Merges (1999) - Institutions For Intellectual Property Transactions

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Reference

• Merges, Robert P (1999), "Institutions for intellectual property transactions: the case of patent pools", University of California at Berkeley Working Paper

@article{merges1999institutions,
  title={Institutions for intellectual property transactions: the case of patent pools},
  author={Merges, Robert P},
  journal={University of California at Berkeley Working Paper},
  year={1999},
  abstract={In this Chapter I hope to accomplish three things: briefly summarize trends in the economic theory of intellectual property rights (IPRs); describe some ideas of my own on the emergence of IPR exchange institutions, and describe how an emphasis on institutions fits into existing theory; and ground these issues in a discussion of collective IPR licensing, in particular, patent pools. I begin with a discussion of how transactions have crept into IP theory, and then turn to an examination of actual institutions that have evolved out of the need for various industries to conduct a large volume of IPR transactions.},
  discipline={Law},
  research_type={Discussion},
  industry={High-tech},
  thicket_stance={},
  thicket_stance_extract={},
  thicket_def={},
  thicket_def_extract={},  
  tags={Pools},
  filename={Merges (1999) - Institutions For Intellectual Property Transactions.pdf}
}

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Abstract

In this Chapter I hope to accomplish three things: briefly summarize trends in the economic theory of intellectual property rights (IPRs); describe some ideas of my own on the emergence of IPR exchange institutions, and describe how an emphasis on institutions fits into existing theory; and ground these issues in a discussion of collective IPR licensing, in particular, patent pools. I begin with a discussion of how transactions have crept into IP theory, and then turn to an examination of actual institutions that have evolved out of the need for various industries to conduct a large volume of IPR transactions.

Review

Definition of patent thicket

• Article focusses on the "anti-commons" problem associated with patent thickets.

"Businesspeople must bundle numerous rights to make good use of the resource. If various impediments to bargaining are present, this may prove difficult; as a result, the resource may be underutilized."

Discussion

The paper reviews literature on the history and effectiveness of patent pools including recent patent pools such as MPEG-2 and DVD, mostly focused on U.S. experience, but also considers European policies.

"This comes down to a question of whether the transactional benefits of pooling outweigh the potential social costs. These costs, which would follow from the anticompetitive potential that follows from pooling, would likely take the form of restricted entry in the relevant industry, and ultimately higher consumer prices."

• The paper concludes Patent Pools have been a very effective solution for overcoming the complications that arise from a large number of complementary patents by reducing the transaction costs of exchanging rights.

"As an illustration of unadorned private liability rules, few institutions compare to the patent pool. Multiple patent holders assign or license their individual rights to a central entity, which in turn exploits the collective rights by licensing, manufacturing, or both. In addition, and most importantly, the pool regularizes the valuation of individual patents..."

Social Welfare Consequences

• Many patent pools have in fact been cartels, and thus, they are now vigorously pursued by antitrust authorities.
• Since patents are gaining increasing strength and presence in many industries, the lack of pools in the current environment suggests excessive deterrence due to anti-trust concerns, which undermines the patent pool strategy as a means of overcoming the anti-commons situation.

Policy Advocated in Paper

• Antitrust authorities should understand the savings from industry-established transactional mechanisms.
  • Reason should be applied during any review.
  • A better understanding of how government policy can be used is also needed.

"To bring about the full benefits of contractual liability rules in the patent sphere, it may actually make sense for the government to contribute to the formation of pools and other exchange mechanisms."

"Jorde and Teece argue in favor of liberal antitrust treatment of all manner of interfirm cooperation, including but by no means limited to joint ventures and 'information sharing.' While they generate their predictions from a Schumpeterian-innovation framework, and couch them more in terms of antitrust policy, in broad terms we share the conclusion that policy ought to generally favor interfirm cooperation."