Patent Pools: Consumer Friendly Cartels?

Patent/intellectual property pools represent a key form of strategic cooperation, also known as cartel behavior. Before getting to far into it, what is a patent pool exactly? There is some variation within the concept of a patent/intellectual property pool, but generally, patent pools are organizations that are jointly owned by anywhere from a couple to a couple hundred companies that control intellectual property such as patents. These joint ventures allow companies to share patents, such as new technological equipment, thereby creating standardization across industries. While this may not seem beneficial, if we look to the specific example of the HDMI connection standard it makes a lot of sense.

The HDMI connection port, that most consumers would recognize from the back of almost every TV from the past 5-10 years, is a classic example of a patent pool as it is not owned by one company. HDMI is held jointly by about 80+ companies including names such as Samsung, AMD, Toshiba, and Best Buy. Now one may ask, why would these companies share technology like this? The answer is: compatibility. For hardware manufacturers, it makes sense to use a shared standard so that they don’t have to add a whole mess of different standards to their device in order to allow for it to use third-party manufacturer attachments. For third-party manufacturers it is a boon, as they don’t have to make lots of different accessories for specific devices, making implicit bets on the hard-to-predict winners and losers in the market.

For most companies this behavior of strategic cooperation makes sense as it allows for compatibility to expand the capacity of their devices/accessories to be used in a variety of combinations. It also has the added benefit of making consumers happy, as what company would want to risk angering its consumers but adhering to its own technological/patent standard *cough* apple *cough*. This consumer benefit is an important factor to underpinning the unique nature of patent pools, as patent pools are a form a cartel behavior. Cartel behavior is normally anti-consumer as it encompasses the behavior of collaborating to limit competition or supply to the consumers detriment in the form of high prices. This behavior is even a step further the high consumer loss promoting oligopoly market as it involves collusion between companies. The reason why patent pools work in consumer favor is that when it comes to standards, especially in regards to technology, competition creates not only winners and losers among companies, but among the consumers who bought the wrong product standard. So next time you use a wireless mouse, watch a movie, or download a digital photo, thank patent pools.

About Brennan

Brennan is a Third year economics (b.s.) major at the University of Puget Sound.

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