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Should good patents come in small packages? A welfare analysis of intellectual property bundling

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  • Gilbert, Richard J.
  • Katz, Michael L.

Abstract

Intellectual property owners often hold the rights to several patents, each of which is essential to make or use a product. We compare the welfare properties of package licenses, under which a licensee pays the same fee regardless of the number of technologies licensed, with component licenses, under which each technology is licensed separately and there is no quantity discount. A central finding is that a long-term package license can induce incentives to invent around patents and invest in complementary assets that are closer to their socially optimal levels than are those induced by a long-term component license. We also identify settings in which a short-term license is a partial substitute for a package license and a prohibition on package licensing induces parties to adopt contracts that result in less efficient complementary investment because of hold-up.
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  • Gilbert, Richard J. & Katz, Michael L., 2006. "Should good patents come in small packages? A welfare analysis of intellectual property bundling," International Journal of Industrial Organization, Elsevier, vol. 24(5), pages 931-952, September.
    • Handle: RePEc:eee:indorg:v:24:y:2006:i:5:p:931-952
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    Cited by:

    1. Rockett, Katharine, 2010. "Property Rights and Invention," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 315-380, Elsevier.
    2. Layne-Farrar, Anne & Salinger, Michael A., 2016. "Bundling of RAND-committed patents," Research Policy, Elsevier, vol. 45(6), pages 1155-1164.
    3. Langinier, Corinne, 2006. "Pool of Basic Patents and Follow-Up Innovations," Staff General Research Papers Archive 12647, Iowa State University, Department of Economics.
    4. Jay Pil Choi & Heiko Gerlach, 2015. "Patent pools, litigation, and innovation," RAND Journal of Economics, RAND Corporation, vol. 46(3), pages 499-523, September.
    5. Akifumi Ishihara & Noriyuki Yanagawa, 2013. "Dark Sides of Patent Pools with Compulsory Independent Licensing," CARF F-Series CARF-F-318, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    6. Packalen, Mikko, 2010. "Complements and potential competition," International Journal of Industrial Organization, Elsevier, vol. 28(3), pages 244-253, May.

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