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How Do Patent Pools Affect Innovation?

What Are Patent Pools?

A patent pool is a collaboration between two or more companies to cross-license their patents in a specific technology. This allows the use of related patents in the pool by the signatories of the contract, without the need for individual licenses or assignments.

Patent pools were created because current products cover multiple technologies owned by many different patent holders and assignees. A single smartphone, for example, may have hundreds of thousands of patents associated with it. This in turn means that it is hard for manufacturers to use necessary technology without infringing on other people’s rights, leading to the need for a reliable method of obtaining the requisite licenses to utilize the numerous patents.

Patent pools are often established to share patented technology while paying minimal research and development costs. Patent pools also assist in reducing the cost of licensing patents, the danger of violating patents, and the amount of time spent on research. Pools may, additionally, prevent the parties from suing each other over technology, bypassing potentially innumerable lawsuits. In short, the establishment of a patent pool can save patentees and licensees time and money, and in the case of blocked patents, it may be the only viable option of making the innovation available to the public.

How Did Patent Pools Start?

Over the last century, patent pools have played a significant role in determining the shape of the business. In 1856, four different companies created the first patent pool for a sewing machine. At one point in time, parties were battling each other on patent infringement. Eventually, one of the company presidents recommended that they settle their problems by allowing each other to use the technology by pooling earnings rather than running out of money. The pool consisted of nine patents and lasted till these patents expired.

Another instance of early patent pooling happened with the nascent airplane industry in the early 1900s. Multiple lawsuits were filed between the Wright-Martin Company and others, most notably the Curtiss Company, another leading airplane manufacturer. The lawsuits and battles got bad enough to affect the production of airplanes. As World War I approached, the U.S. government, which was in desperate need of warplanes, pressured airplane-related businesses to join a Patent Pool. All aircraft companies were compelled to join the pool, but the majority of royalties went to the two giants- Wright-Martin and Curtiss.

1924 saw the first instance of patent pooling leading to standardization. The Associated Radio Manufacturers, later known as the Radio Corporation of America, merged the radio interests of American Marconi, General Electric, American Telephone and Telegraph (AT&T), and Westinghouse, resulting in the standardization of radio parts, airway frequency locations, and television transmission standards.

Patent pools continue to be used as a resource in various industries. The Trustees of Columbia University, Fujitsu Limited, General Instrument Corp., Lucent Technologies Inc., Matsushita Electric Industrial Co., Ltd., Mitsubishi Electric Corp., Philips Electronics N.V. (Philips), Scientific Atlanta, Inc., and Sony Corp. (Sony) formed a more recent patent pool in 1997. Jointly share royalties from patents essential to comply with MPEG-2 compression technique specifications. In 1998, Sony, Philips, and Pioneer formed a patent pool for inventions required to comply with certain DVD-Video and DVD-ROM standard specifications. In 1999, Toshiba Corporation, Hitachi Ltd., Matsushita Electric Industrial Co., Ltd., Mitsubishi Electric Corporation, Time Warner Inc., and Victor Company of Japan, Ltd. formed another patent pool. For products that comply with the DVDROM and DVD-Video formats.

Advantages of Patent Pools

Patent pools can improve chances for innovation and cost reductions while also encouraging competition and developing industry standards.

  • Innovation: When a patent pool operates as intended, it promotes company innovation while limiting potential legal concerns associated with using other protected notions.
  • Efficiencies in Cost and Procedure: Companies with complementary patents can effectively agree not to sue each other for infringement while bringing new goods to market. Pools can lower the time and costs involved with the invention by minimizing the need for litigation and negotiating with other patent holders.
  • Reduced Transaction Expenses: Patent pool agreements can reduce transaction costs for third parties by eliminating the need to negotiate individual license arrangements with each firm and instead allowing them to engage in a single deal.

Potential Disadvantages of Patent Pools

Patent pools may also have certain disadvantages, which include the following.

  • Time and Money: While they help reduce the costs involved with developing new items, Pools do not come without staggering initial costs. They can take years to create and may necessitate an independent expert to analyze member patents.
  • Issues of Membership and Regulation: A patent pool will not properly if all of the critical participants do not agree to join the pool or agree on governance issues. In addition, a dedicated and impartial administrator would be necessary to manage the relations between the participants.
  • Concerns about Antitrust: The most severe possible disadvantages are regulatory issues and the idea that pools distort competition. While they are meant to encourage innovation, they can fact inhibit it. It is particularly evident in industries where tiny, outside enterprises account for the bulk of industries excluded from the pool.


Author: Usha Saha, Legal Intern at PA Legal.

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