Thursday, July 12, 2012
Posted by D. Daniel Sokol
Thomas D. Jeitschko (Economic Analysis Group, Antitrust Division, U.S. Department of Justice) and Nanyun Zhang (Economic Analysis Group, Antitrust Division, U.S. Department of Justice) discuss Adverse Effects of Patent Pooling on Product Development and Commercialization.
ABSTRACT: The conventional antitrust wisdom is that the formation of patent pools is welfare en- hancing when patents are complementary, since the pool avoids a double-marginalization problem associated with independent licensing. The focus of this paper is on (downstream) product development and commercialization on the basis of perfectly complementary patents. We consider development technologies that entail spillovers between rivals, and assume that nal demand products are imperfect substitutes. When pool formation facilitates information sharing and either increases spillovers in development or decreases the degree of product differentiation, patent pools can adversely a ect welfare by reducing the incentives towards product development and product market competition|even with perfectly complementary patents. This modi es and even negates the conventional wisdom for some settings and suggests why patent pools are uncommon! in science-based industries such as biotech and pharmaceuticals, despite there being frequent policy advocacy for them.