Licensee's Innovation Ability,Patent License and Market Structure

Patent license is becoming more and more popular in modern society.This paper analyze the influence of licensee's innovation ability on running royalty and market structure.we find that the patentee and licensees will often agree on a running royalty equal to the full cost savings from the patented technology as long as the licensee has a cost advantage.But the licensee's innovation ability plays an important role on the determination of the running royalty.There exists a threshold value.If the licensee's innovation ability is higher than the threshold value,then the higher the licensee's innovation ability is,the lower the running royalty is.But if the licensee's innovation ability is lower than the threshold value,then it has no effect on the running royalty.