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Launching a new end-user product is often met with conflicts with existing patents. Patent pools could be one of the solutions to this conflict. The World Intellectual Property Organization (WIPO) defines a patent pool as “an agreement between two or more patent owners to license one or more of their patents to one another or to third parties.”
Why are Patent Pools needed
Patent pools aren’t anything new; in fact, one of the earliest patent pools was formed in 1856 for use in sewing machines. Fast forward to the 21st century, and patent pools are the natural solution when companies and manufacturers do not hold certain patents necessary for some developments, and other potential manufacturers that hold the required patents come forward with a shared agreement. A good example is the recent patent pool involving MPEG-2 technology, which swiftly led to the establishment of a standardized protocol for safeguarding copyrighted works on the Internet.
A patent pool accelerates innovation by allowing affiliates to share and license crucial technology collectively, eliminating the risk of corporate disputes and fostering cooperation among industry leaders. Instead of individual patent holdings causing delays and conflicts, a centralized source streamlines licensing, promoting equity and innovation while avoiding protracted negotiations. Patent pools also eliminate the problems that arise with stacking licenses in complex industrial fields, and they also encourage the cooperative efforts required to bring forth the social and economic benefits of inventions.
Collaboration is key to success of Patent Pools
Since patent pools are mechanisms where patent owners come forward to share their patented technologies, collaboration between competitors in the patent landscape is seen as something that fosters innovation. Collaboration within patent pools takes various forms with specific needs and objectives. Cross-licensing agreements are arguably the most common collaboration in patent pools. In these agreements, participating entities exchange licenses to use one another’s patented technologies, without needing individual negotiations.
Some patent pools may also adopt an Open Source Collaboration model (such as the Linux Operating System) that involves sharing technical platforms without imposing restrictions such as licensing fees. Other models of collaboration include preferential licensing systems (offering licenses under more favorable terms to entities working on specific projects or regions), and non-assertion pledges in respect of particular use or users, or circumstances (often in support of open-source software or standards).
Let us look at some benefits that collaboration within members of patent pools brings to the table:
- Helps reduces complexities associated with patent licensing.
- Reduces transaction costs since negotiating individual licenses for each patent in complex industries with overlapping patents makes the process very costly and time-consuming.
- Enables stakeholders to partake in seamless transactions, removing barriers that impede the development of research-intensive products.
- Finally, while collaborative efforts in patenting serve as a means to avoid litigation in the short term, they also promote research and development in the long run; patent pools create an environment conducive to knowledge-sharing and exchange of expertise.
Licensing mechanisms in Patent Pools
In a patent pool, patent holders in a common market commit their patents to a single holder, who licenses them out to the source patentees and also to third parties. However, structures may vary and the arrangement may involve just cross-licensing, excluding a separate holder. Patent pools, in a way, simplify the licensing process, while integrating complementary technologies.
Licensing in patent pools facilitates R&D progress by solving conflicts between blocking positions or overlapping patents. Since in patent pools, even non-members can obtain licenses under standard terms, it expands the reach of pooled technologies. There are a number of different licensing types in patent pools, including cross-licensing, exclusive licensing, and non-exclusive licensing.
- Non-exclusive licensing is the most common licensing structure in a majority of patent pools. With a non-exclusive license, the patent holder (licensor) can grant the licensee rights to make, use, and sell the patent. However, the holder retains the right to grant licenses to other companies.
- Exclusive licensing grants exclusive rights to the licensee in a specific field; the licensor, however, holds on to some rights for the use of the patent in other non-related domains.
- Cross-licensing sees two or more patent owners license each other’s patents. Cross-licensing is notably effective in reducing the risk of infringement litigation.
Click here to learn more about how PatSeer helps in the research that is needed to make the right IP licensing decisions.
Challenges in Patent Pools
Even with all the benefits that patent pools bring, they are not immune to challenges. For starters, patent pools raise a slew of antitrust concerns, including collusion, and exclusion. Collusion occurs when patent pools are used by licensors to collude on prices, and also to restrict competition. For instance, licensors might agree to set a minimum royalty rate, which in turn leads to higher costs for licensees and consumers. Patent pools may also be used to exclude competition from the market. Doing so makes it harder for newer companies to enter the market and compete with existing products.
On top of that, royalty distribution issues such as lack of fairness and transparency, along with increased complexity, also emerge from patent pools. Patent pools with different values sometimes make fair distribution of royalty payments difficult among licensors.
Antitrust authorities, to counter these shortcomings, review patent pools regularly to verify that they are not violating antitrust laws. Nevertheless, it is also the responsibility of licensors in pools to ensure fair and transparent distribution of royalty payments.
Closing Thoughts
Major corporations such as IBM, Sony, and Apple Inc., have keenly participated in patent pools over the years, facilitating innovation while reducing legal issues related to Intellectual Property. Pools decrease transaction expenses and litigation costs while allowing innovators and implementers to enjoy cost predictability by boosting efficiencies.
