Why patent pools rock – the broader ecosystem
Pools benefit everyone, not just the companies that participate
Part I and Part II of this series explained how patent pools unlock transactional efficiencies to the advantage of licensees and licensors, respectively. But the benefits of this model are not limited to the companies that participate in a pool. The presence of a pool licensing option in a particular standard creates a healthier technology ecosystem, creating upside for smaller market players, consumers and society as a whole.
The inventive loop
All of society benefits when innovators earn a reward for their contributions to cutting-edge technologies and can re-invest the proceeds in further research and development. Patent pools make this happen in a way that is balanced, fair and focused on the big picture of promoting technology adoption while rewarding innovation.
This virtuous cycle, often referred to as the "inventive loop," is particularly crucial in industries characterised by complex, interdependent technologies in which no single entity holds all the patent rights necessary to bring a product to market. Patent pools sustain the momentum of the inventive loop by ensuring that inventors share in the value they create, enabling them to conduct further R&D that benefits society. This in turn benefits both implementers and consumers, who are offered new innovative products in the marketplace.
Consumers
By reducing transaction costs through aggregation, patent pools run on the Sisvel model lower the aggregate royalty rates for a technology while still providing healthy returns to innovators. Pool licensing costs can be up to 50% lower than the sum of the cost of bilateral licences. This enables end-product companies to offer their goods to the public at lower prices.
Pools also help new products come to market faster and with less legal risk. Published pool rates create a level of predictability on licensing costs that helps new entrants build business cases and enter new markets. Obtaining a pool licence provides significant risk clearance and demonstrates willingness to license, allowing companies to launch new products with confidence.
SMEs and new market entrants
Innovative SMEs and start-ups may obtain patents, but rarely have the internal resources to license them effectively. Patent pools provide an avenue for these patent owners to earn revenue that can be ploughed back into research, which creates a viable model for them to have a seat at the table in standards-setting.
On the licensee side, SMEs and start-ups benefit significantly when there is a well-established patent pool in a technology space in which they are implementing. It means that rather than engage in multiple bilateral negotiations with much larger players, they have access to a standardised set of deal terms at parity with similarly situated companies.
Universities and public-sector research institutes
University and public-sector R&D are critical engines of global innovation. There is growing acknowledgement of the role these actors play in conducting basic research with massive breakthrough potential, sometimes spawning entirely new industries. Many of the world’s most successful tech hubs are products of this transformative dynamic.
As a result, many economies are looking hard at how to improve commercialisation abilities within these kinds of organisations. In many cases, patent value creation expertise is a key barrier to monetising inventive research products. Patent pools are an ideal vehicle addressing this gap, offering a simple pathway for more publicly-funded innovation to reach the market on terms that benefit all of society.
Fair competition
Antitrust regulators have long recognised the pro-competitive benefits of patent pools. The U.S. Department of Justice has cited pools’ ability to integrate complementary technologies, reduce transaction costs, clear blocking positions, avoid risk, and avert costly infringement litigation. Regulators have approved various patent pool structures after determining they implement appropriate safeguards.
Pool administrators employ several mechanisms to ensure that licensing programmes foster fair competition. In any given individual setting, these include: creating pools around complementary, not substitute, patents; allowing bilateral licensing of patents in the pool; obtaining independent expert opinions on which patents are essential; using fair and non-discriminatory licensing terms; and limiting the exchange of competitively sensitive information among pool participants.
With these types of measures in place for the right programme, patent pools can generate significant efficiencies and promote the dissemination of technology. They facilitate the development and commercialisation of new products to the benefit of consumers, while preserving fair competition in the marketplace.
Transparency
Everyone in the market benefits from the transparency of patent pools run on the Sisvel model, not just companies that end up taking a licence on the pool’s publicly offered terms. The information published by pools, including patent lists, patent brochures, royalty rates and standardised sublicence agreements, creates a valuable benchmark for all players in the market.
There are significant differences in how much information different entities and even different pools make public about their patents and royalties. In general, however, SEP licensing tends to be much more transparent than non-SEP licensing, and patent pools make more information available than bilateral licensors.
These data points are especially useful to new market entrants and players in verticals newly empowered by connectivity, such as IoT. But they can also be used by researchers and policymakers seeking to better understand the innovation economy.
Alternative to litigation
The pool model is based on dealmaking, not litigation. Joining a pool sends a strong signal that the patent owner would prefer to license its rights without taking implementers to court. Pools thrive when they execute a large volume of amicable agreements. Administrators therefore have a strong incentive to create balanced solutions that present licensees with an attractive alternative to holdout and litigation.
Like other patent owners, pool participants sometimes feel compelled to assert their patents in court against true “hold-outs”. While parties always have a right to pursue their interest in court, pools remain available an off-ramp to settle such disputes with a business-driven solution when the situation calls for it.
Pools are just one option
At the end of the day, pools benefit all sides of the market by providing an additional way to facilitate voluntary licence agreements. Taking a pool licence cannot be coerced or compelled – implementers always retain the option to deal with patent owners individually. Patent owners are likewise free to license their rights bilaterally or through any number of other partnerships or deal structures.
Pools are just one option – but they are a highly attractive one for all the reasons outlined in this series. Trends toward wider participation in standards-setting and the proliferation of companies using connectivity technology will make aggregated dealmaking all the more relevant in the decades to come. The patent pool dates back to the earliest days of the modern patent system, and will remain one of the IP world’s most enduring deal structures. For patent owners, technology implementers and society as a whole, that’s a good thing.
This is the third instalment in a three-part series on the benefits of patent pools. Click below to navigate to the other parts.