Abstract: Licensing is often practised by owners of intellectual capital in particular, when they do not own all the relevant complementary assets. To preserve its returns from innovation, the firm owning intellectual property will find it necessary to place restrictions on how the intellectual property is used. Depending on the strength of the appropriability regime and the intellectual property rights, firms can engage in licensing agreements. Licensing usually leads to faster and more complete diffusion of innovations and allows the innovation to be used in markets different than that of the innovator.

Keywords: appropriability, complementary assets, firms, innovation, intellectual property, licensing, markets,