DO PATENT POOLS ENCOURAGE INNOVATION? EVIDENCE ...

optimal price for the complete product (Merges, 1999; Shapiro, 2001, p.134;
Lerner and Tirole, 2004). 2
Patent pools may, however, also discourage innovation as they reduce the
intensity of competition in an industry. Although these effects are difficult to
examine with contemporary data, a patent pool in the 19 th -century sewing
machine industry appears to have discouraged rather than encouraged innovation
(Lampe and Moser, 2010). Pool members and outside firms patented less after
the creation of the pool and only began to patent more again after the pool had
dissolved. Improvements in the technical performance of sewing machines also
slowed after the pool had formed and only increased again after it had dissolved.
Moreover, the creation of a pool appears to have shifted innovation away from
pool technologies and towards technologically inferior substitutes, where outside
firms did not have to compete directly with the pool (Lampe and Moser, 2011).
This paper examines patent data for 20 patent pools in the 1930s to
investigate the effects of patent pools on innovation. 3
Pools rose to prominence
after 1917 when a congressional committee under Franklin D. Roosevelt
encouraged the Wright brothers and their competitor Glenn Curtis to pool
blocking patents that hindered the production of planes. With a patent pool,
production increased from 83 planes in 1916 to 11,950 in 1918 (Stubbs, 2002). 4
2 In contrast, pools that combine substitute patents may increase license fees (Lerner and Tirole,
2004).
3 Field (2003 and 2011) documents significant advances in total factor productivity across a broad
range of industries in the 1930s. An analysis of patent data indicates that increases in chemical
invention in the 1930s may be due to compulsory licensing, which allowed U.S. firms to produce
German-owned inventions after World War I (Moser and Voena, 2011).
4 The aircraft pool remained active until the 1975, when the Department of Justice dissolved the
pool arguing that its cross-licensing agreement discouraged R&D (Bittlingmayer, 1988).
2