The Rationale for Patent Pools and their Effect on Competition

Abstract: Patent pools are contractual agreements where patent rights are transferred to a common holding company for the purpose of jointly licensing of patent portfolios. They have posed and still constitute one of the major challenges to competition policy. The arrangements have the ability to integrate complementary technology, reduce transaction costs and avoid infringement. At the same time, they constitute collaboration between horizontal competitors with the potential to reduce competition, facilitate cartel behavior and deter research and development. Due to their ability to shelter collusion and extend the grant of patent rights, competition authorities have traditionally been suspicious towards the use of patent pools and concerned of their potential negative effects. The rationale for patent pools is founded in the conflict between competition law and IP law and the discussion of monopoly versus competition. Although monopoly can be valuable to ensuring appropriation of the value of long and expensive research and development, arguably competition can better foster cumulative innovation. This is especially true in progressive and cumulative industry where a patent usually only cover a small part integrated into the final product. Simultaneous competition and cooperation among horizontal competitors can therefore be essential in promoting R&&semicD. Patent pools can under these circumstances prevent transactional failures of bargaining breakdown and holdups, and create efficiencies in the innovation process. In recent years, the attitude of both US and EC competition policy towards patent pools has changed. The change reflected understanding of their effects and the importance of the new economy markets where patent pooling was becoming increasingly common. In 1995 the US Antitrust authorities recognized the procompetitive potential of patent pools and developed a method for analyzing the effects of patent pools. EC competition authorities have been more reluctant to deal specifically with patent pools. They have for a long time been aware of the potentially anticompetitive aspects of multiparty licensing, but recently also been more supportive of their potentially procompetitive benefits. Patent pools can be expected to play an important role in the new economy. Based on the many complementary patents needed for production, recent patent pools have been established with the purpose to support a technology standard where they can promote the assembly of essential patents and rationalize licensing while avoiding anticompetitive concerns. The design of standards and patent pools constitute a new area of competition law and IP law that may require a modified competition policy.