The Drivers of

Technology Licensing:
AN INDUSTRY COMPARISON

Ulrich Lichtenthaler

T
echnological knowledge constitutes a major source of competitive
advantage because it influences a firm’s opportunities to reduce
costs or increase differentiation from competitors. Thus, protecting
a firm’s proprietary technologies is essential in hypercompetitive
and dynamic environments.1 Despite the vital importance of technological
knowledge for competitive advantage, a substantial increase in technology
licensing could be observed across industries in recent years. With the trend
towards open innovation, firms actively transfer technology to other organiza-
tions.2 Among the licensees, there are often companies from the same industry,
i.e., buyers, suppliers, or competitors. Accordingly, firms may lose at least part of
their competitive advantage by licensing out technology.3 These negative conse-
quences lead to the licensing dilemma, in which firms face positive effects from
licensing revenues and potential negative effects from dissipating profits in their
product business.4 However, the negative consequences of out-licensing often
seem to be overcompensated by positive effects.
The trend towards active technology licensing is remarkable because of
the substantial managerial difficulties of many firms. Above all, these difficulties
result from the imperfections in the markets for technology. Due to these imper-
fections, technology licensing is more complex than the commercialization of
products and services.5 At an aggregate industry or country level, there are
recent empirical data, which show the evolution of licensing activities. By con-
trast, the insights into technology licensing at the firm level are limited. There
is mainly anecdotal evidence that corporate out-licensing increased during the
1990s. The most popular example is IBM, whose licensing revenues amounted

The author would like to thank Henry Chesbrough, Holger Ernst, and David Teece for insightful dis-
cussions and the editor and reviewers for valuable comments on prior versions of this article.

CALIFORNIA MANAGEMENT REVIEW VOL. 49, NO. 4 SUMMER 2007 67

 The Drivers of Technology Licensing: An Industry Comparison

to more than $1.9 billion in 2001, up from merely $30 million in 1990.6 While
these numbers illustrate the increasing importance of technology licensing,
the major change has occurred in firms’ strategies. Numerous companies have
begun to pursue out-licensing as a part of their corporate strategies, and it often
goes far beyond a marginal activity of commercializing residual technologies.
In particular, technology licensing goes beyond identifying infringers
of a firm’s intellectual property, proving the infringements, and offering the
infringers a license. While this reactive approach is called “stick licensing” by
practitioners, technology licensing also has an active approach that involves the
transfer of technology to a licensee who has not yet used the knowledge. In this
approach, the licensee recognizes the
Ulrich Lichtenthaler is an Assistant Professor of
advantages that the technology provides
Technology and Innovation Management at WHU, and decides to license it.7 As the recent
Otto Beisheim School of Management, Germany. increase in technology licensing has
<lichtenthaler@whu.edu>
insufficiently been reflected by academic
research, prior studies do not provide a
detailed understanding of corporate technology licensing. Large-scale studies
have focused on the results of technology licensing, above all on licensing rev-
enues. The factors that drive firms to license out proprietary technology, by
contrast, have not been examined in detail. Thus, we lack an in-depth under-
standing of the role that technology licensing plays in the corporate strategies
of industrial firms.8 At present, two contradictory facts emphasize the need for
further research into out-licensing. First, technology licensing is increasing
despite the imperfections in the markets for technology. Second, many firms
experience major difficulties in managing technology licensing, whereas some
pioneering companies realize enormous benefits. Thus, many companies seem
to have deficits in successfully managing technology licensing.
As a firm’s motives for out-licensing constitute the starting point for
developing a successful technology licensing program, a detailed understanding
of the underlying drivers in the context of corporate strategy may substantially
contribute to enhancing a firm’s licensing performance. Therefore, this article
addresses the key question: What drives firms across industries to license out
proprietary technology? To analyze this issue, the importance of the individual
drivers is analyzed with cross-industry data from 135 firms.

Past Research
Data from various sources confirm that the markets for technology have
grown considerably over the 1990s, especially in some high-technology areas. A
comparison of different estimates at an aggregate level leads to relatively consis-
tent results. It indicates a current worldwide market for technology in the range
of $35-50 billion per year.9 Other sources estimate that the overall U.S. patent
licensing revenues have skyrocketed from below $15 billion per year at the
beginning of the 1990s to around $100 billion per year. At the firm level, a
recent study has shown that only a small number of the more than 40 larger

68 UNIVERSITY OF CALIFORNIA, BERKELEY VOL. 49, NO. 4 SUMMER 2007

 The Drivers of Technology Licensing: An Industry Comparison

companies that were studied earned more than 0.5% of their operating income
from licensing.10 With regard to the drivers of technology licensing, prior
research has been relatively limited to conceptual approaches, which often
address either specific drivers or the opportunities that out-licensing offers
in a particular industry. Only very few studies have attempted to establish an
overview of the factors that motivate firms to license out technology.
A detailed discussion of prior research into this field can be found in
a recent review article, in which six main drivers of out-licensing were identi-
fied.11 First, generating revenues refers to the purely financial dimension of tech-
nology licensing. Second, intellectual property may be the only possibility to
gain access to another firm’s technology portfolio. Third, a company may have
to actively find external adopters of its technology to establish industry standards.
Fourth, intended or unintended infringements of intellectual property may be
identified to profit from infringements. Fifth, technology licensing can be a means
to increase the speed of a firm’s R&D activities by realizing learning effects. Sixth,
firms may cross-license their intellectual property portfolios to ensure freedom to
operate.

Research Design
This study focused on medium-sized and large industrial firms. After a
thorough analysis of the literature on technology licensing, exploratory inter-
views were conducted to gain a detailed understanding of the drivers of technol-
ogy licensing. Altogether, 35 persons were interviewed in 25 companies across
the following industrial sectors: automotive/machinery, chemicals/pharmaceuti-
cals, and semiconductors/electronics. The choice of industries was influenced by
prior research, which reported different motives for out-licensing in these indus-
trial sectors.12 Sensitivity analyses have been carried out with more detailed
industry segmentations. However, they have not led to fundamental changes
in the findings. Based on the literature review and the exploratory interviews,
a detailed systematization of the drivers of technology licensing was developed.
This systematization was used to conduct a questionnaire-based survey in Ger-
many, Switzerland, and Austria (for detailed information on the methods, see
the Appendix). In the final analysis, 135 questionnaires could be taken into
account, corresponding to a response rate of 32.8%.

Results

Drivers of Technology Licensing

Technology licensing offers financial and strategic opportunities. In the
interviews, an expert from the electronics industry emphasized: “Generating
licensing revenues is only one motive for licensing technology. There is a variety
of strategic drivers that are often more important.” Prior research and many
firms have focused on the monetary dimension, and they have often neglected
the strategic drivers. However, some strategic drivers have been described in

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 The Drivers of Technology Licensing: An Industry Comparison

detail for specific industries (e.g., ensuring freedom to operate in the electron-
ics/semiconductors industry) or for particular settings (e.g., realizing foreign
market entry by means of international licensing). Besides the monetary and
strategic drivers, companies may be forced to license out technology due to legal
requirements, which is termed compulsory technology licensing.
The monetary dimension of technology licensing refers to generating rev-
enues that a company would not have realized by carrying out its product busi-
ness. Thus, a firm’s technology licensing activities may be motivated primarily
by the aim of generating licensing revenues. An expert from a medium-sized
machinery firm explained: “Licensing revenues may account for a substantial
portion of our overall revenues from commercializing a new technology. An
exclusive focus on product marketing is not always beneficial.” Compulsory
licensing transactions, by contrast, are realized to comply with legal
requirements and regulatory decisions. Thus, these transactions do not represent
a voluntary form of technology licensing that is based on monetary or strategic
considerations, but they constitute a dissemination of technology to avoid fur-
ther punitive measures. This type of technology transfer often weakens a firm’s
technological position relative to its competitors. An example of this behavior is
the demand to license out technologies in order to settle antitrust cases.
The strategic drivers can be further classified into three main categories:
product-oriented, technology-oriented, and mixed strategic drivers. An expert
from the machinery industry emphasized: “Often, licensing activities support our
product business. Some projects, however, are carried out in relative isolation.”
Product-oriented licensing deals are primarily directed at supporting a firm’s prod-
uct strategies. A major driver of product-oriented licensing is entry into foreign
markets. Here, technology licensing complements a firm’s product business in
particular geographical markets. In these cases, technology licensing is a substi-
tute for foreign direct investments, which would result in selling a firm’s own
products and/or services in the foreign markets instead of licensing out technol-
ogy. In the past, the need to cover foreign product markets has often been a
driver of technology licensing.
Moreover, technology licensing may be driven by the objective of selling
products and/or services in addition to licensing technology. This will lead to indi-
rect advantages in the product markets, which may become the main aim of
an agreement in which technology is used to gain access to product markets. In
these cases, technology licensing is not a substitute for product sales, but it con-
stitutes an enabler of new product market opportunities, which may be realized
simultaneously with the licensing deal or with a time lag. These additional prod-
uct sales may also be achieved due to enhanced demand because of a second
source of supply (which is a common situation that automotive suppliers face)
or by licensing a technology to a weak rival in order to deter entry by a stronger
competitor.
Sometimes, a company may have to find external adopters of its tech-
nologies because only by this adoption will the commercialization of its products
be successful. Above all, this refers to the need of setting an industry standard,

70 UNIVERSITY OF CALIFORNIA, BERKELEY VOL. 49, NO. 4 SUMMER 2007

 The Drivers of Technology Licensing: An Industry Comparison

which may be achieved by licensing a firm’s technology. In this context, positive

network externalities describe the fact that the value of a network may be grow-
ing at an exponential rate with the number of the network’s members. These
aspects underline that licensing and product business are complementary and
do not require “either-or” decisions.
The technology-oriented strategic drivers are primarily directed at strength-
ening a firm’s technological position. One expert from the chemical industry
explained: “Some out-licensing projects do not have an immediate direct con-
nection with our product business, but they are focused on future technology
potential.” The aim of guaranteeing freedom to operate refers to a specific type of
cross-licensing agreements, in which intellectual property rights are used as bar-
gaining chips, usually without any transfer of technology. Here, the main driver
of technology licensing is avoiding potential patent infringement lawsuits, which
would prevent a firm from further developing its technologies and commercial-
izing its products.
In many cases, intellectual property may be the only possibility to gain
access to another firm’s technology portfolio. Due to shorter product and technology
life cycles and growing technology convergence, the acquisition of external tech-
nology does not constitute merely an option but a requirement for many firms.
Thus, out-licensing may be primarily directed at the acquisition of external tech-
nology, which may be realized in bi-directional technology transfers based on
cross-licensing agreements.
Furthermore, a company can guarantee its technological leadership by licens-
ing out technology. Although this motive might appear counterintuitive, it can
be achieved in two ways. First, if a powerful and technologically leading com-
pany licenses its technology in a particular field to its major competitors, these
companies may focus their inventive activities on other areas, leaving the partic-
ular technology field to the company. An example of such a strategy is provided
by one of the electronics companies in the sample, which successfully licensed
one of its technologies to direct competitors and thus kept its leading technologi-
cal position. Second, a technologically leading company may license a specific
technology to its competitors, whereas the company itself concentrates on
another technology, which represents a different market segment or likely is
superior in the long term. Thus, a firm may restrict itself to an attractive market
segment, reducing other firms’ intentions to develop new technologies for this
segment. This strategy was applied by another electronics company, which suc-
cessfully licensed a technology and maintained its leading technological position.
The mixed strategic drivers have effects on the technology and product
level. Technology licensing may be motivated by the realization of learning effects,
which result in the compression of a firm’s learning curve. One expert from the
automotive industry admitted: “One of our licensees came up with numerous
ideas for improving our technology.” The transfer of new knowledge that is
developed by the licensee back to the original licensor can be formally laid down
in a grant back clause of a licensing agreement. If the original licensor wants to

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 The Drivers of Technology Licensing: An Industry Comparison

benefit from the knowledge that is developed by the licensee, the licensor needs
sufficient absorptive capacity.
Moreover, a company can enhance its reputation by licensing out techno-
logical knowledge. Technology licensing can help firms to build up a strong gen-
eral technological reputation, particularly if the licensees include well-known
companies. Moreover, out-licensing can contribute to establishing a strong repu-
tation as a technology provider, which facilitates future technology transactions.
In the end, these effects can lead to a self-reinforcing cycle. A major reason for
these self-reinforcing effects are increasing inquiries of firms seeking to acquire
technologies, which diminishes the difficulties of identifying appropriate
licensees.
Finally, a company can license out technology to strengthen its interorgani-
zational networks. Due to the imperfections in the technology markets, companies
can benefit considerably from their networks. They not only provide direct
access to other institutions involved in the network, but they also offer impor-
tant informational advantages beyond these direct relations. Thus, interorganiza-
tional networks facilitate licensing transactions, and technology licensing in turn
represents a proper means to maintain, intensify, or expand a firm’s networks.
An expert from the chemical industry underlined: “The role of networks in
exchanging technology should not be underestimated.”
To demonstrate that these drivers determine the extent and performance
of corporate out-licensing activities, regression analyses have been conducted
(see Table 1 in the Appendix). By including the firms’ revenues and R&D inten-
sity in the basic model, the technology licensing potential is taken into account,
i.e., the volume of technology that can be licensed. In addition, potential indus-
try and country differences have been considered. The data show a significantly
positive effect of the importance of monetary drivers on licensing revenues. By
contrast, a higher importance of the strategic drivers does not lead to higher
licensing revenues. In the regression analyses, the importance of the strategic
drivers refers to the average importance of all nine strategic drivers. Similar
results can be gained from focusing on the three or five most important strategic
drivers for every firm. Although the monetary dimension is usually regarded at
least as a side aspect in technology licensing, it is possible to distinguish activities
that are carried out mainly for monetary purposes from activities in which
strategic drivers dominate. While the importance of the individual strategic dri-
vers differs across firms, an integrated view reflects the overall importance of
strategic drivers of technology licensing.
To analyze the strategic dimension, a firm’s out-licensing performance
relative to its competitors has been considered as an additional success variable,
which captures monetary and strategic performance. The data show a signifi-
cantly positive effect of the importance of monetary and strategic drivers. Pursu-
ing monetary and strategic motives in technology licensing leads to superior
licensing performance relative to a firm’s competitors. These analyses show that
the drivers that have been identified actually have a major impact on firms’
strategic approaches to technology licensing. Pursuing monetary motives

72 UNIVERSITY OF CALIFORNIA, BERKELEY VOL. 49, NO. 4 SUMMER 2007

 The Drivers of Technology Licensing: An Industry Comparison

FIGURE 1. Importance of Drivers of Technology Licensing

5.5

5.0

4.5
Importance

4.0

3.5

3.0

2.5
Selling Add.

Ens. Techn.
Generating
Revenues

Fulfilling Legal
Conditions

Setting
Standards

Freedom
to Operate

Access to
Knowledge

Learning
Effects

Enhancing
Reputation

Strengthen
Networks
Realizing
Market Entry

Products

Leadership
Drivers of Technology Licensing

increases licensing revenues and enhances a firm’s relative performance. The

strategic drivers, by contrast, only have a significant effect on relative perfor-
mance, which considers the strategic dimension of technology licensing in addi-
tion to licensing revenues.

Overall Importance of the Drivers

In most cases, technology licensing is not driven by one particular factor,
but it results from a combination of various drivers. Concerning the importance
of the different drivers, the results are surprising from a traditional view of tech-
nology licensing. Prior research has usually focused on the monetary benefits
from out-licensing, and most examples of successful firms concentrate on licens-
ing revenues. However, the objective of generating revenues is only mentioned as
the seventh most important driver of technology licensing (Figure 1). A poten-
tial explanation of this finding is the study’s focus on three European countries.
The importance of generating revenues may be higher in the U.S., where, for
instance, the damage awards for infringements are much higher.
As it could be expected, compulsory licensing plays a very limited role. It
constitutes the least important driver of technology licensing. By contrast, six of
the nine strategic drivers are considered more important than generating licens-
ing revenues. Entry into foreign markets is ranked as the third driver. Another

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 The Drivers of Technology Licensing: An Industry Comparison

product-oriented driver, which is considered more important than generating

revenues, is selling products and/or services in addition to commercializing technol-
ogy. Setting standards is considered nearly as important as generating licensing
revenues.
Regarding the technology-oriented strategic drivers, ensuring freedom to
operate is of outstanding importance in this cross-industry study. Previously, it
had been considered an essential driver of technology licensing merely in the
electronics/semiconductors industry. Gaining access to another company’s technology
portfolio is considered the second driver. Guaranteeing technological leadership is still
regarded as more important than generating licensing revenues.
Concerning mixed strategic drivers, realizing learning effects is of minor
importance. By contrast, enhancing a firm’s reputation by means of technology
licensing is considered a surprisingly important driver. Similarly, strengthening a
firm’s interorganizational networks is a relatively important driver of technology
licensing. Interfirm networks are helpful for identifying appropriate licensees.
In turn, however, technology licensing constitutes a means of active network
design.

Industry-Specific Importance of the Drivers

Besides the surprising analysis of the overall importance of the drivers of
technology licensing, the data permit the identification of industry differences.
As some of the variables do not follow a perfect normal distribution, the
Kruskal-Wallis test has been applied to analyze the significance of industry dif-
ferences. It has to be highlighted that the findings do not represent artifacts due
to underlying differences in firm characteristics, such as company size. The firms
in the different industrial sectors have been compared regarding revenues, num-
ber of employees, and various other variables, which do not significantly affect
the results. Thus, the findings actually represent industry differences and do not
derive from some underlying determinants.
Figure 2 displays the differences that are attributed to the importance of
the drivers of technology licensing. In Table 2 in the Appendix, the exact data
are presented, which show highly significant industry differences for generating
revenues, selling additional products, and gaining access to knowledge. Moderately sig-
nificant industry differences can be found for fulfilling legal conditions, ensuring
technological leadership, and strengthening networks. To all drivers for which signifi-
cant differences can be found, the firms from the chemical/pharmaceutical
industry attribute more importance than the firms from the other industries. In
particular, the high importance of generating revenues, gaining access to knowledge,
ensuring technological leadership, and strengthening networks in the chemical/phar-
maceutical industry has to be highlighted.
Figure 3 presents an integrated perspective on the importance of mone-
tary drivers and on the average importance of strategic drivers. The strategic
dimension refers to the average importance of all nine strategic drivers. Similar
results can be gained from focusing on the three or five most important strategic
drivers for every firm. The dotted lines in the diagram refer to the average of all

74 UNIVERSITY OF CALIFORNIA, BERKELEY VOL. 49, NO. 4 SUMMER 2007

 The Drivers of Technology Licensing: An Industry Comparison

FIGURE 2. Industry Comparison Absolute Importance of Drivers of Technology Licensing

Automotive/ Chemicals/ Electronics/

Machinery Pharmaceuticals Semiconductors
6

5
Importance

0
Selling Add.

Ens. Techn.
Generating
Revenues

Fulfilling Legal
Conditions

Setting
Standards

Freedom
to Operate

Access to
Knowledge

Learning
Effects

Enhancing
Reputation

Strengthen
Networks
Realizing
Market Entry

Products

Leadership
Drivers of Technology Licensing

firms. The figure shows that the electronic/semiconductor firms attribute less
importance to the monetary and strategic dimension of technology licensing
than the firms from the other industries. This finding is surprising because prior
research has described in detail the importance of technology licensing in elec-
tronics/semiconductors, whereas its relevance in automotive/machinery has
been relatively neglected. Moreover, the data show that the chemical/pharma-
ceutical companies attribute a higher importance to most drivers of technology
licensing than the companies from the other industries. Therefore, it appears
helpful to analyze the relative importance of the drivers.
Accordingly, the importance of each driver relative to the average
importance of all drivers has been calculated for every firm. Figure 4 gives an
overview of the industry differences in this relative importance measure. The
exact data can be found in Table 3 in the Appendix. Interestingly, the industry
differences are highly significant for only two variables, i.e., selling additional
products and setting standards. Selling additional products is considerably less
important for electronic/semiconductor firms than for the other companies. By
contrast, setting standards is substantially less important in the chemical/phar-
maceutical industries than in the other industries. Moreover, the industry dif-
ferences for generating revenues and gaining access to knowledge are moderately
significant. The importance of these two drivers of technology licensing is higher
in the chemical/pharmaceutical firms than in the companies from the other
industries.

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 The Drivers of Technology Licensing: An Industry Comparison

FIGURE 3. Overview of Absolute Importance of Drivers of Technology Licensing

Average Importance of Strategic Drivers

4.2
Chemicals/Pharmaceuticals (n=43)

4.0

Automotive/Machinery (n=65)
3.8

Electronics/Semiconductors (n=27)
3.6

3.0 3.2 3.4 3.6 3.8 4.0 4.2 4.4

Importance of Monetary Drivers

An integrated perspective on the relative importance of monetary drivers

and on the average relative importance of strategic drivers is presented in Figure
5. Again, the dotted lines refer to the average of all firms. The analysis of relative
importance provides different findings than the analysis of absolute importance.
In particular, it underlines the traditional view of the importance of strategic
drivers of technology licensing in electronics/semiconductors. While the absolute
importance of the drivers is relatively low in these industries, the strategic dri-
vers are much more important than the aim of generating licensing revenues.
The opposite relationship can be found for the chemical/pharmaceutical firms,
which focus more strongly on the monetary dimension. The companies from
the automotive/machinery industry pursue a relatively balanced approach.

Managerial Consequences of the Drivers

The drivers of technology licensing determine a firm’s strategic approach
to these activities. Reflecting the industry differences in the drivers, there are
major industry differences in firms’ management and performance in technol-
ogy licensing. An expert from the automotive industry explained: “The manage-

76 UNIVERSITY OF CALIFORNIA, BERKELEY VOL. 49, NO. 4 SUMMER 2007

 The Drivers of Technology Licensing: An Industry Comparison

FIGURE 4. Industry Comparison Relative Importance of Drivers of Technology Licensing

Automotive/ Chemicals/ Electronics/

Machinery Pharmaceuticals Semiconductors
Relative Importance 2.0

1.5

1.0

0.5

0.0 Selling Add.

Ens. Techn.
Generating
Revenues

Fulfilling Legal
Conditions

Setting
Standards

Freedom
to Operate

Access to
Knowledge

Learning
Effects

Enhancing
Reputation

Strengthen
Networks
Realizing
Market Entry

Products

Leadership
Drivers of Technology Licensing

ment of technology licensing strongly depends on the goals that we pursue with
these activities.” The data show that many firms still pursue technology licensing
in an ad hoc way (see Table 4 in the Appendix). However, various firms consider
technology licensing a strategic activity and have adopted relatively formalized
licensing strategies. Thus, numerous companies have obviously recognized the
importance and the benefits from well-developed licensing activities. In particu-
lar, the chemical/pharmaceutical firms have established formalized strategies.
Similarly, these companies have set up more systematic technology licensing
processes than the firms in the other industries, which still address these opera-
tions rather unsystematically.
Moreover, the industry differences in the importance of the drivers are
reflected in the firms’ organizational structures for managing technology licens-
ing. On average, the firms in the sample have assigned between two and three
employees specifically to technology licensing, with higher numbers in chemi-
cals/pharmaceuticals and electronics/semiconductors. About half of the compa-
nies in the sample have not assigned any employees full-time to technology
licensing. By contrast, about 22% of the firms have assigned one or two employ-
ees, and about 12% of the companies have 3-5 persons in place that are dedi-
cated to out-licensing. Furthermore, about 3% of the firms employ more than
20 persons that are occupied full-time with coordinating and realizing technol-
ogy licensing. Regarding the organizational integration of licensing employees,
22% of all firms have a dedicated licensing function. Thus, about 44% of the

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 The Drivers of Technology Licensing: An Industry Comparison

FIGURE 5. Overview of Relative Importance of Drivers of Technology Licensing

1.20
Average Relative Importance of Strategic Drivers

Electronics/Semiconductors (n=27)

1.19

1.18

1.17

Automotive/Machinery (n=65)
1.16

1.15

Chemicals/Pharmaceuticals (n=43)

1.14

1.00 1.05 1.10 1.15 1.20

Relative Importance of Monetary Drivers

firms that employ dedicated employees have set up a separate organizational

unit. In chemicals/pharmaceuticals, nearly half of the companies have a dedi-
cated unit.
The industry differences in the importance of the drivers also have conse-
quences for the extent and performance of technology licensing. Basically, firms
that attribute a higher importance to the drivers of technology licensing have
realized that out-licensing offers a variety of benefits. As a result, these firms
have adopted a strategic approach to technology licensing. Based on a formalized
strategy, they have established systematic processes and dedicated structures.
Above all, this is the case for chemical/pharmaceutical firms. However, there are
some pioneering firms in all industries that pursue this advanced approach. The
most prominent example of a highly successful pioneering company is IBM.13
Due to being aware of the drivers and setting up a proficient managerial

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 The Drivers of Technology Licensing: An Industry Comparison

approach, these pioneering firms are more successful in technology licensing

than most other companies.
However, an expert from one of the pioneering chemical firms in the
sample admitted: “Despite strategic issues, we focus very much on revenues in
managing technology licensing.” The overemphasis on monetary drivers in man-
aging and assessing technology licensing is illustrated by the ad hoc approach in
most firms. The high importance of the strategic drivers across industries calls for
closely aligning technology licensing and product marketing because technology
licensing goes far beyond commercializing residual technology for monetary
purposes. For instance, licensing technology to establish an industry standard
requires a close coordination between licensing and product marketing. Technol-
ogy licensing for purely monetary purposes, by contrast, can be managed in a
relatively isolated way. Despite the trend towards active licensing, most firms do
not pursue a strategic approach, which would facilitate a close coordination
between technology licensing and product marketing. Thus, the management of
most firms reflects an excessive focus on licensing revenues, whereas the chal-
lenges resulting from the strategic drivers are insufficiently taken into account.
Table 4 in the Appendix shows that most firms’ annual licensing revenues
are currently below €5 million, with higher numbers for chemical/pharmaceuti-
cal firms. On average, the licensing revenues make up about 1.8% of the firms’
overall operating revenues with a median of merely 0.5%. In relation to product
marketing, the licensing activities are still limited in most industrial companies.
Obviously, many firms across industries do not license as much as they could
because at least about 10% of a firm’s patent portfolio may usually be commer-
cialized for monetary purposes alone.14 Table 4 in the Appendix further confirms
the unrealized opportunities in technology licensing because most firms see
great monetary and strategic opportunities that have not yet been met. Interest-
ingly, firms with superior performance in technology licensing tend to see higher
unrealized opportunities than other firms. This counterintuitive finding suggests
that firms need to carry out a critical volume of technology licensing to recog-
nize the variety of benefits that it offers. Firms that attribute a higher importance
to technology licensing usually have established a more proficient management.
As a result, they achieve higher performance and simultaneously see higher
unrealized opportunities.

Discussion
In this study, a systematic overview of the drivers of technology
licensing has been established. The data have shown that the recent increase
in technology licensing is not driven by one particular factor but rather by many
different factors. In particular, strategic drivers, which go beyond generating
licensing revenues, play a key role in firms’ decisions to externally commercial-
ize technology. As various works in past research and many companies have
focused on the monetary dimension, they have largely missed the strategic
opportunities of technology licensing. Instead of concentrating on licensing

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 The Drivers of Technology Licensing: An Industry Comparison

revenues, practitioners and academics additionally need to analyze the strategic

drivers in assessing firms’ licensing performance. Interfirm differences in the
importance of the drivers are reflected in interfirm differences in the perfor-
mance and management of technology licensing. Thus, the drivers fundamen-
tally affect a firm’s strategic approach to technology licensing.
In interpreting the results, some limitations of the empirical study need
to be taken into account. First, some variables do not constitute objective mea-
sures, but they are based on the perception of the key informants. Second, the
sample refers to medium-sized and large industrial firms. Therefore, the results
may not be directly transferable to very small companies (e.g., biotechnology
start-up firms). Third, the firms in the sample might be more open to technology
licensing than an average company although the statistical results do not point
to any bias. Fourth, the findings reflect the current situation in the three Euro-
pean countries included in this study. Thus, the situation may be different in
other parts of the world. For instance, prior works suggest that some U.S. firms
are ahead of European companies in actively licensing out technology.15 More-
over, the enormous damage awards that may be given for infringement in the
U.S. might result in differences in the relative importance of the drivers.16 Simi-
larly, the characteristics of the intellectual property regimes in some countries
(e.g., China) might lead to different findings in these countries.17

Theoretical Implications
This study has shown that entry into foreign markets merely represents
one among many different strategic drivers. Thus, the traditional view of tech-
nology licensing as a substitute for foreign direct investments seems to provide
only limited insights due to focusing on one particular driver of out-licensing.18
In contrast to this view, the other strategic drivers (e.g., setting industry stan-
dards) point to a complementary relationship between licensing and product
marketing. Due to the interdependences between internally applying and exter-
nally commercializing technology, product business and licensing appear to be
complements rather than substitutes in technology exploitation. The emergence
of the open innovation paradigm with the trend towards more active licensing
may lead us to fundamentally rethink traditional assumptions on the relation-
ship between diversification and licensing. Accordingly, the study’s implications
go beyond technology licensing. By analyzing how firms can capture value from
technology, it has addressed a core topic of corporate strategy in technology-
based enterprises.
In particular, firms need to align their business models with their par-
ticular technology position. While intellectual property rights allow a firm to
exclude others from using a technology, they may not allow the firm to practice
its own technology if others have additional patents in this field.19 Thus, the
importance of some drivers (e.g., ensuring freedom to operate) may be reduced
in specific situations where other intellectual property holders pursue business
models that do not favor cross-licensing. Moreover, the importance of the dri-
vers may vary along the intellectual property life cycle.20 While some strategic

80 UNIVERSITY OF CALIFORNIA, BERKELEY VOL. 49, NO. 4 SUMMER 2007

 The Drivers of Technology Licensing: An Industry Comparison

drivers (e.g., setting industry standards) are critical in the early life cycle phases,
they become less important in later phases. However, other strategic drivers
(e.g., gaining access to external knowledge) are likely important along the whole
intellectual property life cycle. Monetary drivers, by contrast, will gain impor-
tance in later phases, in which a firm tries to maximize its profits from a tech-
nology. Thus, firms need to thoroughly map their technology and market
positions to choose the strategies that allow for realizing the greatest oppor-
tunities based on their technology portfolios.
Firms that attribute a higher importance to the drivers of technology
licensing tend to see higher unrealized opportunities, and this points to a capa-
bility-based understanding of technology licensing. Companies obviously need
to successfully carry out a critical volume of technology licensing to recognize
the great opportunities that it offers. The path-dependent nature of dynamic
capabilities suggests that a technology licensing capability will lead to learning
effects and an increasing volume of technology licensing. A lack of this capabil-
ity, by contrast, will result in lock-out effects and an underutilization of licensing
opportunities.21 A dynamic capability of technology licensing can constitute an
important source of competitive advantage because licensing deals do not repre-
sent isolated strategic actions but are closely related to a firm’s product strategies.
In this context, research into absorptive capacity and the “not-invented-here”
syndrome in acquiring external technology can provide helpful starting points
for future research into outward technology transfer.22
Firms from the chemical/pharmaceutical industry attribute a higher over-
all importance to nearly all drivers of technology licensing than firms from the
other industries. Moreover, chemical/pharmaceutical companies manage their
licensing activities more proficiently than firms from the other industries. Thus,
the data support prior works, which have underlined the high importance of
licensing transactions in this sector. In contrast, the overall importance of mone-
tary and strategic drivers is surprisingly low in the electronics/semiconductors
industry although the relevance of licensing in this industry has been described
in relative detail in prior research. By contrast, technology licensing is consid-
ered surprisingly important in the automotive/machinery industry. As technol-
ogy licensing in this sector has received limited attention in prior research, it
deserves further study to offer a better understanding to firms aiming at opti-
mally utilizing their technology assets in this field.
Even more important, however, is the fact that there are not any signifi-
cant industry differences in the relative importance of most drivers of technol-
ogy licensing. Accordingly, it may not be argued, for instance, that technology
licensing is mainly driven by a particular strategic factor in one industry,
whereas different drivers dominate in other industries. In fact, the relative
importance of the individual drivers is surprisingly high across industries. As a
result, prior conceptual and interview-based works, which have focused on a
few drivers in a particular industry and which gave the impression of having
identified the major drivers of technology licensing in this specific industry,
should be analyzed cautiously.23 Although those works point to relatively strong

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 The Drivers of Technology Licensing: An Industry Comparison

industry differences in the individual drivers (e.g., chemicals/pharmaceuticals

vs. semiconductors/electronics), the data in this quantitative study do not reflect
these differences. However, the study’s specific context and potential limitations
need to be taken into account when interpreting the findings. The results point
to major similarities in the drivers of technology licensing across industries.
Only an aggregate view of the monetary and strategic drivers supports
traditional perspectives, such as the relatively high importance of monetary
drivers in chemicals/pharmaceuticals and of strategic drivers in electronics/
semiconductors.

Managerial Implications
Recently, many firms have started to actively pursue technology licensing
as a strategic activity. It may include all technology assets and goes far beyond a
marginal activity of commercializing residual technologies. With the trend
towards open innovation, companies will likely continue to intensify their tech-
nology licensing activities. Thus, it will become increasingly difficult for firms to
completely refrain from licensing out technology, which would result in a sub-
stantial weakening of their competitive position. Active technology licensing
may not merely be an option but a necessity in order to gain and sustain a com-
petitive advantage. As a result, firms need to develop dynamic capabilities of
technology licensing to realize the monetary and strategic opportunities while
avoiding potential negative effects. Accordingly, firms need to identify their
main motives for licensing out technology. Despite the large variety of drivers,
most firms focus on the monetary dimension in managing technology licensing.
Although licensing revenues constitute an objective performance measure, they
often do not reflect a firm’s performance regarding the strategic dimension of
technology licensing. As many firms regard various strategic drivers as more
important than generating licensing revenues, firms need to thoroughly design
their performance metrics and managerial approaches.
Various firms have developed formalized licensing strategies, but there
are strong differences between these leading firms and many others. In addition,
many firms lack a systematic technology licensing process. This finding strongly
contrasts with the importance of process systematizations in internal technology
exploitation (i.e., new product development). Furthermore, most firms have not
assigned any dedicated employees to technology licensing. As a result, many
firms are willing to license technology but fail to realize this potential due to the
lack of an out-licensing capability. The focus on monetary opportunities and the
limited technology licensing capabilities contribute to explaining the discrepan-
cies between the enormous benefits for some pioneering firms and the major
difficulties for many others. In particular, the strategic licensing opportunities
call for a completely different management. A company that licenses out tech-
nology primarily for generating licensing revenues may manage these activities
rather independently from its further business operations. If, however, the
strategic dimension gains importance, the interdependences between internal

82 UNIVERSITY OF CALIFORNIA, BERKELEY VOL. 49, NO. 4 SUMMER 2007

 The Drivers of Technology Licensing: An Industry Comparison

and external technology exploitation increase, and they require a relatively inte-
grated approach.
In the light of growing markets for knowledge, technology licensing is not
a marginal activity that can be handled exclusively by a dedicated licensing func-
tion. Instead, it deserves the participation of staff from different functions (e.g.,
R&D and marketing) to develop dynamic capabilities of successfully managing
technology licensing. The high importance of licensing in the chemical/phar-
maceutical industry is reflected by the proficient management that these firms
have usually established. The dedicated licensing functions of these companies
actively manage out-licensing activities, and they seem to focus on generating
licensing revenues. In electronic/semiconductor firms, by contrast, the coordina-
tion between licensing and product marketing seems to be even more important
because these firms attribute a high relative importance to strategic drivers.
Thus, the licensing performance of these firms should not exclusively be evalu-
ated based on their licensing revenues. Besides additional revenues, investments
in a proficient licensing management can pay off in non-monetary terms by
enhancing a firm’s strategic licensing performance.

Conclusion
Many firms have started to consider technology licensing a proactive
activity that is part of their corporate strategies and may include all technology
assets. Taking into account the study’s context, the results have shown that the
recent increase in technology licensing has not been driven by one particular
factor, such as the firms’ aim of generating licensing revenues. Beyond this mon-
etary dimension of technology licensing, a variety of strategic factors motivate
firms to license out proprietary technology. Despite the high importance of these
strategic drivers, most firms’ managerial approaches seem to focus on licensing
revenues, whereas the strategic factors are only partly taken into account. As
many of the strategic drivers point to a complementary instead of a substitutive
relationship between technology licensing and product marketing, the manager-
ial challenges may vary significantly in different types of technology licensing
activities. In particular, firms need to thoroughly align licensing activities with
their business models, which have to take into account internal and external
technology exploitation opportunities. However, many firms manage technology
licensing inappropriately, which leads to major unrealized opportunities.
Despite industry differences in the overall importance of the drivers of
technology licensing, the activities of firms in one industry are not determined
by a few specific factors. Beyond the insights that can be derived from prior
research, technology licensing in all industries is driven by a variety of factors,
which lead firms to commercialize technology assets. As the recent increase in
technology licensing is a trend from practice rather than a movement initiated
by academics, research into this field has been growing only slowly. Above all,
research into success factors of technology licensing can lead to results that are

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 The Drivers of Technology Licensing: An Industry Comparison

critical for a deeper theoretical understanding and that can be directly applied in
practice.

APPENDIX

Sample
In exploratory interviews, the heads of the firms’ corporate intellectual
property departments were identified as key informants. In firms with a dedi-
cated licensing function, the head of this unit was the key informant. The survey
was supported by the Licensing Executives Society (LES), an organization of
practitioners in the field of intellectual property management. Therefore, all LES
industry members in Germany, Switzerland, and Austria were contacted. The
LES is directed at intellectual property management in general, and only one of
its numerous committees addresses out-licensing. Accordingly, it includes mem-
bers from firms that actively license out technology and members from firms
that are relatively passive in this regard. To address a representative sample of
medium-sized and large industrial firms, all industrial companies ranked among
the 500 largest firms in Germany, among the 100 largest firms in Switzerland
and among the 100 largest firms in Austria based on revenues were additionally
considered. Due to the focus on industrial companies and a considerable overlap
between the LES member firms and the top 500 firms in Germany and the top
100 firms in Switzerland and Austria, a total number of 412 companies could be
identified as potential participants.
A profile of the final sample of 135 firms shows a reasonable spread
across industries: automotive/machinery (48%), chemicals/pharmaceuticals
(32%), electronics/semiconductors (20%). With an average number of employ-
ees of 15,322 and average revenues of €4,019 million, the companies in the
sample are relatively large. On average, the automotive/machinery firms have
15,692 employees and revenues of €3,497 million. The chemical/pharmaceutical
firms have an average of 11,207 employees and revenues of €3,820 million. The
electronic/semiconductor companies have 21,506 employees and revenues of
€5,768 million on average. Comparing the firms in the different industrial sec-
tors regarding these variables does not lead to significant differences according
to the Kruskal-Wallis test based on grouped medians. Thus, the results are not
primarily determined by industry differences in firm size. With regard to the
firms’ country of origin, 92 (= 68%) of the companies are based in Germany, 28
(= 21%) have their headquarters in Switzerland, whereas the remaining 15 (=
11%) are based in Austria. A t-test for non-response bias and for a bias from LES
membership showed no significant differences regarding various variables, such
as firm size.

Data Collection and Measures

Data collection was undertaken via questionnaires, which were adminis-
tered in English. The importance of the drivers of technology licensing was rated on
the following 7-point scales from “no importance at all” (= 1) to “very high

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 The Drivers of Technology Licensing: An Industry Comparison

TABLE 1. Impact of Drivers of Technology Licensing

Statistical Analyses Linear Regression Analysis Ordered Logit Analysis

Dependent Variables Licensing Revenues Relative Licensing Performance
Control Variables
Revenues .13d (.03) .04c (.01)
R&D Intensity .04 (.04) –.01 (.02)
Chemicals/Pharmaceuticals 1.05 (.89) –.22 (.26)
Electronics/Semiconductors .71 (.85) –.42a (.30)
a
Austria/Switzerland –.78 (.58) .44b (.24)
Drivers
Importance Monetary Drivers .37c (.12) .15c (.06)
Importance Strategic Driverse .26 (.24) .23c (.11)
2
Pseudo R (Nagelkerke) .37 —
d
Chi-square 48.88 —
R2 — .20
R2 Adjusted — .15
F — 4.46d

Notes: a. p < .1 b. p < .05 c. p < .01 d. p < .001

e. Mean of importance of strategic objectives; standard errors in parentheses

importance” (= 7): “Generating licensing revenues”; “Setting industry

standards”; “Guaranteeing freedom to operate (e.g., by means of cross-licens-
ing)”; “Gaining access to external knowledge (e.g., by means of cross-licensing)”;
“Realizing foreign market entry”; “Selling additional products and/or services”;
“Realizing learning effects (e.g., by means of a grant-back clause in a licensing
agreement)”; “Enhancing the firm’s reputation”; “Strengthening the firm’s net-
works”; “Guaranteeing technological leadership”; “Fulfilling legal conditions”.
Due to the high confidentiality of licensing revenues in most firms, these
revenues were measured in the following five categories: €0-5 million, €5-20
million, €20-50 million, €50-100 million, and over €100 million. For calculating
the percentage of licensing revenues to overall revenues, the means of these
categories were used for the first four categories. For the fifth category (€ over
100 million), €250 million were set as an appropriate value. The variable relative
licensing performance was measured using three items pertaining to a firm’s licens-
ing performance relative to its direct competitors. Thus, it refers to the key infor-
mants’ perceptions of relative performance. It included the following 7-point
scales from “strongly disagree” (= 1) to “strongly agree” (= 7): “In relation to our
direct competitors, we are successful in the licensing activities”; “Our licensing
revenues are considerably higher than the licensing revenues of our direct com-
petitors”; “We use licensing more successfully for strategic objectives than our
direct competitors.” The average of these three success indicators was calculated

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 The Drivers of Technology Licensing: An Industry Comparison

TABLE 2. Absolute Importance of Drivers of Technology Licensing

Generating Fulfill. Legal Realizing Selling add. Setting

revenues conditions market entry products standards

Sample Mean value 3.72 2.67 4.21 4.07 3.64

(n=135) Grouped median 3.60 2.06 4.52 4.24 3.68
Auto./Machin. Mean value 3.51 2.43 4.22 4.14 3.88
(n=65) Grouped median 3.32 1.88 4.57 4.32 4.07
Chem./Pharma. Mean value 4.47 3.30 4.49 4.60 3.28
(n=43) Grouped median 4.56 2.67 4.71 4.68 3.00
Elec./Semic. Mean value 3.04 2.26 3.74 3.04 3.63
(n=27) Grouped median 2.29 1.88 3.86 2.78 4.00
Kruskal-Wallis significance .005 .051 .302 .002 .252

TABLE 3. Relative Importance of Drivers of Technology Licensing

Generating Fulfill. Legal Realizing Selling add. Setting

revenues conditions market entry products standards

Sample Mean value 1.08 .75 1.24 1.22 1.05

(n=135) Grouped median 1.00 .63 1.17 1.13 1.06
Auto./Machin. Mean value 1.05 .69 1.27 1.28 1.15
(n=65) Grouped median .94 .57 1.17 1.26 1.14
Chem./Pharma. Mean value 1.19 .84 1.23 1.27 .85
(n=43) Grouped median 1.12 .67 1.19 1.24 .74
Elec./Semic. Mean value .99 .73 1.18 .96 1.14
(n=27) Grouped median .67 .61 1.12 .86 1.10
Kruskal-Wallis significance .081 .194 .870 .027 .010

TABLE 4. Managerial Consequences of Drivers of Technology Licensing

Average
Generating strat. Formalized Systematic
revenues drivers strategy process

Sample Mean value 3.72 3.98 2.99 2.81

(n=135) Grouped median 3.60 4.11 2.72 2.27
Auto./Machin. Mean value 3.51 3.96 2.66 2.31
(n=65) Grouped median 3.32 4.07 2.44 1.91
Chem./Pharma. Mean value 4.47 4.26 3.56 3.74
(n=43) Grouped median 4.56 4.28 3.80 3.69
Elec./Semic. Mean value 3.04 3.58 2.89 2.56
(n=27) Grouped median 2.29 3.67 2.46 1.65
Kruskal-Wallis significance .005 .064 .051 .000

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 The Drivers of Technology Licensing: An Industry Comparison

TABLE 2. Absolute Importance of Drivers of Technology Licensing (continued)

Freedom Access to Ens. techn. Learning Enhancing Strengthen Average

to operate knowledge leadership effects reputation networks strat. drivers

5.01 4.33 4.10 3.11 3.74 3.63 3.98

5.28 4.47 4.35 3.00 3.59 3.67 4.11
4.92 3.97 4.03 4.14 3.80 3.55 3.96
5.21 4.15 4.19 4.32 3.61 3.60 4.07
5.09 5.00 4.60 4.60 4.05 4.09 4.26
5.33 5.14 5.05 4.68 3.93 4.40 4.28
5.07 4.11 3.48 3.04 3.11 3.07 3.58
5.43 4.38 3.38 2.78 2.91 2.91 3.67
.835 .005 .078 .860 .116 .067 .064

TABLE 3. Relative Importance of Drivers of Technology Licensing (continued)

Freedom to Access to Ens. techn. Learning Enhancing Strengthen Average

operate knowledge leadership effects reputation networks strat. drivers

1.48 1.26 1.17 .88 1.06 1.03 1.15

1.41 1.25 1.19 .84 1.08 1.04 1.15
1.47 1.16 1.15 .92 1.11 1.04 1.17
1.41 1.20 1.13 .92 1.11 1.07 1.16
1.38 1.38 1.24 .79 1.04 1.05 1.14
1.35 1.31 1.29 .73 1.10 1.08 1.13
1.67 1.30 1.10 .94 .97 .98 1.14
1.58 1.29 1.07 .92 .94 .92 1.15
.180 .055 .493 .173 .445 .643 .114

TABLE 4. Managerial Consequences of Drivers of Technology Licensing (continued)

Number of Existence of
dedicated dedicated Relative Unrealized Unrealized
licensing licensing Licensing licensing monetary strategic
employees function revenues performance opportunities opportunities

2.71 0.22 1.51 3.48 3.73 3.77

0.85 0.22 1.31 3.72 3.93 3.95
1.42 0.08 1.31 3.59 3.63 3.63
0.51 0.08 1.25 3.84 3.68 3.60
4.38 0.45 1.77 3.56 4.02 4.12
2.55 0.45 1.41 3.69 4.26 4.35
3.19 0.22 1.63 3.48 3.52 3.56
0.82 0.22 1.32 3.72 3.78 3.63
.000 .000 .464 .088 .364 .279

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 The Drivers of Technology Licensing: An Industry Comparison

and used in the statistical analyses. This variable takes into account strategic
aspects in addition to the monetary dimension.
Some other variables have been measured on 7-point scales from
“strongly disagree” (= 1) to “strongly agree” (= 7), including formalized strategy
(“There is a formalized strategy for the technology licensing activities”), systematic
process (“A systematic process has been established for carrying out the technol-
ogy licensing activities”), unrealized monetary opportunities (“Our company has
great monetary technology licensing potentials that have not yet been realized”),
and unrealized strategic opportunities (“Our company has great strategic technology
licensing potentials that have not yet been realized”).
The remaining variables (i.e., R&D intensity, revenues, and number of
dedicated licensing employees) have been measured directly. For the existence
of a dedicated licensing function, dummy variables have been included (1 =
existence of a dedicated function; 0 = non-existence of a dedicated function).
Similarly, dummies have been used for the industry variables (1 = pertaining to
this industry; 0 = not pertaining to this industry). For the firms’ country of ori-
gin, we could not include dummy variables for Austria and Switzerland because
ordered logit analyses fail to converge if the number of firms in one category is
too small. Therefore, these categories were combined into one dummy variable
(1 = headquarters in one of these countries; 0 = headquarters not in these coun-
tries). As the licensing revenues were measured on an ordinal scale, we could
not use OLS regressions in the analysis with this variable. Since OLS analysis can
provide misleading results in this case, we applied ordered logit analysis. In the
analysis of relative licensing performance, we used a linear OLS regression
model.

Notes
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