Patent Pool and Deprivatization of Patents

Abstract

Harold Demsetz proposed an evolutionary theory of property rights that a transition of property rights structure results from interacting parties’ efforts to maximize utilities in face of change of external elements that bear on their benefit cost calculation. Although Demsetz’s theory was developed by analyzing tangible properties, it can adequately explain why patent owners voluntarily form patent pools. Under Demsetz’s theory, the existence of externalities, the cost of enforcing the right to exclude, and the economy of scale can all respectively change the benefit-cost calculation of property owners/users. The formation of patent pools can be understood as a transition from a private property system to a commons system in response to three phenomena in the patent system: complementary patents, high cost of enforcing patent rights, and excessive patent fragmentation. When the transaction cost of reaching agreements in patent pools is outweighed by its benefits, we can expect to see more patent pools being established.