Académique Documents
Professionnel Documents
Culture Documents
Petra Moser**
Patent pools have become a prominent mechanism to reduce litigation risks and
facilitate the commercialization of new technologies. This article takes advan-
tage of a window of regulatory tolerance under the New Deal to investigate the
effects of pools that would form in the absence of effective antitrust. Difference-
in-differences regressions of patents and patent citations across 20 industries
imply a 14% decline in patenting for each additional patent that is included in a
pool. An analysis of the mechanism by which pools discourage innovation indi-
cates that this decline is driven by technologies for which the creation of a pool
weakened competition in R&D. (JEL K21, L24, L41, O31)
1. Introduction
“A patent pool is an arrangement by which two or more patent owners put
their patents together and receive in return a license to use them”
(Vaughan 1956: 39–40). Many pools license their patents as a bundle
to third-party nonmember firms, while other pools only provide for
innovation after the formation of a pool (Flamm 2013). For DVDs, com-
parable data on transfer speeds and product launches (Flamm 2013), as
well as patents (Joshi and Nerkar 2011) suggest a decline in innovation.
For the MPEG-2 standard pool, patenting declines after the creation of a
pool, as firms shift away from inventing toward implementing new tech-
nologies (Vakili 2012). For the IBM Patent Commons, which made pa-
tents freely available in 2005, Ceccagnoli et al. (2012) document a modest
increase in entry for open-source software segments, in which IBM con-
4. Critically, competition in research and development can have different effects on in-
novation than competition in product markets. For example, patent race models (such as
Reinganum 1982; Fudenberg et al. 1983) show that competition in research introduces an
additional risk for innovators who may not be first to develop a new technology (and there-
fore lose the market to a competitor). See Gilbert (2006) for a succinct discussion of these
arguments. Competition in R&D may also be inefficient if competitors’ research efforts are
exactly identical (e.g. Loury 1979); we examine this issue in subsection 6.1.
5. Standard Oil Co. of New Jersey v. United States, 283 U.S. 163, 167–168 (1931).
6. From 1940 to 1949, Justice brought 38 criminal antitrust cases per year, compared with
8.7 per year between 1930 and 1939 (Posner 1970: 376).
4 The Journal of Law, Economics, & Organization, V32 N1
7. Justice Hugo Black arguing for the majority decision in Hartford-Empire Co. v. United
States, 323 U.S. 386, 436–37 (1945).
8. The revised 1995 guidelines treat licensing agreements as pro-competitive unless they
can be shown to reduce product market competition, and allow pools if they combine com-
plementary patents that are necessary to build a technology (Gallini 2011: 14–15).
9. Although standard data sets, such as the NBER US Patent Citations Data File (Hall et
al. 2001), do not include cross-reference subclasses, data on cross-reference subclasses can be
collected from the USPTO Patent Full-Text Database. Benner and Waldfogel (2008) have
shown that cross-reference subclasses are a useful measure for the technology space that is
covered by a patent.
10. For example, variable condensers to select radio stations (United States v. General
Instrument Corp., 87 F. Supp. 157 (D.N.J. 1949)) and furniture slip covers (United States v.
Krasnov, 143 F. Supp 184 (E.D. Pa. 1956)).
Patent Pools, Competition, and Innovation 5
before the pool had formed. By comparison, it does not change the inten-
sity of competition in research fields in which a single pool member pa-
tented new technologies before the pool had formed.
This analysis reveals a significant differential decline in patenting for
subclasses in which the creation of a pool combined patents by multiple
firms. The USPTO classification system assigns technologies to subclasses
based on the function that they perform, which implies that pool patents
in the same subclass are more likely to be substitute patents. The DoJ–
2. Theoretical Predictions
This section presents existing theoretical predictions on patent pools and
suggests ways to extend existing theories of competition and innovation.
Most notably, we propose to extend existing theoretical models to con-
sider the effects of a patent pool on outside (non-member) firms, which
may be an important source of innovation, and in fact account for the
large majority of patents across industries.
A rich theoretical literature has examined the pricing strategies of
pool members and their effects on overall welfare. For example,
Lerner and Tirole (2004) show that the creation of a pool is more
likely to be welfare-enhancing if it combines patents for complementary
technologies, rather than substitutes. Brenner’s (2009) model implies
that predictions in Lerner and Tirole (2004) depend on members’ ability
to prevent entry into the pool. Llanes and Trento (2012) show that
innovators are less likely to join a pool with more members because
revenue would be shared with more firms. Jeitschko and Zhang (2012)
demonstrate that pools of complementary patents may weaken the in-
centive of downstream firms to invest in R&D if they create knowledge
spillovers that lead to a decline in product differentiation and thereby
reduce firms’ profits.
3. Data
To examine changes in patenting after the creation of a pool, we collected
a new data set of 75,396 issued patents with information on application
years. These data cover patents filed between 1921 and 1948 for 20 indus-
tries that were affected by the creation of a pool. These data cover 10 years
11. Independent licensing may constrain prices only for pools that reduce welfare (but not
pools that increase welfare, Lerner and Tirole 2004). Lerner et al. (2007) find that 28 pools
between 1895 and 2001, which allowed independent licensing, were on average less likely to be
litigated compared with 35 other pools that formed between 1895 and 2001.
Patent Pools, Competition, and Innovation 9
before the first pool formed and 10 years after the last pool formed. They
include 433 pool subclasses and 828 cross-reference subclasses without
pool patents in the same industry. To construct measures for the quality
of patented inventions, we also collected 322,998 citations to these patents
after 1921.
These data extend existing data sets on patents by including informa-
tion on the year in which inventors applied for a patent, in addition to the
year in which the patent was issued. This allows us to measure the timing
12. For example, we search the full text of patent grants for the words “iling” (for
“Filing”) and “Ser.” (for “Serial Number”) to recover the year associated with this block
of text. In a random sample of 300 patents, the algorithm correctly records application years
for 296 patents.
13. In comparison, Popp et al. (2004) find that the average US patent between 1976 and
1996 was granted 28 months after the application (with a standard deviation of 20 months).
See the Supplementary Appendix for data on patent counts per year of application and grant.
14. We define pool patentsi to include only the original set of patents that were included in
a pool because patents that were entered after the pool had formed are likely to be influenced
by the agreement. Among 1053 patents by pool members filed after the original agreement,
680 patents (64.58%) covered inventions that were neither a pool technology or a cross-ref-
erence subclasses; 265 (25.17%) belonged to pool subclasses and 108 to cross-reference sub-
classes (10.26%).
15. We also exclude a pool for television and radio apparatus because it included only
foreign members, a pool for male hormones (1937–41) because it was short-lived, a pool for
10 The Journal of Law, Economics, & Organization, V32 N1
grinding hobs (1931–43) because it combined two patents by the Barber-Colman Company,
and a pool for rail joint bars (1928–44) because it formed in 1928.
16. Seven of these pools transferred patents to a holding company, 9 pools licensed to
third parties, and 4 did both; 8 remaining “pools” were cross-licensing agreements according
to Vaughn’s (1956) definition.
17. Data on market shares are available for eight pools from court records that were
created after the 1942 decision in the Hartford Empire Case. See the Supplementary
Appendix for sources.
Patent Pools, Competition, and Innovation 11
Notes: Data from license agreements, written complaints, and court opinions from regional depositories of the
National Archives in Chicago (railroad springs, machine tools, Phillips screws, lecithin, stamped metal wheels,
wrinkle finishes, and fuse cutouts), Kansas City (ophthalmic frames), New York City (high tension cables, water
conditioning, fuel injection, pharmaceuticals, textile machinery, dry ice, electric equipment, variable condensers,
and aircraft instruments), and Riverside (color film). Member firms and pool patents are measured at the time of the
initial pooling agreement. Data on independent licensing are available for 12 pools in our sample from Lerner et al.
(2007).
spread relatively evenly between 1931 and 1938, with 9 pools before 1934
and 11 pools between 1934 and 1938. The average pool was active for
15.80 years and included pool patents that were 4.23 years old when the
pool formed, counting from the year of the patent application.
Pool subclasses
Pool Member: Kay & Ess Pool Member: Chadeloid
427/257
U.S. patent 2,077,112 U.S. patent 1,689,892
428/142
Type: Subclass: 524/313 Subclass: Type:
Original 427/257 427/257 Original
Cross-reference 427/288
Cross-reference
subclasses
U.S. patent 1,896,594
U.S. patent 2,069,252 427/288 Subclass: Type:
1,689,892
1,896,594
2,069,252
2,077,112
Licensee 1 Licensee 2
Figure 1. Patent Pools, Pool Subclasses, and Cross-Reference Subclasses. The pool for
wrinkles finishes (1937–55) combined 20 patents from Kay & Ess Chemical Corporation
and Chadeloid Chemical Company. The two companies formed a patent holding com-
pany, New Wrinkle, to issue licenses to 185 outside firms. Pool subclasses are subclasses
listed as original subclasses on the pool’s patents. Cross-reference subclasses are sub-
classes listed as cross-reference subclasses on the pool’s patents. US patents 2,077,112
and 1,689,892 both list subclass 427/257 as their original subclass; this is a subclass with
multiple firms and multiple pool patents.
18. Fifteen digest subclasses, which combine patents for all inventions that belong “to a
class but not to any particular subclass” (http://www.uspto.gov/web/offices/ac/ido/oeip/taf/
c_index/explan.htm, accessed May 10, 2014) are dropped from the sample.
Patent Pools, Competition, and Innovation 13
19. Alternative specifications limit the control to cross-reference subclasses within the
same main class, and expand the control to include all subclasses in the main class (e.g.
class 428 “stock material or miscellaneous articles”). Seven subclasses include patents by
more than one pool; for them, we define the year of pool formation using the earliest pool.
One subclass (352/225) is listed as a pool subclass for two pools. Four subclasses (340/524, 62/
056, 524/594, and 174/152R) are pool and cross-reference subclasses; two subclasses (417/426
and 200/56R) are cross-reference subclasses for two pools. We assign them to the pool that
formed first. For five pools (fuel injection, pharmaceuticals, railroad springs, lecithin, and
aircraft instruments), the pool years include a small number of years after the pool had
dissolved. To be conservative we include these years as pool years.
Table 2. Patents per Subclass and Application Year
Raw patents
Pool subclasses (N ¼ 433) 2.535 (3.854) 2.400 (3.049) 2.468 (3.478) 0.210** (0.119)
1 pool patent (N ¼ 327) 2.267 (3.276) 2.293 (2.926) 2.280 (3.107) 0.044 (0.117)
>1 pool patent & 1 pool firm (N ¼ 68) 2.925 (4.585) 2.805 (3.599) 2.867 (4.134) 0.215 (0.367)
>1 pool patent & >1 pool firm (N ¼ 38) 4.196 (6.032) 2.604 (2.978) 3.376 (4.777) 1.631** (0.591)
Cross-reference subclasses (N ¼ 828) 2.695 (3.663) 2.935 (3.880) 2.815 (3.774) 0.211 (0.076)
Citation-weighted patents
Pool subclasses (N ¼ 433) 9.886 (16.466) 15.123 (24.211) 12.487 (20.843) 4.960** (0.628)
14 The Journal of Law, Economics, & Organization, V32 N1
1 pool patent (N ¼ 327) 9.123 (15.156) 14.914 (23.818) 11.999 (20.142) 5.507* (0.666)
>1 pool patent & 1 pool firm (N ¼ 68) 11.189 (18.471) 15.810 (25.535) 13.439 (22.307) 4.746 (1.893)
>1 pool patent & >1 pool firm (N ¼ 38) 14.233 (21.969) 15.693 (25.140) 14.985 (23.656) 0.633** (2.585)
Cross-reference subclasses (N ¼ 828) 11.609 (18.792) 19.402 (29.521) 15.496 (25.037) 7.812 (0.561)
Notes: Pool subclasses include at least one pool patent that lists this subclass as the primary subclass. Cross-reference subclasses are subclasses without pool patents that patent examiners have
identified as related technologies. Citation-weighted patents are constructed as 1+ # of citations by later patents (Trajtenberg 1990). We collect citations by searching the full text of patent grants 1921–74
for all patent numbers in our data, adding citations from patent grants 1975–2002 from Hall et al. (2001). Post-pool – pre-pool reports average pre- and post-pool difference across subclasses. Pre-pool
formation includes all years between 1921 and the formation of a pool; post-pool formation includes all years between the formation of a pool and 1948. **, * denotes significant difference at 1%, 5%
compared to cross-reference subclasses. Standard deviations are given in parentheses.
4. Results
For pool technologies, patenting declined after the creation of a pool, both
in absolute terms and relative to alternative definitions of the control. In
pool subclasses, patents declined from 2.54 per subclass and year before
the creation of a pool to 2.40 afterwards (Table 2), and from 2.80 to 2.48
within a 10-year window before and after the creation of a pool (Figure 2).
By comparison, patents in cross-reference subclasses increased from 2.70
before the creation of a pool to 2.94 afterwards (Table 2).
Data on patents per year, however, indicate that patenting in cross-
reference subclasses declined after a small initial increase (Figure 2),
which is suggestive of negative spillovers from pool to cross-reference
technologies. If these spillovers are economically important, they lead
the difference-in-differences analysis to underestimate the true decline in
patenting as a result of the pool. The data also indicate that patents for
pool subclasses and cross-reference subclasses followed very similar trends
in patenting before the formation of a pool.
105 citations that the algorithm missed were misread numbers (i.e. false positives) as a result
of errors in the optical character recognition (OCR).
Patent Pools, Competition, and Innovation 17
3.5
Pool Start Year
2.5
1.5
-9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10
Pool subclass Cross-reference subclass
Figure 2. Patents per Subclass and Year: Pool versus Cross-reference Subclasses. t ¼ 0
denotes the year when a pool forms; the timing of invention is measured at the year of the
patent application. Data include patent counts for 433 pool subclasses that include at
least one pool patent and 828 cross-reference subclasses that patent examiners have
identified as related technologies.
25. Estimates remain statistically significant at the 1% level with clustering at the level of
industries with a standard error for poolct * pool patentsc of 0.11 compared with a standard
error of 0.10 with clustering at the subclass level.
18 The Journal of Law, Economics, & Organization, V32 N1
Table 3. OLS and QMLE Poisson—Dependent Variable is Patents per Subclass and
Year
Notes: The dependent variable counts patents per subclass and year. The timing of invention is measured by the
application year for granted patents. The variable poolct equals 1 after a pool forms. # pool patentsc counts patents
that were included in the initial pooling agreement and list subclass c as their primary subclass. 1 pool patentsc
equals 1 if subclass c contains at least one pool patent. In all, 433 pool subclasses include one or more pool
patents; 828 cross-reference subclasses, which patent examiners have identified as related technologies, form the
control. Column 3 reports the average marginal effect. Column 4 includes year-industry fixed-effects for 18 industries
that contribute more than 5 subclasses to the sample. Phillips screws and slip covers, for which industry fixed
effects are not calculated, contribute 5 and 2 subclasses, respectively.
4.2 Controlling for Variation in Patenting across the Industry Life Cycle
Part of this decline in patenting may be a result of changes in patenting that
would have occurred even without the creation of a pool. Most import-
antly, firms may be more likely to form a patent pool after their technology
26. See the Supplementary Appendix for details on the distribution of patents across
subclasses. 29.11% of subclass-year observations had zero patentsct, which suggests that
count data models are appropriate but not essential. Our preferred specification for the
(linear) difference-in-differences estimator is OLS because OLS is the best linear unbiased
estimator and because the consistency properties of the OLS are more transparent. For a
binary treatment variable, such as poolct * pool patentsc, Poisson quasi-maximum likelihood
regressions yield consistent estimates for nonlinear difference-in-differences models (Imbens
and Wooldridge 2007). Wooldridge (1999) develops a QMLE for the fixed effects Poisson
model that is robust to heteroskedasticity and serial correlation; Rysman and Simcoe (2008)
implement the estimator for a binary treatment variable. Bertanha and Moser (2014) show
that, in addition to robustness to serial correlation, the QMLE Poisson with conditional fixed
effects is also robust to cross-sectional variation, as long as the structure of cross-sectional
variation is time invariant.
27. The percentage change is calculated as (exp(0.160) 1) 100 ¼ 14.79.
Patent Pools, Competition, and Innovation 19
4.3 Time Varying Estimates for the Pre- and Post-Pool Period
To investigate the timing of effects and test for differential pre-trends,
which would violate the identifying assumption of the difference-in-dif-
ferences estimator, we estimate coefficients separately for each year,
allowing the estimated “effect” of a pool to begin before the pool has
formed:
Patentsct ¼ a+bk # pool patentsc +dt +fc +"ct ð2Þ
where # pool patentsc, as well as year and time fixed effects are defined as
above, and k ¼ 17, 16 . . . 17, 18 denotes years before and after the
creation of a pool forms; k ¼ 0 is the excluded period.
Annual coefficients for the pre-period are not statistically significant in
any year except t 1, when estimates imply a 9.12% increase in patenting,
28. Specifications in Table 3, column 3, include interactions between fixed effects for 18
industries (excluding Phillips screws and slip covers) in which pool patents covered more than
5 subclasses. Due to the small number of subclasses for Phillips screws (5) and slip covers (2),
there is little within-cluster variation, and we cannot calculate standard errors with a full set of
year-industry fixed effects. Results are robust to including a full set of year-industry fixed
effects and calculating bootstrapped standard errors, or including a full set of year-industry
fixed effects without clustering standard errors on subclasses.
20 The Journal of Law, Economics, & Organization, V32 N1
0.8
Pool Start Year
0.6
0.4
0.2
-0.2
-0.4
-0.6
-0.8
Figure 3. Annual Coefficients, OLS, Dependent Variable is Patents per Subclass and
Year. Notes: t ¼ 0 denotes the year when a pool forms; the timing of invention is measured
at the year of the patent application. Estimates for k (with 95% confidence interval) in the
regression Patentsct ¼ + k * # pool patentsc + fc + t + "ct where k ¼ 17,. . .,17, 18,
counts years before and after a pool forms. The variable # pool patentsc counts patents
that were included in the initial pooling agreement and that list subclass c as their primary
subclass.
which is consistent with the idea of a patent race leading up to the creation
of a pool (Figure 3). Excluding data for year t 1, however, leaves the
results substantially unchanged, suggesting that changes in innovation as
a result of a patent race alone cannot adequately explain the observed
decline in innovation. Excluding data in t 1 reduces the size of the esti-
mated decline by a small amount to0.34 (significant at the 1% level, not
reported), which implies a 13.95% decline compared with a mean of 2.44
patents.
Most significantly, however, estimates imply that the decline in patent-
ing for pool technologies begins after the creation of a pool and intensifies
over time. Annual coefficients range from 0.17 to 0.30, with an average
0.23 for the first five years, indicating a decline of 9.32%, and from
0.34 to 0.69, with an average of 0.43 for years six and above, indicat-
ing a decline of 17.30% (significant at 5% in years one, three, four and all
years above five, Figure 3).29
29. See the Supplementary Appendix for regressions with industry-year inter-
actions, which confirm these results. Estimates become statistically significant, with an esti-
mate of 0.31 three years after the creation of a pool, implying a decline of 12.68%, and
remain significant through the sample, with an estimate of 0.39 ten years after the creation
of a pool, implying a decline of 15.84%.
Patent Pools, Competition, and Innovation 21
30. Results are robust to excluding patent counts and defining citation-weighted pa-
tentsct ¼ citations in patent grants 1921–2002 to patent applications 1921–1948ct (e.g.
Rysman and Simcoe 2008; Galasso and Simcoe 2011). Estimates indicate that subclasses
with an additional pool patent produce 1.06 fewer citation-weighted patents after the creation
of a pool (significant at 1%, not reported), implying a 10.57% decline compared with a mean
of 10.02 citation-weighted patents.
31. Results are robust to alternative tests that remove patents that were not cited, and
weight citation counts by the average number of citations to all patents issued in the same
year.
32. Percentage changes is calculated as (exp(0.111)1) 100 ¼ 10.51.
22 The Journal of Law, Economics, & Organization, V32 N1
Notes: The dependent variable counts patents per subclass and year. Citation-weighted patents are constructed as
1+ # of citations by later patents (following Trajtenberg 1990). The timing of invention is measured by the application
year for granted patents. The variable poolct equals 1 after a pool forms. # pool patentsc counts patents that were
included in the initial pooling agreement and list subclass c as their primary subclass. 1 pool patentsc equals 1 if
subclass c contains at least one pool patent. In all, 433 pool subclasses include one or more pool patents; 828
cross-reference subclasses, which patent examiners have identified as related technologies, form the control.
Column 3 reports the average marginal effect. Column 4 includes year-industry fixed-effects for 18 industries that
contribute more than 5 subclasses to the sample. Phillips screws and slip covers, for which industry fixed effects are
not calculated, contribute 5 and 2 subclasses, respectively.
33. A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935). Congressional
hearings began to scrutinize patent pools in 1935 (Pooling of Patents, Hearings before House
Committee on Patents on House Resolution 4523, Parts I-IV, 74 Cong (February 11 to March
7, 1935)).
Patent Pools, Competition, and Innovation 23
6
Pool Start Year
0
-9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10
Pool subclasses with patents by multiple firms
Pool subclasses with patents by 1 member firm
Cross-reference subclass
Figure 4. Patents per Subclass and Year: Pool Subclasses with 1 versus >1 Pool
Member. Notes: t ¼ 0 denotes the year when a pool forms; the timing of invention is
measured at the year of the patent application. Data include 433 pool subclasses that
include at least one pool patent and 828 cross-reference subclasses that patent exam-
iners have identified as related technologies. For 38 pool subclasses, the creation of a
pool combines patents by multiple members.
34. Results are robust to including separate linear or quadratic trends for pool subclasses
with one pool patent, with one member and multiple pool patents, and with multiple mem-
bers, as well as to excluding two subclasses with many pool patents (aircraft instruments with
12 patents by 1 firm, and stamped metal wheels, with 10 patents by 3 firms). Estimates for this
restricted sample indicate that subclasses with multiple firms produce 1.88 fewer patents per
year after the creation of a pool (significant at 1%), implying a decline of 54.82% compared
with a mean of 3.43 patents per year in pool subclasses.
Patent Pools, Competition, and Innovation 25
Notes: The dependent variable counts patents per subclass and year. Citation-weighted patents are constructed as
1+ # of citations by later patents (following Trajtenberg 1990). The timing of invention is measured by the application
year for granted patents. 1 pool patentc equals 1 if there was exactly 1 pool patent that was included in the initial
pooling agreement and listed subclass c as their primary subclass (327 subclasses). >1 pool patentc *1 firmc
equals 1 if subclass c includes more than 1 pool patent owned by a single member firm (68 subclasses). >1 pool
patentc * >1 firmc equals 1 if subclass c includes patents owned by multiple member firms (38 subclasses). In all,
433 pool subclasses include one or more pool patents; 828 cross-reference subclasses, which patent examiners
have identified as related technologies, form the control. Columns 2 and 5 include year-industry fixed-effects for 18
industries that contribute more than 5 subclasses to the sample. Phillips screws and slip covers, for which industry
fixed effects are not calculated, contribute 5 and 2 subclasses, respectively.
produced 0.43 additional patents per year compared with pools with
grant-backs (significant at 1%, Table 6, column 1). Compared with an
estimate of 0.39 for pool * # pool patents (significant at 1%, Table 6,
column 1), this implies that pool technologies in pools without grant-
backs experienced no statistically significant decline in patenting (with a
p-value of 0.747).35
Although our data do not include detailed data on pool characteristics,
12 of the 20 pools in our sample are also included in Lerner et al. (2007);
35. Estimates for a restricted sample of patents by pool members indicate that members of
pools without grant-back rules produced 0.08 additional patents per year compared with
members of pools with grant backs (significant at 1%, not reported). Compared with an
estimate of pool * # pool patents of 0.02 (significant at 1%, not reported), this implies
0.06 additional patents per year.
36. United States v. Phillips Screw Co., CCH 1949 Trade Cases ô 62,394 (N.D. Ill. Civil
No. 47-C-147; Complaint, 1947; Consent Judgment, 1949).
37. See the Supplementary Appendix for details on each pool’s licensing practices.
Patent Pools, Competition, and Innovation 27
Notes: The dependent variable counts patents per subclass and year. The timing of invention is measured by the
application year for granted patents. The variable poolct equals 1 for years after the pool forms. # pool patents
counts pool patents that list subclass c as their primary subclass. In all, 433 pool subclasses include one or more
pool patents; 828 cross-reference subclasses form the control. The variable no grant-backsc equals 1 for four pools
that did not include grant-back provisions; independent licensingc equals 1 for two pools that allowed members to
grant licenses independently of the pool; cross-licensec equals 1 for eight pools that involve two-firm cross-licensing
agreements; prior litigationc equals 1 for five pools in which court records indicate that members were engaged in
patent litigation prior to the formation of a pool.
6. Welfare Implications
In this section we discuss the welfare implications of the creation of a
patent pool. We summarize alternative hypotheses, under which a decline
in innovation may be associated with an increase (or a reduction) in wel-
fare and discuss evidence in favor of against these hypotheses.
38. United States v. General Instrument Corp., 115 F. Supp. 582 (D.N.J. 1953).
30 The Journal of Law, Economics, & Organization, V32 N1
licensed to 185 firms, and produced almost all the wrinkle finishes pro-
duced in the United States. This case is consistent with Gallini (1984),
which suggests that pools can reduce welfare if pool members use royalties
to discourage rivals from developing potentially superior technologies.
39. United States v. Technicolor, Inc. (S.D. Calif. Civil No. 7507-M; Complaint, 1947).
40. Filmmakers used this technology exclusively for outdoor shots that they could not
reach with Technicolor’s bulky three-strip cameras (Haines 2003: 28; Basten 2005: 127).
Patent Pools, Competition, and Innovation 31
41. United States v. Technicolor, Inc. (Civil No. 7507-M, S.D. Calif.; Complaint, 1947,
paras. 18 and 27). See the Supplementary Appendix for estimates using data from the color
cinematography industry.
42. United States v. Technicolor, Inc., CCH 1950–51 Trade Cases ô2,586 (S.D. Calif. Civil
No. 7507-M; Complaint, 1947; Consent Judgments, 1948 and 1950).
43. Eastmancolor commercialized the principle of colored dye couplers (US patents
2,428,054 and 2,449,966; Frost and Oppenheim 1960: 115–6). Monopack film stock contained
silver halides that were exposed to light through thin layers of filters to generate black and
white latent images of red, green, and blue. The exposed film then went through three bleaches
that included tiny color globules (dye couplers), which replicated the latent silver image. After
the silver had washed away, a three color image remained, in which each hue was represented
by a thin layer of dye couplers (Haines 2003: 28).
44. Records of the Eastman Kodak Company accessed on May 25, 2012 at http://motion.
kodak.com/motion/Products/Chronology_Of_Film/1940–1959/index.htm.
32 The Journal of Law, Economics, & Organization, V32 N1
last live-action American film that used the three-strip method (Basten
2005: 129).45
7. Conclusions
This article has taken advantage of a unique window of regulatory toler-
ance under the New Deal to examine pools that may form in the absence
of effective antitrust and investigate their effects on innovation.
45. An analysis of color usage by studios that were differentially affected by the 1948
Paramount decree, which forced studios to divest from movie theaters, reveals no direct link
between the decree and the use of color by the major studios (United States v. Paramount
Pictures, Inc. et al., 334 U.S. 131 (1948), Gil and Lampe 2014).
Patent Pools, Competition, and Innovation 33
1992. In 1998, three years after developing guidelines for antitrust enforce-
ment of intellectual property licensing, the FTC challenged and dissolved
their agreement, arguing that, in the absence of a pool “VISX and Summit
could have and would have competed with one another in the sale or lease
of PRK equipment by using their respective patents, licensing them, or
both.” Twenty-one of 25 patents in this pool were assigned to the same
subclass.46
More generally, our findings are consistent with a positive link between
Funding
Moser thanks the Center for Advanced Studies in the Behavioral Sciences
(CASBS), the National Science Foundation (through CAREER Grant
1151180), the Stanford Institute for Policy Research (SIEPR) and the
Olin Center for Law and Economics at Stanford for financial support.
Lampe thanks CASBS, the Driehaus College of Business and the
Department of Economics at DePaul University for financial support.
Siyeona Chang, Josh Wagner, Aleksandra Goulioutina, and Marina
Kutyavina provided valuable research assistance.
Supplementary material
Supplementary material is available at Journal of Law, Economics, &
Organization online.
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