April 18, 2002 


Maureen Sirhal

  
  National Journal's Technology Daily


Intellectual Property: Experts Weigh Value Of Patent Pools, Cross
  Licensing


  Responding to the concerns of federal antitrust enforcers, industry and
  academic experts on Wednesday explained how new technology is facilitating
  the need for companies to develop common standards and how the practice of
  "patent pooling" so far seems to be enhancing technological
  developments.


  As part of an ongoing series, the Justice Department's Antitrust Division
  and the FTC convened a panel of experts from universities, law firms and
  private companies to weigh the anti-competitive implications of patent
  pools and cross licensing -- new mechanisms that allow firms to share
  inventions and avoid costly legal disputes.


  Patent pools typically feature two or more firms that agree to license
  their combined patents or inventions to third parties. Many pools
  typically form within a specific industry to create common standards for
  technologies. One such example is a pool known as MPEG-2 LA, a group of
  companies that joined to license a standard for the transmission of
  digital images and audio data for devices like high-definition televisions
  (HDTV).


  Cross licensing allows two firms to share their technologies and avoid
  patent infringement and the costly litigation that usually
  follows.


  Panelists touted the benefits of both approaches, arguing that they reduce
  the costs of transactions by providing a one-stop shop for companies to
  license various patented technologies. They also said two patent-licensing
  mechanisms also lower production costs for firms and, over time, may
  enable coordinated research and development efforts.


  But patent  pools often include "substitute" or "complementary"
  technologies in addition to the "essential" standards that prompt the
  pools. Antitrust authorities fear that the additional patents could hamper
  competition by allowing companies in the pools to raise licensing
  prices.


  Still, the nascent licensing practices "have gone pretty well," said
  University of Minnesota law professor Douglas McGowan. Criteria for
  creating patent pools "are being used sensibly [and] employed in a
  reasonable manner."


    

  McGowan suggested that antitrust enforcers consider factors such as the
  firms' return on investment when analyzing the competition concerns raised
  by patent pools. He also said antitrust enforcers should question whether
  competition is better with pools than without.


  Jeffrey Fromm, senior managing counsel at Hewlett-Packard, noted that "to
  the extent that pools are smaller ... the propensity to license outside
  the pool is high." But the terms under which companies license their
  patents within pools can vary according to the parties and their
  respective industries. Additionally, he noted in prepared testimony that
  changing market conditions often can render licensing agreements
  useless.


  But Fromm added that in some cases, the structure of patent pools may
  discourage innovation because pool members often must provide
  "grantbacks," or the contribution of any improvements upon the shared
  patents to the larger pool.


  Another major problem with the two patent mechanisms, experts said, is the
  uncertainty surrounding their formation. Most firms rely on the Justice
  Department's 1997 Business Review Letter, which outlines basic guidelines
  for patent pools. Yet Fromm said "those rules ... often are not sufficient
  to provide a level playing field for all affected parties necessary to
  ensure unimpeded competition."

  by Maureen Sirhal
   
  National Journal's Technology Daily