Economics of Patent Pools When Some (but not all) Patents are Essential

Daniel Quint ()
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Daniel Quint: Stanford University

No 06-028, Discussion Papers from Stanford Institute for Economic Policy Research

Abstract: Patent pools are agreements by multiple patent owners to license certain patents to third parties as a package, and often in conjunction with the development of a technological standard. A key distinction made by regulators—between patents essential to a standard and patents that are suitable substitutes—has not been captured in existing economic models. I present a model of competition among differentiated technologies, in which some patents are essential and some are not. I show that pools of essential patents are Pareto-improving whenever they occur, while pools of nonessential patents can be welfare-negative, even when the included patents are all complements. I discuss conditions under which certain pools are likely to form, the “outsider problem” which makes some pools inefficiently small, and the effects of compulsory individual licensing.

Keywords: patent pool; technology; innovation; essential patent; nonessential patent (search for similar items in EconPapers)
JEL-codes: O34 O38 (search for similar items in EconPapers)
Date: 2006-11
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