What drives technology licenses to contain (non-)legally enforceable contracting?

Previous work in fields such as marketing has documented that the ability to contractually govern exchanges is contingent on a potential to legally enforce contracts. However, some contractual governance is not legally enforceable. Casual observation, particularly in high-tech industries, also suggests that weaving or “braiding” legally enforceable contracting with non-legally enforceable contracting is a preferred practice. An important, but hitherto unanswered, question is why parties devise such “braided” contracts. We draw on the legal concept of “definiteness” to delineate legally enforceable from non-legally enforceable contracting (highly unlikely to be enforced through courts) and we take some steps to understand why exchange parties choose to include these two modes of contracting. Based on the legal literature, which articulates that “braiding” occurs in response to heightened uncertainty, and insights from the extant contract and governance theory, we focus on three different forms of uncertainty (i.e., technological, legal, and partner uncertainties). We show, using a unique longitudinal database of 203 high-tech licensing agreements, and analyzed by multivariate Probit regression, that these uncertainties differentially affect the inclusion of (non-)legally enforceable contracting. Further, we demonstrate that the effects of uncertainties to a licensing exchange are conditional on the licensee's general licensing experience rather than partner-specific experience.