DipartimentodiIMPRESAEMANAGEMENT

CattedradiCOMPETITIONANDHIGH-TECHMARKETS

“PATENTPOOLS:DOTHEYDISRUPTTOTAL

WELFAREANDINNOVATION?”

RELATORECANDIDATO

Prof.DiCiommoMatr.656251

CORRELATORE

Prof.Granieri

ANNOACCADEMICO2015/2016

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Contents:

1.1.Methodologypag.5

1.2.Purposespag.6

2. Introductionpag.7

2.2.DefinitionofPatentspag.14

2.3.Definitionofpatentpoolspag.24

2.4.Natureanddifferentcategoriesofpatentpools

(Cross-licencing;standardsetting;)pag.41

2.5.Themainproblemthepoolshavetosolve:the

tragedyofAnticommons.pag.54

3. Regulationpolicytowardspatentspoolpag.58

3.2. UnitedStatespolicypag.59

3.3. EUpolicypag.63

3.4. Japaneseguidelinepag.73

4. EffectsonCompetitionandInnovationpag.77

4.2. Pro-competitiveeffectspag.78

4.3. Competitiveconcernspag.86

5. Theeconomiceffectsofpatentpoolspag.92

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5.2. Model:players,strategies,payoffpag.95

5.3. Theeffectofpricesontotalwelfarepag.108

5.4. Theevolutiontowardsthepoolofpoolspag.111

5.5. Difficultiesduringtheformationofthepool

pag.116

6. Recentcases(4G-LTE)pag.121

7. Conclusionspag.132

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1.1. Methodology

TheMethodIadoptedinordertostudythepatentpoolsin

EuropeandU.S.,andevenJapan,hasbeenthrough

regulations,decisions,oldandrecentcasesand

mathematicaltoolsadoptedtounderstandtheimpactofthe

patentpoolsonthesocialwelfareandonthetechnology.

ClearlythemainsourcewastheWorldWideWeb,thefocal

topicsIfoundwereintheSISVELwebpage,whichisthe

mainimportantcompanydealingwithPatentPooling.

ThentraditionallibrarysearchwasanothermethodIhave

embracedforlocatingsourcesofinformation.

Sincethisargumentisnotpurelyeconomic,butalsorelated

tothelawandlegalworld,Ihadtoreportsomeregulations

fromtheEUandUSantitrustguidelinesforpatentpool.

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1.2. Purposes

Theattemptofthispaperistounderstandandshowifthe

formationofpoolscouldfacilitateinformationsharingand

couldincreasespilloversintechnologydevelopment,

decreasing,atthesametime,thedegreeofproduct

differentiation.

Otherwise,onthecontrary,ifthepoolcanadverselyaffect

thewelfare,andsothetechnologyprogress,byreducingthe

incentivestowardsproductdevelopmentandproduct

marketcompetition,evenwithperfectlycomplementary

patents.

Theconventionalopinionisthatcreationofpatentpoolsis

welfareenhancingwhenpatentsarecomplementary,but

thisviewdoesnotaccountforthehypotheticallysubstantial

roleoftheeffectofpoolingontheinnovation.

Myanalysiswouldliketoshow,evenwiththeuseof

mathematicaltools,whicharetherealeffectsofthepatents

pool.

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2. Introduction

Modernsocietyisstronglyfocusedontheconceptof

property.

Thereforeisimportanttodifferentiatebetweenthe

existenceregimes,whicharedividedinCommons1,anti-

commons2andsemi-commons3.

Thedistinctionacrosstheseregimesismadeaccordingthe

propertyconcernsthatcouldbeprivate,publicorahybrid

betweenthelasttwo.

Thenatureofthegooddeterminesaseriesofrightsgranted

totheowner,intheprivatepropertycase,ortothestate,in

thepublicpropertycase.

Infactaccordingtotheart.832ofthecivilcode”theowner

hastherightofenjoymentandavailabilityofthepropertyon

1GarrettHardin(1968)popularizedthephrase“tragedyofthecommons”and2TheanticommonswasfirstconceptualizedbyFrankMichelman(1982,6,9;1985,6-7)andlateradaptedandappliedbyMichaelHeller(1998;2008).

3Theterm“semicommons,”wascoinedbyHenrySmith(2000)torefertointeractingprivateandcommonpropertyuses.AdifferentusageappearsinLevmore,2002,(referringtoasystemof“openaccessandrestricteduse”).

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afullandexclusivebasis,withinthelimitsandincompliance

withtheobligationssetoutbylaw”,forthisreasonthe

ownerhastherighttoexcludeothersfromtheuseofthe

property4.Insteadapublicpropertyissubjectedtothe

principleof“no-excludability”.

Aformofprivatepropertycouldprotecttheinnovationsand

therelativeknowledge:theIPR(intellectualproperty

rights).

HoweverthePatent,theTrademarksandtheCopyrights

couldprotecttheInnovations.

InordertoobtainaformofprotectionlikeThePatentis

necessarytoaskforaPatentthatcoverstherelative

knowledge.InitiallytheofficeforthePatentshastoapprove

therequest,andsubsequentlyverifiedifallthe

4SeeStevenJ.Eagle,RegulatoryTakings(1999);DwightMerriam&FrankMeltz,TheTakingsIssue199-128(1999);JanLaitos,LawOfPropertyProtection§5.03[A](1999).DanielMandelkerTouchedUponThisIssueIn§2.09OfHisWidely-UsedAndWell-RegardedTreatise,LandUseLaw(4thEd.1997),AsWellAsInHisCasebookWithRichardA.Cunningham&JohnM.Payne,PlanningAndControlOfLandDevelopment131-32(4thEd.1995),AndInDanielR.Mandelker,NewPropertyRightsAndTheTakingsClause,81MarquetteL.Rev.9(1997).

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requirementsaresatisfied,thenattheendithastoprotect

andwatchoveritsoastoavoidthatotherswill

misappropriateonceithasbeenreleased.

Thisformofprotection,althoughbornasprotectionofthe

owner,couldleadtonegativesituations,liketheexcessive

exploitationoftherightofpropertybynumerousowners

thatcouldcausetheblockageoftheproperty5.

Theknowledge,whenitislockeditscirculation,cannot

contributeanymoretothecreationofthewelfare,andsince

thetechnologiesaremadeupbydifferentPatents,there

couldbeanunderutilizationoftheknowledgeitself.6

Infacttocommercializeaproductwithaspecifictechnology

isnecessarytoownalltheseriesofPatentsthatarenot

alwaysownedbythesamesubjectandthebargainingto

5SeeCristopheGrimpeAndKatrinHussinger,BuildingAndBlocking:TheTwoFacesOfTechnologyAcquisition;DiscussionPaperN°08-042;March20096“Currentempiricalanalysesshowthattherearesmallnumberofindustriesinwhichtechnologicalprocessissignificantlystmulatedbypatentprotection“,WolradPrinzzuWaldeckandPyrmont,MartinJ.Adelman,RobertBrauneis,JosefDrexl,RalphNack,PatentsandtechnologicalprogressinaGlobalizedWorld, SpringerScience&BusinessMedia,20nov2008

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obtainthemcouldbenotonlyveryexpensiveandlong,but

couldleadalsotonodeal.7

Afurtherblockformofknowledgeisthedualknowledge;in

thiscasethroughthepatenttheownerofthepropertydoes

notallowpublishingnewsaboutitthroughscientific

journals(thatrepresentaformoffreemovementof

knowledge).8

Thesenegativeeffects,citedabove,leadtothecreationofa

newdebateaboutthevalidityoftheproperty‘sprotection.

Thereweretwomainhints:accordingtothefirstonethe

existenceoftheintellectualpropertyrightcouldenhancethe

marketofnewideasintechnology,itcouldfacilitatethe

commercializationofnewideasattractinglenders,andit

couldmaketransparencyeconomicallyadvantageous(atthe

7“Bothpioneerandimproverfaceaclassicsituationwherebargainingwilloccasionallybreakdowneventhoughtheycouldbothrealizesubstantialgainsfromagreement”,RobertP.Merges,ContractingintoLiabilityRules:InstitutionsSupportingTransactionsinIntellectualPropertyRights,1996,CalifornialawReview

8“Thereissomeevidence,however,thatpatentgrantmayreducetheextentofuseofKnowledge:thecitationratetoascientificarticledescribingadual-purposediscoveryexperiencesamodestdeclineafterpatentrightsaregrantedovertheknowledge”JoshLernerandScottStern;InnovationPolicyandEconomyVolume7;MITPress0-262-10121-1February2007

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contrary,inthepastthecompaniesmanagedtonotshare

theirideasinordertohaveanadvantageovertheir

competitors).

Thesecondoneisbasedonthetragedyofanti-commons9;

accordingtoittherecouldbeanegativeeffectoverthe

technologiesdevelopmentsinthetraditionalfield.

Fromthedebatesomesolvingprinciplesfortheexcessive

fragmentationoftheknowledgehavebeenidentified;the

needtoreducethetransactioncosts,andtheneedtoreduce

thenumberofsubjectsrequirednegotiating.

Inordertoobtainsuchresultsthereisanewpracticeof

licensing,withtheaimofaccomplishthetwoprinciples,

calledPatentPool10.

ThePatentPoolisanentitydifferentfromthe

representativecompanies,whichgathersaseriesofPatents

9“The“tragedyofanticommons”referstothesituationwheretheexistenceofmultiplegatekeepersforacommonresourcecanleadtoanunderutilizationofthatresource”,HellerMichael"TheTragedyoftheAnticommons",HarvardLawReview,(January1998).

10“Apatentpoolisanagreementamongpatentownerstolicenseasetoftheirpatentstooneanotherortothirdparties.”JoshLernerandJeanTirole,EfficientPatentPools,TheAmericanEconomicReview,Vol.94,No.3,June2004

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thataremanagedbyanintermediatefigure,thepatent

pooler.

ThePatentpoolfacilitatestheuseofknowledge,andso

reducestheeffectsofthetragedyofanti-commonsinthe

fieldofintellectualproperty.

Moreoveritestablishesthelicensingagreements,andtheset

ofcompaniesthatarepartofit,usingthemtobeabletoget

theopportunitytotakeadvantageoffragmentsof

knowledgeofothersandearnreturnsfromitspatents.

ItseemsthatthePatentsPoolsarethebestsolutiontosolve

theproblemofthetragedyofanti-commons,butitis

necessarytoperformanempiricalanalysisinorderto

understandifthepoolscanadverselyaffectwelfareby

reducingtheincentivestowardproductdevelopmentsand

productmarketcompetitionoriftheycanbewelfare

enhancing.

Andadditionallythecontroversialpositionoftheantitrust

lawregardingthecompetitionlawenforcementofpatents

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poolscouldseriouslydamagethetechnologydevelopment

assaidinthewordsofSkitolandWu:

“…Today’sruleswarrantfreshthinking:theyaretoorigid

insomerespectsandinadequatelyprotectiveinother

respects.Inshort,soundandeffectiveantitrustpolicy

towardpatentpoolsshouldbeconsideredaworkin

progress;onesizedoesnotfitallpoolsinallmarket

contextsoratallstagesoftheirdevelopment,andthereisa

needformoresensitivitytovariabilityintheircompetitive

effects”.11

11RobertSkitolandLawrenceWu,“Atransatlanticswimthroughpatentpool:keepingantitrustsharksatbay,”estractfromthebook“Onthemerits:CurrentIssuesincompetitionandlawpolicy:LiberAmicorumPeterPlompen”byPaulLugardandLeighHancher, Intersentianv,2005

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2.1. Definitionofthepatents

Patentsarethemostimportantlegaltoolsforprotecting

intellectualpropertyrights12.

Aninventorthroughthepatenthastherighttoexclude

othersfromtheeconomicusageoftheinnovationwithinthe

limits.13

Therearethreetypesofpatents:

12“Formanyyears,economiststipicallyconceptualizedpatentsaswell-definedpropertyrightsgivingtheirownerseitheramonopolyoversomemarketoratleastasignificantcompetitiveadvantageinthemarketduetocontroloveraproductimprovementoralow-costmethodofproduction(Nordhaus,1969;Reinganum,1989).”MarkA.LemleyandCarlShapiro,ProbabilisticPatents,TheJournalofEconomicPerspectivesVol.19,No.2(Spring,2005)

13“TheU.S.SupremeCourthasconsistentlyandadamantlyheldthatpatentsdonotrequirepatenteestouseorcommercializetheirinventions.Rather,patentssimplygrantinventorstherighttoexcludeothersfromusingorproducingtheirinventions.Thatexclusiveright,oncegranted,cannotbetakenawaybecauseofarightholder’sfailuretoworkthepatent.Greatsocietalharmresults,however,whenpatenteesfailtocommercializetheirpatentsordeliberatelyandstrategicallysuppresstechnologiespurelyforfinancialgain.”Neils.Tyler,“Patentnonuseandtechnologysuppression:theuseofcompulsorylicensingtopromoteprogress” University of Pennsylvania Law Review, 2014

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1) Utilitypatents:maybegrantedtoanyonewho

inventsordiscoversanynewandusefulprocess,

machine,articleofmanufacture,orcompositionof

matter,oranynewandusefulimprovementthereof;

2) Designpatents:maybegrantedtoanyonewho

inventsanew,original,andornamentaldesignforan

articleofmanufacture;

3) Plantpatents:maybegrantedtoanyonewho

inventsordiscoversandasexuallyreproducesany

distinctandnewvarietyofplant.(14)

Aninnovation,inordertobepatentable,shouldbeoriginal,

soitmustnotbealreadyinthepublicdomain,andobviously

ithavetobeusefulallowingthesolutionofaparticular

probleminatleastoneapplication.

AccordingtotheU.S.PatentAct.35U.S.C.,enactedby

CongressunderitsConstitutionalgrantofauthorityinorder

14Seehttp://www.uspto.gov/patents-getting-started/general-information-concerning-patents

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tosecurelimitedtimestoinventorstherighttotheir

discoveries;therearefivemainrequirementsfor

patentability:

1) Patentablesubjectmatterrequirement,accordingto

whichthetypeofinventionsthatcouldbeprotected

“arebroadlydefinedasanyprocess,machine,

manufacture,orcompositionofmatteror

improvementthereof.”

Productsofnature,livingornot,andhuman-made

inventionsarethepertinentdifferencesbetween

patentableandunpatentablesubject.

2) Utility,asIsaidbeforetheinventionshouldbe

useful.ThePatentandTrademarkOfficehas

developedguidancefordeterminingtheutility

requirements.ItseemstherearefourkindofUtility:

CredibleUtility“Whereanapplicanthasspecifically

assertedthataninventionhasaparticularutility,

thatassertioncannotsimplybedismissedbyOffice

personnelasbeing“wrong””.

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SpecificUtility“Autilitythatisspecifictothe

subjectmatterclaimed”

SubstantialUtility“Autilitythatdefinesa“real

world”use”.

Well-establishedutility“Aspecific,substantialand

credibleutilitywhichiswellknown,immediately

apparent,orimpliedbythespecification’sdisclosure

ofthepropertiesofamaterial,aloneortakenwiththe

knowledgeofoneskilledart”.

3) Novelty,thatrequirestwodistinctconditions:it

needsthat“theinventionwasnotknownorusedby

othersinthiscountry,orpatentedordescribedina

printedpublicationinthisoranothercountry,priorto

inventionbythepatentapplicant”.Andthestatutory

barstopatentability that “applieswherethe

inventionwasinpublicuseoronsaleinthiscountry,

orpatentedordescribedinaprintedpublicationin

thisoranothercountrymorethanoneyearpriorto

thedateoftheapplicationforaU.S.patent”.

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4) Non-obviousness.Thenon-obviousnesswasadded

bytheCongressinordertotestpatentabilitywith

theenactmentofthePatentActof1952.Thistest

asses: “whetherthesubjectmattersoughttobe

patentedandthepriorartaresuchthatthesubject

matterasawholewouldhavebeenobvioustoa

personhavingordinaryskillintheartatthetimethe

inventionwasmade”.

5) Enablementrequirementsisdirectlyrelativetothe

specification,ordisclosure,whichmustbeincluded

aspartofeverypatentapplication."Thespecification

shallcontainawrittendescriptionoftheinvention,

andofthemannerandprocessofmakingandusingit,

insuchfull,clear,concise,andexacttermsasto

enableanypersonskilledinthearttowhichit

pertains...tomakeandusethesame,andshallset

forththebestmodecontemplatedbytheinventorof

carryingouthisinvention."

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Beyondthelegalprospectivethereisalsoaneconomic

positiveprospectivelinkedtothePatents.

InfactaccordingtoFritzMachlup‘spaper“aneconomic

reviewofpatentsystem”therearefourmaintheories

highlightingtheeconomicadvantagesofpatents15.

Thefirstoneistheinvention-inducementTheorythatsays

patentsprovidesmotivationforusefulinvention,infactit

presumesthatwithoutpatentsprotectiontherewillbeno

invention,andsothatstrongerprotectionwillincreasethe

amountofinvention.

ThesecondtheoryistheDisclosureTheoryaccordingto

whichPatentsenablebroadknowledgeaboutanduseof

inventionsbyinducinginventorstoreleasetheirinventions

whenotherwisetheywouldrelyonsecrecy.

ThethirdoneistheDevelopmentandCommercialization

theory.Thepatentisseenasprovidingtheassurancethatif

thedevelopmentistechnologicalsuccessful,itseconomic

15FritzMachlup,Aneconomicreviewofthepatentsystem,StudycommissionbytheSubcommitteeonPatents,Trademarks,andCopyrightsoftheCommitteeontheJudiciary,U.S.Senate,85thCongress,secondsession.Washington,D.C.,1958.

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rewardswillbeachievable,thusinducingadecisionto

developit.

ThelastoneistheProspectDevelopmentTheory;itproposes

thattheutilityofapatentcomesafteraninitialinvestment

ismade.Sothistheoryassumesthatifaninitialinventionis

availableasinput,avastrageofdevelopmentsmightbe

born.

ButthereisalsothenegativesideoftheCoinregarding

PatentingInnovation.

InthePaper“PatentFailure:Howjudges,bureaucratsand

lawyersputinnovatorsatrisk”,JamesBessenandMichealJ.

Meurershowhowinthesoftwareandtechnologyindustries

therearesomanypatentsthatithasbecomeincreasingly

costlyfortechnologyandsoftwaredeveloperstosearchfor

anddiscoverwhetherproductstheyaimtocreateare

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alreadypatented16.

Actuallyfordevelopersfigureoutifpatentsexistforabstract

productsorsimplyunderstandtheboundariesofseveral

patentsmeansspendingsignificantresourcesandtimein

realizingiftheyinfringesomeexistingpatents.

Furthermoreauthorsbelievethatinthecaseofintellectual

property,evenanattorney’sbestguessattheboundariesof

apatentisnotcertain,becausedefinitivelyitisthecourt

thatdecidewhetherornotonepatentorproductinfringes

onthepre-existingpatents.

Besidestheybelievethatthecurrentsystemfailstooffer

incentiveforinnovation,arguingthattheincreasingcostsof

patentingnewtechnology,includingresearch,development,

16“Propertyrightscanfailwhentheirvalidityisuncertain...Propertyrightscanfailwhenrightsaresohighlyfragmentedthatthecostsofnegotiatingtherightsneededtomakeaninvestmentbecomeprohibitive...Propertycanfailwhenboundaryinformationisnotpubliclyaccessible.”JamesBessenandMichealJ.Meurer,“PatentFailure:HowJudges,Bureaucrats,andLawyersputInnovatorsatRisk”,2008,PrincetonUniversityPress

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andlitigationcosts,discouragesinnovatorsfrominvestingin

creatingproductsandtechnology.Inthiscasethesmallest

companiesareverydisadvantaged,beingnotabletoafford

thecostofobtainingnewpatents(giventhepossibilityof

potentiallitigationrisks).

Infacttheinfringementpenaltymightdiscourage

developers.

Sointheiropinionthepatentsystemshouldbereformed

andadjustedaccordingtotheneedsofthedevelopers.

Intheendnowadaysmanytechnologiesconsistofmultiple

components,butthepatensforeachofthesecomponents

couldbeheldbyanumberofdifferentfirms.Thiswasoneof

thehardestproblemtosolve,becauseifacompanywantsto

usethatspecifiedtechnologyinoneofitsproducts,ithasto

negotiateseparatelywitheachofthesefirmstosetlicencing

terms.

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Thistransactioncouldhardlyimplythatno-onewillbe

entitletousethatparticulartechnology.17

Therefore,thesefirms,ownersofthepatens,jointlyagreeto

poolalltheirrelevantpatents,basicallycreatingone

organisationthatbecomesthecentralpointforlicencingthe

wholetechnology.

17Nordhausidentifiesthetrade-offbetweenstrongincentivestoinventorsthroughlong-livedpatentsandthedeadweightlossfromamonopolydistortioncausedbylong-livedpatents.

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2.2. DefinitionofPatentPool

“Technologypoolsaredefinedasarrangements

wherebytwoormorepartiesassembleapackageof

technologywhichislicensednotonlytocontributorsto

thepoolbutalsotothirdparties.Intermsoftheir

structuretechnologypoolscantaketheformofsimple

arrangementsbetweenalimitednumberofpartiesorof

elaborateorganisationalarrangementswherebythe

organisationofthelicensingofthepooledtechnologiesis

entrustedtoaseparateentity.Inbothcasesthepoolmay

allowlicenseestooperateonthemarketonthebasisofa

singlelicence.”18

Overthepastdecadesanuncountablenumberofpatentsare

born,mostlyinthesoftware,semiconductorsand

biotechnologyfields.

18Seehttp://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.C_.2014.089.01.0003.01.ENGPoint244

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Accordingtotheworldintellectualpropertyorganization,in

the2013,thereweregranted2567900patentsintheentire

world,ofwhich352184inEurope,607710inNorthAmerica

and1497166inAsia.19

Theproliferationofthepatentshavehadadetrimental

effectonthesocialwelfareasitbecomesveryharshlyto

commercializeadvancedtechnologiesmadeupbythousand

ofdifferentpatents.

Theaimofthepatentpool20isthegatheringofallthis

patentsinoneassociationthatcouldrespondtothe

diffusionofintellectualpropertyrights.

ThepoolwasdenotedbyWilliamZ.Ripleyas”theoldest,the

mostcommonandatthesamethemostpopular,modeof

obviatingtheevilsofcompetition”.21

19Seehttp://ipstats.wipo.int/ipstatv2/IpsStatsResultvalue

20“Thenovel“pool-of-pools”isthemostsophisticated.Itaimstofacilitatethemarketadoptionofcomplexproducts.“SimonDenUjil,RudiBekkers,HenkJ.DEVries“ManagingIntellectualPropertyUsingPatentPool:lessonsfromthreegenerationsofpoolsintheOpticalDiscoIndustry”,2013,Californiamangementreviewvol55N°4.

21WilliamZ.Ripley,“Trust,PoolsandCorporations”,Boston,Ginn&Company,1916

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Apatentpoolcouldbedefinedasanagreementamong

multiplepatentholderstoconglomeratetheirpatents.22

OftenPatentpoolsareassociatedwithverycomplex

technologiesthatnecessitatecomplementarypatentsin

ordertooffereffectivetechnicalsolutions.

Poolsrepresentthesourcefortheindustrialbenchmarks

thatsupplyfirmswiththeindispensabletechnologiesto

developcompatibleproductsandservices.

Butobviouslytheycarrywiththemcostsinbuildingitand

negotiatingitsorganizationalstructureandaboveallthe

royalty’rates.

Thosecostsandotherfactors,thatIamgoingtoanalyze

later,influencethechoiceofapatentownertojoinornota

pool.

Inordertobetterunderstandhowapoolworks,itcouldbe

usefultoanalyzeitshistory.

22“APatentpoolisanarrangementinwhich“twoormorepatentownersagreetolicensecertainoftheirpatentstooneanotherand/orthirdparties”.TedJ.Ebersole,MarvinC.Guthrie,andJorgeA.Goldstein“PatentPoolsasaSolutiontotheLicensingProblemsofDiagnosticGenetics”,January2005,IntellectualPropertyandTechnologyLawJournal.

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Butbeforeproceeding,itisimportanttodefineexactlyan

acceptancestandarddefinitionofcross-licensingandpatent

pools,aswillmentionedinthehistory.

“By"cross-licensing,"Imeantheinterchangeofintellectualpropertyrightsbetweentwoormorepersons.By"patentpool,"Imeantheaggregationofintellectualpropertyrightswhicharethesubjectofcrosslicensing,whethertheyaretransferreddirectlybypatenteetolicenseeorthroughsomemedium,suchasajointventure,setupspecificallytoadministerthepatentpool.“23

ThefirstpatentpoolwasborninNorthAmericain1856by

Sewingmachinemanufacturers.

OrlandoB.Potter,lawyerandpresidentoftheGroverand

BakerCompany,proposedtheideaofthePoolinAlbany,

NewYork,duringameetingofmajormanufacturers.

ThroughthismeanGrover,Baker,SingerandWheeler&

Wilsonputanendtomutualaccusationofpatent

infringement,inordertopooltheirpatents.

23SeeJoelI.Klein,AnAddresstotheAmericanIntellectualPropertyLawAssociation,onthesubjectofcrosslicensingandantitrustlaw,(2May1997).

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Thankstothateachmanufacturercouldlicenceallthe

patentsforafeeoffifteendollarspermachine.24,25

Oneoftheprincipalpatentpoolswascreatedinthe

automobilesector.

Thepatentinfringementinthatsectorwasaserious

problem.

In1829GeorgeB.Seldenfiledapatentapplicationfora

vehiclemadebyinternalcombustionengineoperatingon

hydrocarbonfuelcombinedwithbroadlydefinedchassis

components.26

Throughlegalmanoeuvring,hesucceededindelaying

effectivedateforthepatentby16yearsold,when

automobileswereattractingmoreattention.

24journalofEconomicHystory433andGraceRogeersCooper,TheSewingMachine:itsInventionandDevolpment,2nded.,Washington,D.C.,SmithsonianBooks,1977.25“TheunparalleledsuccessofSewingMachineshasinducedseveralfraudulentimitationsofthem”,RyanL.LampeandPetraMoser,”Dothepatentpoolsencourageinnovation?Evidencefromthe19Th-centurySewingmachineindustry”,June2009,NBERWorkingPaperSeries26Seehttp://americanhistory.si.edu/collections/search/object/nmah_1305689

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During1900Selden’sCompanyaccusedTheWintonMotor

CarriageCompanyofCleveland,Ohio(inthatperiodthe

biggestmakerofgasolineintheU.S.),ofPatentinfringement.

Inthe1905apatent-poolingassociationofauto

manufacturingcompaniesdemandedandreceivedroyalties

fromothermanufacturersfortherighttoproduceSelden’s

invention.

ThispoolcalledA.M.A.AutomobileManufacturers

Association,wasmadeupbyseventy-ninecompanies

controllingalmost350patents,growinguntilbecomposed

bytwohundredmembersand547patentsinthe1925,and

overonethousandpatentsby1932.27

27 FordwasactuallyrefusedentryintoAL.AM.Theothermembersclaimedhewasmerelyanassembler-notamanufacturer-ofautomobiles,andthereforeshouldbeexcluded.SeeEdwardD.KENNEDY,TheAutomobileIndustry:TheComingofAgeofCapitalism'sFavoriteChild,NewYork,Reynal&Hitchcock,1941,p.45.Becausehewasnotamember,FordcouldnotusethepatentsontheDyerpatentsfortheslidinggeartransmissionthatwasheldbytheAL.AM.pool.Consequently,heusedtheplanetarytransmissioninhisModelTandearliercars.Asaprecautionarymeasure,tookoutalicensein1905fromthemanwhoclaimedtobeitsinventor.SeeWilliamGREENLEAF,MonopolyonWheels:HenryFordandtheSeldenAutomobilePatent,Detroit,WayneStateUniversityPress,1961,p.243.

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Twootherpoolwerecreatedfortheradioandtheaircraft

patent

BoththetwopatentpoolweremadeduringtheWorldWarI.

Theformerwasrelativetothepatentsforradiotransmitters

andreceiversdetainedbyanuncountablenumberof

companiesincludingBritishMarconi,AmericanMarconi,

GeneralElectric(GE),Westinghouse,AmericanTelephone

andTelegraph(AT&T),LeeDeForestandEdwinArmstrong.

Forradiotoprogressinthefuturewouldrequirethepooling

ofthesepatentsamongeconomiccompetitiverivals.

DuringthefirstWarWorldallthesecompaniespooledtheir

discoveriesinordertodevelopabetterradiosystemthat

couldhelptheUnitedStatesNavythathavealreadytaken

overthecontrolofallthecommercialradiostations.

AttheendoftheWartheU.S.Navychoosetonotbe

anymoreresponsibleforthispatentinfringementlawsuits.

Thissoonleadtopatentproblem,butintheendthesolution

wasfoundthroughacrosslicensingofpatents.Theradio

industrywasdividedupwithAT&T’sWesternElectric

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subsidiarymanufacturingradiotransmitters,GEand

Westinghousemanufacturingradioreceiversorequipment,

andRCAsellingtheradioreceiversandequipment.28

Insteadthelatterwasaboutthemanufacturer’sAircraft

Association.ApoolformedbytheWrightCompanyandthe

CurtissCompany.

Bothcompanieshadblockedthebuildingofnewairplanes,

whichwereneededfortheUnitedStatesthatwasentering

WorldWarI.

FranklinD.Roosveltactedasmediatortopressurethe

industrytoformacross-licensingorganization,theso-called

Manufacturer’sAircraftAssociation.

Allaircraftmanufacturershadtojointheassociation,and

eachmemberwasobligedtopayasmallblanketfee,in

ordertousetheaviation’spatents,foreachairplane

manufactured.

28Seehttps://pronkpapers.wordpress.com/tag/general-electric/

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ThemajorpartofthefeeswouldgototheWright-Martin

andCurtisscompanies,untiltheirrespectivepatents

expire.29

Duringthe1900eveninEuropeseveralimportantpatent

poolsweresigned.ThemostnotableweretheA.E.G.,the

cooperationbetweenSiemensandHalske,andthe

Drahtkonzern,theGermanGas-BurnerCompanyagreement.

Inthe1921,agroupofEuropeanlampmanufacturers

enteredintoacrosslicensingagreement,andwerejoinedby

theAmericanGeneralElectricandtheOsramCompany,

Anothersimilaragreementofcrosslicensingwassignedin

1932,betweenImperialChemicalIndustries,theI.G.

FerbnindustrieA.G.,theNationalFrenchandthreeSwiss

companies.

AftertheWarmanycartelagreementswereundertaken

betweenGermancompaniesandUnitedStatescompanies.

29Seehttp://en.wikipedia.org/wiki/Wright_brothers_patent_war

33

Theleitmotivfortheformationofthepatentpoolsinthose

yearswastoovercometheslowinnovationduetothe

existenceofblockingpatents.

Withtheformationofallthesepoolsemergeddifferent

problems.Manypatentpoolswereborn“asamechanismfor

cartelstoengageincollectivepricesettingoroutput

restrictions”.30

Thecourthadtoimposeappropriatelimitsonsuchabuses

thatweredestroyingmanymarketsandthatwereruined

thesocialwelfare.

ThroughtheShermanAct,thecourtlaiddownsome

guidelines,continuingtomonitorandstrikedownpatent

poolingarrangementsindifferentindustries.

Oneexampleofthisnewpolicywastheabolitionoftheglass

manufacturingpatentpool,theHartford-Empire.

30SeeDorothyGillRaymod,“BenefitsandRisksofPatentPoolingforStandardsSettingOrganizations”,200216Antitrust41,41.

34

Thispoolforcedcompetitorstosellouttothepooland

stipulateaprice-fixingagreement,allowingtheindustryto

maintainhighpricesdespiteimprovementsintechnology.

Duringthe1960stheUnitedStatesDepartmentofJustice

startedtoarticulateitsantitrustpoliciesinordertorepress

hostileandanticompetitivebehaviourscausedbythepatent

licensingagreements.

Alltheabove-citedguidelineswereincludedinthe

publicationbytheDepartmentofJustice“Nine-No-Nos”31,

regardingpatentlicensing.

Afterthepublicationoftheseguidelines,firmsweremore

scepticaltoformpoolsinviewoftheinflexiblelinepolicies

adoptedbytheDoJ.

TheNineNoNOs,ninespecifiedlicensingpracticesthatthe

divisionviewedasanticompetitiverestraintsoftradein

licensingagreements,were:

31SeeBruceB.Wilson,DeputyAssistantAttorneyGen.,RemarksbeforetheFourthNewEnglandAntitrustConference,PatentandKnow-HowLicenseAgreements:FieldofUse,Territorial,PriceandQuantityRestrictions(Nov.6,1970).

35

1.Royaltiesnotreasonablyrelatedtosalesofthe

patentedproducts;

2.Restraintsonlicensees'commerceoutsidethescope

ofthepatent(tie-outs);

3.Requiringthelicenseetopurchaseunpatented

materialsfromthelicensor(tie-ins);

4.Mandatorypackagelicensing;

5.Requiringthelicenseetoassigntothepatentee

patentsthatmaybeissuedtothelicenseeafterthe

licensingarrangementisexecuted(exclusivegrant

backs):

6.Licenseevetopowerovergrantsoffurtherlicenses;

7.Restraintsonsalesofunpatentedproductsmadewith

apatentedprocess;

8.Post-salerestraintsonresale;

36

9.Settingminimumpricesonresaleofthepatent

products.32

Inthe1980stheAntitrustDivisionstartedtoquestiontothe

theoreticalformationoftheNineNo-No’s.

AccordingtothatdivisionoftheDoJtheunconstrained

patentlicensingraisesthevalueofpatentsandencourages

licensingandinnovation.

Theresultsemergedinthe1988intheissuance“Antitrust

EnforcementGuidelinesforInternationalOperations”,

followedinthe1995by“AntitrustGuidelinesforthe

licensingofIntellectualproperty”.

Theformeradoptedapolicyaimedatbalancingthepro-

competitiveeffectsoflicensingagainstpossible

anticompetitiveeffectsinrelatedmarkets.

Thefundamentalprincipleoftheseguidelineswasthatthe

owneroftheIntellectualPropertyrightsisauthorizedto

maximizethemarketvalueofitspatent,but,atthesame32SeeRichardGilbert&CarlShapiro,“AntitrustIssuesinthelicensingofIntellectualProperty:TheNineNo-No’sMeettheNineties”,1997,BrookingspapersonEcon.Activity,Microeconomics

37

time,itdidnotexplainhowapatent’sholdercouldcontrol

demandforitsIntellectualProperty.

Insteadthelatterprovidedthreecoreprinciples:

• Anexplicitrecognitionofthegenerallypro-

competitivenatureoflicensingarrangements;

• Aclearrejectionofanypresumptionthatintellectual

propertynecessarilycreatesmarketpowerinthe

antitrustcontext;and

• Anendorsementofthevalidityofapplyingthesame

generalantitrustapproachtotheanalysisofconduct

involvingintellectualpropertythattheagencies

applytoconductinvolvingotherformsoftangibleor

intangibleproperty.33

Accordingtotheguidelines,patentpoolsaretolerableand

pro-competitivewhentheyintegratecomplementary

33SeeRichardGilbert&CarlShapiro,“AntitrustIssuesinthelicensingofIntellectualProperty:TheNineNo-No’sMeettheNineties”,1997,BrookingspapersonEcon.Activity,Microeconomics

38

technology,reducetransactioncosts,clearblockingpatents,

avoidsinfringementlitigation,andpromotethespreadingof

technology.

Withthedevelopmentofnewtechnologies,thepoolsinthe

1990sre-emerged,probablythemorediscussedandfamous

wastheoneoftheMPEG-2StandardbytheMovingPicture

ExpertsGroupoftheInternationalStandardsOrganization

andtheInternationalElectrotechnicalCommission.

TheMPEG-2poolhasbeenestablishedasagreement

betweenninepatentholderstocombinetwenty-seven

patents,wheretheadministratorisanindependent,external

organizationknowsastheMPEGLicensingAuthority.The

aimofthispoolwastomeettheinternationalstandard

knownasMPEG-2videocompressiontechnology.

Nowadays,thepoolhasoverahundredpatentsand

thousandsoflicenses.TheMPEG-2PatentPortfolioLicense

wascreatedto“provideaservicethatbringsallparties

togethersothattechnicalinnovationscanbemadewidely

39

availableatareasonableprice.Utilizingtheircollaborative

approach,theyhelpmakemarketsforintellectualproperty

thatmaximizeprofitsforintellectualpropertyownersand

makeutilizationofintellectualpropertyaffordablefor

manufacturers,consumersandotherusers”.34

AnotherbigpoolformedinthoseyearswastheDVD-ROM

andDVD-VideoFormats35,suggestedbyPhilips,Sonyand

PioneerandthanmadealongwithHitachi,Matsushita

ElectricIndustrial,TimeWarner,VictorCompanyofJapan

andMitsubishiElectricCorporation.

Theobjectiveofthispoolwastocomplywiththestandards

fortheproductionofDVDsandDVDplayers.

Afterhavingbeenadoptedintheindustrythepoolhas

facilitatedtheacceptanceofproductsusingDVDtechnology.

34Seehttp://www.mpegla.com/main/Pages/About.aspx

35 SimonDenUjil,RudiBekkers,HenkJ.DEVries“ManagingIntellectualPropertyUsingPatentPool:lessonsfromthreegenerationsofpoolsintheOpticalDiscoIndustry”,2013,Californiamangementreviewvol55N°4.

40

Thelastpatentpooltoanalyzeisabouttelecommunications

technologies.ButIprefertotalkaboutthisinthelast

chapterofthisthesis.

Aswehaveseenduringthehistorythebirthofthepoolwas

hamperedbytheDepartmentofJustice,evenifthe

formationofsomestructuralpoolcouldleadtoapotential

benefitsandefficienciesforthetotalwelfare.

Butinmanycasestheanticompetitivebehaviourusedbythe

Companies,joinedintothepool,haddestroyedthe

competitioninthemarket,makingthepricehigherandthe

consumersworseoff.

41

2.3. NatureanddifferentcategoriesofPatensandPatent

Pools

Whetherpatentpoolmaytriggedantitrustexamination

depends,amongthenatureandtheconcernedtechnologies

ofthepatents.

Thenatureofthepooledtechnologiesdifferentiatethe

patentsaccordingtoascomplementaryorsubstitutes,and

inastandardsettingenvironment,asessentialornon-

essential.

Let’sstartwithsubstituteandcomplementarypatents.

Twopatentsareconsideredsubstitutesiftheycover

alternativetechnologiesandareno-blocking,thatmeans

thattheuseofpatentinaparticulartechnologicalfielddoes

notpreventtheuseofanotherpatentinthesamefield

becauseitreliesonatechnologynotcoveredbythefirst

patent.

Thesubstitutepatentsallowtheuseofsometechnologies

coveredbythemwithoutoversteppingtheotherpatents.

42

Definitelysubstitutepatentsarecompetingwitheachother.

AccordingtotheUnitedStatesPatentandTrademarkOffice

substitutepatentsaredefinedas:

“Anapplicationwhichisinessenceaduplicateofaprior

(earlierfiled)applicationbythesameapplicantabandoned

beforethefilingofthesubstitute(laterfiled)application;a

substituteapplicationdoesnotobtainthebenefitofthefiling

dateofthepriorapplication”.36

Insteadacomplementarypatent,asthesamewordsays,

mustbeusedtogetherinordertoproduceaspecificoutput

andarenotsubstituteforeachother.

Intheproductionprocess,complementarypatentsare

necessaryforthedevelopmentofnewtechnologies.

Fromthecompetitionpointofviewisindispensableto

distinguishbetweensubstituteandcomplementarypatents,

becausesubstitutepatentcouldnotbebundledinapool,

36Seehttp://www.uspto.gov/web/offices/pac/mpep/s201.html

43

otherwisethetechnology,betweenthesesubstitutepatents,

wouldbedestroyed.

Insteadcomplementarypatents,evenifbundledinapool,do

notincurintechnologydamage,onthecontraryaccording

totheU.S.andtheEuropeantitrustenforcementthepool

betweencomplementarypatentsispro-competitive.

Forthisreasonalltheantitrustagencieshavetosupervise

thepoolformation,andtheyhavetowatchoverifthepool

willbecomposedbysubstituteorcomplementarypatents.

AnexampleperfectlyinlinewiththispolicywastheSummit

VSVISXcase37,inwhichtheFederalTradeCommission

thoughtthatthepoolcouldrestrictcompetitionandraise

prices.

Thetwocompanieswereworkingontechnologyfor

performinglasereyesurgery,andmanagedtoprotecttheir

ownpatents,thatwerenotavailableinthemarket(Instead

37FederalTradeCommission.[1999],InthematterofSummitTechnology,Inc.andVISX,Inc.DocketNo.9286.

44

ofcompetingeachother).

Obviouslytheresultswerehigherpricesandlimitedchoice

forconsumers.

TheFCFafterhavingexaminedthecase,establishedthatthe

twopatentsweresubstituteandnotcomplementary,

stoppingthepool.38

Howeverthecomplementaritycoulddamagetechnologytoo,

accordingtoThomasD.Jeitschko&NanyunZhang,intheir

paper“AdverseeffectofPatentPoolingonProduct

DevelopmentandCommercialization”,patentpoolmay

discouragefutureinvestmentsinR&Dbyoutsidecompanies,

iftheyincreasethethreatoflitigation.39

ButIamgoingtotalkaboutitlater.

38Seehttps://www.ftc.gov/news-events/press-releases/1998/08/summit-and-visx-settle-ftc-charges-violating-antitrust-laws39SeeThomasD.Jeitschko&NanyunZhang,AdverseEffectsofPatentPoolingonProductDevelopmentandCommercialization ,April2013,Dusseldorfinstituteforcompetitioneconomics

45

Theotherdifferencetopointitoutistheonebetweenthe

essentialpatentsandno-essentialones,whichisstrictly

relatedtothecomplementarityandsubstitutability.

Theessentialpatentsarebynaturecomplementaryandthey

shouldandcouldbeincludedinapool.

Bydefinitionanessentialpatentisapatentthatclaimsan

inventionthatmustbeusedtocomplywithtechnical

standard.40

Sotoconclude,it’snecessarytorecognizethedistinction

betweencomplementaryandsubstitutepatents,andtheone

betweenessentialandnonessential,andapatentpoolwill

beconsideredpro-competitiveifitincludesonly

complementaryoressentialpatentswhereasitwouldbe

judgedtocauseanticompetitiverisksotherwise.

Thisdiscussionmakesarisesomeproblems:40SeeShapiro,Carl,“NavigatingthePatentThicket:CrossLicenses,PatentPools,andStandard-Setting”,forthcomingInnovationPolicyandtheEconomy,VolumeI,MITPress,2001

46

Firstofalltheconceptofessentialityisunclear,inboththe

caseofpatentpoolsoutsidethestandardsandthecaseof

standard-relatedpatentspools.

Thesecondproblemisthedualdefinitionof“anessential

patent”.

Infact,theantitrustcommissionhavetoevaluateexante

andexpost,theessentialityofthepatents,buta‘technically

essential’patentcannotloseitsessentiality,evenifa

competingpatentemerges,aslongasthestandard

specificationremainsunchanged.41

Thethirdproblemisabouttheconceptofcomplementarity,

whichisambiguoustoo,anditisnotwelldefinedbythe

publicauthoritiesineachjurisdiction.

BeforeIhavementionedthestandardcaseofpatentpool,

41SeePeterPlompen,TheNewTechnologyTransferGuidelines(TTG)asAppliedtoPatentPoolsandPatentPoolLicensing:SomeObservationsRegardingtheConceptof“EssentialTechnologies,inEuropeanCompetitionLawAnnual2005:TheInteractionBetweenCompetitionLawAndIntellectualPropertyLaw295,299etseq.(ClausDieter.Ehlermann&IsabelAtanasiueds.,HartPublishing2007).

47

henceitiscompulsorytoclarifythisconcept.

“Atechnicalstandardisanestablishednormorrequirement

inregardtotechnicalsystems.Itisusuallyaformaldocument

thatestablishesuniformengineeringortechnicalcriteria,

methods,processesandpractices.”42

Standardsareessentialinthecreationofnewtechnologies.

IndeedtherelationbetweenstandardsandPatentpoolsis

basedontheevolutionandthedevelopmentofnew

technologies.

AccordingtotheDepartmentofJustice,undertheantitrust

law,thenormstofolloware43:

1. Patentsmustbeclearlyidentifiedandshouldbe

availableforlicensingindividuallyaswellasina

packageaschosenbyapotentiallicensee;

2. Thepatentsinthepoolmustbevalidandmustnot

havebeenexpired;42Seehttp://en.wikipedia.org/wiki/Technical_standard43ThesenormswerepreparedessentiallytorespondtotheMPEGandDVDproposals.

48

3. Limitationtopatentsthataretechnicallyessential

which,bydefinition,arenotcompeting,anduseofan

independentexperttoassesswhetherapatentis

essential;

4. Thepatentpoolshouldhavelimitedduration;

5. Theroyaltiesproposedbythearrangementsshould

bereasonable;

6. Availabilityofworldwidenon-exclusivelicenses;

7. Freedomoflicenseestodevelopandusealternative

patents;

8. Requirementthatlicenseesgrantbacknon-

exclusive,non-discriminatorylicensestousepatents

thatareessentialtocomplywiththetechnology;

9. Thepoolparticipantsmustnotcolludeonprices

outsidethescopeofthepool,e.g.,ondownstream

49

products.44

Thenatureofthepoolpatentisnottheonlyaspectto

analyze;actuallyanotheraspectistheonerelativetothe

differentcategoriesofexistentpool.

ThePatentPoolsareusuallydividedintothreecategories,

dependingontheinter-relationsbetweenthepatentsinthe

pool,sotheirnature.

Thefirstcategoryjoinsallthecompetitivepatents,theones

thatareanalternativetoeachother.Theaimofthispoolis

toharmonizethiskindofpatents.

Thesecondcategorygathersthepatentsrelatedtothesame

technology.Thesepatentsarenotsubstitutingeachother

andthegoalofthesepoolsistomakethepatentsmore

valuable,thereforetheprinciplefollowedisthattheunityis

44SeeRichardJ.Gilbert“AntitrustforPatentPools:AcenturyofPolicyEvolution”2004Stan.Tech.L.Rev.3,1,

50

strength.

Thethirdoneandalsothelastoneisoftenusedto

strengthenblockingpatents.

Atypicalexampleofablockingpatentscenarioisasfollows:

“Aobtainsapatentonanewproduct,suchasanewdrug.

Severalyearslater,BdiscoversanewprocessforusingA’s

drug,andthisdiscoveryconstitutesapatentable

inventionitself(theprocessisnovel,non-obvious,andhas

utility).TheresultingtwopatentsheldbyAandBcovers

overlappingaspectsofthesameinvention:(i)thedrug

and(ii)aparticularprocessforusingthedrug.Acanthus

exerciseherrighttoexcludeBfromusingherpatented

drugincommerciallyexploitinghisnewprocess,

regardlessofB’sinventiveactindiscoveringanewusefor

A’sdrug.Inthissituation,Ahasa“blockingpatent,”

becauseshecanblockB’suseofhisown-patentedprocess.

(BcanalsoexcludeAfromusinghisprocess,butAhasthe

greaterscopeofexclusivityhere,becauseshehasaprior

51

claimintheproduct,whichshecancontinuetouseas

longassheavoidsB’spatentedprocess.)“45

Theblockingpatent’saimistograntthepatentownerthe

righttoexcludeothersfromusinghisdiscoveries46.

Asitwassaidbeforethedistinctionsbetweenthedifferent

poolsisamatteroffact,becausewhilethecomplementary

andtheblockingpoolscouldimprovethetechnologies

development,avoidinglitigations47,atthecontrarytheones

formedbycompetingpatentscouldeliminatealternative,

raisepricesandfinallyleadtoantitrustproblems.

45SeeAdamMossoff“ExclusionandExclusiveUseinPatentLaw”,HarvardJournalofLaw&Technology,Volume22,Number2,Spring2009

46“patentshavemultiplepurposes,withstrategicmotives,suchasblockingcompetitorsandpreventingsuits,usuallybeingamongstthetopmotivationstopatent,rightafterthetraditionalmotiveofprotectinginventionsfromimitations.”Cohen,M.W.,Nelson,RichardR.,Walsh,J.P.ProtectingtheirIntellectualAssets:AppropriabilityConditionsandWhyU.S,.ManufacturingFirmspatent(orNot).NBERWorkingPaperNo.7552,February2000.

47 “Poolsincludingonlypatentswhicharecomplementaryandnecessaryforimplementingatechnologyfurthermoreeliminatewastefulmultiplemargins“ J.LernerandJ.Tirole.Efficientpatentpools.AmericanEconomicReview,94(3):691–711,June2004.

52

Anotherdistinctionistheonebetweenthetwocategoriesof

licensing,whicharecloselyconnectedtothepools.

1. Newly,thecross-licensing48isanagreement

accordingtowhichtwoormorepartiesgranta

licensetoeachotherfortheexploitationofthe

subject-matterclaimedinoneormoreofthepatents

eachowns49.

Itisanalternativemethodtosolvetheproblemof

blockedinnovationscausedbyoverlappingpatent

rights.

Manycompanies,owningoverlappingpatents,in

ordertoachieveaccesstoadditionalpatented

technologylicencetheirones.

48D.Spulberinhis”Innovationeconomics:Theinterplayamongtechnologystandards,competitiveconduct,andeconomicperformance”,JournalofCompetitionLawandEconomics,9(4):777–825,December2013,analyzedthepoolsascross-licensingagreements.

49SeeShapiro,Carl,“NavigatingthePatentThicket:CrossLicenses,PatentPools,andStandardSetting”InnovationPolicyandtheEconomy,MITPress2001,p119etseq.

53

2. Thestandard-setting50isacooperationthatoften

involveshorizontalcompetitorsagreeingoncertain

specificationsoftheproductstheyplantomarket,

implicatingcoreantitrustissuesregardingthe

boundarybetweencooperationandcollusion.51

Manycompanieshaveestablishedstandard

conditionsformanufacturingacertainproduct:

aboveallstandardisationisverycommoninthe

video,communicationsanddataareas.Obviouslythe

patentpoolcouldfixtheproblemofthenegotiation

inthestandardsetting.Infactwithoutapooleach

companyshouldnegotiatetoanuncountablenumber

ofothercompanies,holdingdifferentlicenses,to

developaparticulartechnology.

50RaymondD.G.,”Benefitsandrisksofpatentpoolingforstandard-settingorganisations”,2002

51SeeJosephFarrell,JohnHayes,CarlShapiro,TheresaSullivan,“StandardSetting,Patents,andHold-Up”,AntitrustLawJournalVol.74No.3(2007).Copyright2007AmericanBarAssociation.

54

2.4. Themainproblemthepoolshavetosolve:the

tragedyofAnti-commons.

DuringtheintroductionIhavementionedtheAnti-

commons,sincethetragedyofAnti-commons52isthemain

problemthatthepoolssolve,Iwouldliketoenforcethis

discussion.Thisphenomenonoccurswhenthecoexistence

ofmultiplevetorightscreatesconditionsfortheoptimaluse

ofacommonresource53.Iftheresourceissubjecttoveto

rightsheldbytwoormoreindividuals,eachownerwillbe

encouragedtothreatentheuseofhisrighttoobtainthebest

possibleuseoftheasset.Duringthetransaction,theveto

allowsrequiringthemaximumshareofsurpluscontract;

52“TheAnticommonsIsNotNecessarilyTragic” MichaelA.Heller,“TheTragedyoftheAnticommons:PropertyintheTransitionfromMarxtoMarkets,1998,Harv.L.Rev.111,no.3

53M.A.Heller,TheTragedyoftheAnticommons:PropertyintheTransitionfromMarxtoMarkets,111Harv.L.Rev.621(1998);M.A.Heller-R.S.Eisenberg,CanPatentsDeterInnovation?TheAnticommonsinBiomedicalResearch,280Science698(1998).

55

thiscanpreventthetradingandthepassageofthegoodto

thesubjectwhoevaluatesitmore,withaconsequent

inefficiency.

Theworld“Anti-commons”wascoinedbyFrankIsaac

Michealmaninhisarticle“Ethics,economicsandthelawof

property”,hehasdefinedtheAnti-commonsas“atypeof

propertyinwhichallpartieshaveanexclusiverightoverthe

good,andnoone,therefore,hastheprivilegeofusingthe

propertyunlessauthorizedbyothers."54

InanutshellthetragedyofAnti-commonsisatypeof

coordinationbreakdown,inwhichasingleresourcehas

severalrightsownerswhoprecludeothersformusingit,

frustratingwhatwouldbeasociallyrequiredresult.

Thetragedyofthe“anti-commons”coversarangeof

coordinationfailuressuchas:patentthicketsandsubmarine

patents.

54SeeF.I.Michelman,“Ethics,economics,andthelawofproperty”,24Nomos3(1982)

56

1) Apatentthicket:“anoverlappingsetofpatents

rightsrequiringthatthoseseekingtocommercialize

newtechnologyobtainlicensesformmultiple

patentees.Thepatentthicketisespeciallythorny

whencombinedwiththeriskofholdup,namelythe

dangerthatnewproductswillinadvertentlyinfringe

onpatentsissuedaftertheseproductswere

designed”.55

Sothemainproblemisthatpatentthicketsblock

entrytosomemarketsandaboveallinhibit

innovation.

2) Asubmarinepatent56isapatentwhoseissuanceand

publicationaredeliberatelydeferredbythe

applicantforseveralyears.

55SeeCarlShapiro,“NavigatingthePatentThicket:CrossLicenses,PatentPools,andStandardSetting”,

56See StuartGrahamandDavidMowrey.Submarinesinsoftware?continuationsinussoftwarepatentinginthe1980sand1990s.EconomicsofInnovationandNewTechnology

57

TheUSMr.Kantor, thenewlyelectedRepublican

SenatemajorityfortheGATTUruguayRound

ImplementationAct,definedSubmarinePatentsas

Patentsthatissueafteralongpendencyartificially

maintainedbytheapplicant,andthenusedtohold

toransomindustriesthathavematuredonthebasis

oftechnologyduringsuchprolongedapplication

pendency.

Theirmainproblemisthattheyseemtodonotexist.

58

3. Regulationpolicytowardspatentspool

Thepublicpolicytowardpatentpoolsprogressivelymoved

fromanextremepermissiveapproachintheearlytwentieth

centurytoanabsoluteoppositioninthemiddleofthe

century.

Duringtheninetiestheregulatorauthoritiesfacedthe

discussionaboutpatentpoolinamorefavourablelight.

Indeed,Patentspoolsarenolongertreatedascollusive

agreementsamongpotentialcompetitors,buttheystillraise

anumberofconcernsthathavetobehandledbythe

competitionauthoritiesinordertostrengthentheir

utilizationandtheirutility.

IamgoingtoanalyzetheU.S.DepartmentofJustice

regulations,theEuropeanCommissionguidelinesandthe

JapaneseFairTradeCommission.

59

3.1.UnitedStatesPolicy

In1995theDepartmentofJusticeandtheU.S.FederalTrade

Commissionissuedthe“AntitrustGuidelinesforthelicensing

ofIntellectualProperty”.

Accordingtothisguidelinethecrosslicensingandpooling

arrangementsmay“providepro-competitivebenefits by

integratingcomplementarytechnologies,reducing

transactioncosts,clearingblockingpositions,andavoiding

costlyinfringementlitigation”57.

OneofthekeypointshighlightedbytheGuidelinesisthatin

ordertobeconsideredlawful,apoolofintellectualproperty

rightswithcollectivepricesettingorcoordinatedoutput

restrictions,shouldcontributetoan“efficiency-enhancing

integrationofeconomicactivityamongtheparticipants”58.

Thesecondmainpointisabouthorizontalcompetitors

involvedinacross-licensingagreement.

57Seehttp://www.justice.gov/atr/public/guidelines/0558.htm#t2358Seehttp://www.justice.gov/atr/public/guidelines/0558.htm#t23

60

Iftheeffectofthesettlementistoreducecompetitionamong

entities,theAgencyhastoconsidertheagreementas

unlawfulforthelimitationoftrade.

Thethirdprincipalpointisaboutcompaniesthatwouldlike

tobepartofanalreadyformedpool.

AccordingtotheU.S.guideline“Poolingarrangements

generallyneednotbeopentoallwhowouldliketojoin.

However,exclusionfromcross-licensingandpooling

arrangementsamongpartiesthatcollectivelypossessmarket

powermay,undersomecircumstances,harmcompetition”.59

Thismeansthatanexclusionfromapoolingdoesnothave

anticompetitiveeffectsunlesstheexcludedcompaniescould

notcompeteintherelevantmarketforthegoodincluding

thelicensedtechnologyandatthesametimethepool

membersco-operativelyholdmarketpowerintherelevant

market.

59Seehttp://www.justice.gov/atr/public/guidelines/0558.htm#t23

61

Inthiscasetheagencyisencouragedtointerveneinorderto

limitingtheagreementthatcoulddamagetheefficient

technologydevelopment.

Thelastkeypointisaboutretardinginnovation.

Indeedifthepoolingarrangementdetersanddiscourages

participantsfromengaginginresearchanddevelopment,

theagencywillpromptinterferetoblockit.

Anexampletakenbytheguidelineis“apoolingarrangement

thatrequiresmemberstograntlicensestoeachotherfor

currentandfuturetechnologyatminimalcostmayreducethe

incentivesofitsmemberstoengageinresearchand

developmentbecausemembersofthepoolhavetosharetheir

successfulresearchanddevelopmentandeachofthemembers

canfreerideontheaccomplishmentsofotherpool

members”.60

Theonlyquibblethatmakesitlawfuliswhenithas

precompetitivebenefitsbyexploitingeconomiesofscaleand

60Seehttp://www.justice.gov/atr/public/guidelines/0558.htm#t23

62

integratingcomplementarycapabilitiesofthepool

members.

63

3.2.EUpolicy

InEurope,grantingIntellectualpropertyrightsisstilldone

atanationallevel,forthisreasonitisdifficulttostatethe

interrelationoftheIntellectualpropertyrightand

competitionpolicy.

NowadaystheEuropeanlegislationisgraduallyevolving.

Thisnewlegislationcoverstrademarks,theharmonisation

ofthetermofprotectionofcopyright,thelegalprotectionof

databases,biotechnologyinventionsanddesigns.The

CommissionhasrecentlyadoptedaproposalforaCouncil

RegulationontheCommunityPatent.

Moreover,Art.101oftheTreatyonthefunctioningof

EuropeanUniontocategoriesoftechnologytransfer

agreementsinvolvetheCommissiontorespectnational

systemsofpropertyownershipandArt.30oftheTreaty

provideexclusionfromthefreemovementprovisionsifa

conflictwithnationalIntellectualPropertyRightsemerges.

64

Furthermore,theEuropeanCourtofJusticehasemphasized

theimportanceoftheprinciplesofcompetitionandeven

freemovementinsidetheCommunity,andthenithas

establishedadistinctionbetweenthegrantandexistenceof

theIntellectualPropertyRights,whichcannotbeaffectedby

therulesoffreemovementandcompetitionanditsusage.

Accordingtothecompetitionprovisionofthetreaty,the

IntellectualPropertyRightcannotbeoverruled,indeeda

proprietorshipofanIntellectualPropertyRightgivesthe

ownertherighttolicenseandaskforroyalties.Butthe

EuropeanCourtofJusticeandtheCommissionhavealways

ponderedthattheconditionsoflicensemayfallunderArt.

81and82oftheTreaty.Art.82laydownthattheconditions

ofalicensemightnotdiscriminatebetweenlicenseesand

theroyaltiesshouldnotbedisproportionate.

ThemaindifferencebetweentheU.S.andtheEuropean

approachinthefieldofIntellectualPropertyRightisthatthe

U.S.setsmorerestrictionsonthepossibilitiesthat

65

competitionauthoritiesinterveningagainstagreements

betweennocompetitors.Itconsequentlygivesthelicensor

muchmoreopportunitiestoexploititsIntellectualProperty

Rightwhenthelicensingoccursbetweennocompetitors.

TheEuropeanapproachadmitsthesameintra-brand

limitationsbutpreservesthepossibilityofinterveningwhen

andwhereconsiderednecessary.Categorically,theU.S.

approachismoreconsistentapproachingthelicensing

agreementsbetweencompetitors.

Regardingpatentpools,theEUlawdoesnotcoverexplicitly

thisargument.

ButtheTechnologyTransferRegulationprovidesforablock

exemptionmechanismaccordingtowhichcertain

agreementsareexemptedfromtheapplicationofArticle

101(1)oftheTreatyonthefunctioningoftheEuropean

Unionprovidedthatthemarketsharesoftheinvolved

partiesdoesnotexceed20%andotherrelevantcriteriaare

met.Thus,irrespectiveofthemarketsharesoftheinvolved

66

undertakings,patentpoolsdonotenjoyasafeharbour

treatment.Rather,onlytheTechnologyTransferGuidelines

statementtheanalysisofpatentpoolsunderArticle101(1).

However,individuallicensesgrantedunderapatentpool

arrangementmayfallundertheBlockExemptionandmay

thereforebeexemptedfromtheapplicationofArticle

101(1).61

TheTechnologyTransferGuidelinesrecognizethatpatent

poolsmayhavebothproandanticompetitiveeffects:

ProCompetitiveeffect:

“Technologypoolscanproducepro-competitiveeffects,in

particularbyreducingtransactioncostsandbysettinga

limitoncumulativeroyaltiestoavoiddouble

marginalisation.Thecreationofapoolallowsforone-

stoplicensingofthetechnologiescoveredbythepool.This

isparticularlyimportantinsectorswhereintellectual

61http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2014.093.01.0017.01.ENG

67

propertyrightsareprevalentandlicencesneedtobe

obtainedfromasignificantnumberoflicensorsinorder

tooperateonthemarket.Incaseswherelicenseesreceive

on-goingservicesconcerningtheapplicationofthe

licensedtechnology,jointlicensingandservicingcanlead

tofurthercostreductions.Patentpoolscanalsoplaya

beneficialroleintheimplementationofpro-competitive

standards.”62

AntiCompetitiveeffect:

“Technologypoolsmayalsoberestrictiveofcompetition.

Thecreationofatechnologypoolnecessarilyimpliesjoint

sellingofthepooledtechnologies,whichinthecaseof

poolscomposedsolelyorpredominantlyofsubstitute

technologiesamountstoapricefixingcartel.Moreover,in

additiontoreducingcompetitionbetweentheparties,

technologypoolsmayalso,inparticularwhenthey

supportanindustrystandardorestablishadefacto62http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.C_.2014.089.01.0003.01.ENGpoint245

68

industrystandard,resultinareductionofinnovationby

foreclosingalternativetechnologies.Theexistenceofthe

standardandarelatedtechnologypoolmaymakeitmore

difficultfornewandimprovedtechnologiestoenterthe

market.63

EvenintheEuropeanGuidelineforTechnologyTransfer,a

distinctionbetweencomplementary,substitute,essential

andnon-essentialpatentsismade.

“Thecompetitiverisksandtheefficiencyenhancing

potentialoftechnologypoolsdependtoalargeextenton

therelationshipbetweenthepooledtechnologiesand

theirrelationshipwithtechnologiesoutsidethepool.Two

basicdistinctionsmustbemade,namely(a)between

technologicalcomplementsandtechnologicalsubstitutes

63http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.C_.2014.089.01.0003.01.ENGpoint246

69

and(b)betweenessentialandnon-essential

technologies.”64

Besides,thedefinitionofcomplementaryandsubstituteis:

“Twotechnologiesarecomplementsasopposedto

substituteswhentheyarebothrequiredtoproducethe

productorcarryouttheprocesstowhichthetechnologies

relate.Conversely,twotechnologiesaresubstituteswhen

eithertechnologyallowstheholdertoproducethe

productorcarryouttheprocesstowhichthetechnologies

relate.”65

Accordingtotheguidelinethedistinctionbetween

complementaryandsubstitutetechnologiesis“notclear-cut

inallcases,sincetechnologiesmaybesubstitutesinpartand

complementsinpart.”66

LikeintheAmericanguideline,theproblemthatisstill64http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.C_.2014.089.01.0003.01.ENGpoint25065Seehttp://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.C_.2014.089.01.0003.01.ENGpoint25166Seehttp://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.C_.2014.089.01.0003.01.ENGpoint254

70

unsolvedisthattheimplicationofsubstitutabilityand

complementarityisuncertain,evenbecausemanytimes

technologiesmaybeinpartsubstitutesandinpart

complements.

ButastheUSguidelinelaydown,alsotheEuropean

guidelinesestablishthat“asageneralruletheCommission

considersthattheinclusionofsignificantsubstitute

technologiesinthepoolconstitutesaviolationofArticle

101(1)oftheTreaty”.67

Relativelytoessentialandnoessentialtechnologies,the

guidelineassumed“Atechnologycanbeessentialeither(a)to

produceaparticularproductorcarryoutaparticularprocess

towhichthepooledtechnologiesrelateor(b)toproducesuch

productorcarryoutsuchaprocessinaccordancewitha

67Seehttp://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.C_.2014.089.01.0003.01.ENGpoint255

71

standardwhichincludesthepooledtechnologies.Inthefirst

case,atechnologyisessential(asopposedtonon-essential)if

therearenoviablesubstitutes(bothfromacommercialand

technicalpointofview)forthattechnologyinsideoroutside

thepoolandthetechnologyinquestionconstitutesa

necessarypartofthepackageoftechnologiesforthepurposes

ofproducingtheproduct(s)orcarryingouttheprocess(-es)

towhichthepoolrelates.Inthesecondcase,atechnologyis

essentialifitconstitutesanecessarypart(thatistosay,there

arenoviablesubstitutes)ofthepooledtechnologiesneededto

complywiththestandardsupportedbythepool(standard

essentialtechnologies).Technologiesthatareessentialareby

necessityalsocomplements.Thefactthatatechnologyholder

merelydeclaresthatatechnologyisessentialdoesnotimply

thatsuchatechnologyisessentialaccordingtothecriteria

describedinthispoint.”68

Alsointhiscase,theEuropeanguidelineslavishlyfollows

68Seehttp://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.C_.2014.089.01.0003.01.ENGpoint252

72

theAmericanone.

Itisessentialtohighlightthatthedeterminationwhether

technologiesareessentialandnon-essentialisdynamic.A

technology,evenifinitiallyconsideredessential,could

becomenon-essentialwiththeadvancementofnew

technologies.Consequentlytheanalysis,concernedpatent

pools,isdynamictoo,andforthisreasontheyrequire

ongoingreviewinlightofcompetitionlaw.

73

3.3 Japaneseguideline

The“GuidelinefortheUseofIntellectualPropertyunderthe

AntimonopolyAct”providesguidanceonthecompetitive

analysisofpatentpoolsinJapan.

ThepurposeoftheAntimonopolyActis“promotefairand

freecompetition,stimulatethecreativeinitiativeof

enterprises,encouragebusinessactivity,heightenthelevelof

employmentandactualnationalincome,andtherebypromote

thedemocraticandwholesomedevelopmentofthenational

economyaswellassecuretheinterestsofgeneralconsumers

byprohibitingprivatemonopolization,unreasonablerestraint

oftradeandunfairtradepractices,preventingexcessive

concentrationofeconomicpowerandeliminating

unreasonablerestraintsonproduction,sale,price,technology,

etc.,andallotherunjustrestrictionsonbusinessactivity

74

throughcombinations,agreements,etc.”69

AccordingtotheguidelineofIntellectualproperty,ifthere

willnotbeaviolationoftheAntimonopolyAct,thepatent

poolisconsideredusefulinencouragingtheeffectiveuse

anddevelopmentofnewtechnologies.

Neverthelesspatentpoolsareconsideredanunreasonable

restraintoftradeinfoursituations:

a) Anyconductofinhibitinganyotherpartyfrom

usingthetechnology

b) Anyconductoflicensingotherpartiestousethe

technologywithinalimitedscope

c) Anyconductofimposingrestrictionsonactivities

conductedbyotherpartieslicensedtousethe

technology

d) Whetherthebusinessactivitiesbyentrepreneursare

conductedinsideoroutsideJapan,theviewpoints

69Seehttp://www.jftc.go.jp/en/legislation_gls/amended_ama09/amended_ama15_01.html

75

specifiedintheGuidelinesapply,providedthatthe

activitiesaffecttheJapanesemarket.70

MoreoverthesameGuidelinesprovideguidanceastowhen

patentpoolsrelatingtostandardizationaredeemed

anticompetitive,thefollowingactionsarespecifiedintothe

GuidelineasaviolationoftheAntimonopolyact:

a) Restrictingpricesofnewproductswith

specifications;

b) Restrictingthedevelopmentofalternative

specifications;

c) Unreasonablyextendingthescopeofspecifications;

d) Unreasonableexcludingtechnicalproposalsfrom

competitors;

e) Excludingcompetitorsfromtheactivities.71

70Seehttp://www.jftc.go.jp/en/legislation_gls/imonopoly_guidelines.files/070928_IP_Guideline.pdf71Seehttp://www.jftc.go.jp/en/legislation_gls/imonopoly_guidelines.files/070928_IP_Guideline.pdf

76

Eveninthiscasetheguidelinedifferentiatesbetween

essentialandnon-essentialpatents.Theformeraredefined

asthoserequiredtorealizeandimplementthespecific

technicalapplicationatissue.Competitiveissuearecaused

bynon-essentialpatents,indeedaccordingtotheguideline,

poolsthatonlyconsistofessentialpatentsgenerallydonot

causecompetitiveconcerns,providedthattheassessment

whetherpatentsareessentialisnotarbitraryandshould

thereforebemadebyathirdpartywithtechnicalexpertise.72

Thecaserelatedtothenon-essentialonehastobeanalyzed

bytheauthorityinordertonotbeviolatingthe

Antimonopolyact,inthiscasethepoolmighthavepro-

competitiveeffects.

72Seehttp://www.jftc.go.jp/en/legislation_gls/imonopoly_guidelines.files/070928_IP_Guideline.pdf

77

4.EffectsonCompetitionandInnovation

Theeffectsofpatentpoolsoncompetitionmaybepositive

ornegativeanditisstillsubjecttodebate.

Whilethetheoreticalliterature,aboveall,thepapersby

LernerandTirole,DequiedtandVersaevel,Schimdt,

foreseesapositiveeffectofpoolsoninnovation

encouragements,insteadtherecentempiricalresearch,by

forexampleLampeandMoser,JoshiandNerkar,andFlamm

showsthatthecreationofseveralpoolswasfollowedbya

declineinassociatedinnovationactivities,soithighlighteda

negativeimpactderivedbypool.

78

4.1.Pro-competitiveeffects

Thepositiveeffectsthatresultfromcommunitypatents

(mainlybetweencomplementarypatents)are:production

efficiency,higherincomesandlowercosts,byofferingnew

productsandcreatingnewchoicetotheconsumer73.Other

advantagesassociatedwith,are:thepossibilityforthepool

memberstograntmorelicensesofindividualpatentsto

multipleapplicants,reducingtransactioncostssincethe

poolwouldbetheonlyentitywithwhichtoagreeevenon

multiplelicenses;thenthepoolisausefultooltoresolve

legaldisputesconcerningpatents.

73JoshLerner,MarcinStrojwas,andJeanTirole,“TheStructureandPerformanceofPatentPools:EmpiricalEvidence”,January11,2003:Intheiranalysishighlightedfivefindingsconsistentwiththetheoreticalpredictions: ”First,poolsinvolvingsubstitutepatentsareunlikelytoallowpoolmemberstolicensepatentsindividually,consistentwithourearliertheoreticalwork.Second,individuallicensingismorefrequentlyallowedwhenthenumberofmembersinthepoolgrows,whichmayreflecttheincreasingchallengesthatreconcilingusers’differingtechnologicalagendasposeinlargepools.Third,largerpoolsaremorelikelytohavecentralizedcontroloflitigation.Thismayreflecteitherthefactthattheincentivesforindividualenforcementinlargepoolsaresmaller(i.e.,becausefreeridingismoreintense)orthefactthatlargepoolsaremorelikelytoincludesmallplayerswithlimitedenforcementcapabilities.Fourth,thirdpartylicensingismorecommoninlargerpools,consistentwithsuggestionsthatsuchpoolswereestablishedprimarilytoresolvethebargainingdifficultiesposedbyoverlappingpatentholdings.Finally,duringthemostrecentera,whenanintenseawarenessofantitrustconcernsprecludedmanycompetition-harmingpatentpools,(a)moreimportantpatentswereselectedforpoolsand(b)patentsselectedforpoolsweresubsequentlymoreintensivelyreferencedbyothers.“

79

1. Thepromptdevelopmentoftechnology74:Patent

disputescanblockthedevelopmentofnew

technologies;inthisspecificcasethepoolcould

facilitatetheresolutionofthesedisputes.The

formationoftheMPEGpool,createdinordertoachieve

faststandardizationofaprotocolforprotecting

copyrightedworksontheInternet,isoneofthemain

recentexamplesofhowpoolscouldenhance

technologydevelopments.Forexampleanotherareain

whichpoolsplayamainroleistheoneof

telecommunicationwherethedevelopmentofnew

technologiesisconstantandquick.Themembersofthe

poolcouldsharetheirdevelopmentstoimprovetheir

work,andindeedthetotalwelfare.

74 AccordingtoVianneyDequiedt,BrunoVersaevelintheirpaper“PatentpoolsandtheDynamicIncentivestoR&D”,January2007assesthat“theperspectiveofapoolenhancesthespeedofR&D“

80

2. Reductionoftransactionfee75:Thecompanythat

wouldliketouseaparticulartechnologytoimproveits

workcouldavoidnegotiatingwitheverypatentholder

thatisessentialtothestandard.Consideringanother

timetheMPEGpool,therewereatleastfourteen

differentcompaniesowingessentialpatentsinthat

pool,andinordertousethistechnologyacompany

shouldnegotiatesinglywitheachofthesefourteen

patentholders.Throughtheformationofthepool,the

transactioncostcanbecutdown,andcertainlythe

licensingofandthecooperationinvaluable

technologiescanbefacilitated.

75“Thus,poolsareexpectedtoreducetransactioncostsbycreating“one-stop-shopping”opportunitiesforlicenseesandreducelicensefeesbyeliminatingroyaltystacking,whichoccurswhenfirmschargeinefficientlyhighpricesforsubsetsofpatentsthatcovercomplementarytechnologies.”RyanLampe&PetraMoser,“PatentPools:LicensingStrategiesintheAbsenceofRegulation”,March2012,StanfordUniversityandNBER

81

3. Theauthorizationofblockingpatents76:Blocking

patentscanaffecttheimprovementoftechnologyby

givingrivalpatenteestherighttoexcludeeachother

frommanufacturing,exploitingorsellingthe

technology.Becauseofthis,manyimportant

technologiescannotbeuseduntilsomekindof

agreementissigned.Sooneofthemaintaskofthepool

andevenofthecrosslicensingagreementsistofixthis

problembypermittingIntellectualPropertyRightsto

be“pooled”and“licensed”together.

4. Thereductionoflitigationcosts:Patentlitigations

areextremelycostlyandambiguous:oneoftherecent

andbiggestoneisthecaseofAppleInc.against

SamsungElectronicsCo.inwhichafterdeliberatingfor

76 “Cross-licensingandpoolingarrangements...mayprovideprocompetitivebenefitsbyintegratingcomplementarytechnologies,reducingtransactioncosts,clearingblockingpositions,andavoidingcostlyinfringementlitigation.Bypromotingthedisseminationoftechnology,cross-licensingandpoolingarrangementsareoftenprocompetitive”RobertP.Merges“InstitutionsforIntellectualPropertyTransactions:TheCaseofPatentPools”,August1999,UniversityofCaliforniaatBerkeley(BoaltHall)SchoolofLawWorkingPaper,

82

21hours,37minutes,thejuryintheApplev.Samsung

trialawardedApple$1.05billionindamagesafter

Samsungwasfoundtohavewilfullyinfringedfiveof

sevenApplepatents.77Patentlitigationputspatentsin

dangerbecausejudges,thatareoftennotableto

handlecomplextechnicaldisputes,mightinvalidate

them,cancellingthepossibilitytohavean

improvementinanoldtechnology.

Thenratherthanriskandlosetimeandmoney

companieschosetoformapoolofpatentsinorderto

avoidlitigationcostsandabovealltoeliminatethe

possibilitythattheirpatentsmightbeinvalidatebythe

Court.

Moreoverweshouldnotforgetthatanotherprocompetitive

effectispatentspoolsencourageinnovationbycreatingan

instrumentforthememberstosharetherisksandthe

77Seehttp://www.wsj.com/articles/SB10000872396390444358404577609810658082898

83

benefitsofnewtechnologies.Moreoverthroughthe

royaltiespaidbythecompaniesinterestedinthatparticular

technology,eachpatentholderwillrecuperatethe

investmentsmadetodevelopitstechnology.

Throughthismechanismthesmallfirmscouldsurviveinthe

marketcoveringtheirinvestmentsinR&D,berewardedfor

theircommitmentandclearlyavoidingthelitigationcosts

againstmajorfirms.

DaenUijl,BekkerseDeVrieshavedisplayedthemain

characteristicsofthemodernpatentpools78:

1. Allthepooledpatentsareavailableforallthe

companiesthatjointhiskindofagreement,bothas

licensorandexternallicensees.

78 SimonDenUjil,RudiBekkers,HenkJ.DEVries“ManagingIntellectualPropertyUsingPatentPool:lessonsfromthreegenerationsofpoolsintheOpticalDiscoIndustry”,2013,Californiamangementreviewvol55N°4.

84

2. Licenseesareofferedstandardlicensingterms,

usuallyasimple,coherentmenuof“patentpackages”

withpricesandotherterms.

3. Licensingfeesareallocatedtoeachmember

accordingtoapre-setformulaorprocedure;

4. Anindependentpartyisinvolvedtoevaluatethe

essentialityofpatentsbeforetheyareincludedinthe

pool;

5. Membershipforlicensorisvoluntary,andmustallow

additionalpatentownertojoinafterformationofthe

pool;

6. Theyincludevariousadjustmentmechanismsfor

addingnewpatentsandrecalibratingroyaltyshares.

MoreoverLerner,StrojwasandTirolehaveaddedtwomore

characteristics79:

79LernerJosh,MarcinStrojwas,andJeanTirole."TheDesignofPatentPools:TheDeterminantsofLicensingRules."RANDJournalofEconomics38,no.3(fall2007).

85

7. Itmustbespecifiediftheindependentlicensingis

allowedtothepatentholder

8. Somegrantbackscouldbeintroducedintothe

licensingagreements.

86

4.2 Competitiveconcerns

Asforthenegativeaspects:inthecaseoffuturepatent

sharing,poolingreducesthepossibilitythatmembersinvest

moreinR&D;priceincreaseofproductproduced,withthe

possibilityofdominanceormonopolyinthemarket,falling

incomesanddeteriorationofcompetition.

1. Alterationofcompetition:Throughtheprocessof

patentpooling,horizontalcompetitorscouldjoin

together;thisledtoamonopolisticsituationinterms

ofpricesonanotherwisecompetitivesituation.The

companiesthatjointheseagreementscanraiseand

fixpricesofthenewtechnologiesownedbythem,a

famousexampleistheonerelativetotheCaseof

SummitagainstVISXregardingthelasereyesurgery

techniques.Inthatcase“thepoolestablisheda$250

licensingfeetobepaidtothepooleachtimealaser

87

producedbyeitherfirmwasusedtoperform

photorefractivekeratectomy”.80

Moreovertheexclusionfromapatentpoolwillnot

generateananti-competitiveeffectunlessthe

excludedcompaniescannotcompeteintherelevant

marketandthepoolmemberscollectivelyhavea

dominantpositionontherelevantmarket.

Onlyinthislastcasetheauthoritieswilldefinethe

agreementasanticompetitiveforthedevelopmentof

thepooledtechnologies.

2. EffectsonInnovation:Accordingtothelast

scientificresearches,theseagreementscanhavea

dishearteningeffectoninnovation.

Thepatentsystemmightencourageinnovation

limitingthepatentholdersmonopolyontheirnew

innovations.

80SeeRobertS.Schlosseberg,MergersandAcquisitions:understandingtheAntitrustIssues,thirdedition,2008

88

Theseagreementscontainagrantbackclause,which

forcesallpartiestomakeaccessibletothepoolany

essentialpatentthattheymightgetinthefuture.

Thegrantbackclauseshouldhaveaprocompetitive

effectoncompetition,becauseitreducestheability

ofanypartytotakeadvantagefromthepooland

thenpreventothercompaniesfromstickingtothe

standardsbyblockingaccesstonewessential

patents.Duetothefactthatapoolingagreement

enclosesalltheessentialpatientsnecessarytoattain

specificstandardscouldreduceacompany’sdesire

toinvestinR&D.

3. ProtectionofInvalidpatents81:Thecreationofa

patentpoolcouldprotectinvalidpatentfrom

81“Theriskthatapatentwillbedeclaredinvalidissubstantial.Roughlyhalfofalllitigatedpatentsarefoundtobeinvalid,includingsomeofgreatcommercialsignificance.“MarkA.LemleyandCarlShapiro,“ProbabilisticPatent”JournalofEconomicPerspectives,Volume19,Number2,Spring2005,Pages75–98

89

litigation,indeedmanypatentholdersjoinapoolto

avoidthatlitigationcostsinvalidatetheirpatent.

AsimilarexamplewastheoneinthecaseofUnited

StatesversusSingerMfg.Co.,infactthepoolformed

bytheSewingmanufactureswascreatedinorderto

avoidthattheirpatentsmighthavebeeninvalidated.

Moreoveronceinvalidpatentsarepooledwithrival

companiestheriskofapatentcompetitionis

eliminated,leadingeveninthiscasetothealteration

ofcompetition.

4. PatentTroll82:Patenttrollisprobablyoneofthe

worsescenariosofpatentpool.

Apatenttrollisanindividualoranorganizationthat

purchasesandholdspatentsfordishonestpurposes

suchasstiflingcompetitionorlaunchingpatent

82“Atrollpatentisonethat:• Isownedbysomeonethatdoesnotpracticetheinvention.• Isinfringedby,andassertedagainst,non-copiersexclusivelyoralmostexclusively.BycopyingImeananykindofderivation,notjustslavishreplication.• Hasnolicenseespracticingtheparticularpatentedinventionexceptfordefendantsin(2)whotooklicensesassettlement.• Isassertedagainstalargeindustrythatis,basedon(2),composedofnon-copiers.”TJChiang(ProfessoratGeorgeMasonLawSchool),“Whatisatrollpatentandwhyaretheybad?”March6,2009

90

infringementsuits.Inlegalterms,apatenttrollisa

typeofnon-practicingentity:someonewhoholdsa

patentbutisnotinvolvedintheprojector

productionofanyproductorprocessassociatedwith

thatpatent.Patenttrollsareorganizationsthatexist

solelytoobtainpatentsandprofitfromthemthrough

patentinfringementclaims.

Patenttrollsusuallyacquirepatentsfromanumber

ofsourcesandcollecttheminlargequantity.Most

patentscomefromthesalesofbankruptcompanies,

fromcompanieswhodonotintendtoexploita

technologyandfromindividualswithoutthe

resourcestoimprovetheirinventions.Thepatent

systemisveryweakandpatentsmaynotbe

protectedinacceptableterms.

ForexampleAppleInc.havehadtopay£532.9

milliontoSmartflashLLCforwilfulinfringementof

threeU.S.patents.Itseemsanormalinfringement

case,butinrealitySmartflashisacompanythatdo

91

nomakeproducts,hasnoemployees,createsnojobs,

theonlythingitdoesistobuyandownpatentsand

waitthatothercompaniesinfringetheminorderto

gainfromtheclaims.

92

5.Theeconomiceffectsofpatentpools

Theeconomicimplicationofthepatentpoolsdeterminesif

thepoolisprocompetitiveoranticompetitive,forthis

reasonitisveryimportantfortheantitrustanalysis.

Thereareseveraleconomicadvantagesforcompaniesthat

arepartofthepool.Firstofall,aswesaidbefore,beingpart

ofapoolmeanshavetheimmunityfrompatent

infringementlawsuitforaviolationofanothermember’s

patent.Thesecondimportantadvantageisthat,throughthe

pool,legalconflictscouldbelargelyreduced,therefore

decreasingthecostsoflitigation.

Thepoolcreatesaunitabletoallowalargenumberof

licensestoallthemembersinsidethegroup,cuttingdown

themaincosts.

Moreoverthesekindsofagreementsstimulatecompetition

betweenproducerswhoarelicensedtomarketaproduct,

whichresultsinenhancedproductsandinferiorpricesfor

thecustomers.

93

Poolinghelptoincreasethevalueofthepatentsothe

royaltiestobepaidtoitsowner,andatthesametimeit

couldencourageR&Dontheessentialpatent.

Furthermorethethreatofastrategicbehaviourisreduced,

duetothefactthateachpoolhastohireanexpertinorder

toevaluateifthepatentsareessentialtothestandard.

Ontheothersidetherearenegativeeffectstoo.Indeedifa

patentholdercouldaccesstovaluableinformationabouta

licenseethroughitsgrantofimmunityfromaninfringement

suit,itwillhaveasignificantadvantageoveritscompetitors,

damagingitscompetitorsandthemarket.

Anothernegativeeffectiscreatedbythepoolingoffuture

patents,discouragingcompetitorsoninvestmentsinnew

technologies,andatthesametimeencouragingthemtogain

benefitsfromthetimeandtheexpensesspentbyother

membersofthepool.

94

Finallythemembersofapoolcouldsettlesomelimitations

onpatents,byincreasingprices,bydecreasingoutputsand

bydistortingcompetition.

95

5.2 Model:players,strategies,payoff

Thisisprobablythemostcomplexchapterandbeforego

aheadinanalyzingthemodel,Iwanttointroducethemost

recenttheoreticalexamples.

Theoreticalmodelsofpatentpoolshavebeendiscussedina

fewrecentpapers.Firstofall,GilbertandShapiroprovide

simplemodelsofcompetitionwithperfectsubstitutesand

perfectcomplements,highlightingthedouble-

marginalizationproblem(acaseinwhichfirmswithmarket

powersellcomplementaryproducts,underthis

circumstancetheirpricesarethehighestone).Later,Lerner

andTiroleexploitamodelinwhichthereisaworldwithn°

ofequalpatents,whichneednottobeperfectsubstitutesor

nottobeperfectcomplements83.Theydemonstratethata

poolholdingallthepatents,whicharecomplementary,

83 J.LernerandJ.Tirole.Efficientpatentpools.AmericanEconomicReview,94(3):691–711,June2004.

96

couldbeconsideredwelfareincreasing;andthatforcing

poolmemberstooffertheirownpatentstoo,undermines

theworstpoolswithoutaffectingthebestones.

BrenneroutspreadstheLernerandTirolemodel,inorderto

studysmaller,andsouncompleted,poolscomprehending

onlysomeofthepatents.AccordingtoBrennersomepatent

holdersmightremainoutsideofthepoolinorderto

improvetheirperformance,andobserveswhichpoolswill

becreatedunderdissimilarformationprocesses.84Brenner

comparestheresultattainedunderaparticularformation

proceduretotheoneobtainedwithoutapool,and“shows

that mandatoryindividuallicensingisnotanefficient

screeningmechanismforwelfare-decreasingpools”.85Aoki

andNagaokauseacoalitionformationmodeltoshowthat

evenifthereareallessentialpatentsandthepoolisthebest

solutionitwillnotbecreatedwhenthenumberofpatentsis

84SeeVianneyDequiedt,BrunoVersaevel,“PatentpoolsandtheDynamicIncentivestoR&D”,January200785SeeYoung-KwanKwon,YeonabaeKim,Tai-YooKim,YongilSong,“EffectsofPatentPoolsonInnovationInvestement-ExAntePerspectivves”,JornalofBusiness&EconomicsResearch,July2008

97

toolarge86.SubsequentKimexhibitsthatthroughthe

formationofapatentpool,thepresenceoffirms,owing

patent,inthedownstreammarketwithverticalintegration

decreasesthepriceofthefinalproduct87.

Finally,DequiedtandVersaevelhighlighthowthepool

formationincreasesfirms’R&Dinvestments,beforethatthe

pooliscreated.

Inallofthesemodels,patentsareassumedtobe

substitutableandthisistheirlimitation:usersgainvalue

basedonthenumberofpatentstheylicense,notbasedon

whichtype.Thismeansthateitherallornoneofthepatents

areessential.Underthisassumption,itseemsthataslongas

thepatentsarecomplements,poolsaregenerally

appropriate.

86 Aoki,Reiko;Nagaoka,Sadao,“TheConsortiumStandardandPatentPools, May 2004, HitotsubashiUniversityRepository

87Young-KwanKwon,YeonbaeKim,Tai-YooKim,YongilSong,“EffectsOfPatentPoolsOnInnovationInvestment–ExAntePerspectives”,JournalofBusiness&EconomicsResearch,July2008,Volume6,Number7

98

Perhaps,themodelthathastriedtosolvethelimitationsof

thepreviousistheoneofDanielQuint.

Thisisastaticmodelofpricecompetitionamongpatent

owners,wholicensetheirpatentstomanufacturers.

Thiskindofmodelisveryintuitive,anditdiscusseswhat

conditionsmakeaspecificpoolprofitableintermsofprices

andwelfare.

AccordingtoQuint,theplayersarethepatent-holders,and

theyformthesetT=(1,2,3,…..,T),thestrategyseriesare

thefeeseachpatentownerchargesinordertograntlicense,

pi ∈Ai=R+,Insteadthepayoffsarethelicensingrevenues,

ui=piqi(pi,p-i),themodelassumesthatpatent-holdersfix

pricessimultaneously,andthateachpatentisindividually

ownedorthatmultiplepatents(holdbythesameowner)are

licensedtogether.

Thenaccordingtothemodelthedifferenttechnologies,

blockedbyoneormorepatents,shapetheset

99

K=(1,2,3,..,K).Inthiscasethetechnologiesare

substitutesforeachother,andtheonlyalternativesareinto

thesetK.

Finallythelastvariableintroducedbythemodelisthe

measureofproducers’l ∈L,whichshowstheproducer’s

profitfromaccesstothesetechnologies.Theproducersare

heterogeneous;ifproducerl ∈Lgainsaccesstotechnology

k∈Khisprofitwillbe:vk+∈lK-Pk,wherevkreflectsthe

valueofthetechnology,∈lKisaparticulartermthatrefers

totheproducer/technologypair,andthePkisthetotalcost

tolicensethepatent.

Producersaccesstonomorethanonetechnology,andtheir

payofffromnotaccessingtoanyofthetechnologiesis∈l0.

Eveninthismodeladistinctionbetweenpatentshastobe

made,theessentialpatents,whichblockallthetechnologies,

andnon-essentialone,whichcouldblockonlyoneofthe

100

technologies.TEdefinesthesetoftheessentialpatents;

insteadtheoneofnon-essentialpatentsisdefinedbyTNK.

Thedemandforagiventechnology,consideringallvariables

is:

Therearetwoexplanationsofthemodel.

Inthefirstonetechnologiesareconsideredasdifferent

manufacturingtechniques,andproducersareseparatedby

techniquetheyprefer.Feesforlicensespatentsarepaidas

lumpsums,andproducersdonotcompetewitheachother.

Sinceconsumersarenottakeninconsiderationbythe

model,producersareseenasthe“endusers”ofeach

technology.

Asecondinterpretationisbasedonconsumers,not

producers.Betweenpatentownersandconsumers,thereis

101

alevelofperfectlycompetitiveproducerswithnofixedcosts

andidenticalmarginalcostsforproductsmadewitheach

technology.Patentholderpricesderiveformtheper-unit

licensingfees,producersearnzeroprofitsandtheirsurplus

increasestotheincreaseofconsumers.Theanalysisremains

substantiallyunchanged,excludingthatthemeanvalueof

eachtechnologyisnetoftheproducers’marginalcost.

Underthisanalysis,itappearsmoreordinarytoseethe

technologiesasdifferentproducts,orasdifferentbundlesof

components.Thus,inthiscase,thebundlingofconsumer

goods,orthepricingofaggregateproductsmadeupof

componentssuppliedbydifferentfirmscouldbestudiedby

themodel.

Intheend,thevariablesnotedtothemodelare:

• ThenumberoftechnologiesK=|K|

• ThedistributionFfromwhichtheidiosyncratictermsεl0

andεlkaredrawn

102

• Themeanvalueofeachtechnology,(v1,v2,...,vK),which

willbeabbreviatedinv

• Thenumberofessentialpatents,nE≡|TE|,andthenumber

ofnonessentialpatentsblockingeachtechnologyk,

nk≡|TNk|,abbreviatedinn≡(nE,n1,n2,...,nK)the

authorwillreferto“aggregateprices”asthesumsof

pricesdemandedbyeachsetofsimilarpatentholders:

• PNk≡Σi∈TkNpiisthecombinedpriceofallthe

nonessentialpatentsblockingtechnologyk

• PE≡Σi∈TEpiisthecombinedpriceofalltheessential

patents

• Pk≡PE+PNkisthetotalpricetoaccesstechnologyk

Thentheauthormadethefollowingassumptionaboutthe

distributionofidiosyncratictermsεlk:

“Assumption1:εl0andεlkareindependentandidentical

distributedrandomvariablesacrossproducersand

technologies.ThedistributionFfromwhichtheyaredrawnis

103

strictlyincreasingon(−∞,∞),andFand(1–F)arelog

concave.

Thisconditionissufficienttobegintounderstandthe

equilibriumpricesdemandedbypatentholders.

Lemma1.FixagameG=(|K|,F,v,n).

• Anequilibriumexistsandisunique

• TheequilibriumvalueofPEisincreasinginnEand

decreasingin(n1,n2,...,nK)

• TheequilibriumvalueofPNkisdecreasinginnEand

increasingin(n1,n2,...,nK)

• ThetotalpricePkoftechnologykisincreasinginnEand

innk(butPk′(k′≠k)maybeincreasingordecreasingin

nk)

Thepricinggameamongpatentholdersisnotasuper

modulargame,duetostrategicsubstitutabilitybetween

playersinthesamegrouping(TEorTNk);butequilibriumcan

beshowntobesymmetricamongplayerswithineach

104

grouping,andeachsetofplayerscanthereforebereplacedby

an“aggregate”playerwhomimicstheircombinedactions.

TheresultingK+1-playergameisasupermodulargame

whenlog-payoffsareconsideredandthesignofthe“essential”

player’spriceisreversed,andisindexedby(−nE,n1,n2,...,

nK);theresultsfollow.

Tomakesharpwelfarepredictions,wewillrequireone

additionalregularityconditiononthedemandforeach

technology.Sincethe“aggregateplayers”donotmaximize

profits,itispossiblefora“positive”change–anincreasein

thepriceofarivaltechnology–toleadtoasufficientlystrong

overreactioninthepriceofanothertechnologythatpatent

holdersblockingthattechnologyareleftworseoff.Weimpose

acondition,whichwillruleoutthissortofperverseresult.

Assumption2.ThelogoftheinversedemandfunctionPk(q,·)

hasincreasingdifferencesinqandPNk′(k≠k),andinqand

−PE;andlogPE(q,·)hasincreasingdifferencesinqand−PNk.

Assumption1impliesincreasingdifferencesinthelog-demand

105

functions–anincreaseinonepriceraisesthedemandfora

competingtechnology,butalsolowerstheprice-elasticityof

demandforthattechnology.Thisimpliesthatanoligopolistic

pricingasingletechnologywouldrespondtoanincreaseina

rivaltechnology’spricebyraisinghisownprice.Assumption2

impliesthattheincreasewouldbesmallenoughtomaintaina

highermarketsharethanbefore.Theconditionholdsforlogit

demand;

UnderAssumptions1and2,wecanmakeprecisepredictions

abouttheimpactofnonequilibriumpayoffs.Letukdenotethe

equilibriumprofitofeachpatentholderinTNk,anduEthe

equilibriumprofitofeachpatentholderinTE:

Theorem1.UnderAssumptions1and2,

1. (uE,u1,u2,...,uK)arealldecreasinginnE

2. uEandukaredecreasinginnk;fork′≠k,uk′isincreasing

innk“88

88SeeDanielQuint“EconomicsofPatentPoolswhensome(butnotall)PatentsareEssential”,,StanfordInstituteforeconomicpolicyreasearch,November2006

106

Thegeneralresultsofthismodelare:

Apoolcontainingonlyessentialpatentswill:

• Lowerthepriceofeachtechnology

• Increasethesurplusofeachindividualproducer

• Increasetheprofitsofeverypatentholderoutsideof

thepool

Incasethepoolisprofitableforitsmembers,itisaPareto-

efficient.

Insteadconsideringapoolofnonessentialpatentswhich

blockasingletechnologyk,ortheadditionofthesepatents

toanexistingpoolofessentialpatents.Theeffectswillbe:

• AdecreaseinthepricePkoftechnologyk

• Anincreaseintheprofitsoftheessentialpatent

holders,andintheprofitsofnonessentialpatent

holderswhoblocktechnologykbutremainoutsidethe

107

pool

• Adecreaseintheprofitsofnonessentialpatentholders

blockingtheothertechnologiesThetotalpricesofthe

othertechnologiesPk′mayincreaseordecrease,and

theneteffectonwelfaremaybepositiveornegative.

108

5.3. Theeffectofpricesontotalwelfareindifferent

patents

Eveninthiscase,thankstothemodel,wecanfindoutwhich

istherealeffectofthepatentpools,intermsofprices,onthe

totalwelfare.

Themodelidentifiesthewelfareasthesumofallpatent

holderandproducers’payoff.Thepaymentsmadetothe

ownerofthepatentsbytheproducersareconsidered

welfare-neutral,sinceaccordingtothemodeltheonly

sourceofvalueisthegrossprofitsofeachproducer.

Thereforeproducerswhocouldgainprofitsfromthe

utilizationofsometechnology,butthatcouldnotbeableto

affordthelicensingfeeandsoremainoutofthemarket,and

producerswhohaveinvestedinthewrongtechnologyare

theonlytwocausesofinefficiencyintothemodel.

Areductioninthecombinedpriceofallnon-essential

109

patentsreducesthepricesofalltechnologiesbythesame

amount,butatthesametimethechoiceofthetechnology

madebytheproducersdoesnotchange.Theothereffectis

thattherewillbemoreproducersinthemarketand

thereforetherewillbecreatedmorevalue.Sothetotal

welfareisdecreasing.

Ontheotherside,takinginconsiderationadecreasinginthe

combinedpriceofnon-essentialpatentsblockingonlya

technologyKwillreduceonlythepriceoftechnologyK.

Inthiscasetheeffectofapricereductionwillencourage

someproducerstoswitchtotechnologyK,creatingvaluein

thatmarket,andtoabandonothertechnologies.Moreover

theproducers,switchingtothetechnologyK,willreducethe

totalwelfare,andifthedifferentinpricesisvery

accentuated,thiseffectwillbelarger.Thereforethe

prevailingeffectofapoolofnon-essentialpatentsblockinga

singletechnologyistoshrinkthepriceofthatspecific

technology.Thiseffectcouldleadtoapositiveornegative

110

welfareresult,subjecttoifthattechnologyisrelatively

expensiveorcheap.

Thelastcaseistheoneofpatentpoolcreatedbyessential

patents.Theeffectofapoolmadebyessentialpatentsisto

lowerthepricesofalltechnologies,increasingthetotal

welfare.

111

5.4. Theevolutiontowardsthepoolofpools

Patentspoolscanbeclassifiedaccordingtotheircomplexity.

Therearethreeparticularformsbasedonthis

characteristics,whichdescribetheevolutionprocessthat

poolscanhave:

• JointLicensingProgram

• Regularpatentpools

• Poolofpools

Thethreetypologieshavebeenidentifiedandstudiedby

DenUijl,BekkersandDeVries,whichhighlightedthefactors

thathavedeterminedevolutionofpatentpools.

Thesefactorsare:thenumberofpartsinvolvedinthe

developmentandcreationofthetechnologyandthe

complexityofthetechnologicalplatforms.89

89SeeDenUijlS.,BekkersR.,DeVriesH.J.,“ManagingIntellectualPropertyUsingPatentPools:lessonsfromthreegenerationsofpoolsintheopticaldiscindustry”,2013CaliforniaManagementReview.

112

Inordertodevelopatechnology,avoidingfragmentation,it

willrequirethecollectiveparticipationofdifferentpatent

holder;accordingtotheauthors,asthenumberofco-

creatorsincreases,thecomplexitylinkedtothe

developmentsincreasestooandsothereistheneedfora

moreevolvedformofpool.Inaddition,technologyplatforms

sharedareusedinordertoimproveacooperative

development,andencourageit.Theseplatformscaninturn

bemorecomplexandrequiremorecoordinationeffort,

therefore,isrequiredtheirimplementationtofaceagrater

complication.

Thefirstform,JointLicensingProgram,representstheless

complexone,involvingasmallnumberofco-creators.

Itusessimpletechnologyplatforms;anamountofrestricted

partswillagreetocombinetheirpatentsandfirethemtoa

predeterminedprice;thereforeitwillnotbeallowedtopool

newlicensor.

IntheJointLicensingProgram,thepartiesareinvolvedin

113

co-creatingarelativelysimpletechnology.Giventhis

simplicity,theJointLicensingPrograminvolvesminimal

costs,buttheyrequirecoordinationskillsandoftenare

administratedbypartwithmoreexperienceinlicensing.

FinallytheJointLicensingProgram,giventhelow

involvementofdifferentparts,theirlownumerosity,their

simplicityofoperationandcoordination,willbeveryquick

toform.

TheRegularPatentPoolsarethemostcommonformof

patentpools,involvingalargenumberofparts.

Generallytheyholdasingletechnology,butthatonewillbe

morecomplexthantheoneinajointlicensingprogram.The

highertechnologicalcomplexityincreasesthecomplexityof

theplatformusedfortheseone.

ForthisreasontheRegularPatentsPoolsarepositionedin

themiddlebetweentheJointLicensingProgramandthe

PoolofPools;thecostswillbehigheradthetimerequired

114

fortheirestablishedwillbehighertoo.

Finallywefoundthelastform;thePoolofPools,themost

modern,whichresultsmainlyfromtheevolutionof

technology.Thecomplexityintheformationand

managementareextreme,giventhelargenumberof

membersandtheequallycomplextechnologiesthatare

managed.Thetimeneededtocreatesuchanentitycanbe

multiyearandinvolveelevatedcosts.

Themostimportantdifferencecomparedtootherformsis

thatthepoolofpoolsmanagesmultipletechnologiesand

thenincorporatedpatentsofdifferentnature.Inthepoolof

poolsthepatentswillnotbecomplementarytoeachother,

butthetechnologieswillbe.

Oncethisorganizationiscreated,itwillhaveveryimportant

prospectiveinthemarketanditwillbringgreatbenefitsin

termsofIntellectualPropertyRights.Thelargenumberof

patentsmanagedallowsagreaterflowofknowledgeto

spreadandbeused.Thetechnologieswillbeadoptedand

115

theeconomiesofexperiencewillbeachievedinashorttime,

statingageneralstandardmadeupbyseveralstandard

technologycomponents.

116

5.5.Difficultiesduringtheformationofthepool

Theformationofthepoolincludesgreatbenefitsintermsof

exploitationofknowledge,oneofthesecontributionsisto

reducethecomplexityresultingfromthefragmentation,but

atthesametime,itssettingupinvolvesotherformsof

complexitythatitmustface90.

Theseobstaclesare:

a) Negotiationcosts:Inordertoformapatentpoolitis

necessaryforthememberstoagreeonmanyaspects

ofitsoperation,involvingmanylegalcosts.The

benefitsofthepatentpoolwill,therefore,be

comparedwhitsuchcosts.

ThemaincostsaretheRoyaltyfeesandthefixed

costs91.

90SeeDenUijlS.,BekkersR.,DeVriesH.J.,“ManagingIntellectualPropertyUsingPatentPools:lessonsfromthreegenerationsofpoolsintheopticaldiscindustry”,2013CaliforniaManagementReview.91SeeSantoreR.,McKeeM.,BjornstadD.,"Patentpoolsasasolutiontoefficientlicensingofcomplementarypatents? Someexperimentalevidence",2010,JournalofLawandEconomics

117

Theformerisavariablepricingdependingonthe

quantityusedofknowledge.Thismeansthatwiththe

increasingproductionscalewillincreasethecost

associatedtothelicensee,apossibleconsequence

willbetodiscouragethedownstream,thatinorder

toavoidtheexcessivecostofproduction,willreduce

thevolumes,triggeringaseriouslossofsocial

welfare.Thelatterisafixedimposition,definedin

advance.Ithastheeffectofnotimpactoverthe

marginalcostsandthereforenottodeterminethe

inefficienciesrelatedtocostsforthedownstream.

Thepricegivendoesnotvaryaccordingtothe

productioncarriedoutbythelicensee,andthis

allowsformoreflexibilitywithoutchangingthe

productionvolumes.Butonthecontrarythesefees

canstilldetermineavaluetoohighforproducersand

thusdiscouragethedownstreamthatwillnot

purchasemorerightsofexploitationofagiven

knowledge.Thesecondinefficiencyoccurswhenthe

118

patentholder,findingithardtocoordinateonthese

fees,maynotinvestanymoreresourcesin

innovation.

b) Asymmetricinformation:Thistypeofbarriercan

leadtofailureoftheformation.Forexample,itcould

bepossiblethatdifferentexpectationsaboutthe

valueofpatentsbetweenthemembersareinfluenced

bymoreorlesscompletedinformation.

“Informationasymmetryislikelytobereducedwhen

moreinformationispubliclyavailable”.92

c) Self-imposedconstraints:Anegotiationrequires

flexibilitybytheparticipantsinordertofindthe

correctbalancebetweentheirbargainingpowerand

theirneeds.Thiscompromisewilldeterminethe

operatingconditionsofthepatentpool,suchasthe92FarrellJ."Intellectualpropertyasabargainingenvironment",2009,NationalBureauofEconomicResearch

119

allocationofroyaltiesandfeesfrommembers,who

maybeindistinctormayvaryaccordingtothe

contributionofeachmembertothepool.

120

6. Recentcases(4G-LTE)

InthelastsectionofthispaperIamgoingtostudythe

patentpoolsinthetelecommunicationssegmentandinthe

relatedtechnologicalindustries.

Thedevelopmentinthetelecommunicationsindustriesand

inthetechnologicalindustriesishighlyrelatedwiththe

creationofthepatentpools.

Thereforethegrowthofconsumerelectronics,

telecommunications,computers,andassociatedhigh-tech

industriesissharpbyinnumerabletechnologies.

Increasingly,thesetechnologiesimplicateseveralblocking

patentsownedbymultiplepatentholders.Arecentcaseis

thecompetitionamongthreeoutsizedsmartphone

operatingsystems:IOS,Android,andWindowsMobile.

Inthesekindofindustriesthereisahighlycorrelation

betweenwhodevelopsthenewtechnologyandwho

implementsitinordertogenerateprofits,anddesignnew

products.

121

Forexample,inthetelecommunicationsindustry,each

phonemanufacturerhasownedonlyasmallfractionofthe

differenttypesofintellectualpropertyassetsneededto

developa3Gwell-matchedcellularphone.

Inthetelecommunicationssector,thefirstcaseofpatenting

istheonerelativetotheGSMstandardforthemobile

communicationsinEurope,intheearly1980s.93

TheGSMtechnologyhadtwospecificcharacteristics:the

switchfromananalogtechnologytoadigitalone,andthe

interliningofdifferentnationalnetworks.

In1988,themainEuropeanoperatorscreatedasystemby

whichmanufacturerswouldhavetohandovertheir

intellectualpropertyrightsandtoprovidefreeworldwide

licensesforessentialpatents.

Obviouslythemanufacturersdonotagree,andinorderto

establisharightcondition,theoperatorsmodifytheir

approach.Finally,theoperatorsrequiredthesuppliersto93Seehttp://www.gsma.com/aboutus/history

122

signadeclarationagreeingtoservealloftheGSM

communityonfair,reasonableandnon-discriminatory

conditions.

Duringthe1990sMotorola,oneoflargestIPRholder,

refusedtograntnon-discriminatorylicensesforits

substantialportfolioofessentialpatents.Subsequently,

Motorolaagreedtothesetermsunderlimitedconditions,

andachievedonlyaminorityofsupplycontracts.Atthe

sametime,itrefusedtolicenseitsIPRunderroyalty,but

insteadrequiredcross-licensing,eventuallynegotiating

licenseswithSiemens,Alcatel,NokiaandEricsson.

Companieswereonlywillingtodiminishtheirlicensing

conditionswhentheirrevenueopportunitiesincreased.

Indeed“thesecross-licensingagreementsprovidedastrong

costadvantageforthesefivemajorpatentholders,and

createdhighbarrierstoentrybyprospectiveGSMsuppliers,

123

withroyaltyratesfornon-cross-licenseesestimatedat10-

13%“.94

Next,inJuly20003GPatentplatformwascreated;itwas

madeby18partners.

“3Gtelecommunicationnetworkssupportservicesthat

provideaninformationtransferrateofatleast200kbit/s.

Later3Greleasesoftendenoted3.5Gand3.75G,alsoprovide

mobilebroadbandaccessofseveralMbit/stosmartphones

andmobilemodemsinlaptopcomputers.Thisensuresitcan

beappliedtowirelessvoicetelephony,mobileInternetaccess,

fixedwirelessInternetaccess,videocallsandmobileTV

technologies.”95

Thepurposebehindthisplatformwastoofferavoluntary

andcosteffectivemechanismtoassess,proveandlicense

patentsthatwereessentialforthirdgenerationmobile

communicationsystems.Accordingtothedeal,theplatform94SeeRudiBekkers,JoelWest,“ThelimitstoIPRStandardizationPoliciesasEvidencedbyStrategicPatentinginUMTS”,PaperforthcominginTelecommunicationsPolicyFebruary/Marchissue200995Seehttp://en.wikipedia.org/wiki/3G

124

wouldhaveprocompetitiveeffectslikethesimplificationof

accesstotechnologyandresultingentryintothemarkets,

thereductionofcostuncertaintiesandthereductionof

delaysthatwereaccompanimentsoflicensingseveral

essentialpatentsforcomplicatedtechnologies.

The3Gpoolwasasimplefacilitatoroftransactionsbetween

patentholdersandlicensees,inwhichmembershipwas

opentobothlicensorsandlicensees.Thisagreementis

differentfromtheotherpoolingagreement.

Forexample,inthispool,licensingbymembersisnot

restrictedtothePlatform.Inthiskindofpatentpool,in

contrastwiththestandardone,thereisnoonlyonelicense

betweenthepatentholders(asacombinationoffirm)and

thelicensee.Additionallythepartieshavethechanceto

choosebetweentheStandardLicenseofthePlatformanda

negotiableindividuallicense.Moreoverthiskindofplatform

requiresapricecap,whichisnotabsoluteandsettledata

pre-determinedroyaltyrate,butisdefault5%maximum

125

cumulativeroyaltyrateforpotentiallicenseesperproduct

categories.Accordingtothepatentportfolioundereach

producttypechosenbythelicensee,theroyaltyrate,for

eachsingularpatent,willbedifferentforeachofthe

licensees.

DuringthechoiceoftheactiontoundertakefortheUMTS,

theworries,thefearsandthechallengesoftheGSM

experiencewereusefulobserved.

EuropeanactorsmainlyweresuspiciousofQualcomm.They

werewaitingthatthefirmcoulddemandhighlicensefees,

andthatthosefeescouldbemuchmorethan10%higher.

TheW-CDMAPatentLicensingProgrammeforUMTSFDD

Patentswassettledduringthe2004,aftermanyattemptsfor

developinglicensingschemesfailed.

Atthebeginning,sevenlicensorsofferedtheirpatentsasa

bundletoforthcominglicensors,anumberthatdiminished

overtime.

126

Afterthe3G,thenewstepintheinnovationtechnology

telecommunicationwasthedevelopmentofLongTerm

Evolution(LTE),whichwasessentialtothecreationofthe

4Gtechnology.

LTEpatentsarebeingviewedasamongthemostvaluable

intellectualpropertyresourceinthemobile

telecommunicationsindustry,withmostoperatorsaround

theworldbuildingLTEnetworks.

Accordingtoastatisticconductedin2011,theL.G.

Electronicsowned23%ofthepatentsofthistechnology;the

secondbiggestownerwastheQualcommwith21%.Then,

the9%ofthepatentswasownedbyMotorola,Mobility,

InterDigital,NokiaandSamsung.China’sZTEowned6%and

Nortelowned4%,whichwerelatersold,becausein2009

Nortelfailed,toaconsortiumofApple,EMC,Ericsson,

Microsoft,ResearchinMotion(RIM)andSony.Ericssonalso

individuallyheld2%ofthepatentpoolandRIMownedthe

last1%.

127

Otheranalysis,madeduringthe2011,gavedifferentresults,

becauseeachcompanyholdingthepatentswillingtodepict

itselfasthemarketleader.

TheLTEenvironmentisverycomplextoanalyze,indeedone

ofthemainproblemswasrelativetothedeterminationof

whichpatentsareessentialandwhicharenotessential.And

therelativeproblemofthedisputestherewerehardlyto

evaluate.Furthermore,thevalueofthesepatentschanges

dependingontheexistenceortheabsenceofdefinite

conditions,suchastransferrestrictions,crosslicensing

arrangements,ownershipandmarketconditions.

Forallthesereasonstherewastheneedtohaveapatent

poolsinthisfield,finallyrealizedin2009-2010.Atthe

beginning,thepatentsownersdisagreetoformthepool,

evenbecausetheW-CDMA(WidebandCodeDivision

MultipleAccess)wasnotsosuccessful.Alltheplayers

assumedthatcouldgainmoremonetarycrosslicensingand

litigationdefensevalueiftheydidnotpooltheirpatents.

128

During2009,therewastheformationoftheLTE,afterthat

theNextGenerationMobileNetworkAlliance(NGMN)

demandforinformationaboutthefoundationofthepoolto

companylikeViaLicensingSisvelandMPEGLA.Sisvel’s

suggestionwantedtoshowthatpatentpoolscouldavoid

excessivecostsfromroyaltystacking.Amongvariousother

examples,RobertoDini,thefounderofSisvelsuggestedthat

patentscouldbelicensedindividually,at$2.50centseach

piece.In2011,theNextGenerationMobileNetworkAlliance

agreedstronglywiththeformationofthepool,andforthis

reasondecidedtoadviceallstakeholdersinthemobile

industryinordertoaccelerateintheprocessforthe

formationoftheLTEpool.TheNextGenerationMobile

Networkthoughtthatthepatentpoolcouldpromote

rationalroyalties,offercertaintyontheaccessibilityofthe

licensesforpatentsandbemoreappropriateinorderto

evaluatethepatents’essentiality,becauseestablishedbythe

industry.

129

TheViaLicensingPatentPoolemergedinlate2012,where

licenseswereofferedunderaportfolioofpatentsessential

toLTE.ThepoolincludespatentsownedbyAT&T,Hewlett-

PackardKDDI,NTTDocomo,SKTelecom,TelecomItalia,

TelefònicaandZTE.Theninthelate2013ChinaMobileand

DeutscheTelekomwerejoiningthepool,thelastonetobe

partofthepoolwasin2015Google.Thepoolisalsoopento

otherorganizationsthathavepatentsessentialtoLTE.“Via

hasbeenpublicaboutthepricingitisseekingforthepool.It

chargesbetween$2.10and$3perhandsetforthepatentpool.

Therevenueisthensplitlargelybasedonthenumberof

patentsheldbyeachcompanyinthepool.”96

TheSisvelpool,launchedin2012,alsodevelopeditsown

LTEPatentPool,withtheinitialcompaniesinthispoolbeing

Cassidian,theChinaAcademyofTelecommunication

Technology,theElectronicsandTelecommunications

ResearchInstitute,FranceTelecom,TDF,andKPN,in

96Seehttp://recode.net/2015/04/09/google-joins-stable-of-tech-companies-licensing-their-lte-patents-as-a-group/

130

additiontosomepatentsthathadbeenoriginallyfiledby

NokiabutwereacquiredbySisvelin2011.

LiketheoneofViaLicensing,thispoolisalsoopentoother

organizationsthatbelievetheyholdessentialLTEpatents,

andtheyareencouragedtosubmitthesameforevaluation.

BothintheViaandintheSisvelpoolsthereistheabsenceof

thebigplayersintheindustrylikeQualcomm,Nokia,

Ericsson,HuaweiTechnologiesandSamsungElectronics,the

reasonbehindthischooseisthatthekeypatentholdersmay

preferprivatelicensingandsubsequentlitigationover

pooledresourcesinpatentpools.

131

7. Conclusions

Aswehaveseenfromthediscussion,theeffectsofthe

patentpoolsontheinnovationandonthetotalwelfareare

verycomplexandcontrasting.

Themainpointemergedbythepaper,asShapiro,Lerner

andTyrolethatIhavealreadysaid,isthat“ifthepatentare

complementaryinnature,patentpoolscanreducetheoverall

licensingroyaltiesbyinternalizingpricingexternalitiesand

thusarepro-competitive.However,iftheyaresubstitute

patents,patentpoolscanbeusedasacollusivemechanism

thateliminatespricecompetition,andthusare

anticompetitive.”97

Butthediscussionismuchmorecomplicatedthanthat,the

developmenteffectsontotalwelfareandinnovationsare

hintedbyotherelementsliketheweaknessorthestrength

ofeachpatent.Indeed,accordingtothesecriteria,wecould

97SeeJoshLerner,JeanTirole“EfficientPatentPools”,NationalBureauofEconomicResearch”,2002

132

assesthattheweightofthepatentscouldparticularlyaffect

thedevelopmentofitsR&D.

Letussummarizethemaininsightsthatmakeresultthe

patentpoolasaninstrumentforinnovationdevelopment

andwelfareenhancing:

• Thepro-competitivepools:ifthepatentsexamined

arecomplementary,thepoolcouldhaveonlyone

result:bewelfare-enhancing.

Patentpoolsprovideclearness,lettheflowofinformationbe

simplifiedandallowtheadoptionofatechnological

standard.

Theeffectofamorefluidinformationflow,resultsina

decreasingimpactontransactioncostsinrelationtothe

timeandtheeffectivecostsinachievingwhatyourequire.

Thepatentpoolcouldbeconsideredanusefuland

applicablesolution,ifnotthebest,inanenvironmentwhere

133

fragmentationarisesasthemainobstacletotheuseof

knowledge.

Themissionofthepoolistogatheragroupofpatents

belongingtodistinctivepatentholderinordertofacilitate

theirutilizationinthemarket,ingeneral,andforthe

manufacturerofthedownstream,inparticular.

Withoutthisformation,fragmentation,whicharisesinthe

Intellectualpropertysituation,consequentlyleadtoanon-

useofknowledge,thereforetotheso-calledTragedyofAnti-

commons.

Moreover,apartfromtheimplementationofaproperuseof

knowledge,thedevelopmentexpectationduetothenetwork

externalities,existinginthetechnologicalsectors,andthe

economiesoflearningareimprovedbythepatentpool.

Fortheusers,thepresenceofnetworkexternalitiesmeans

haveamuchgraternumberofadopters;consequentlythey

mightalsoprofitfromalowerpriceofproductsthat

134

incorporate.

Certainlytheimplementationofneweconomiespermit

increasingtheperformanceoftechnologyandreducing

productioncosts;Obviouslyinordertoachievethiskindof

levels,boththeeconomiesofscaleandexperienceshould

reachasignificantandsubstantiallevelofproduction.

Onlyiftheseconditionsoccur,itdeterminesareductionof

costsfortheconsumersandanimprovementof

performance.

Thereforeifthetechnologyspreadsinthemarketandthe

numberofusersincreases,becominghuge,inpresenceof

networkexternalities,economiesofexperiencewillbe

obtained.ObviouslyinabsenceofentitiessuchasthePatent

Pool,itwillstandatthemercyofAnti-commonsanda

significantlossintermsofsocialwelfarewouldbegenerated

asaresultoftheunder-utilizationofknowledge.

Thepatentpool,encouragingtheendorsementof

135

technology,allowsthereachingofeconomiesoflearning

morerapidlyandadditionallyimprovestheinnovative

processofaggregateknowledge,overandabovesupplying

tothedownstreamproducers,whoarealwayshuntingfor

distinctiveapplications,directingresourcestowards

researchanddevelopment.

Clearly,duetotheinnovationprocessthatbecomesfaster,

thesupplementarytechnologycycleswillbereduced,and

therewillbemoreprobablethemanifestationof

discontinuity.

Thismechanismcreatesnegativeeffectsforplayers

operatingintheseareas,butmeanwhileresultsinpositive

effectsforthecommunitybecauseitencouragesthe

productionofnewknowledge.

Inthisstandpoint,theintellectualpropertyrightsprotection

mechanism,permitsthespilloverfromthosewhohave

contributedtothisprogressandgrowthandconcurrently

allowsanimprovementofsocialwelfareforapplications

136

resultantfromupgradedknowledge.

Thepatentpoolswillcarrybenefitsforboththecommunity

anditsmembers.

Thememberswillbenefitsfromtheiraggregation,because

therewillbeanincreaseincompetitivenessthatcomesfrom

themergerofknowledgebelongingtothemembers,because

oftheachievementofeconomiesofexperience,becauseof

thefasterpreservedtechnologydiffusion,andbecauseofthe

incomeresultingfromit.

Socialwelfarewilldevelopasaresultoftheincreasein

informationobtainableonthemarket,thelowercosts

associatedwiththedevelopmentofthisknowledge,the

graterdiffusionoftechnologyandtheimprovedabilityto

generateaggregateknowledge.

137

Therealsideofthecoinisthat:Patentpoolsfortechnologies

likeDVD/MPEGtechnology,2G/3Gmobile

telecommunicationsandXMLreferencedraftshaveproved

tobeasuccessinchallengingtheproblemsofpatent

thicketsandtransactioncostsinvolvedinthem.But,patent

poolsdonotremoveallthecomplications.Patentpoolsmay

bringoutsomeissuesofanti-competitiveeffects.Generally,

theincreasingnumberofpatentsisnotdirectlyproportional

withtheincreasingnumberinaggregateR&Dlevels,and

thiscouldbeoneofthemainsignalshowingthatpatent

portfoliostrategiesmaynotbewelfareimproving.

138

AccordingtoastatisticmadebyHallthepatentapplications

attheEPOincreasedfrom70,955to145,241,corresponding

toanannualgrowthrateof7.4%,whereasrealexpenditure

onR&Dincreasedfrom$398to$555billion,matchingtoan

annualgrowthrateofonly3.4%.98HashimotoandHaneda

showedthatthereisdecreaseintheR&D

efficiency/productivityrates;theirresearchwasmadeinthe

Japanesepharmaceuticalindustrybetween1983and1992.

Accordingtotheirworkinthatfieldtherewasa50%of

efficiencylosseveniffirmscontinuedtoincreasetheirR&D

expenditure99.

Additionally,theintensificationinpatentsubmissionsisa

consequenceofportfoliobattlesandnotofgenerallyneeded

R&Dasshownbythedeclineinrenewalactivitysincethe

98Hall,B.H.,Harhoff,D.,Hoisl,K.etal.“TheStrategicUseofPatentsandItsImplicationsforEnterpriseandCompetitionPolicies”,TenderforNo.ENTR/05/82,July,2007,

99Hashimoto,A.andHaneda,S.“MeasuringtheChangeinR&DEfficiencyoftheJapanesePharmaceuticalIndustry”,2008,ResearchPolicy,vol.37,10,1829-1836.

139

1990sacrossinvestmentsmostcategoriesofpatent

ownershipandcountryofpatentorigin.100

Anothersubstantialsignalisthattheproliferationofpatent

applicationshasbeenfollowedbyintensificationinpatent

litigation. Forexample,Chartaboveshowsthatbetween

1995and2010,thenumberofpatentsgrantedbytheUS

PatentandTrademarkOffice(USPTO)hasaugmented

meaningfully,from113,834to244,341patents,which

matchestoanannualcompoundinggrowthrateof4.88%.

100Brown,W.H.[1995],TrendsinPatentRenewalsattheUnitedStatesPatentandTrademarkOffice,inWorldPatentInformation

140

Andatthesametime,eventhetotalnumberofpatentcases

marchedintheUSDistrictCourtshasalsoamplifiedfrom

1,723to3,269cases,correspondingtoanannual

compoundinggrowthrateof4.06%. Obviouslypatent

litigationishighlycostly,andforthisreasonitincludes

manyindirectcosts,whicharesociallywasteful.Bessenand

Meurerduringtheirstudyanalyzingpatentlawsuitfilings

discoverythattheexpectedcombinedlossoflitigating

partiesispossiblymuchbiggerthantheexpectedattorneys’

feesduetoindirectbusinesscosts.Themainconcernabout

thesedirectandindirectcostsisthattheriskofviolationcan

negativelyaffecttheR&Deffortsoffirmsandhenceactasa

taxoninnovation101.

Theconclusionderivedfromthispartisthatitishighly

difficulttoidentifywhichpatentingactivitiesshouldbe

bannedfromapolicystandpointasthesepatenting

101 Bessen,J.andMeurer,M.J.“ThePrivateCostsofPatentLitigation”,February12008,BostonUniversitySchoolofLawWorkingPaperNo.07-08.

141

strategiesarealsoapartoffirms’innovationevaluations,in

factthepoolingofpatentsappearstohaveapositiveimpact

onR&Dactivityandsocialwelfare,butashighlightedbythe

realdates,thepathofthepoolisnotforeseeable,becauseit

isinfluencedbytoomuchvariablesthatarenoteasily

identifiable.

142

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149

Summary

Theattemptofthispaperistounderstandandshowifthe

formationofpoolscouldfacilitateinformationsharingand

couldincreasespilloversintechnologydevelopment,

decreasing,atthesametime,thedegreeofproduct

differentiation.

Otherwise,onthecontrary,ifthepoolcanadverselyaffect

thewelfare,andsothetechnologyprogress,byreducingthe

incentivestowardsproductdevelopmentandproduct

marketcompetition,evenwithperfectlycomplementary

patents.

Theconventionalopinionisthatcreationofpatentpoolsis

welfareenhancingwhenpatentsarecomplementary,but

thisviewdoesnotaccountforthehypotheticallysubstantial

roleoftheeffectofpoolingontheinnovation.

150

Myanalysiswouldliketoshow,evenwiththeuseof

mathematicaltools,whicharetherealeffectsofthepatents

pool.

Moreindetail,Istartedintroducingtheideaofproperty,and

thethreetypesofit,whichisatthebaseoftheideaof

Patent.

Thentoreachmypointitwasnecessarytostartfromthe

baseofthissystem:thepatent.

Fundamentallythestudyofthepatents,andtheir

denominationandtheiroriginisatthecentreofallthe

structureofthepool.

Thedifferentpatentsaretheessentialandnoessentialones,

andthesubstitutableandcomplementaryones.

Thetwoconceptsarelinked;infacttheessentialpatentsby

naturearecomplementary.

Insteadthemaindifferencebetweensubstitutableand

complementaryisseenintheformationofthepatent,infact

accordingtotheguidelinesthecomplementarypatents

couldandhavetobeinapool.

151

Thesubstitutableatthecontraryhavenottobeinthesame

poolinordertonotbeconsideredanticompetitive.

Afterhavingidentifiedallthetypeofpatents,Icould

introducetheconceptofthepatentpoolinallitsaspects,

analyzingeventhecriteriaofpatentability.

InthisphaseIwentthroughoneofthemainproblemof

patentlinkedtotheunusedofaresource,inordertoanalyze

whyapoolcouldbeasuccessfulsolution.

Theentiresectiontwoofthethesisisfocusonthedefinition

andthenatureofthepool.

ThenIwentthroughtheHistoryofthepatentpoolto

analyzethefirstexamplesintheformationofthepool,so

theoneoftheSewingMachine,passingthroughtheoneof

theAutomobileManufacturersAssociation,theoneofthe

radiotransmitter(litigatedbetweenBritishMarconi,

AmericanMarconi,GeneralElectric(GE),Westinghouse,

AmericanTelephoneandTelegraph(AT&T),LeeDeForest

andEdwinArmstrong),theoneofthemanufacturer’s

AircraftAssociationandfinallythebiggestonesrelativeto

152

thetelecommunicationsector,untilarrivetothemostrecent

onethatdealswiththe4G/LTEsystem.

MoreoverIthoughtthatonemoreimportantstepwasto

differentiatebetweenalltheguidelines,concerningthe

themeofanticompetitioninthefieldofthepatent.

Inmyopinionthemainresourcetoreallyanalyzethe

actionsofthepoolandthereactionsagainstthemwasto

analyzetheUSA,theEuropeanandtheJapaneseguidelines,

inordertohaveanideaabouthowsodifferentnationscould

dealwithit.

ThestartingpointwastheAmericanGuideline;Ibeganfrom

theNineNoNOs,andthenthesuccessiveandlessstrictly

antitrustguidelines,“AntitrustEnforcementGuidelinesfor

InternationalOperations”,followedinthe1995by“Antitrust

GuidelinesforthelicensingofIntellectualproperty”.

Obviouslyeachinnovationcarrieswithitprosandcons,

eveninthiscase.Fortunatelythepoolseemstocreatemore

procompetitiveeffectsthencompetitiveconcerns.

153

SoafterhavingexaminedsomecasesIfoundoutthe

principalprosandconsthatIhaveexplainedinthechapter

4.

Theprocompetitiveeffectsemergedaftertheanalysisare:

Thepromptdevelopmentoftechnology,thereductionof

transactionfee,theauthorizationofblockingpatentsandthe

reductionoflitigationcosts.

InthatphaseIhavepointedthemaincharacteristicsofthe

modernpatentpoolaccordingtoDaenUijl,BekkerseDe

Vries.

Onthecontrarythecompetitiveconcernsare:thealteration

ofcompetition,thediscouragingeffectoninnovation,the

protectionofInvalidpatentsandtheformationofpatent

Troll(liketheoneofSmarthflash).

Thechapter5,it’sabouttheeconomicofthepool,I

introduceddifferenteconomicsmodelliketheoneofGilbert

andShapiro,theoneofLernerandTyrole,theoneof

BrennerandtheoneofAokiNagaokaandfinallytheoneof

154

DequiedtandVersaevelbutprincipallyItalkedaboutthe

morecompletemodel,accordingtomyopinion,madeby

ProfessorDanielQuintabouttheeconomicinterpretationof

thepool.

Thegoodideainhisthesisistocreatedifferentcategoriesof

pool,madeupbydifferentcategoriesofpatentsandanalyze

alltheeconomicpositiveoradversesituationandpath.

UnderstandablyIhavetakenthesimplestpartofthemodel,

madeupbyanuncountablenumberofmathematical

explanations,inordertoarrivetotherealeffectsofthe

differentpoolsonthesocialwelfare.

Indeedatthispointtheanalysisofallthestructurerelative

tothepoolwasalsohelpful.

Becauseaccordingtheirstructurethepoolscouldbemore

complex,moreexpensivebutatthesametimemorehelpful.

Theexplanationoftheformationofthepool,letintroduceall

thedifficultiesincreatingasuchhugeorganization.

155

SubsequentlycollectingalltheinformationIcouldgomore

indetailinthe4G–LTEcase,havingtheentireinstruments

toreallyanalyzesuchacomplexcase.

Thelastchapterpresentstheconclusions;Ichoosetogather

dataabouttherealimpactofthepoolontheeconomy

associatedtothepossibleimpactsthattheyprobablyhadto

have.

Accordingtotheexaminationtherearedifferent

discrepancies.

Actuallyevenifthenumberofpatentcaseswasincreased,

thisnumberisnotdirectlyproportionaltotheincreasing

numberinaggregateR&Dlevels,thisshowsthatthepatent

portfoliostrategiesmaynotbewelfareimproving.

Goingmoreindeepinthisanalysis,takingtheexampleof

theJapanesepharmaceuticalindustrybetween1983to

1992,theincreaseintheR&Dexpenditurereflectsan

efficiencylossof50%.

Moreovertheincrementalnumberofpatentapplicationsisa

consequenceofaportfoliobattlesandnotofgenerally

156

neededR&D,thismakesworsetherelativesituationof

patentlitigation.

Thisriskbecomesataxoninnovation.

Probablywhatintheendemergesisthattheregulation

shouldbefixedaccordingtotheevolutionofthepatent,and

theappearanceofnotpredictablesigns.

ThisiswhatIfoundoutafterhavingreadmanypapers

aboutpoolingandafterhavingexamineddifferentcases.

MyprincipalresourcescomesfromtheWorldWideWeb,

thefocaltopicsIfoundwereintheSISVELwebpage,which

isthemainimportantcompanydealingwithPatentPooling.

ThentraditionallibrarysearchwasanothermethodIhave

embracedforlocatingsourcesofinformation.

Sincethisargumentisnotpurelyeconomic,butalsorelated

tothelawandlegalworld,Ihadtoreportsomeregulations

fromtheEUandUSantitrustguidelinesforpatentpool.

157