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A literature review on the theory of decision-making: The criteria for distinguishing core versus non-core technology

A literature review on the theory of decision-making: The criteria for distinguishing core versus non-core technology
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    1   Relational Governance: The Normative Element in Technology Licensing Contracts   Ayako Huang and Scott R. Herriott   Maharishi University of Management   Fairfield, Iowa   Accepted for publication in  Journal of Management Policy and Practice 14:4 (2013)   JMPP (ISSN# 1913 - 8067) is indexed by UMI - Proquest - ABI Inform, EBSCOhost, and GoogleScholar and has been affirmed as a scholarly research outlet by AACSB, ACBSP, & IACBE. Abstract   This paper investigates the role of social norms in the governance of licensing deals. In qualitative research using twenty - five executive interviews, we focus on behaviors that precede the amendment of licensing contracts. The paper examines what non - contractual behaviors are, how they relate to social norms, and what purposes social norms serve to facilitate particular exchanges. We then consider how these norms may be validated through social contexts. Evidence from this research demonstrates that behavior under licensing contracts relies to an important extent on social norms. Key words: Licensing, Non - contractual Behavior, Adaptive Behaviors, Social Norms, Contract Amendment    2   Introduction   Technology licensing contracts are relational contracts  —  formal agreements supported by a normative regime under which the parties adapt to unforeseen circumstances and resolve disputes.  Any dispute is handled by a governance structure that includes both the black letter of the contract and the ―case law‖ of precedent -setting behaviors that develop within the relationship. Stewart Macaulay (2003) argues that contract law should recognize the distinction  between the ―paper deal‖ and the ―real deal.‖ The formal contract is the paper deal, whereas the  behavior in practice is the real deal. Law can solve the problems of cooperation by adjudication in any licensing contract, but social norms can be superior to judicial dispute resolution among  people who have close social ties. This fact suggests that, in the case of technology licensing, the exchange relationship might be governed by social norms and rules as well as by the economic elements of the transaction and the letter of the contract. Over the past a few decades, the ―contract‖ has become a central notion in economic studies of organization. However, economists have been missing the point made by sociologists, namely that behavior under a contract might be governed by norms and values that are not codified    in the black letter of the contract. This is ―non - contractual‖ behavior. Economists look only at the contract, at the ―statutory‖ component  of the deal. They miss the potential for some analog of ―case law‖ as a governing mechanism in the relational contract.  Technology licensing contracts are transactions in intellectual property (IP) undertaken to monetize the value of the licensor‘s IP assets. It is therefore essential to analyze how non-contractual behaviors and licensing contracts govern the relationships around licensed technology, how firms can best manage their licensing deals.    3   Analyzing non-contractual behaviors  requires an in - depth understanding   of the process of interaction between the parties as a deal evolves over time. This type of detail can only be obtained through qualitative research. We pursue this idea with a set of specific research questions and a research design aimed at understanding how social norms facilitate the management of technology licensing deals. In this paper, first, we review the empirical research on licensing and show evidence of non - contractual behaviors beyond the licensing contracts. Second, we explain the nature and impact of non - contractual behaviors that are guided by social norms in licensing contracts. Third, we call particular attention to the licensing parties‘ need to validate  their norms through several contexts in which contractual parties recognize how social norms could best support cooperative behaviors.   Relational Theory Applied to Licensing There are two streams of literature that analyze relational contracts: the norms-based approach, and the transaction cost approach. The former focuses on contractual and relational governance (Macneil, 1974; 1978; 1980; 1981), and the latter focuses on contractual and exchange governance (Williamson, 1975; 1985; 1991; 1996; 2000). Contract ual and relational governance is brought out in Macneil‘s research . His findings indicate that any economic exchange involves social elements. The scholars in this line of thought suggest that norms play a very significant role in structuring effective relationships among independent organizations (Heide & John, 1992). Contractual and exchange governance was brought out by Coase (1937) and elaborated by Williamson ( 1979; 1981; 1985). They  focus on defining the organization's boundaries by examining the transaction as the unit of    4   analysis with one assumption: bounded rationality and opportunism in a context of uncertainty drive the form of the relationship. In the late 1990s, scholars bega n to extend Macneil‘s research in order to study the design of contractual mechanisms and the role of the normative regime in governing licensing agreements. Several empirical studies have attempted to construct typologies of technology licensing contracts as interorganizational partnerships (Bessy & Brousseau, 1998; Anand & Khanna, 2000; Brousseau et al. , 2007; Bessy et al. , 2008). Using relational theory, these authors demonstrate how characteristics of these informal relationships mitigate hazards or reduce cost in a technology transfer transaction. Bessy and Brousseau (1998) used both qualitative descriptions and quantitative statistical analysis to examine technology licensing agreements. They found that technology licensing agreements conform to Macnei l‘s (1974) categorization of transactional (neoclassical) and relational contracts. A neoclassical contract is strictly a paper deal, but it allows the parties some flexibility in how they manage mutual interdependence and uncertainties by adjusting to unexpected events through mechanisms such as inflation-indexed price adjustments and the arbitration of disputes. In this regard, licensing agreements tend to be neoclassical or relational depending on whether the parties are arrayed horizontally or vertically in their industry.  Neoclassical contracts are often seen in a ―horizontal‖ license, a licensing agreement that occurs between organizations operating at the same level of production or distribution in the market. Horizontal licenses are likely to be characterized by a great deal of industry knowledge held in common by the participants and by strong technological interdependencies. Such transactions are repetitive and use negotiating processes that create mutual interdependencies. On the other hand, relational elements of contracts are often seen in vertical licensing    5   agreements, meaning licensing agreements where a patent holder is considered an upstream organization that licenses its innovation to some downstream organization for commercializing licensed products in a final market. This type of agreement focuses on a process of technology co - development . The main empirical observation of Bessy and Brousseau‘s study was that different transactions (horizontal or vertical) tended to be managed differently in ways that ultimately affect the features of licensing contracts, and their governance structures may be either neoclassical contractual or relational. In the same vein, Brousseau, Coeurderoy and Chaserant (2007) explore the design of technology licensing agreements by identifying how contractual provisions are influenced by the characteristics of transactions, the institutional environment, and the strategic behavior of agents. They attempt to assess the influences of transaction attributes, institutional frameworks, and strategic considerations on technology licensing agreements. Their analysis is based mainly on the logic of transaction costs economics (TCE), identifying the characteristics of partners, the institutional environment, and the transactions. This logic is related to neoclassical and relational concepts. When licensing transactions are managed by the inclusion of formal governance mechanisms such as payment formulas or safeguards, they exhibit the neoclassical governance structure. The relational contract is characterized by non-contractual behaviors that invoke the relevance of history within the exchange relation and other local and general norms to manage unforeseen situations. In that sense, all contracts on paper are neoclassical. Brousseau, Coeurderoy and Chaserant (2007), however, do not address the interplay between neoclassical and relational mechanisms when contractual parties repeatedly interact. Anand and Khanna (2000) studied the cross-industry (chemicals, industrial machinery
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