Licensing Complementary Patents and Vertical Integration

In this paper we investigate the pricing incentives of IP holders and compare the equilibrium royalty rates charged by vertically integrated IP holders with those of non-integrated IP holders. We show that under many circumstances non-integrated companies are likely to charge lower royalties than their vertically integrated counterparts. The results of this paper are of special relevance for the analysis of competition in CDMA and WCDMA technology licensing, where some IP holders are not vertically integrated into handset and infrastructure manufacturing, while others are.