To Join or Not to Join: Examining Patent Pool Participation and Rent Sharing Rules

Abstract

Much of the economic analysis on patent pools is theoretical, and nearly all of the models assume that participation is automatic - any firm with a relevant patent and an option to join a patent pool is assumed to do so. But allowing firms to opt out of patent pools is a far more realistic assumption, since all modern patent pools are voluntary. In this paper, we present empirical evidence on participation rates and the factors that drive the decision to join a pool. We also summarize the various profit sharing rules found in modern patent pools, and explore the consequences of the rule chosen. Understanding how these institutions form and grow is especially important since more and more standard setting efforts are leading to patent pools for licensing the intellectual property embedded in standards. We find that vertically integrated firms are more likely to join a patent pool and among those firms that do join, those with relatively symmetric patent contributions to a standard appear more likely to accept numeric patent share rules for dividing royalty earnings.

Keywords: Patent Pools, Standards Setting Organizations, Intellectual Property, Royalty Sharing

JEL Classification: L1, O3, K21, L41