As part of the growing trend towards Open Innovation, the market for technology licensing has experienced a tremendous growth since the beginning of the 1990s. This phenomenon has increased firms’ strategy space, as they now have the choice between internal R&D or internal exploitation on the one hand, and external markets on the other hand. Yet, licensing decisions are particularly difficult to make because they display a high level of technical, commercial and legal uncertainty. Therefore, technology licensing requires highly proficient management. In this regard the real options (RO) framework appears quite promising, because it is adapted to uncertain contexts. Patents have been early recognized by the literature as real options, and we have anecdotal evidence of the use of real options by firms for their licensing decisions. In this article, our objective is to review the patent strategy literature dealing with real options, and lay out a foundation for future research on the application of the RO framework to licensing decisions. We find that the literature has concentrated on the use of real options in the domain of patent rights management, while RO applications to licensing decisions remain limited to specific uses. We therefore systematically investigate whether the various types of licensing-in and licensing-out decisions follow a real options logic. We find that not all licensing decisions can be analogized to real options. Key determinants of the real options logic are in particular the maturity of the licensed technology, and the motivations pursued by the innovator to license-out the technology. We analyze the potential benefits and limits of applying real options to licensing decisions, both from a managerial and academic perspective. Finally, we derive a research agenda from our analysis.
