Do Patent Pools Encourage Innovation? Evidence From Eight Industries in the 1930S

Ryan Lampe, DePaul University, and Petra Moser, Stanford University and NBER

10/25/2011
(Original Publish Date: 4/25/2011)

Patent pools, which allow a group of competing firms to combine their patents, are expected to encourage innovation by limiting litigation risks and lowering transaction costs. There is no contemporary evidence on the effects of patent pools on innovation; nineteenth-century data, however, indicate that pools that operate in the absence of restrictions on anti-competitive practice discourage innovation. This paper examines the effects of eight pools that formed after the Great Depression but before the landmark Hartford decision of 1945. Difference-in-difference estimates across these pools indicate a robust negative effect of pool creation on patenting. Estimates for individual pools reveal positive effects for one pool; this effect is due to positive time trends in patenting that preceded the creation of a pool.