Essential Inventions, Inc. on Collective Management of IP Rights: Patent Pool

July 8, 2002. James Love's presentation at the 14th Annual AIDS Conference in Barcelona. An Essential Health Care Patent Pool.

What is a Patent Pool?
A patent pool is an agreement between two or more patent owners to license one or more of their patents to one another or third parties.

A patent pool may also be defined as “the aggregation of intellectual property rights which are the subject of cross-licensing, whether they are transferred directly by patentee to licensee or through some medium, such as a joint venture, set up specifically to administer the patent pool.” See Joel I. Klein, An Address to the American Intellectual Property Law Association, on the Subject of Cross-Licensing and Antitrust Law (May 2, 1997), (noting that United States v. Line Materials , 333 U.S. 287, 313 n.24 (1948) states that the term “patent pool” is not a term of art.)

Historically, to protect the public good, governments have created collective rights organizations: mandating compulsory licensing of patents at established fees, creating and managing public patent pools, directly purchasing key enabling technology patents and placing them into the public domain, and even creating mergers between firms. Private institutions or industry-led consortia have also organized private patent pools including small contract-based patent pools, large industry-wide patent pools, and technology standard-setting patent pools.

In Institutions For Intellectual Property Transactions: The Case for Patent Pools (August 1999), Robert P. Merges writes:
A patent pool is an arrangement among multiple patent holders to aggregate their patents. A typical pool makes all pooled patents available to each member of the pool. Pools also usually offer standard licensing terms to licensees who are not members of the pool. In addition, the typical patent pool allocates a portion of the licensing fees to each member according to a pre-set formula or procedure [...] Of course, there is one major difference between private collectives and conventional, statutory compulsory licenses: in these organizations, the members, and not Congress or a court, set the price. This almost always involves extensive negotiations; sometimes, ongoing adjustments are carried out via a permanent administrative structure. The point is, however, that the collective organizations present a simple, coherent menu of prices and other terms to licensees – and that they do so after extensive internal consultation.
Patent Pool Examples

  • Sewing Machine
    In 1856, the Sewing Machine Combination formed one of the first patent pools consisting of sewing machine patents. See Robert P. Merges, Institutions For Intellectual Property Transactions: The Case for Patent Pools (August 1999).
  • Movie Projector
    In 1908, Armat, Biograph, Edison and Vitagraph entered an agreement under which the four firms assigned "all the patents in the early-day motion picture industry." The agreement also specified the royalties that were to be paid into the pool by licensees of the pool patents such as movie exhibitors. More on the history at: The Edison Movie Monopoly: The Motion Picture Patents Company vs.the Independent Outlaws by J. A. Aberdeen, The First Studios by Marc Wanamakert, Archives of Universal Studios: Carl Laemmle and the Early Years of Universal and The Business of the Movies by Rich Warms.
  • Bed
    In 1916, the owners of various patents related to folding beds and other similar devices entered into an agreement providing exclusive license to the Seng Company to manufacture and sell under the pool patents. Of the total royalties, 33 percent was alloted to the Pullman Couch Company. The license contract was signed by the Davoplane Bed Company (7 patents), the Pullman Couch Company (13 patents) and two inventors. The Seng Company paid a fixed percentage to the pool. Pool members split the royalty according to a formula in the pooling agreement.
  • Aircraft
    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. See Harry T. Dykman, Patent Licensing within The Manufacturer’s Aircraft Association (MAA), 46 J. PAT. OFF. SOC’Y 646, 648 (1964).
  • Radio
    In 1924, an organization first-named the Associated Radio Manufacturers, and later the Radio Corporation of America, merged the radio interests of American Marconi, General Electric, American Telephone and Telegraph (AT&T) and Westinghouse, leading to the establishment of standardization of radio parts, airway’s frequency locations and television transmission standards. See The Radio Manufacturers Association (August 5, 1998).
  • Video.
    A patent pool was formed in 1997, by the Trustees of Columbia University, Fujitsu Limited, General Instrument Corp., Lucent Technologies Inc., Matsushita Electric Industrial Co., Ltd., Mitsubishi Electric Corp., Philips Electronics N.V. (Philips), Scientific_Atlanta, Inc., and Sony Corp. (Sony) to jointly share royalties from patents that are essential to compliance with the MPEG_2 compression technology standard. The MPEG -2 Standard patent pool comprises a number of essential patents put into the hands of a common licensing administrator empowered to grant licenses on a non-discriminating basis, collect royalties and distribute them on a pro-rata allocation based on each Licensor's contribution. The terms of the arrangement were negotiated with and approved by the US Department of Justice.

    In 1998, Sony, Philips and Pioneer formed a patent pool for inventions that are essential to comply with certain DVD-Video and DVD-ROM standard specifications.

    In 1999, another patent pool was formed by Toshiba Corporation, Hitachi, Ltd., Matsushita Electric Industrial Co., Ltd., Mitsubishi Electric Corporation, Time Warner Inc., and Victor Company of Japan, Ltd. for products manufactured in compliance with the DVD-ROM and DVD-Video formats. See Letter from Joel I. Klein, Assistant Attorney General, Department of Justice, Antitrust Division, to Carey R. Ramos, Esq. (June 10, 1999)

    DVD Patent Pool:
    DVD Licensing Site. DVD6C Licensing Agency. There are presently 80 U. S. Patents for DVD-ROM drives, DVD-Video players and DVD decoders, and 96 U. S. Patents for DVD-ROM discs and DVD-Video discs. The royalties under the joint license for DVD-Video players and DVD-ROM drives are 4% of the net selling price of the product or U.S. $4.00 per product, whichever is higher. Royalties for DVD decoders are 4% of the net selling price of the product or U.S. $1.00 per product, whichever is higher (more information).
  • Software
    LinuxWorld: an argument from Bruce Perens for Linux to have a patent pool as a means of defense.

    The basic idea behind is to change the rules of the patent game such that it is to the advantage of participants to help solve the problems of software patents.
  • Biotechnology
    December 1999. Katherine Moore, Ph.D., Ethics Advisory Committee. Sharing Genetic Research Tools, The Ethical Considerations.

    June 9-12, 20002. Panel: A Solution: Can Patent Pooling Uncork the Technology Transfer Bottle Neck and Create Value? (International Biotechnology Convention & Exhibition. Toronto, Ontario, Canada).

    February 8, 2002. Lawrence M. Sung. Greater Predictability May Result in Patent Pools.
    This article refers to biotechnology inventions to include isolated genetic molecules, such as DNA or RNA, and biologics produced through recombinant technology.

    At its core, biotechnology is the exploitation of nature’s design, standing on the shoulders of the biological templates of DNA and RNA. For biotechnology, genetic information represents an “industry standard” analogous to those described above in the electronics and telecommunications areas. Accordingly, the landscape of increasing patent protection to this genetic material favors the voluntary entry of biotechnology industry members into patent pooling arrangements.

    Indeed, the vast amount of genetic information, and its significance as a fundamental research tool even absent functional knowledge, can give rise to an almost overwhelming number of patents, the true value of which may be unascertainable without the cooperative efforts of other companies. In any event, the overall transactional costs associated with risk assessments based upon this relatively uninformed valuation of patent rights may alone outweigh any perceived benefit to the maintenance of an isolationist business strategy.[SNIP]

    The fundamental features of a patent pool include the integration of complementary technologies, the reduction of transaction costs, the clearance of blocking patent positions and the avoidance of costly infringement litigation. Its effectiveness springs principally from a consensus among the participants that individual patent rights will be made available to other members on fair, reasonable and nondiscriminatory terms. In any event, the ability to obtain a straightforward, reliable freedom to operate in an otherwise complex arena of intellectual property will be a dominant appeal of a biotechnology patent pool for prospective participants and nonmember licensees alike.

    Given the dynamics of biotechnology research and development, the reliance by the industry on cooperative market-based technology transfer strategies through patent pools or other CROs may be inevitable. If so, the prospects for future success will likely depend on the swift acceptance and implementation of such collective rights programs.
    Patent Pool and Antitrust Laws
    In the early 1900’s, US courts gave sweeping deference to the licensing of patents and such activities were practicably immune from the Sherman Act. Patent pools’ freedom from any scrutiny under the US antitrust laws ended in 1912 with the US Supreme Court’s decision in Standard Sanitary Manufacturing Co. v. United States which dissolved a patent pool because of antitrust violations.

    In 1945, the US Supreme Court dissolved one of the most notorious patent pools in Hartford-Empire Co. v. United States. This patent pool of major glass manufacturers covered ninety-four percent of all the glass made in the United States, which allowed its members to sustain glass prices at unreasonably high levels.

    In the 1960s, the US Department of Justice closely evaluated all patent pools and created a list of nine patent licensing practices that were per se antitrust violations (known as the “Nine No-Nos).

    Recently, the US Department of Justice and the US Federal Trade Commission (“FTC”) have recognized that patent pools can have significant procompetitive effects and may improve a business’ ability to survive this era of rapid technological innovation in a global economy. The Department of Justice’s and the Federal Trade Commission’s Antitrust Guidelines for the Licensing of Intellectual Property (the “Guidelines”) recognize that [l]icensing, cross-licensing, or otherwise transferring intellectual property … can facilitate integration of the licensed property with complementary factors of production” and that such integration can “benefit[] consumers through the reduction of costs and the introduction of new products.” (Guidelines, §2.3.) The Guidelines also caution, however, that “[w]hile intellectual property licensing arrangements are typically welfare-enhancing and procompetitive, antitrust concerns may nonetheless arise” particularly “when a licensing arrangement harms competition among entities that would have been actual or likely potential competitors in a relevant market in the absence of the license (entities in a ‘horizontal relationship’).” (Id. at §3.1.)

    February 8, 2002. Scott A. Chambers. Patenting Procedures Foundational Issues in Patents and Antitrust. See: FTC/DOJ Public Hearing.
    Selected Documents and Links on Patent Pool

  • Papers
    June 6-7, 2002. George G. Gordon. American Bar Association's Antitrust Section. Analyzing IP License Restrictions Under the Antitrust Laws: A General Outline of Issues.

    April 17, 2002. James J. Kulbaski. Comments On Patent Pools and Standards For Federal Trade Commission Hearings Regarding Competition & Intellectual Property

    March 19, 2002. James P. Love. Perspectives on Competition and Intellectual Property Law and Policy in the Knowledge-Based Economy.

    March 2002. David Perkins. The Role of Alternative Dispute Resolution in Patent Disputes

    February 20, 2002. Josh Lerner. Patent Pools: Some Policy Considerations (presentation)

    February 6, 2002. Charles James. Opening Day Comments for FTC/DOJ Public Hearings on the implications of antitrust and patent law and policy for innovation and other aspects of consumer welfare.
    In the late 1990s, the Division examined through the Business Review process three different proposals to jointly license patents to other companies, an MPEG patent pool (a video compression technology) and two DVD patent pools. In all three cases, the Division concluded that the proposed arrangements did not appear to pose antitrust concerns.

    The Division's decisions rested on a number of factors, including the fact that the pools license only those patents essential for a manufacturer to comply with an established standard. The pools were designed to capture the efficiencies that may come from licensing complementary technologies. Concomitantly, they were designed to limit the anticompetitive effect that can arise from pooling technology, such as the elimination of competition or the increase in prices that could arise if substitute technologies (that is, technologies that could compete against each other) were placed in a pool.

    In these hearings, we will encourage exploration of a number of broad questions about patents pools, such as whether pools actually result in the competitive problems they are hypothesized to cause and whether the antitrust authorities have focused on the right criteria when evaluating patent pools.
    December 2001. Joseph A. Yosick. Compulsory Patent Licensing for Efficient Use.
    The paper compares compulsory patent licensing provisions in the United States and modern, foreign nations.

    October 6, 2001. Richard Gilbert. Economics, Law, and History of Patent Pools and Cross- Licensing Agreements

    September 2001.James Love and Michael Palmedo. Examples of Compulsory Licensing of Intellectual Property in the United States.

    March 2001. Carl Shapiro. Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard-Setting

    March 2001. Barbara T. Sicalides & Kathleen A. Mullen. The Plane Lands on Patent Pooling.

    January 19, 2001. USPTO. White Paper on Patent Pooling The white paper suggests that patent pools can be used to create a number of social and economic benefits. These benefits include the elimination of problems caused by "blocking" patents or "stacking" licenses, reducing licensing transaction costs, sharing the risks in research and development, and facilitating the exchange of technical information or know-how not covered by patents. The use of patent pools in the biotechnology industry could be beneficial for both the public and private sector. The public would benefit by having ready access due to streamlined licensing conditions to a greater amount of proprietary subject matter. Patent holders would also benefit: they would gain greater access to proprietary subject matter of other patent holders and they would have access to affordable prepackaged patent "stacks" that could be easily licensed. Patent holders could also derive additional revenue sources for inventions that might not otherwise be developed. Winter 2000. Sheila F. Anthony. Antitrust and Intellectual Property Law: from Adversaries to Partners

    December 5, 2000. Jeanne Clark, Joe Piccolo, Brian Stanton, and Karin Tyson. Patent Pools: A Solution to the Problem of Access in Biotechnology Patents?

    August, 1999. Robert P. Merges, University of California School of Law. Institutions for Intellectual Property Transactions: The Case of Patent Pools.

    November 27, 1995. John H. Barton. Patent Breadth and Antitrust: A Rethinking

    1988. Donald A. Hicks. Is New Technology Enough?: Making and Remaking U.S. Basic Industries at 31.

    1989. Ross Thomson. Invention, Markets, and the Scope of the Firm: The Nineteenth Century U.S. Shoe Machinery Industry, 18 Bus. & Econ. Hist. 140, 143 (“Patent control further strengthened [the] competitive positions [of the three largest firms] via pooling for the three major dry-thread firms (in conjunction with Elias Howe) . . . .).

    1988. George Bittlingmayer. Property Rights, Progress, and the Aircraft Patent Agreement, 31 J. L. & Econ. 227 (describing accounting system for aircraft pool).

    1961. William Greenleaf. Monopoly on Wheels. (describing automobile patent pool administration).
  • Cases
    Summit Tech., Inc. & VISX, Inc., No. 9286 (FTC Mar. 24, 1998) See complaint
    In March 1998, the FTC announced charges against Summit Technology, Inc. and VISX, Inc. regarding their pooling of patents related to photorefractive keratectomy ("PRK"). PRK is a form of eye surgery that uses lasers to reshape the cornea and frees many people from the need to wear glasses or contact lenses. They were the only firms with the US Food and Drug Administration ("FDA") approval to market PRK equipment. They licensed most of their PRK patents to a shell entity named Pillar Point Partnership.(61) This partnership then licensed the full portfolio of patents back to Summit and VISX, and only to Summit and VISX. Summit and VISX sold or leased PRK equipment to eye doctors and sublicensed the doctors to perform PRK procedures. The patent pooling arrangement required Summit and VISX to pay the Partnership a $250 fee each time a PRK procedure was performed. Summit and VISX, in turn, charged each of their respective sublicensees a $250 per-procedure fee. Neither Summit nor VISX had an incentive to reduce this fee because the patent pooling agreement obligated each firm to pay this amount to the pool. See for more details.

    UNITED STATES v. GLAXO GROUP LTD. ET AL. 410 U.S. 52 (1973)
    SUMMARY: A British drug manufacturer held an American patent on the dosage form of griseofulvin, a fungicide, and another British drug manufacturer held an American patent on a microsize dosage form of griseofulvin. The two manufacturers made a patent pooling agreement containing certain restrictions on the sale of bulk-form griseofulvin. Similar bulk-sale restrictions were contained in sublicensing agreements made by the two manufacturers with three American drug companies. In a civil antitrust action in the United States District Court for the District of Columbia, the United States Government sought to enjoin enforcement of the bulk-sale restrictions on the ground that they involved unreasonable restraints of trade, in violation of 1 of the Sherman Act. Also, the government challenged the validity of the American patents which had been obtained by the British manufacturers. The District Court held that the bulk-sales restrictions constituted per se violations of 1 of the Sherman Act, but that since the manufacturers were not relying on the patents in defense of the government's antitrust claims, the government could not challenge the validity of the patents (302 F Supp 1). Although the District Court granted the government's request for injunctive relief against future violations, the District Court denied the government's request that the manufacturers be ordered (1) to make bulk sales on reasonable and nondiscriminatory terms and prices to all bona fide applicants, and (2) to grant reasonable-royalty licenses for the manufacture of griseofulvin (328 F Supp 709).

    Foreign patent pool case. Certiorari to the US Court of Appeals for the seventh Circuit. No. 49. Argued January 22, 1969 -- Decided May 19, 1969. ZENITH RADIO CORP. v. HAZELTINE RESEARCH, INC., ET AL. 395 U.S. 100.

    United States v. Birdsboro Steel Foundry & Mach. Co., Inc., 139 F.Supp. 244, 108 U.S.P.Q. 428 (W.D. Pa. 1956) (defendants were justified in entering into agreement to cross-license patents for cooling beds used in steel mills, where, in absence of such agreement, cooling beds embodying the best features of both defendant’s patents could not lawfully be made, and neither the defendants nor the public could obtain any benefit without agreement); International Mfg. Co., Inc. v. Landon, Inc., 336 F.2d 723, 142 U.S.P.Q. 421 (9th Cir. 1964) (“No commercially feasible [swimming pool cleaning and filtering] device could be manufactured under one of the patents without infringing the other. For this reason, Cavenah and Pace were found to be blocking, or interlocking, patents.).

    SUMMARY: The validity of provisions of a decree in an anti-trust suit in which patent abuses were proved, for compulsory licensing of the use of the patented inventions, giving lessees an option to purchase leased machines, and the action of the trial judge in leaving the matter of royalties to a committee, reserving to himself the casting vote in case of deadlock, are approved by eight members of the Court in an opinion by Jackson, J.


    The difference between legitimate use and prohibited abuse of the restrictions incident to the ownership of patents by the pooling of them is discussed in Standard Oil Co. v. United States, 283 U.S. 163 (1931).
  • Bayh-Dole Act, 35 U.S.C. §§ 200-211 and the Federal Technology Transfer Act of 1986, 15 U.S.C. 1301 et seq. - provide the statutory basis and framework for federal technology transfer activities
  • Uniform Biological Material Transfer Agreement (UBMTA) developed by the academic community and NIH.
  • Report of the National Institutes of Health (NIH) Working Group on Research Tools.
  • 1935 US Congressional Patent pooling hearings:
    These various institutions [industry-wide pools] have differed materially in the type of organization created by the agreements. Perhaps the loosest of all is the automobile manufacturers agreement, and obvious [sic] the most severe restrictions are imposed where the patents pass into the hands of a single owner, yet all these agreements have in common the principle that within the industry, the individual monopoly created by patents is abolished in the form it is provided by statute and a different system is substituted more in harmony with the needs of that industry.
    [I]n the airplane cross-licensing agreement, after completely abolishing the monopoly of the individual inventor and opening every patent to every member of the association, it provides that a board of arbitrators may decide in any case what reward should be paid to individual patent owners and this is based not upon the official determination of patentability by the Patent Office, but upon the unofficial determination of the importance of the invention by a board of arbitrators (quoted by Merges 19).

    Related Links
    Competition and Intellectual Property Law and Policy in the Knowledge-Based Economy FTC/DOJ Public Hearings February-May 2002.
    Patent Strategies of Japanese Company.
    CPTech Page on IP and Health
    CPTech Page on Compulsory Licensing
    CHI Legal & Intellectual property glossary
  • Patent Pool in the News
    April 18, 2002. Maureen Sirhal. Intellectual Property: Experts Weigh Value Of Patent Pools, Cross Licensing

    April 11, 2002. Microsoft Attacks Free Software Developers with New License

    March 14, 2002. Holly J. Wagner. MPEG-4 License Fee Under Attack. More on On2 Technologies web site.

    March 6, 2002. Damien Cave. Stop. Pay Toll. Download.

    December 2001. Lisa Mueller. Patent Pools: Should the biotech industry jump in?

    July 13, 2001. Rochelle K. Seide & Michelle LeCointe. Trendspotter: Just Say No to Patent Pooling for Genomics

    February 12, 2001. Scott Fields. Patent Pools: A Solution to Biotechnology Patents Access.

    October 16, 2000. Paul Meller. EU says yes to DVD manufacturers' patent pool.

    September 1998. Dana J. Parker. Everybody Into the (Patent) Pool!

    November 24, 1998. Junko Yoshida. Digital-TV patent pool draws fire in Europe.

    1997. Junko Yoshida and Mark Carroll China flexes standards muscle