Do Patent Pools Encourage Innovation? Evidence from the 19th-Century Sewing Machine Industry

Abstract:     
Members of a patent pool agree to use a set of patents as if they were jointly owned by all members and license them as a package to other firms. Regulators favor pools as a means to encourage innovation: Pools are expected to reduce litigation risks for their members and lower license fees and transactions costs for other firms. This paper uses the example of the first patent pool in U.S. history, the Sewing Machine Combination (1856-1877) to perform the first empirical test of the effects of a patent pool on innovation. Contrary to theoretical predictions, the sewing machine pool appears to have discouraged patenting and innovation. The pool’s effect on patenting is especially pronounced for members, which stood to gain most from the pool. Results from patent data are confirmed by data on improvements in sewing speeds, as an alternative, objectively quantifiable measure of innovation. Innovation for both members and outside firms slowed as soon as the pool had been established and resumed only after it had dissolved.

Keywords: Patent Pools, Innovation, Patents, Intellectual Property, Economic History

JEL Classifications: K00, N00, N41, 031

Working Paper Series