This article analyzes patent pools and their effects on litigation incentives, overall royalty rates, and social welfare when patent rights are probabilistic and can be invalidated in court. With probabilistic patents, the license fees reflect the strength of the patents. We show that patent pools of complementary patents can be used to discourage infringement by depriving potential licensees of the ability to selectively challenge patents and making them committed to a proposition of all-or-nothing in patent litigation. If patents are sufficiently weak, patent pools with complementary patents reduce social welfare as they charge higher licensing fees and chill subsequent innovation incentives."> This article analyzes patent pools and their effects on litigation incentives, overall royalty rates, and social welfare when patent rights are probabilistic and can be invalidated in court. With probabilistic patents, the license fees reflect the strength of the patents. We show that patent pools of complementary patents can be used to discourage infringement by depriving potential licensees of the ability to selectively challenge patents and making them committed to a proposition of all-or-nothing in patent litigation. If patents are sufficiently weak, patent pools with complementary patents reduce social welfare as they charge higher licensing fees and chill subsequent innovation incentives."> This article analyzes patent pools and their effects on litigation incentives, overall royalty rates, and social welfare when patent rights are probabilistic and can be invalid">
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Patent pools, litigation, and innovation

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  • Jay Pil Choi
  • Heiko Gerlach
Abstract
type="main"> This article analyzes patent pools and their effects on litigation incentives, overall royalty rates, and social welfare when patent rights are probabilistic and can be invalidated in court. With probabilistic patents, the license fees reflect the strength of the patents. We show that patent pools of complementary patents can be used to discourage infringement by depriving potential licensees of the ability to selectively challenge patents and making them committed to a proposition of all-or-nothing in patent litigation. If patents are sufficiently weak, patent pools with complementary patents reduce social welfare as they charge higher licensing fees and chill subsequent innovation incentives.

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  • Jay Pil Choi & Heiko Gerlach, 2015. "Patent pools, litigation, and innovation," RAND Journal of Economics, RAND Corporation, vol. 46(3), pages 499-523, September.
    • Handle: RePEc:bla:randje:v:46:y:2015:i:3:p:499-523
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    Cited by:

    1. Doh‐Shin Jeon & Yassine Lefouili, 2018. "Cross‐licensing and competition," RAND Journal of Economics, RAND Corporation, vol. 49(3), pages 656-671, September.
    2. Marco, Alan C. & Sarnoff, Joshua D. & deGrazia, Charles A.W., 2019. "Patent claims and patent scope," Research Policy, Elsevier, vol. 48(9), pages 1-1.
    3. Choi, Jay Pil & Gerlach, Heiko, 2019. "Optimal cross-licensing arrangements: Collusion versus entry deterrence," European Economic Review, Elsevier, vol. 120(C).
    4. Lindblom Ted & Mallios Aineas & Sjögren Stefan, 2024. "A Theoretical Analysis of Collusion Involving Technology Licensing Under Diseconomies of Scale," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 24(1), pages 263-297, January.
    5. Wipusanawan, Chayanin, 2023. "Standard-essential patents, innovation, and competition," Other publications TiSEM 292e319a-9e6a-4465-8f8f-7, Tilburg University, School of Economics and Management.
    6. Tomoyuki Shimbo & Sadao Nagaoka & Naotoshi Tsukada, 2024. "Dynamic Effects of Patent Pools: Evidence from Inter-Generational Competition in the Optical Disc Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 64(3), pages 383-419, May.
    7. Chryssoula Pentheroudakis & Justus A. Baron, 2016. "Licensing Terms of Standard Essential Patents: A Comprehensive Analysis of Cases," JRC Research Reports JRC104068, Joint Research Centre.
    8. Jay Pil Choi & Heiko Gerlach, 2015. "Patent pools, litigation, and innovation," RAND Journal of Economics, RAND Corporation, vol. 46(3), pages 499-523, September.
    9. deGrazia, Charles A.W. & Pairolero, Nicholas A. & Teodorescu, Mike H.M., 2021. "Examination incentives, learning, and patent office outcomes: The use of examiner’s amendments at the USPTO," Research Policy, Elsevier, vol. 50(10).
    10. Han, Tien-Der & Mukherjee, Arijit, 2023. "Mergers of complements, endogenous product differentiation and welfare," Mathematical Social Sciences, Elsevier, vol. 126(C), pages 30-41.
    11. Aydogmus, Ozgur, 2022. "Increasing returns and path dependence in knowledge creation and their effects on the dynamics of patent pools," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 467-477.
    12. Chung, Jiyoon & Lorenz, Annika & Somaya, Deepak, 2019. "Dealing with intellectual property (IP) landmines: Defensive measures to address the problem of IP access," Research Policy, Elsevier, vol. 48(9), pages 1-1.
    13. Ishihara, Akifumi & Yanagawa, Noriyuki, 2018. "Dark sides of patent pools with independent licensing," International Journal of Industrial Organization, Elsevier, vol. 57(C), pages 1-34.
    14. Tarantino, Emanuele & Reisinger, Markus, 2016. "Patent Pools in Input Markets," CEPR Discussion Papers 11512, C.E.P.R. Discussion Papers.

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    More about this item

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General

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