Dark Sides of Patent Pools with Independent Licensing

Abstract

This study examines the welfare effects of patent pools with independent licensing. We argue that forcing patent pools to allow each individual patent holder to license the technology independently does not necessarily work as a screening tool to select only desirable patent pools. We consider a duopolistic model in which some users demand only specific technologies. We demonstrate that a patent pool with independent licensing enables patent holders to undertake anti-competitive price discrimination. Moreover, since forming a patent pool mitigates the price competition forced by lower grade entrants, combination with independent licensing might worsen welfare further.

Keywords: Patent Pools, Independent Licensing, Bundling, Price Discrimination, Foreclosure

JEL Classification: D43, K21, L13, L41