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Adverse effects of patent pooling on product development and commercialization

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  • Jeitschko, Thomas D.
  • Zhang, Nanyun

Abstract

The conventional wisdom is that the formation of patent pools is welfare enhancing when patents are complementary, since the pool avoids a double-marginalization problem associated with independent licensing. This conventional wisdom relies on the effects that pooling has on downstream prices. However, it does not account for the potentially significant role of the effect of pooling on downstream innovation. The focus of this paper is on downstream product development and commercialization on the basis of perfectly complementary patents. We consider development technologies that entail spillovers between rivals, and assume that final demand products are imperfect substitutes. When pool formation facilitates information sharing and either increases spillovers in development or decreases the degree of product differentiation, patent pools can adversely affect welfare by reducing the incentives towards product development and product market competition|even with perfectly complementary patents. The analysis modifies and even negates the conventional wisdom for some settings and suggests why patent pools are uncommon in science-based industries such as biotech and pharmaceuticals that are characterized by tacit knowledge and incomplete patents. --

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Paper provided by Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE) in its series DICE Discussion Papers with number 92.

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Date of creation: 2013
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Handle: RePEc:zbw:dicedp:92

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Keywords: Patent Pools; Research and Development; Innovation; Tacit Knowledge; BioTechnology; Pharmaceutical;

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  1. Ryan L. Lampe & Petra Moser, 2012. "Do Patent Pools Encourage Innovation? Evidence from 20 U.S. Industries under the New Deal," NBER Working Papers 18316, National Bureau of Economic Research, Inc.
  2. Nisvan Erkal & Deborah Minehart, 2008. "Optimal Sharing Strategies in Dynamic Games of Research and Development," EAG Discussions Papers, Department of Justice, Antitrust Division 200806, Department of Justice, Antitrust Division.
  3. Steffen Brenner, 2009. "Optimal formation rules for patent pools," Economic Theory, Springer, Springer, vol. 40(3), pages 373-388, September.
  4. Gaston Llanes & Stefano Trento, 2009. "Patent policy, patent pools, and the accumulation of claims in sequential innovation," Harvard Business School Working Papers 10-005, Harvard Business School.
  5. Jay Pil Choi, 2009. "Patent Pools and Cross-Licensing in the Shadow of Patent Litigation," Global COE Hi-Stat Discussion Paper Series, Institute of Economic Research, Hitotsubashi University gd08-044, Institute of Economic Research, Hitotsubashi University.
  6. María José Gil Moltó & Nikolaos Georgantzís & Vicente Orts, 2004. "Cooperative R&D with Endogenous Technology Differentiation," Industrial Organization, EconWPA 0401009, EconWPA.
  7. Sung-Hwan Kim, 2004. "Vertical Structure and Patent Pools," Review of Industrial Organization, Springer, Springer, vol. 25(3), pages 231-250, 07.
  8. Bourreau, Marc & Dogan, PInar, 2010. "Cooperation in product development and process R&D between competitors," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 28(2), pages 176-190, March.
  9. Patrick Gaulé, 2006. "Towards Patent Pools in Biotechnology?," CEMI Working Papers, Ecole Polytechnique Fédérale de Lausanne, Collège du Management de la Technologie, Management of Technology and Entrepreneurship Institute, Chaire en Economie et Management de cemi-report-2006-010, Ecole Polytechnique Fédérale de Lausanne, Collège du Management de la Technologie, Management of Technology and Entrepreneurship Institute, Chaire en Economie et Management de l'Innovation.
  10. Dequiedt, Vianney & Versaevel, Bruno, 2013. "Patent pools and dynamic R&D incentives," International Review of Law and Economics, Elsevier, Elsevier, vol. 36(C), pages 59-69.
  11. Ryan L. Lampe & Petra Moser, 2009. "Do Patent Pools Encourage Innovation? Evidence from the 19th-Century Sewing Machine Industry," NBER Working Papers 15061, National Bureau of Economic Research, Inc.
  12. Ghosh, Arghya & Morita, Hodaka, 2012. "Competitor collaboration and product distinctiveness," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 30(2), pages 137-152.
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Cited by:
  1. Dequiedt, Vianney & Versaevel, Bruno, 2013. "Patent pools and dynamic R&D incentives," International Review of Law and Economics, Elsevier, Elsevier, vol. 36(C), pages 59-69.
  2. Jeitschko, Thomas D. & Jung, Yeonjei & Kim, Jaesoo, 2014. "Bundling and joint marketing by rival firms," DICE Discussion Papers 144, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  3. Ryan L. Lampe & Petra Moser, 2012. "Do Patent Pools Encourage Innovation? Evidence from 20 U.S. Industries under the New Deal," NBER Working Papers 18316, National Bureau of Economic Research, Inc.

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