["The Manchester School, EarlyView. ", "\nABSTRACT\nDrastic innovation, which eliminates rivals via cost advantages, is typically considered unprofitable to license. This paper revisit drastic innovation licensing in a vertical market with backward ownership. Contrary to conventional wisdom, we show that sufficient partial backward ownership makes licensing of drastic innovation profitable: fixed‐fee licensing is preferred when the licensor holds upstream equity, while royalty licensing is optimal when the licensee does.\n"]