Early Commitments Help Patent Pool Formation

22 Pages Posted: 16 Apr 2008 Last revised: 24 Jul 2009

Francois Leveque

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

Yann Ménière

Mines ParisTech

Date Written: April 15, 2008

Abstract

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.

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

JEL Classification: K00, L00

Suggested Citation

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

Francois Leveque

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

60, boulevard Saint Michel
75272 Paris Cedex 06, 75272
France

Yann Ménière (Contact Author)

Mines ParisTech ( email )

60, bd St Michel
Paris, 75006
France

Paper statistics

Downloads
249
Rank
100,308
Abstract Views
1,159