Patent Pools in Input Markets

Abstract

We show that patent pools formed by owners of perfectly complementary patents are anticompetitive if one of the licensors is integrated with a manufacturer. With vertical integration, the pool serves as coordination device, allowing patent holders to restrict supplies to the product market and share the larger profits of the affiliated manufacturer. These results are robust to entry, the contractual and competitive environments. The imposition of an unbundling and pass-through requirement makes patent pools socially desirable. We also show that this requirement is more effective than a mandated non-discriminatory policy enforcing FRAND commitments in screening anticompetitive pools.

Keywords: Antitrust Policy, Complementary Patents, FRAND, Patent Pools and Joint Marketing Agreements, Vertical Integration and Restraints

JEL Classification: K11, L41, M2