Fees versus Royalties under Partial Cross Ownership

This paper studies an independent patent-holder's licensing of a process innovation to a Cournot duopoly characterized by partial cross ownership. We find that royalty licensing is preferred by the patentee when the degree of cross ownership is high, whereas fixed fee licensing is preferred when the degree of cross ownership is low. When the degree of cross ownership is in the intermediate range, the superiority of fixed fee and royalty licensing depends on the magnitude of the innovations.