Can Patent Pools Overcome Patent Roadblocks?

November 1, 2022

Patent pools: a boon or a bane for innovation? Before developing or joining patent pools, one must weigh the benefits and drawbacks in order to reduce risks and maximize rewards. A patent pool is a group of at least two businesses that have decided to cross-license patents covering a specific technology. In the event of blocking patents, the establishment of a patent pool can save licensees and patentees’ time and money.

Understanding Patent Pool

No surprise, given that innovation controls today’s globe. Frequently, multiple businesses create technologies that wind up being similar in a number of ways. In these kinds of situations, it is highly likely that one technology will infringe on another. Patent pools were established in order to resolve this. “An arrangement between two or more patent owners to license one or more of their patents to one another or to other parties,” is how WIPO defines a patent pool.

Source:https://www.mondaq.com/india/patent/1144066/patent-pool-as-a-tool-to-tackle-covid-19-pandemic

Disclaimer: we do not claim any copyright in the above image. The same has been reproduced for academic and representational purposes only.

The most common examples of the patent pool include a patent pool formed in 1997 for patents related to the MPEG_2 compression technology, and patents pools formed in 1998 and 1999 related to DVD-Rom and DVD-video format.

Background

Grover & Baker, Singer, and Wheeler & Wilson, three manufacturers of sewing machines, congregated in Albany, New York, in 1856 to pursue their legal claims against one another. Grover & Baker’s president and attorney Orlando B. Potter suggested that they pool their patents rather than wasting their revenues on litigation. This was the first patent pool, a method that makes it possible to produce complex devices without having to worry about legal disputes over intellectual rights.

The Wright Company and the Curtiss Company, the two major patent holders for aircraft, effectively blocked the construction of new airplanes in 1917, which was a crucial time as the United States prepared to enter World War I. The U.S. government put pressure on the industry to establish a patent pool, the Manufacturer’s Aircraft Association, on the advice of a commission appointed by Franklin D. Roosevelt.

Structure of Patent Pool

Firstly, transaction costs should be kept to a minimum while designing the patent pool. It should make it possible for patent owners to negotiate licensing deals both with other pool participants and with organizations or people outside the pool. The pool would represent its members in license negotiations and pay them back for their licensing-related expenses.

All pool members would retain their sole right to use, produce, or commercialize their inventions, but they would also grant the pool the right to license them. This would help cut down on transaction costs by allowing licensees to bargain directly with the pool rather than with dozens of different patent holders.

Secondly, the patent pool should have defined norms and regulations intended to prevent antitrust issues, promote licensing, and forbid price-fixing, collusion, and other anti-competitive behavior. Therefore, the pool should have a system in place for figuring out a patent’s market worth, and it should license patents in accordance with that value. The pool should prohibit blocking patents and require all participants to agree to license their inventions for fair market value.

Thirdly, the patent pool should be designed in such a way as to prevent fraud and misuse. The pool’s patents should all be legitimate. The pool shouldn’t give a dishonest business the chance to make money out of fake and illegitimate patents. Patents ought to be taken out of the pool when they expire. Additionally, the pool needs to create policies to stop “double patenting” and other patent system abuses.

Fourth, the pool should distribute a portion of royalties from licensing operations to each member in order to guarantee that all patent holders have some source of revenue that is assured. Members of the pool would also profit from lower licensing costs for the inventions of other pool members. When patent owners are unclear of the market value of their inventions, these regulations would encourage them to add their patents to the pool.

Fifth, the patent pool should have a wide range of patents in order to optimize ease and access and reduce transaction costs. It ought to cover patents for numerous necessary products and processes. For instance, a business creating a new medication that targets a receptor may need to be able to secure licensing for the receptor as well as for proteins, RNA, and DNA. Additionally, the business might require licensing for vital procedures like PCR or recombinant DNA methods. Instead of dealing with numerous distinct patent holders or patent pools, the corporation would find it far more convenient to negotiate licenses with a single pool.

Sixth, the patent pool should be a separate, non-profit business to eliminate bias or the impression of bias. The patent pool should have its own charter, bylaws, trustees, and management, even though important businesses and governmental organizations may play a significant role in its funding. The pool would be financed by donations from its participants, which might include an annual fee or a portion of licensing revenues. Patent holders’ conflicts would be arbitrated and reviewed by an independent board that the pool would create.

Seventh, the government should not employ coercion to compel patent holders to join the pool; membership in the pool should be totally voluntary and contractual.

Strengths of Patent Pooling

By offering a method for rapid and simple licensing, the pool would directly target the issue of the inability to secure license agreements. While obtaining rights for products falling under the pool’s purview would be very simple, licensing goods from outside the pool would still present some challenges.

Since pool members would consent to the pool’s ability to license their products, the pool would also directly address the issue of patent blockage. Blocking patents could still pose serious issues if a sizable proportion of patent owners do not join the pool.

Because licensees could negotiate with a single organization rather than dozens of businesses or academic institutions, the pool would significantly lower transaction costs. Due to the pool’s elimination of “reach through” license agreements, transaction costs would also be decreased.

The pool provides a reliable and predictable source of income for patent owners. Companies that patent new items frequently don’t know if their patents will result in revenue from licensing fees. By adding their patents to the pool and receiving a guaranteed portion of the royalties generated by the pool, businesses can eliminate risk and uncertainty.

Weaknesses of Patent Pooling

Pools typically permit less bargaining room for license terms and conditions due to pre-approved terms and conditions, while still adhering to the FRAND (fair, reasonable, and non-discriminatory) pledge.

Patent pools may lessen a (potential) licensee’s incentives to challenge weak patents for non-essentiality or invalidity because omitting these patents from the pool license will probably have no effect on the pool royalty.

Despite the acknowledged benefits and built-in security measures, current patent pools run the danger of having a negative impact on technological innovation and competitiveness. Although there is evidence of particularly high patenting in response to the introduction of pools, patents may not necessarily indicate innovation and instead be the result of strategic patenting (opportunistic patenting).

Conclusion

A study was conducted by Professor Robert P.Merges, Professor of Law and Co-director of the Berkeley Center for Law and Technology at the University of California at Berkeley, and Michael Mattioli, Associate Professor of Law at Indiana University’s Maurer School of Law to assess the costs to the 805 manufacturer licensees of participating in Via’s AAC Audio patent pool. The study concluded that the licensees saved an astounding $600 million in expenditures by working together in Via’s AAC Audio patent pool as opposed to tackling it alone. Every coin has two sides. The pros and cons of patent pooling have been mentioned in the article.

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