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In patent law, a patent pool is a consortium of two or more companies agreeing to cross-license patents relating to a particular technology. The creation of a patent pool can save patentees and licensees time and money, and, in case of blocking patents, it may also be the only reasonable method for making the invention available to the public.^[1] Competition law issues are usually important when a large consortium is formed.

History

In 1856, sewing machine manufacturers Grover & Baker, Singer, and Wheeler & Wilson, all accusing each other of patent infringement, met in Albany, New York to pursue their suits. Orlando B. Potter, a lawyer and president of Grover & Baker, proposed that, rather than squander their profits on litigation, they pool their patents. This was the first patent pool, a process which enables the production of complicated machines without legal battles over patent rights.^[2]

In 1917, the two major patent holders for airplanes, the Wright Company and the Curtiss Company, had effectively blocked the building of new airplanes, which were desperately needed as the United States was entering World War I. The U.S. government, as a result of a recommendation of a committee formed by Franklin D. Roosevelt, then Assistant Secretary of the Navy, pressured the industry to form a patent pool, the Manufacturer's Aircraft Association.^[3]^[4]^[5]

In August 2005, a patent pool was formed by about 20 companies active in the Radio Frequency Identification (RFID) domain.^[6] The RFID Consortium picked Via Licensing to administer its patent pool in September 2006.^[7]

Risk mitigation

As in these examples many industries could not function without patent pools since the coordination costs (risk, negotiation, etc.) would otherwise be too high. Patent pools are only one example of cases where members of an otherwise competitive industry join in common cause to create some resource that is to their collective benefit. For example, the insurance industry pools claims data to collectively reduce risk; the catalog sales industry pools sales data to better model their customers; the auto industry collaborates to standardize components; and in the software industry some companies actively contribute to open-source projects.^{[citation needed]}

Patent pools do not eliminate risk, they only temper it. Patent holders (including other patent pools) outside the pool can still create cost and risk for the industry. While it is rare for a patent pool to indemnify licensees,^[8]^{[self-published source?]} a pool does help to assure a common interest will emerge should one member be accused of infringement by a third party. Flaws in the design of the pool's governance can create the risk that one member can break the common cause of the group. Examples of well-known^{[citation needed]} such cases include the MPEG-2, MPEG-4 Part 2 and H.264 video coding standards, and the DVD6C pool.^{[citation needed]} The MPEG-2 patent pool has also been criticized because by 2015 more than 90% of the MPEG-2 patents will have expired but as long as there are one or more active patents in the MPEG-2 patent pool in either the country of manufacture or the country of sale the MPEG-2 license agreement requires that licensees pay a license fee that does not change based on the number of patents that have expired.^[9]^[10]^[11]^[12]

National jurisdictions

United States

Since the 1990s, patent pools have been viewed by U.S. regulatory authorities in a positive light. In 1995, the U.S. Department of Justice (DOJ) and U.S. Federal Trade Commission (FTC) released the “Antitrust Guidelines for the Licensing of Intellectual Property”^[13] which stated that the pooling of patents may have “…pro-competitive benefits”.^[14] The Antitrust Division of the DOJ later issued a letter in support of the MPEG-2 pool.^[13] However, stipulations exist to ensure pools do not function anti-competitively. As required by the DOJ, patents in the pool must be essential, non-substitutable and the owners must maintain the right to individually license their patents.^[13] In addition, the DOJ may monitor the royalty rates collected by the firm.^[13]

References

^ "The pooling of the patents, licensing all patents in the pool collectively, and sharing royalties is not necessarily an antitrust violation. In a case involving blocking patents such an arrangement is the only reasonable method for making the invention available to the public." - International Mfg. Co. v. Landon, 336 F.2d 723, 729 (9th Cir. 1964)
^ Hounshell, David (1985). From the American System to Mass Production, 1800-1932: The Development of Manufacturing Technology in the United States. Baltimore/London: Johns Hopkins University Press. p. 67. ISBN 9780801831584. litigation threatened the very existence of the [sewing machine] industry. The Great Sewing Machine Combination, the first important patent pooling arrangement in American history, changed all this.
^ "Patent thickets and the Wright Brothers". ipbiz.blogspot.com. 2006-07-01. Archived from the original on 2007-10-30. Retrieved 2009-03-07. In 1917, as a result of a recommendation of a committee formed by the Assistant Secretary of the Navy (The Honorable Franklin D. Roosevelt), an aircraft patent pool was privately formed encompassing almost all aircraft manufacturers in the United States. The creation of the Manufacturer's Aircraft Association was crucial to the U.S. government because the two major patent holders, the Wright Company and the Curtiss Company, had effectively blocked the building of any new airplanes, which were desperately needed as the United States was entering World War I.
^ "The Wright Brothers, Patents, and Technological Innovation". buckeyeinstitute.org. Retrieved 2009-03-07.
^ "THE CROSS-LICENSING AGREEMENT". history.nasa.gov. Archived from the original on 2004-11-13. Retrieved 2009-03-07.
^ Mark Roberti (August 10, 2005). "The RFID Patent Pool: Next Steps". RFID Journal. Archived from the original on March 10, 2007. Retrieved July 7, 2012.
^ Mary Catherine O'Connor (September 7, 2006). "RFID Consortium Names Patent-Pool Administrator". RFID Journal. Archived from the original on March 10, 2007. Retrieved July 7, 2012.
^ "Patent Pools: What Are They, What Are Their Uses and Their Benefits?". Intellectual Pats. 3 May 2015. Retrieved 14 May 2015.
^ "Patent Pools May Create Anticompetitive Effects, New Report Finds". Business Wire. 2013-05-09. Retrieved 2013-06-06.
^ Bret Swanson (2013-04-30). "MPEG-LA Shows Need to Rebuild IP Foundations". Forbes. Retrieved 2013-05-19.
^ Steve Forbes (2013-03-18). "America's patent system is all wrong for today's high-tech world". Fox News Channel. Retrieved 2013-06-05.
^ "MPEG-2 License Agreement". MPEG LA. Archived from the original on 2013-11-07. Retrieved 2013-07-09.
^ ^a ^b ^c ^d Antitrust Guidelines for the Licensing of Intellectual Property. U.S. Department of Justice and Federal Trade Commission, April 6, 1995.
^ Tirole, Josh Lerner and Jean. "Public Policy toward Patent Pools." Innovation Policy and the Economy, 2007: 157-186.