Promoting Access to Intellectual Property: Patent Pools, Copyright Collectives and Clearinghouses

This paper reviews and compares patent pools, intellectual property clearinghouses and copyright collectives as systems for promoting efficient access to licensable intellectual property in a 'market for technology' (Arora et al, 2001). These systems promote downstream use of innovations by economizing on search and transaction costs in licensing, as well as potentially mitigating the conditions that lead to the 'tragedy of the anti-commons' and other coordination problems in multilateral licensing. We compare and classify different systems in terms of their features, review some existing systems, and discuss their economic characteristics.Intellectual property, licensing, markets for technology, collective rights management, patent pools, clearinghouses

The Value of a Reputation System

This paper explores the trade-off between the short-term benefits of false quality advertisements against the longer term costs of reputation damage. A directed search model is constructed in which submarkets are created by the advertisements and reputations of sellers. A reputation system links misleading advertisements in the present period to a lower reputation in the next period. We show that a reputation system always increases the prices of high quality products and directs search more accurately towards the sellers with such products. We also show that buyers are hurt by a reputation system if the market is thin -- has few sellers -- because the equilibrium increase in prices is greater than the equilibrium increase in the quality of trade. Finally, we show that a reputation system which screens for honesty increases social welfare by making sellers more truthful. However, we also show that a reputation for honesty is not always highly valued and that an alternative reputation system which screens for type can be more effective.reputation systems, directed search

Intellectual Property Clearinghouses and Investment in R&D

We examine the effects of third-party clearinghouses that license intellectual property on behalf of inventors when downstream uses of IP require licenses to multiple complementary innovations. We consider different simple clearinghouse royalty redistribution schemes, and different innovation environments. We show that clearinghouses generally increase incentives to invest in R&D as they increase efficiency in licensing. However, they may reduce expected profits of inventors who have the unique ability to develop a crucial component. We also show that clearinghouses also may increase or decrease expected welfare, and are more likely to be beneficial when R&D costs are relatively high, and/or the probability of success for inventors is relatively low.Intellectual property, licensing, clearinghouses, anticommons

Differentiated Standards and Patent Pools

We consider patent pool formation by owners of essential patents for differentiated standards that may be complements or substitutes in use. Pooling improves coordination in terms of royalty setting within a standard but provokes a strategic response from licensors in the competing standard. We characterise the incentives to form and defect from pools within standards and show how pool formation and stability depend on competition between standards. We also examine strategic patent pool formation by consortium standards and show that policies promoting compatibility of standards may increase or decrease welfare depending on the effects on the incentives to form pools.Patent pools, competing standards, consortium standards

Intellectual Property Clearinghouses: The Effects of Reduced Transaction Costs in Licensing

We focus on downstream uses that combine multiple intellectual property rights and examine the effects of introducing an intellectual property clearinghouse that reduces transaction costs associated with licensing. We show that this causes equilibrium royalties to rise in some cases and may harm licensors because clearinghouse by itself does not eliminate the 'tragedy of the anticommons'. Downstream welfare effects may also be positive or negative and we characterise the effects on downstream manufacturers and final consumers. We also show that total welfare is most likely to increase following a transaction cost reduction when the number of intellectual property rights per downstream use is small, or if rights are relatively substitutable in downstream use, but it is also possible for welfare to decrease.Intellectual property, licensing, tragedy of the anticommons, clearinghouses

Intellectual Property Clear inghouses: The Effects of Reduced Transaction Costs in Licensing

We focus on downstream uses that combine multiple intellectual property rights and examine the effects of introducing an intellectual property clearinghouse that reduces transaction costs associated with licensing. We show that this causes equilibrium royalties to rise in some cases and may harm licensors due to the 'tragedy of the anticommons'. Downstream welfare effects may also be positive or negative and we characterise the effects on downstream manufacturers and final consumers. We also show that total welfare is most likely to increase following a transaction cost reduction when the number of intellectual property rights per downstream use is small, or if rights are relatively substitutable in downstream use, but it is also possible for welfare to decrease.Intellectual property, licensing, tragedy of the anticommons, clearinghouses

Intellectual Property Access Systems

This paper reviews and compares patent pools and intellectual property clearinghouses as alternative systems for increasing the efficiency of access to intellectual property. These systems improve economic efficiency in downstream research and development by economizing on search and transaction costs faced by potential licensees, and by mitigating externalities among owners of complementary intellectual property that lead to excessively high license fees. We compare the administrative and economic features of different systems, review some successful examples, and suggest directions for future economic research.

Informational Intermediation and Competing Auctions

We examine the effects of provision of information about seller qualities by a third-party in a directed search model with heterogeneous sellers, asymmetric information, and where prices are determined ex post. The third party separates sellers into quality-differentiated groups and provides this information to some or all buyers. We show that this always raises total welfare, even if it causes the informed buyers not to trade with low quality sellers. However, buyers and some sellers may be made worse off in equilibrium. We also examine the provision of information by a profit maximizing monopoly, and show that it may have an incentive to overinvest in the creation of information relative to the social optimum.

Collective Rights Organizations and Investment in Upstream R&D

We examine third-party collective rights organisations (CROs) such as clearinghouses that license innovations on behalf of inventors when downstream uses require licenses to multiple complementary innovations. We consider two simple royalty redistribution schemes, two different innovation environments and two different antitrust rules. We show that in most cases CROs increase incentives to invest in R&D as they increase profits from licensing. However, incentives to invest of inventors who have the unique ability to develop a crucial component may be weakened. We also show that CROs may increase or decrease expected welfare, and are more likely to be beneficial when R&D costs are relatively high, and/or the probability of success for inventors is relatively low.Intellectual property, licensing, collective rights organizations, anticommons