By Ariana Garrotto, a 1L at Sandra Day O’Connor College of Law at Arizona State University. Ariana is a fellow in the McCarthy Institute.
Introduction
Patent pools are agreements between two or more patent holders to share or license their patents to each other or to external parties. [1] In 1856, the first patent pool in the United States was formed, called the “Sewing Machine Combination.”[2] This patent pool included the intellectual property of four different entities, including Elias Howe, the sewing machine’s inventor.[3]
Patent pools are especially popular in industries where technologies rely on multiple complementary patents to create effective product solutions.[4] Thus, a patent pool will allow a potential licensee or technology user to gain all, or a majority, of the necessary patents for a specific technology in one place.[5] Patent pools may be managed either by an administrative entity or through cross-licensing agreements between patent holders and third-parties.[6] Today, patent pools help proliferate industry standards, offering companies access to technologies that promote innovative products and services.[7] However, patent pools, while facilitating innovation, can have negative effects on competition.[8] This paper will explore the concept of patent pools, their purposes, advantages, and drawbacks.[9]
What are Patent Pools?
When a group of patent holders agree to jointly license their patents for a specific technology to each other and to third parties, a patent pool is formed.[10] Patent pools are often established after a technology has been standardized.[11] Typically, a patent pool provides access to all, or most, Standard Essential Patents for a particular technology, simplifying the process of obtaining the requisite licenses.[12] In exchange for using the patents within the pool, licensees are generally required to pay royalties.[13]
Benefits of Patent Pools
Patent pools are a collaborative business model designed to simplify the licensing process for complementary patents.[14] By consolidating the necessary patent rights for a specific technology, patent pools lower search costs by reducing the need for multiple freedom-to-operate assessments.[15] Reducing the total number of searches required to identify essential patents shifts search costs from licensees to patent holders.[16] Patent pools also help minimize patent litigation, contributing to both economic and industry efficiency.[17]
Furthermore, patent pools eliminate the need for lengthy negotiations with numerous patent holders, streamlining the process for both licensees and licensors.[18] These benefits can save patent users large amounts of money[19] A potential licensee will only have to negotiate with a single party to get access to the Standard Essential Patents because of the single-stop model. [20] This limits extensive negotiations with several different parties.[21] These benefits provide certainty to the licensee, the licensor, and the market.
Drawbacks of Patent Pools
While there are benefits to patent pools, they also are certain disadvantages.[22] Due to the patent pool model, the contract of the “Standard Essential Patent” may contain more rigid terms.[23] Often the same terms will be entrusted to all members under the fair, reasonable, and nondiscriminatory (FRAND) standard.[24] These terms cannot be changed.[25] Moreover, strategic patenting may limit innovation and competition among different technologies.[26] Patent pools can also have severe implications for antitrust tendencies because they often involve competitors collaborating, which could lead to coordinated output restrictions.[27] Patent pools can also limit innovation if they discourage individual research and development.[28]
Conclusion
Patent pools are an interesting aspect of intellectual property law because they can simplify the patent search and licensing process. Benefits include reducing transaction costs and promoting technology standardization across industries. Additionally, patent pools promote innovation, giving both inventors and manufacturers easier access to essential patents while reducing legal costs. However, despite the significant innovative effects, patent pools tend to have reduced flexibility in the terms of their licenses and can be anticompetitive. While patent pools are a tool to increase innovation in the technology industry, they must adhere to industry and global standards.
[1] Philip B. Nelson, Patent Pools: An Economic Assessment of Current Law and Policy, 38 Rutgers L.J. 539, 539 (2007).
[2] What is a Patent Pool?, Sisvel (May 15, 2020), https://www.sisvel.com/insights/what-is-a-patent-pool/#:~:text=The%20first%20US%20patent%20pool,machine%20related%20IP%2C%20including%20Singer.
[3] Id.
[4] Nelson, supra note 1, at (where?).
[5] Id.
[6] Id.
[7] Id.
[8] Id.
[9] Id.
[10] Steven C. Carlson, Patent Pools and the Antitrust Dilemma, 16 Yale J. on Reg. 359 (1999).
[11] Nelson, supra note 1, at 547.
[12] Olaf Ungerer, The pros and cons of standards-based patent pools, Page White Ferrer (Aug. 4, 2021), https://www.pagewhite.com/news/the-pros-and-cons-of-standards-based-patent-pools.
[13] David M. Epstein, Eckstrom’s Licensing in Foreign and Domestic Operations § 12:29 (2024).
[14] Robert P. Merges & Michael Mattioli, Measuring the Costs and Benefits of Patent Pools, 78 Ohio St. L.J. 281, 297(2017).
[15] Id.
[16] Id.
[17] Id.
[18] Id.
[19] Id.
[20] Scott Sher et al., The Role of Antitrust in Evaluating the Competitive Impact of Patent Pooling Arrangements, 13 Sedona Conf. J. 111, 113 (2012).
[21] Id.
[22] Ungerer, supra note 12.
[23] Id.
[24] Id.
[25] Id.
[26] Id.
[27] Pramod Chintalapooli, The Emergence of Patent Pools in the Tech Industry: Benefits and Drawbacks, Chip Law Group (Sept. 18, 2023), https://www.chiplawgroup.com/the-emergence-of-patent-pools-in-the-tech-industry-benefits-and-drawback/.
[28] Id.