Valuation of IP in patent pools under scrutiny

There is a rising tide against patent pools.  How fast it is rising is anyone’s guess, but the common thread to the criticism has to do with the value of the patents in a patent pool.

A patent pool, in effect, is an agreement  between two or more companies  to license their patents collectively for specified technologies. Patent pools exists in or are planned for these industries:

Molecular Diagnostics


Consumer Electronics





Healthcare and Biotechnology

Manufacturing and Materials

Transportation and

Wireless Technology

Steve Pociask writing in Huffington Post describes the need for patent pools:

“Some products use hundreds of patents to manufacture. For a manufacturer, getting access to these patents is essential to producing and creating competition in the marketplace. Assume, for instance, that a DVD manufacturer works out deals to use dozens of patents, but one competitor chooses to withhold access one essential patent. The product never reaches the market.”

Department of Justice-approved patent pools provide for the aggregation of companies’ intellectual property rights in one place, for one fee, allowing manufacturers “essential access these patents.”  The manufacturer pays a fee to get that essential access to the required patent bundle, theoretically encouraging innovation and competition.

The problem arises as the essential patents expire. If a reasonable fee on the bundle were $X when the patents included were at their maximum value, it stands to reason the fee should be $X-$Y as those essential technologies come off patent.

One patent pool, MPEG-2, administered by MPEG-LA, has been the topic of discussion in IP Value Wire before. Steve Forbes has pointed out the value of the IP in the patent pool for MPEG-2 is less than half what it once was, due to patent expirations. Yet the fees charged manufacturers, who would now be able to gain access to those expired patents for free, remain the same. “Innovators are forced to accept MPEG LA’s license fees and terms regardless of actual patent value.”

Analysts should watch activity of the DOJ, as there don’t appear to be any efforts by the patent pool administrators to address the valuation issue.