A patent pool is a contract between two or more patent owners to license one or more of their patents to each other or to third parties. Patent pools are frequently connected with complex technologies that necessitate supplementary patents to give effective technological solutions. From a legal and economic standpoint, patent pools have been the topic of ongoing debate. Patent pools, on the one hand, may have a good impact on competition and innovation. Companies can develop new goods and lower transaction costs by pooling intellectual property assets. On the other side, patent pools may give a chance for anti-competitive action in some circumstances: like any kind of cooperation among competitors, they carry the danger of collusive behaviour.
Patent pools are now widely used as the foundation for industry standards that provide companies with the technologies, they need to build compatible products and services, such as in the fields of mobile communications, information coding, and public health.
Generally speaking, when an inventor gets in a position wherein a complex technology requires a complementary patent to obtain an efficient form, but that complementary patent belongs to another patent holder, patent pooling comes into play. A patent Pool is similar to a joint venture created to share intellectual property rights.
What is the Albany Agreement that gave the First Patent Pool?
On October 24, 1856, history was made through the Albany Agreement, resulting in the first patent pool in US history called the ‘Sewing Machine Combination’ or ‘The Sewing Machine Trust’. Elias Howe invented the sewing machine (Patent Model. Patent No. 4,750, issued September 10, 1846) charging expensive licence fees to anyone who attempted to make and sell something similar. However, Singer discovered a few methods to improve Howe's concept, including incorporating a thread controller and combining a vertical needle with a horizontal stitching surface. Singer patented his version of the machine in 1851 and founded I.M. Singer & Co., although by that time, a number of other innovators had added barbed needles and continuous feeding devices to Howe's original invention, among other modifications.
Prior to the Sewing Machine Combination, firms could buy Elias Howe's rights for a royalty rate of $25 per machine sold. Orlando B. Potter, president of Grover & Baker, collaborated with Howe, Wheeler & Wilson and Isaac Singer's I. M. Singer and Company in 1856 to pool patents and agree on terms of usage. The stipulations were that at least 24 manufacturers be licenced, that the founding businesses share earnings equally, and that Howe get a $5 fee for each machine sold in the United States and $1 for devices exported. Only interests were pooled, prices were not set, and the market was open to fair competition, allowing businesses to focus on machine building and marketing rather than litigation.
Thus, Grover, Baker, Singer, Wheeler & Wilson founded the first patent pool for sewing machines. They were all battling it out over patent infringement, but patent pooling saved their time, money and efforts.
One of the most noteworthy pooling events of 1971 occurred when the US government became aware of the patent struggle in the aircraft industry, which stifles the development of new planes. A patent dispute between Wright and Curtiss hampered the development of better and newer aviation technology in the United States.
A committee appointed by Franklin D. Roosevelt proposed patent pooling as a solution to the problem. Unlike sewing machines or folding bed manufacturers, the proposed recommendation was not made voluntarily. Later on, many pharmaceutical companies used the patent pooling option in order to make their products more accessible by lowering research and development costs, which in turn affected the cost of selling.
What is taken into consideration in a valid patent pool?
The following three processes must be included in a valid Patent Pool.
It should be determined whether technology is competitive (complementary or substitute) and does not defeat the purpose of any anti-competition laws.
The Pool agreement should be examined in terms of licencing, i.e., it should grant a worldwide, non-exclusive, and non-discriminatory licence.
Consider whether the pooling arrangement increases the possibility of collusive behaviour outside the pool, as well as whether it has controls to mitigate this risk.
To summarise, the practicality of patent pools as a notion in the pursuit of better, cheaper ways to achieve inventions is pretty good, provided that such a pool does not generate any future competition problems.
How does a patent pool operate?
Patent rights are pooled among numerous patent holders in a patent pool and made available to member and non-member licensees. The pool usually distributes a percentage of the licencing fees it earns to each member in accordance to the value of each patent.
Different Types of Patent Pools
Essentially, patent pools are classified based on how and by whom patents are utilised.
It can be done through a cross-license agreement, in which the two partners share common licencing to third parties, or by creating a distinct legal business that becomes the owner of the patents to be licenced.
Through an open pool and a closed pool.
In the closed pool, there are several patent owners, and one of these members is chosen to licence the pooled patents on behalf of all members to a third party. While patent pools are frequently outsourced to professional management businesses, such as a joint venture, created specifically to administer the patent pool, in the open market. These management businesses are in charge of maintaining the patent pool by adding new patent owners who fit the criteria, coordinating among the patent owners, and consulting third-party licensees on licence rates.
Antitrust laws and patent pools
Patent pools are fraught with antitrust issues. When big corporations collaborate on something, there is a risk of "anti-competitive" behaviour, in which they use their intellectual property rights to suppress competitors.
To avoid antitrust laws in the United States, the administrator of a patent pool must meet several criteria:
Patents must be clearly identified and licenced alone as well as as part of a package chosen by a potential licensee.
The patents in the pool must be valid and have not yet expired.
Patents must be technological necessities that are not competitive by definition.
To decide whether a patent is required, an impartial expert must be consulted.
The duration of the patent pool must be limited.
Royalties should be fair and equitable.
Non-exclusive licences must be available worldwide.
Alternative patents must be developed and used freely by licensees.
Licensees must return non-exclusive, non-discriminatory patent licences that are required to comply with the technology.
Participants in the pool must not agree on prices for items beyond the scope of the pool, such as downstream products.
The patent must be essential in order to be included in a patent pool. An essential patent is one where there is no other way to solve a specific problem, or to comply with an industry standard.
The patents that become part of the pool are typically handled by a central body, and they are readily available for licensing. They make the royalty rates for such licences public. Anyone interested in obtaining a licence can approach the pool, agree to the terms, and begin producing and selling the products. Such pools are common in standard essential patents relating to telecom and digital developments.
Patent Pools and Standardization
A technical standard is an established norm or requirement that defines uniform engineering or technical criteria, methods, processes, and practises for a technological system.
Because many standards are built on complementary technology, which is typically created by multiple enterprises, standardisation and patent pools are connected. Standards can help innovative technology gain widespread acceptance in the marketplace. As a result, standards play a vital role. They do, however, carry risks since adopting a standard will create a barrier to entrance into the relevant market because switching from one standard to another is either impossible or only doable with unreasonable effort. If the patents relevant to the standard are owned by multiple entities, a patent pool can satisfy the demand for standardisation.
When was patent pooling recognised as a public-health benefit?
It was in 2002, at a gathering of treatment campaigners, when AIDS had progressed to the point that it had become a chronic illness with expensive medications only available in wealthy countries. The Medicines Patent Pool (MPP) was created in 2010, with backing from Unitaid, which is now its primary supporter. The MPP is also backed by the UN. The Swiss Agency for Development and Cooperation funds the pool's work on access to vital medicines (SDC).
What is the Medicines Patent Pool (MPP) and how does it work?
It is an UN-backed public health organization dedicated to increasing access to life-saving medications and facilitating their development in low- and middle-income countries.
Drug patent "pooling" allows for high-quality copies of branded versions of new pharmaceuticals to be produced practically soon after they are licensed, without breaking the bank of poor countries. The transition from branded to generic pharmaceuticals used to take an average of eight years. It can now be completed in as little as two months.
The Advantages of Patent Pools
Patent pools can boost innovation and cost savings while also encouraging competition and establishing industry standards.
When a patent pool is used properly, it helps companies innovate while reducing the risk of legal complications arising from the usage of other protected inventions.
Efficiencies in Cost and Process
As they collaborate to bring new products to market, companies with complimentary patents might effectively agree not to sue each other for infringement. By lowering both litigation and the need to negotiate with other patent holders, pools can cut the time and costs involved with innovation.
Transaction Costs are Reduced
Patent pool agreements can reduce transaction costs for third parties by allowing them to enter into a single agreement rather than negotiating individual license deals with each business.
Patent Pools' Potential Drawbacks
The following are some of the potential disadvantages of patent pools.
Time and Money
Pools might help reduce the price of launching new items, but they also come with costs. They can take years to create and may require the evaluation of the members' patents by an independent expert.
When you create this type of agreement, you'll also need to engage an administrator to look after the pool, recruit licensees, and ensure that no infringement occurs.
Issues of membership and regulation
It will not work properly unless all of the key players agree to join the pool and members agree on governance issues.
Concerns about antitrust
Regulatory concerns and the impression that pools distort competition are two of the most significant potential downsides. While they are meant to promote innovation, they can actually suffocate it. This is especially true in businesses where small, outside enterprises provide the majority of the industry's innovation. Antitrust and monopoly risks might arise from patent pool arrangements. The US Department of Justice has mandated studies to evaluate whether patents in the pool are vital.
Understand the potential benefits and drawbacks before opting to develop or join a technological, medical, or other type of patent pool to reduce risks.
Historically, most patent pools were located in Europe and the United States, but given their expanding role in technological innovation, Asian corporations have recently increased their membership in patent pools. Global patent pool needs the cooperation of not just countries and international organisations but also the hundreds of researchers, innovators, companies and universities involved. Patent pools are typically effective at aggregating, administering, and licensing patents in specialized technology fields.
In light of the foregoing, patent pools undoubtedly assist in achieving significant advantages in the creation of new technologies and products. This saves money and time while also allowing pool members to have more information. Patent pools will aid impoverished people in developing and least developed countries in getting access to life-saving pharmaceuticals.
Today, patent pools are critical for removing friction and creating greater certainty for intellectual property users by making large swaths of IP around a single technology domain available in a single location, providing clarity and visibility for licensed technologies and their associated terms and conditions.