Institution Definition

Refers to granting legal permission to do something, such as produce a product. The license confers a right which the person or firm did not previously possess. Some licenses are granted free of charge, but most require payment. Licenses are legal agreements which may contain restrictions as to how the license is employed. There are two broad cases of licensing which are relevant to competition policy. The first is licenses granted by governments to entrants in specific industries. Licensing systems exist in many communication industries (radio and T.V. broadcasting), professions (doctors) and services (banking, liquor outlets). The terms of licenses vary, but they are often accompanied by various restrictions on the firm. Those restrictions (or regulations) may apply to price, quality or amount of service. Government licensing represents an important barrier to entry in these industries. The second use of licensing is in patent, copyright and trademark cases whereby authority (in the form of a license) is granted by the owner to another party to make, reproduce, buy or sell the item. Copyright, trademark and patent holders may license others to use or produce the good, usually in return for a fixed payment and a royalty rate. In most cases, a patent holder has no preference between licensing and producing his invention himself because he can maximize his return through payment of the licensing fees. However, patent holders are not required to either use or license their technology. Thus, there may be a restriction of technology diffusion which also acts as a barrier to entry. In many countries there is a provision for revoking patents or imposing compulsory licensing when it can be proved that the patent has been abused through non-use or anticompetitive restrictions on licensing. In practice, compulsory licensing is seldom used. © OECD

See FRAND and Compulsory license

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