Patent Pools and Product Development: Perfect Complements Revisited (original) (raw)

Adverse Effects of Patent Pooling on Product Development and Commercialization

B E Journal of Theoretical Economics, 2014

The conventional wisdom is that the formation of patent pools is welfare enhancing when patents are complementary, since the pool avoids a double-marginalization problem associated with independent licensing. This conventional wisdom relies on the effects that pooling has on downstream prices. However, it does not account for the potentially significant role of the effect of pooling on downstream innovation. The focus of this paper is on downstream product development and commercialization on the basis of perfectly complementary patents. We consider development technologies that entail spillovers between rivals, and assume that final demand products are imperfect substitutes. When pool formation facilitates information sharing and either increases spillovers in development or decreases the degree of product differentiation, patent pools can adversely affect welfare by reducing the incentives towards product development and product market competition-even with perfectly complementary patents. The analysis modifies and even negates the conventional wisdom for some settings and suggests why patent pools are uncommon in science-based industries such as biotech and pharmaceuticals that are characterized by tacit knowledge and incomplete patents.

Adverse Effects of Patent Pools on Product Development and Commercialization

2011

Abstract: The conventional wisdom is that the formation of patent pools is welfare enhancing when patents are complementary, since the pool avoids a double-marginalization problem associated with independent licensing. This conventional wisdom relies on the effects that pooling has on downstream prices. However, it does not account for the potentially significant role of the effect of pooling on innovation.

Patent pools, litigation, and innovation

The RAND Journal of Economics, 2015

This paper analyzes patent pools and their effects on innovation incentives. It is shown that the pro-competitive effects of patent pools for complementary patents naturally extend for dynamic innovation incentives. However, this simple conclusion may not hold if we entertain the possibility that patents are probabilistic and can be invalidated in court. In such a case, the licensing fees reflect the strength of patents. Patent pools of complementary patents can be used to discourage litigation by depriving potential licensees of the ability to selectively challenge patents and making them committed to a proposition of all-or-nothing in patent litigation. We show that if patents are sufficiently weak, patent pools with complementary patents reduce social welfare as they charge higher licensing fees and chill subsequent innovation incentives.

Patent Pools and Cross-Licensing in the Shadow of Patent Litigation*

International Economic Review, 2000

This paper develops a framework to analyze the incentives to form a patent pool or engage in cross-licensing arrangements in the presence of uncertainty about the validity and coverage of patents that makes disputes inevitable. It analyzes the private incentives to litigate and compares them with the social incentives. It shows that pooling arrangements can have the effect of sheltering invalid patents from challenges. This result has an antitrust implication that patent pools should not be permitted until after patentees have challenged the validity of each other's patents if litigation costs are not too large.

Do Patent Pools Encourage Innovation? Evidence from 20 U.S. Industries under the New Deal

2012

Patent pools, which allow competing firms to combine their patents, have emerged as a prominent mechanism to resolve litigation when multiple firms own patents for the same technology. This paper takes advantage of a window of regulatory tolerance under the New Deal to investigate the effects of pools on innovation within 20 industries. Difference-indifferences regressions imply a 16 percent decline in patenting in response to the creation of a pool. This decline is driven by technology fields in which a pool combined patents for substitute technologies by competing firms, suggesting that unregulated pools may discourage innovation by weakening competition to improve substitutes.

Effects Of Patent Pools On Innovation Investment Ex Ante Perspectives

Journal of Business & Economics Research (JBER), 2011

Recently Patent Pooling has a fast growing interest as a good alternative means to decrease transaction costs between IPRs owners and promote technology commercialization and diffusion. In this paper we attempt to shed light on the effects of patent pooling on the ex-ante innovation investment or incentive using the game theoretical economic model. We generalize the model by including many vertical integrated firms, research laboratories, and specialized manufacturing firms. Main results of this paper are: 1) Patent Pools can affect on the innovation incentives of vertically integrated firms(I-firms) and of research laboratories(R-firms) differently, and the effect depends on the number of I-firms owning essential patents and the number of specially manufacturing firms(M-firms). But in the presence of many I-firms owning essential patents, the instruction of patent pooling increases I-firms’ ex-ante innovation incentive or investments with independence of M-firms. 2) There is stra...

Patent Pools, Competition, and Innovation—Evidence from 20 US Industries under the New Deal

Journal of Law, Economics, and Organization, 2015

Patent pools, which allow competing firms to combine their patents as if they are a single firm, have become a prominent mechanism to address problems with the current patent system. Pools are expected to encourage innovation by limiting litigation risks for pool members and by lowering transaction costs and license fees for outside firms. But pools may also have important anti-competitive effects, as they encourage cooperation among competing firms. Today and nearly always since the Sherman Act in 1890, antitrust regulation is in place to prevent such anti-competitive effects, making it impossible to observe what would happen if pools were left free reign. New Deal policies in the 1930s, which aimed to encourage economic recovery, relaxed antitrust regulation and allowed anticompetitive pools to form. This paper examines the effects of such pools on innovation. Difference-indifference estimates that compare changes in patent applications in pool technologies with a control group of related technologies in the same industry indicate a 16 percent decline in innovation after the formation of a pool. This decline is strongest for technologies that pool members competed to improve before the creation of a pool.

Do patent pools encourage innovation? Evidence from the 19th-century sewing machine industry

2010

Patent pools, which allow competing firms to combine their patents, have emerged as a prominent mechanism to resolve litigation when multiple firms own patents for the same technology. This paper takes advantage of a window of regulatory tolerance under the New Deal to investigate the effects of pools on innovation within 20 industries. Difference-indifferences regressions imply a 16 percent decline in patenting in response to the creation of a pool. This decline is driven by technology fields in which a pool combined patents for substitute technologies by competing firms, suggesting that unregulated pools may discourage innovation by weakening competition to improve substitutes.

Patent Pools: Licensing Strategies in the Absence of Regulation

SSRN Electronic Journal, 2012

Patent pools allow competing firms to combine their patents and license them as a package to outside firms. Regulators today favor pools that license their patents freely to outside firms, making it difficult to observe the unconstrained licensing strategies of patent pools. This paper takes advantage of a unique period of regulatory tolerance during the New Deal to investigate the unconstrained licensing decisions of pools. Archival evidence suggests that-in the absence of regulation-pools may not choose to license their technologies. Eleven of 20 pools that formed between 1930 and 1938 did not issue any licenses to outside firms. Three pools granted one, two, and three licenses, respectively, to resolve litigation. Six pools issued between 9 and 185 licenses. Archival evidence suggests that these pools used licensing as a means to limit competition with substitute technologies.

On the Challenges Facing Patent Pooling in Biotechnology

SSRN Electronic Journal, 2013

The role of patent law and patent practice especially in biotech has gained considerable attention of late as there are concerns that innovative efforts are stifled rather than fostered by intellectual property in the area. In this article, the authors survey some of the difficulties encountered in biotech when it comes to innovation and discuss aspects that touch on the efficacy of patent pooling to overcome innovation barriers. In light of a review of the related research literature addressing the area, it is found that analogies to other industries and areas of R&D are not insightful. As a result, it is concluded that further empirical research and theoretical modeling of patent pooling in biotechnology are needed in order to establish sound policy recommendations.