Does strong patent protection facilitate international technology transfer? Some evidence from licensing contracts of Japanese firms

This paper examines how patent protection in a technology recipient country affects international technology transfer. A theory suggests that the effect of stronger patent protection on technology transfer is negative if the binding constraint is the imitation profitability and positive if it is the incentive for the licensor to undertake technology transfer. We evaluate these implications by examining the variations of the structure of licensing contracts across countries, based on a newly collected database of licensing contracts by Japanese firms. Our major findings are the following. First, the incidence of know-how licensing, either in the pure or in the bundled form, relative to that of pure patent licensing, declines significantly with the level of foreign patent protection. This indicates a limited role of patents for facilitating know-how licensing. Secondly, the probability and the strength of ownership control by a licensor declines with the level of patent protection, indicating a positive effect of stronger patent protection in expanding the scope of the recipients of technology transfer.