Séminaire

Screening for good patent pools through independent licensing with an ex-ante royalty cap

Alexandra Boutin (Université Libre de Bruxelles)

3 octobre 2013, 12h45–14h00

Toulouse

Salle MF 323

Brown Bag Seminar

Résumé

Intellectual Property Rights (IPRs) necessary to commercialize a product are frequently controlled by many firms. Therefore, they are often sold together through patent pools. Traditional policy towards pools focused on the difficult assessment of multiple marginalisation, in the case of complementarity of patents, and collusion, in the case of substitutes. This paper looks at independent licensing as a screening mechanism for pools, proposed by Lerner and Tirole (2004). Because of the practical appeal of this result, competition authorities require that pool members are free to independently license, and dissolve pools otherwise. We show that screening patent pools based on independent licensing, is not, in itself, an adequate policy tool. When more than two IPR holders are involved, which is generally the case, a pool is likely to result in higher royalties even with independent licensing. With downstream competition, a pool with independent licensing is likely to lead not only to a price increase, but also to an anticompetitive foreclosure. We find that stability of welfare reducing pools requires a minimum level for independent licenses, but that cannot allow for an ex-post assessment of excessive prices. However, we show that an ex-ante cap for the independent licenses not exceeding the average price of a patent in a pool would destabilize pools that reduce consumer welfare and leave unaffected those that benefit consumers. This would be a simple, information free and a costless mechanism to implement. Policy wise, this could create a safe harbor, where firms would receive lighter antitrust treatment, thereby giving them legal certainty and facilitating pool formation. The safe harbor would strictly dominate the status quo, where the independent licensing is an unconditional requirement. This paper applies to other types of commercialization (co-marketing) agreements where firms sell their products separately in addition to marketing them together.