Tacit Patent Pooling

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We define tacit patent pooling as a non-contractual arrangement in which producers freely utilize one another's patented technologies without charging license fees or filing infringement claims. This differs greatly from the standard notion of (explicit) patent pooling considered in the literature, which typically involves patent holders who set license fees collectively in order to profit from the elimination of double marginalization. In particular, explicit pooling is intended to increase licensing revenues, while tacit pooling is intended to avoid licensing altogether. Tacit pooling is commonly profitable for small firms in innovative industries plagued by patent thicket problems, such as small software publishers. We show that tacit pooling may be a profitable cooperation strategy in a prisoner's dilemma game whose equilibrium involves aggressive cross-licensing in the shadow of litigation, as well as costly "disguising" of potential infringements. This practice is always socially desirable, as it reduces transaction and litigation costs, and it promotes idea sharing among inventors. We analyze how various phenomena may affect the scope and stability of tacit pooling. Large patent acquisitions may in principle be welfare enhancing if they serve to facilitate tacit pooling, but these efficiencies can be offset if firms regularly invest heavily in secondhand patents. The availability of injunctive relief as an infringement remedy will tend to forestall tacit pooling arrangements in concentrated markets, as its value as an exclusionary device will commonly outweigh the gains from tacit pooling, leading firms to prefer aggressive litigation strategies. The desire to facilitate tacit pooling may incentivize acquisition of patents that are ultimately never asserted, helping to explain the "patent paradox," which questions why many firms invest heavily in patents that ostensibly yield negative returns.

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This paper reviews the antitrust treatment of patent pooling and cross-licensing arrangements from E. Bement v. National Harrow, decided in 1902, to the Department of Justice business review letters on the MPEG and DVD patent pools. I examine the factors that the courts identified as pertinent to the antitrust outcome and compare them to the competitive factors identified in the DOJ/FTC Antitrust Guidelines for the Licensing of Intellectual Property. Until recently, the competitive relationship of the patents was not a major determinant of the antitrust outcome in most cases. Instead, the courts have focused on restrictive licensing terms that affect downstream prices. I consider the logic of this approach to evaluating antitrust liability. I also propose an approach to evaluating the antitrust risks of arrangements that combine potentially blocking patents.
The conflict between antitrust law and patent policy has incessantly perplexed courts and commentators. In this Article, Professor Kaplow develops and analyzes a conceptual solution to the patent-antitrust puzzle. This analysis is applied in a number of familiar contexts, and the resulting conclusions call into question much of the earlier analysis of these issues. Both the development of the model and the attempt to apply the theoretical framework in practice indicate that the problem is far more complex than has previously been realized. This Article is an attempt to clarify the issues, but in the end it may reinforce existing pessimism concerning the possibility of untangling the patent-antitrust intersection. The discussion also illustrates the difficulty of applying economic analysis to concrete problems in a manner that yields confident conclusions.
Historically, Open Innovation Communities (OICs), such as those who make free and open source software (FOSS), have opted out of the patent system for three main reasons: Patents are expensive to acquire and enforce; they are philosophically, culturally, and politically anathema to many OIC members; and even when they appear to be acquired for “defensive” or other altruistic purposes, there has been no guarantee against someone later “weaponizing” them for use in an offensive attack.In this article, we first analyze how and why various OICs have approached strategic concerns about intellectual property and then make a case for why OICs should – and indeed must – opt back into the patent system if they wish to protect themselves from the growing threats that patents pose, including threats from the increasingly complex “thicket” of patents on software, standards, and ecosystems that have become the battlegrounds over technologies such as smartphones, online video, and social media. We support our argument with a proposal for a new OIC patent license – the Defensive Patent License. Built on legal and normative approaches similar to the GNU General Public License and Creative Commons licensing, the DPL directly addresses the three reasons for OIC opt-out and provides several positive reasons for opting in, including increasing access and interoperability between OIC technologies, improving the prior art, imposing legally-binding restrictions that require DPL patents to remain “defensive,” and preventing patent trolls, “bullies,” or others from ever asserting DPL patents against those who use the license. We end with a comparison of the DPL to other OIC patent strategies to situate it within the current set of options OICs face in dealing with patent threats.
Professor Calabresi and Mr. Melamed develop a framework for legal analysis which they believe serves to integrate various legal relationships which are traditionally analyzed in separate subject areas such as Property and Torts. By using their model to suggest solutions to the pollution problem that have been overlooked by writers in the field, and by applying the model to the question of criminal sanctions, they demonstrate the utility of such an integrated approach.
In this article, we apply economic analysis in an effort to derive the optimal damages rules for use in patent, trade secret, copyright, and trademark disputes. We proceed on the basis of two key assumptions: first, that in order to preserve the intellectual property owner's incentives to create, publish, or maintain quality control, the owner should never be rendered worse off as a result of an infringement; and second, that in order to preserve the property-like character of intellectual property rights, the infringer should never be rendered better off as a result of the infringement. On the basis of these assumptions, we conclude that the general damages rule for use in intellectual property disputes should be that the prevailing plaintiff recovers the greater of either her actual damages or the defendant's profits attributable to the infringement, with the possibility of a damages enhancement as a means of deterring infringements that are difficult to detect. We then discuss three ways in which the rules that actually govern in intellectual property disputes depart from this model--the absence of a restitutionary remedy in patent law; the use of "statutory damages" in copyright law; and the limitation on the recovery of restitutionary damages in trademark law- and consider whether these departures from the model can be viewed as rational adaptations to certain specific features of these bodies of law.
The role of institutions in mediating the use of intellectual property rights has long been neglected in debates over the economics of intellectual property. In a path-breaking work, Rob Merges studied what he calls "collective rights organizations," industry groups that collect intellectual property rights from owners and license them as a package. Merges finds that these organizations ease some of the tensions created by strong intellectual property rights by allowing industries to bargain from a property rule into a liability rule. Collective rights organizations thus play a valuable role in facilitating transactions in intellectual property rights. There is another sort of organization that mediates between intellectual property owners and users, however. Standard-setting organizations (SSOs) regularly encounter situations in which one or more companies claim to own proprietary rights that cover a proposed industry standard. The industry cannot adopt the standard without the permission of the intellectual property owner (or owners). How SSOs respond to those who assert intellectual property rights is critically important. Whether or not private companies retain intellectual property rights in group standards will determine whether a standard is "open" or "closed." It will determine who can sell compliant products, and it may well influence whether the standard adopted in the market is one chosen by a group or one offered by a single company. SSO rules governing intellectual property rights will also affect how standards change as technology improves. Given the importance of SSO rules governing intellectual property rights, there has been surprisingly little treatment of SSO intellectual property rules in the legal literature. My aim in this article is to fill that void. To do so, I have studied the intellectual property policies of dozens of SSOs, primarily but not exclusively in the computer networking and telecommunications industries. This is no accident; interface standards are much more prevalent in those industries than in other fields. In Part I, I provide some background on SSOs themselves, and discuss the value of group standard setting in network markets. In Part II, I discuss my empirical research, which demonstrates a remarkable diversity among SSOs even within a given industry in how they treat intellectual property. In Part III, I analyze a host of unresolved contract and intellectual property law issues relating to the applicability and enforcement of such intellectual property policies. In Part IV, I consider the constraints the antitrust laws place on SSOs in general, and on their adoption of intellectual property policies in particular. Part V offers a theory of SSO intellectual property rules as a sort of messy private ordering, allowing companies to bargain in the shadow of patent law in those industries in which it is most important that they do so. Finally, in Part VI I offer ideas for how the law can improve the efficiency of this private ordering process. In the end, I hope to convince the reader of four things. First, SSO rules governing intellectual property fundamentally change the way in which we must approach the study of intellectual property. It is not enough to consider IP rights in a vacuum; we must consider them as they are actually used in practice. And that means considering how SSO rules affect IP incentives in different industries. Second, there is a remarkable diversity among SSOs in how they treat IP rights. This diversity is largely accidental, and does not reflect conscious competition between different policies. Third, the law is not well designed to take account of the modern role of SSOs. Antitrust rules may unduly restrict SSOs even when those organizations are serving procompetitive ends. And enforcement of SSO IP rules presents a number of important but unresolved problems of contract and intellectual property law, issues that will need to be resolved if SSO IP rules are to fulfill their promise of solving patent holdup problems. My fourth conclusion is an optimistic one. SSOs are a species of private ordering that may help solve one of the fundamental dilemmas of intellectual property law: the fact that intellectual property rights seem to promote innovation in some industries but harm innovation in others. SSOs may serve to ameliorate the problems of overlapping intellectual property rights in those industries in which IP is most problematic for innovation, particularly in the semiconductor, software, and telecommunications fields. The best thing the government can do is to enforce these private ordering agreements and avoid unduly restricting SSOs by overzealous antitrust scrutiny.
We investigate how liability rules and property rules protect intellectual property. Infringement might not be deterred under any of the enforcement regimes available. However, counter-intuitively, a credible threat of infringement can actually benefit the patentholder. We compare the two doctrines of damages, lost profit (lost royalty) and unjust enrichment, and argue that unjust enrichment protects the patentholder better than lost royalty in the case of proprietary research tools. Both can be superior to a property rule, depending on how much delay is permitted before infringement is enjoined. For other proprietary products (end-user products, cost-reducing innovations), these conclusions can be reversed. Copyright 2001 by the RAND Corporation.
In markets with sequential innovation, inventors of derivative improvements might undermine the profit of initial innovators through competition. Profit erosion can be mitigated by broadening the first innovator's patent protection and/or by permitting cooperative agreements between initial innovators and later innovators. We investigate the policy that is most effective at ensuring the first innovator earns a large share of profit from the second-generation products it facilitates. In general, not all the profit can be transferred to the first innovator, and therefore patents should last longer when a sequence of innovations is undertaken by different firms rather than being concentrated in one firm.
In several key industries, including semiconductors, biotechnology, computer software, and the Internet, our patent system is creating a patent thicket: an overlapping set of patent rights requiring that those seeking to commercialize new technology obtain licenses from multiple patentees. The patent thicket is especially thorny when combined with the risk of hold-up, namely the danger that new products will inadvertently infringe on patents issued after these products were designed. The need to navigate the patent thicket and hold-up is especially pronounced in industries such as telecommunications and computing in which formal standard-setting is a core part of bringing new technologies to market. Cross-licenses and patent pools are two natural and effective methods used by market participants to cut through the patent thicket, but each involves some transaction costs. Antitrust law and enforcement, with its historical hostility to cooperation among horizontal rivals, can easily add to these transaction costs. Yet a few relatively simple principles, such as the desirability package licensing for complementary patents but not for substitute patents, can go a long way towards insuring that antitrust will help solve the problems caused by the patent thicket and by hold-up rather than exacerbating them.
Reforming Software Patents Legal Studies Research Paper No. 08-12 Available at SSRN: DENICOLO' , V. Two-Stage Patent Races and Patent Policy
  • Colleen V Chien
Chien, Colleen V., Reforming Software Patents (December 20, 2012). Houston Law Review, Vol. 50, No. 2, 2012; Santa Clara Univ. Legal Studies Research Paper No. 08-12. Available at SSRN: DENICOLO', V. Two-Stage Patent Races and Patent Policy. RAND Journal of Economics, Vol. 31 (2000), pp. 488-501.
One View of the Cathedral
One View of the Cathedral. Harvard Law Review, Vol. 85 (1972), pp. 1089-1126.
Available at SSRN: http://ssrn
California Law Review, Vol. 89, p. 1, 2001. Available at SSRN: or
  • Josh Lerner
  • Jean Tirole
Lerner, Josh and Jean Tirole (2004), Efficient Patent Pools,American Economic Review 94:691-711.