When manufacturing a product in the semi-conductor or the pharmaceutical industry, a company may unintentionally infringe on a number of patents. It often has to navigate its way through a dense thicket of patents of possibly hundreds of closely-related and overlapping patents. To do so may require payment of royalties to a number of contributors to the technology. As a result, not only is the final cost of product higher than what it should have been but this also hinders the process of development of the product.
Effects of a Patent Thicket
To cut through a patent thicket may at times seem too daunting and the problem magnifies in the fields such as telecommunications, wireless and semi conductors where thousands of patents are granted each year. This may discourage a company from going ahead and manufacturing a product, which is not in the public interest as they remain deprived of
products that enable them to make use of the advanced technologies.
The Tragedy of the Anti-Commons
This chill on the market from patent thickets reverses the well-known “ tragedy of the commons”: if every herder has common land on which they can graze their herd, each herder would like to put as many as possible on the land, which over-grazes it. With a patent thicket, no herder wants to struggle through all the permissions so some of the commons – technology – does not get used enough.
Also, even if the company overcomes the thicket and come up with the product, its margins shrink as the thicket gets denser. An increasing number of right holders also results in lower license fees to each of the patentees.
Another problem that manufacturers face is the identification of essential and non-essential patents amongst a large number of overlapping patents. Essential patents are actually technically important for manufacturing or using the product. Non-essential
patents are the ones which belong to the domain of the product but are not important as far as manufacturing the product is concerned. It is, therefore of high importance that the manufacturers identify the essential patents and avoid payment of license fees for the non-essential patents.
Three Notable Ways to Cut through a Patent Thicket
Among the strategies for navigating through a patent thicket are patent pools, cross licensing and standardization.
With patent pools, holders of patents combine them and act as a single entity. A classic example commercializes the MPEG-2 technology. Fujitsu, General Instruments, Lucent, Matsushita, Mitsubishi, Philips, Scientific Atlanta, Sony and Columbia University created the pool. They found which patents were essential to the MPEG-2 technology. Currently there are 20 companies contributing to the pool which constitutes 640 patents. A separate agency handles the licensing tasks on behalf of the pool.
Cross licensing is
another strategy. Two companies may cross license their blocking patents and provide each other the freedom to operate on the technology patented by the other. Significant cross-licensing examples include the one between Microsoft and JVC which came into effect in 2008.
Cooperative standard setting is a third method to work around patent thickets. Authorities like the American Standards Institute identify the leading technologies in a particular domain as standards. The setting of a standard requires the identification of essential patents to comply with the standard. The patent owners are then required to license these patents on reasonable terms as quid pro quo before the standard can be adopted. There are antitrust concerns in the setting of standards but this has not prevented this method to deal with patent thickets.
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