This paper disentangles the tension between cooperation and competition that exists in technology licensing agreements. The grant‐back clause is designed to manage the potential loss of competitive position experienced by the licensor due to learning and follow‐on invention effects of the licensee. The clause may, however, also lead to lowering of the licensee’s incentives to further invest in the licensed technology thereby inducing a loss in overall benefits of technology licensing. We seek to uncover whether the tension between cooperation and competition leads to a grant‐back clause when the licensed technology is core to their business, when they are competing in the same market or when both circumstances are met. We employ a nested logit model in which the decision to include a grant‐back is nested in the decision to be on the demand or supply side of the market for echnology. Our results indicate that the tension swings towards competition rather than ooperation only when both circumstances are met.