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Stable patent pools

We study endogenous patent pool formation in the framework of Lerner and Tirole (2004). Exclusive and non-exclusive membership coalitions are considered. Complete pools are formed under both rules only if restrictive conditions are satisfied. The degree of substitutability of patents determines whether a pool imposes negative or positive externalities on outsiders and thus, if exclusive pools tend to be more concentrated than non-exclusive pools. In this more general setting, mandatory individual licensing is not an efficient antitrust instrument to screen out welfare decreasing pools. With incomplete pools, the welfare decreasing outcome is always weakly stable with respect to this provision, sometimes even strongly stable. However, such a pool would never be a stable exclusive pool. Our analysis suggests that a hostile approach towards rules of exclusive pool membership such as prevalent in EU is not justified.