Intellecutal Property Rights and Cannibalization in Information Technology Outsourcing Contracts

This paper examines the question of how intellectual property rights in the software created during information technology outsourcing relationships should be divided. This paper expands on the property rights approach developed by Grossman, Hart, and Moore by recognizing that, with respect to software, it is possible to separate excludability rights from usability rights. These rights are modeled and the contractually optimal distribution is determined. This model is then modified to account for the possibility of cannibalization of the client's benefit when multiple others are allowed use of the software. The results show that the best contractual structure depends strongly on the environment.

[1]  W. Dugger.  The Economic Institutions of Capitalism , 1987 .

[2]  Subhasish Dasgupta.  Electronic Contracting in Online Stock Trading , 1998, Electron. Mark..

[3]  Eric Walden,et al.  Flexibility and Cost in Information Technology Outsourcing: Balancing Opposing Goals , 2003, AMCIS.

[4]  Jean Tirole,et al.  Incomplete contracts: Where do we stand? , 1999 .

[5]  Oliver Hart,et al.  Foundations of Incomplete Contracts , 1998 .

[6]  Robert J. Kauffman,et al.  Economics and Electronic Commerce: Survey and Directions for Research , 2001, Int. J. Electron. Commer..

[7]  O. Hart,et al.  Property Rights and the Nature of the Firm , 1988, Journal of Political Economy.

[8]  Barrie R. Nault,et al.  Ownership and Investment in Electronic Networks , 1996, Inf. Syst. Res..

[9]  J. Barthélemy.  The Hidden Costs of IT Outsourcing , 2001 .

[10]  R. Coase.  The Institutional Structure of Production , 1992 .

[11]  J. Bakos,et al.  From vendors to partners: Information technology and incomplete contracts in buyer‐supplier relationships , 1993 .

[12]  Anthony DiRomualdo,et al.  Strategic Intent for IT Outsourcing , 1998 .

[13]  Eric Maskin,et al.  Two Remarks on the Property-Rights Literature , 1999 .

[14]  O. Williamson,et al.  Markets and Hierarchies: Analysis and Antitrust Implications. , 1977 .

[15]  Hal R. Varian,et al.  Information rules - a strategic guide to the network economy , 1999 .

[16]  Erik Brynjolfsson,et al.  Information assets, technology, and organization , 1994 .

[17]  R. Merges,et al.  The Control of Technology Alliances: An Empirical Analysis of the Biotechnology Industry , 2003 .

[18]  Raymond A. Patterson,et al.  Information technology, contract completeness, and buyer-supplier relationships , 2000 .

[19]  Bengt Holmstrom,et al.  The Theory of Contracts , 1986 .

[20]  Francine Lafontaine,et al.  Double-Sided Moral Hazard and the Nature of Share Contracts , 1995 .

[21]  T. Das,et al.  Between Trust and Control: Developing Confidence in Partner Cooperation in Alliances , 1998 .

[22]  Cynthia Mathis Beath,et al.  Hierarchical elements in software contracts , 1993 .

[23]  Erik Brynjolfsson,et al.  Information technology, incentives and the optimal number of suppliers , 1993, Proceedings of ELECTRO '94.

[24]  Eric Maskin,et al.  Unforeseen Contingencies and Incomplete Contracts , 1999 .

[25]  Sanford J. Grossman,et al.  The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration , 1986 .

[26]  Seungjin Whang,et al.  Contracting for Software Development , 1992 .

[27]  Ilya Segal,et al.  Complexity and Renegotiation: A Foundation for Incomplete Contracts , 1999 .

[28]  Paul R. Milgrom,et al.  Multitask Principal–Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design , 1991 .

[29]  H. Demsetz,et al.  The Property Right Paradigm , 1973, The Journal of Economic History.

[30]  Sandy D. Jap.  “Pie Sharing” in Complex Collaboration Contexts , 2001 .

[31]  Lorin M. Hitt,et al.  Vendor Screening in Information Technology Contracting With a Pilot Project , 2004, J. Organ. Comput. Electron. Commer..

[32]  Jan B. Heide,et al.  The Role of Dependence Balancing in Safeguarding Transaction-Specific Assets in Conventional Channels , 1988 .

[33]  R. Hirschheim,et al.  Information systems outsourcing : myths, metaphors, and realities , 1993 .

[34]  R. Coase.  The Nature of the Firm , 1937 .

[35]  O. Hart,et al.  Incomplete Contracts and Renegotiation , 1988 .