Effects Of Patent Pools On Innovation Investment Ex Ante Perspectives

Abstract

Recently Patent Pooling has a fast growing interest as a good alternative means to decrease transaction costs between IPRs owners and promote technology commercialization and diffusion. In this paper we attempt to shed light on the effects of patent pooling on the ex-ante innovation investment or incentive using the game theoretical economic model. We generalize the model by including many vertical integrated firms, research laboratories, and specialized manufacturing firms. Main results of this paper are: 1) Patent Pools can affect on the innovation incentives of vertically integrated firms(I-firms) and of research laboratories(R-firms) differently, and the effect depends on the number of I-firms owning essential patents and the number of specially manufacturing firms(M-firms). But in the presence of many I-firms owning essential patents, the instruction of patent pooling increases I-firms’ ex-ante innovation incentive or investments with independence of M-firms. 2) There is strategic complementary relationship between innovation investments of I-firms and those of R-firms, so I-firms’ increased ex-ante innovation investments make R-firms’ ex-ante innovation investments increasing. 3) In the case of R-firms maximizing private profit, the best aspect is to license independently their patent technology when I-firms make up patent pools. But this aspect is not desirable for I-firms because I-firms’ gross profit is smaller than that of I-firms which license their patent technologies independently. However, we show that in the cases of many I-firms owning essential patent technologies, patent pools including only I-firms(IP) or all upstream firms(CP) can affect asymmetrically on the I-firms’ or R-firms’ innovation investments. Nonetheless, any types of patent pools make the innovation investments of I-firms and R-firms higher than those of all firms which license independently. In summary, nowadays under general aspects that production of final goods requires many complex technologies and that many I-firms and R-firms attend R&D for essential technologies, competition authorities’ deregulation for patent pooling or government policy supporting the patent pooling can promote upstream firms’ innovation incentives or investments and compulsory licensing about R-firms is not necessary for enhancing upstream firms’ innovation investments or incentives..