Patent Pools: No Further Innovation?

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Patent pools work well for standards-based technologies; for everything else, they are anti-competitive

Often, multiple patents around a specific technology area lead to entangled patents, claims of one often pervading into the other. Besides creating patent thickets, such a scenario leads to complexities in litigation. Patent pools were formulated with the idea of preventing such casualties.

Patent pools should ideally encourage increased licensing of patents, enable exchange of technical know-how and foster innovation. Sadly, patent pools have deviated from this goal and are today used to suppress the strength of competing patents and lobby for higher pricing in end products.

Of sewing machines and war planes

When five competing sewing machine manufacturers decided to meet in New York to sue each
other for infringement, little did they know they were stitching up the world’s first patent pool. In 1856, a lawyer who goes by the name of Orlando B. Potter, got a brainwave that instead of ruining everybody’s profits by going to court and paying fines, they could rather pool their patents and leverage from each other’s IP.

The idea of patent pools was reinforced in 1917 during the 1st world war. An interesting turn of events ensured that that no US-built planes were used in the war. Two of the largest airplane manufacturers in the US — Wright Company and the Curtiss Company – held the maximum number of patents in the domain. They effectively blocked the building of any new airplanes as they were supposedly infringing on each other’s patents. Franklin Roosevelt spearheaded the formation of an aircraft patent pool encompassing all the airplane manufacturers in the US.

Anti-competition allegations

From here on, patent pools started gaining acceptance, but antitrust
authorities in Europe and US were apprehensive about patent pools since they could have anti-competitive effects. Also, patent pools end up forcing license buyers to purchase patents they may not need. Patents need to be bought as a bulk whether or not the licensee needs all of them.

Logical path ahead

In spite of this, patent pools are ideal for technologies that have a pre-defined standard, and a number of patent holders contribute to the various technology processes. In the absence of a standard, it becomes difficult to identify individual patents that are essential for a product pool, and increases ambiguity in the scope of a patent to be part of a pool.

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