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Early Commitments Help Patent Pool Formation

Francois Leveque

École Nationale Supérieure des Mines de Paris - Centre d'Économie Industrielle (CERNA)

Yann Ménière

Mines ParisTech

April 15, 2008

This paper explores in what circumstances patent owners can be expected to join unilaterally a patent pool. We develop a simple model in which owners of patents reading on a standard grant licences to competing manufacturers. Manufacturers must sink a fixed cost to enter the market for standard compliant products, and are thus exposed to hold up when royalties are set after their entry. We show that the formation of non-cooperative patent pools nearly always fails if it takes place once manufacturers have incurred fixed costs - as is usually the case. By contrast, allowing the formation of patent pools ex ante facilitates the emergence of stable non-cooperative patent pools. Such ex ante pools yield lower prices and higher licensing profits than ex post patent pools would. We discuss the policy implications of these results concerning the credibility of licensing commitments required by standard setting bodies.

Number of Pages in PDF File: 22

Keywords: standard, standard setting, hold up, license, patent pool, commitment, royalty

JEL Classification: K00, L00

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Date posted: April 16, 2008 ; Last revised: July 24, 2009

Suggested Citation

Leveque, Francois and Ménière, Yann, Early Commitments Help Patent Pool Formation (April 15, 2008). Available at SSRN: http://ssrn.com/abstract=1121256 or http://dx.doi.org/10.2139/ssrn.1121256

Contact Information

Francois Leveque
École Nationale Supérieure des Mines de Paris - Centre d'Économie Industrielle (CERNA) ( email )
60, boulevard Saint Michel
75272 Paris Cedex 06, 75272
Yann Ménière (Contact Author)
Mines ParisTech ( email )
60, bd St Michel
Paris, 75006
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