Managing Cartels Through Patent Pools

Abstract

This article addresses one aspect of patent pools that has not received much attention—a patent pool’s role in stabilizing a cartel of downstream producers. This article first reviews the problem of cartel cheating. Any potential mechanisms that a cartel can use to increase its stability face three main challenges: (1) the cost of management, (2) agency costs, and (3) the requirement of secrecy. This article argues that the vertical licensor–licensee relationship inherent to a patent pool would contribute to more effective monitoring of compliance with cartel agreements by licensees. It also argues that the aggregation of patents in a patent pool would better effectuate the punishment of cartel cheating. The article’s main finding that a patent pool is uniquely suited to manage a cartel is a reminder that an overly permissive view of patent pools can invite anticompetitive hazards.