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Glory days: Do the anticompetitive risks of standards-essential patent pools outweigh their procompetitive benefits?

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Patent pools—licensing arrangements in which multiple patent owners agree to license their intellectual property to each other, third parties, or both2—have existed in some form for nearly two centuries.3 During that time, courts and competition agencies have noted both the benefits and risks associated with pools. On the one hand, patent pools can reduce transaction costs, clear blocking positions, and enable parties to avoid costly infringement litigation.4 On the other hand, patent pools can serve as a vehicle for collusion, charge for unnecessary patents, and include exclusionary licensing terms.5 Nonetheless, the consensus for more than twenty years has been that the procompetitive benefits of patent pools outweigh their anticompetitive effects.6 But the current assessment of patent pools may be influenced by the nostalgia of events long past. Developments over the past two decades warrant revisiting some of the assumptions regarding the procompetitive nature of patent pools. Creativity and increasingly aggressive licensing behavior also are amplifying the anticompetitive effects of certain pools. As a result, the promise of using certain types of patent pools to resolve licensing issues for standards-essential patents (SEPs) may be as yet another unrealized dream from glory days gone by. This Article proceeds as follows. First, it provides an overview of necessary background principles to understand the interaction between patent pools, commitments to license SEPs on terms that are fair, reasonable, and nondiscriminatory (FRAND), and competition law. Second, it explores how competition law principles traditionally have been applied to SEP patent pools and explores business review letters issued by the U.S. Department of Justice (DOJ) addressing patent pools. Third, it critically examines how some of the assumptions underlying the procompetitive nature of patent pools no longer are true in today’s SEP assertion environment. Fourth, it assesses how the anticompetitive risks of certain SEP pools likely eclipse their alleged procompetitive justifications. Finally, this Article concludes by providing specific recommendations to restore SEP patent pools to a position where an appropriate balance is struck between competition risks and benefits.