Efficient Patent Pools

Abstract

The paper builds a tractable model of a patent pool, an agreement among patent owners to license a set of their patents to one another or to third parties. It first provides a necessary and sufficient condition for a patent pool to enhance welfare. It shows that requiring pool members to be able to independently license patents matters if and only if the pool is otherwise welfare reducing, a property that allows the antitrust authorities to use this requirement to screen out unattractive pools.

The paper then undertakes a number of extensions. It evaluates the "external test," according to which patents with substitutes should not be included in a pool; analyzes the welfare implications of the reductionin the members' incentives to invent around or challenge the validity of each other's patents; looks at the rationale for the (common) provision of automatic assignment of future related patents to the pool; and, last, studies the intellectual property owners' incentives to form a pool or to cross-license when they themselves are users of the patents in the pool.

Keywords: Intellectual property, open and closed pools, essential patents, independent licensing, bogus patents

JEL Classification: K11, L41, M2