Thursday, July 15, 2010
Patent Pools as a Solution to Efficient Licensing of Complementary Patents? Some Experimental Evidence
Posted by D. Daniel Sokol
Rudy Santore (University of Tennessee), Michael McKee (Appalachian State University) and David Bjornstad (Oak Ridge National Laboratory) discuss Patent Pools as a Solution to Efficient Licensing of Complementary Patents? Some Experimental Evidence.
ABSTRACT: Production requiring licensing groups of complementary patents implements a coordination game among patent holders, who can price patents by choosing among combinations of fixed and royalty fees. Summed across patents, these fees become the total producer cost of the package of patents. Royalties, because they function as excise taxes, add to marginal costs, resulting in higher prices and reduced quantities of the downstream product and lower payoffs to the patent holders. Using fixed fees eliminates this inefficiency but yields a more complex coordination game in which there are multiple equilibria, which are very fragile in that small mistakes can lead the downstream firm to not license the technology, resulting in inefficient outcomes. We report on a laboratory market investigation of the efficiency effects of coordinated pricing of patents in a patent pool. We find that pool‐like pricing agreements can yield fewer coordination failures in the pricing of complementary patents.