When vicarious learning rewards the originating firm: Exploring the learning opportunities available to the licensor

Why should companies engage in licensing-out their technology? While the conventional wisdom mostly focuses on the financial and commercial benefits available to the licensor, this paper points to the learning opportunities the licensor (the originator) can seize through selling its knowledge to other firms (the recipients). Licensing-out allows the licensor to benefit from the vicarious learning opportunities spelled out by its downstream technology buyers; as a result, engaging in licensing–out is likely to reward the licensor by broadening its knowledge base and foster its innovation capability. We analyze this phenomenon by looking at 245 licensing agreements, registered to the Security Exchange Commission (SEC) between the mid-80s and 2014. We identified all cases in which the initial licensor licensed back a technology from its initial licensee in a second round. We suggest this is the result of the vicarious learning opportunities exploited by the licensees in the first round. Findings show that a role inversion, of the originator/licensor and the recipient/licensee, mainly occurs when the initial licensee is in a technology class less familiar to the licensor, thus reinforcing the evidence of the explorative nature of the learning opportunities offered by licensing-out.