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Adverse effects of patent pooling on product development and commercialization

  • Jeitschko, Thomas D.
  • Zhang, Nanyun

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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  1. Bourreau, Marc & Dogan, Pinar, 2010. "Cooperation in Product Development and Process R&D Between Competitors," Scholarly Articles 4863170, Harvard Kennedy School of Government.
  2. Dequiedt, Vianney & Versaevel, Bruno, 2013. "Patent pools and dynamic R&D incentives," International Review of Law and Economics, Elsevier, vol. 36(C), pages 59-69.
  3. María José Gil Moltó & Nikolaos Georgantzís & Vicente Orts, 2004. "Cooperative R&D with Endogenous Technology Differentiation," Industrial Organization 0401009, EconWPA.
  4. Jay Pil Choi, 2009. "Patent Pools and Cross-Licensing in the Shadow of Patent Litigation," Global COE Hi-Stat Discussion Paper Series gd08-044, Institute of Economic Research, Hitotsubashi University.
  5. Gastón Llanes & Stefano Trento, 2010. "Patent Policy, Patent Pools, And The Accumulation Of Claims In Sequential Innovation," UFAE and IAE Working Papers 856.10, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  6. repec:cmi:wpaper:cemi-report-2006-010 is not listed on IDEAS
  7. 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.
  8. Nisvan Erkal & Deborah Minehart, 2008. "Optimal Sharing Strategies in Dynamic Games of Research and Development," EAG Discussions Papers 200806, Department of Justice, Antitrust Division.
  9. Ghosh, Arghya & Morita, Hodaka, 2012. "Competitor collaboration and product distinctiveness," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 137-152.
  10. Sung-Hwan Kim, 2004. "Vertical Structure and Patent Pools," Review of Industrial Organization, Springer, vol. 25(3), pages 231-250, 07.
  11. Steffen Brenner, 2009. "Optimal formation rules for patent pools," Economic Theory, Springer, vol. 40(3), pages 373-388, September.
  12. 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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