers under both symmetric and asymmetric information scenarios， taking into account the manufacturers’ individual participation and incentive compatibility constraints. Further， the equilibrium of the game is used to assess the spillover effects of the manufacturer’s technological investments and its strategies for information disclosure. Ultimately， it delves into the patent technology provider’s optimal licensing contracts， considering variations in the reservation profits of the manufacturer across different demand scenarios.
Several findings are obtained. First， patent technology provider is inclined to design a contract with ‘unit sales commission plus a one-time fixed transfer payment’ mainly in the scenario where the market’s potential demand is low under asymmetric information； otherwise， a contract comprising solely a “one-time fixed transfer payment” is preferred. Second， the benefit of manufacturer’s technological investments to both itself and the patent technology provider is contingent on demand types， yet invariably leads to an increase in demand and consumer surplus. Third， under certain conditions， the manufacturer is inclined to disclose private demand information， facilitating a shared information negotiation process with the patent technology provider. In conclusion， the study extends to the situation where differences exist in the manufacturer's profits under various demand types， affirming the conditions for the feasibility of patent licensing contracts.
With the focus on the spillover effects of the manufacturer’s technological investments， it delves into the intricacies of designing optimal patent licensing contracts under asymmetric information. It not only enriches the theoretical landscape of patent licensing contract design but also broadens the application of mechanism design theory within the patent licensing domain. From a practical standpoint， the findings offer critical managerial insights into the formulation of patent licensing contracts and the strategic decision-making regarding technology investments by manufacturers in the face of asymmetric information.
