No. 4. The Value of Intellectual Property in Government Procurement Auctions

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The intellectual property (IP) stakes are high, for “if government holds the IP rights too tightly, exercise of power can damage industry’s incentives for innovation, potentially limiting the flow of those innovations to the military.” On the other hand, if the government fails to leverage its rights, it can leave money on the table in follow-on awards for the same materiel. 

Where the government owns the IP rights to their designs, even sole-source incumbents might be expected to use limit-pricing—maintaining lower margins than expected—to discourage further competitions, maintaining at least some of that margin.  

To test this proposition, author James Hasik, who has been studying global security challenges and the economic enterprises that provide the tools to address them for decades, undertakes a focused comparison of two recent programs by Oshkosh Corporation for military, medium-weight trucks: the Family of Medium Tactical Vehicles (FMTV) for the US Army and the Medium Tactical Vehicle Replacement (MTVR) for the US Marine Corps. 

His findings suggest the opposite: prices can rise sharply after competitively awarded contracts expire, whether the government owns the IP rights or not. Thus, securing advantageous pricing over the long-term through IP rights requires a credible threat by government to move away from sole-source, follow-on awards. 

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