We explore the incentives of a downstream firm that sources its input from a vertically integrated firm, to license its patented technology to an external firm, transforming the licensee into a competitor. We find that the incumbent opts for licensing when the supplier provides the input to both the licensor and the licensee. Although licensing reinforces competition, decreases the licensor's cost and can improve the supplier’s position. Furthermore, licensing has a positive impact on consumer surplus and on total welfare.