How to license a public licensor's technology to an asymmetric duopoly

We consider the issue of optimal licensing from the viewpoint of an external public licensor maximizing social welfare. Our principal findings are as follows. Fee licensing is always at least as good as royalty licensing for the public licensor. For small innovations, there exists a subgame perfect equilibrium outcome in which the public licensor licenses his patented technology to only an efficient (low-cost) firm maximizing its profit.