Should Good Patents Come In Small Packages? A Welfare Analysis of Intellectual Property Bundling

Intellectual Property and Patents

Article Snapshot


Richard Gilbert and Michael L. Katz


International Journal of Industrial Organization, Vol 24, Issue 5, September 2006, pp. 931-952


This paper looks at common patent business practices to see if they harm consumers.

Policy Relevance

Stopping firms from licensing many related patents together for one fee could harm consumers.

Main Points

  • Some firms hold the rights to many patents, all of which are needed to make a product.

  • With a package licenses, the patent holder gets the same fee no matter how many patents are licensed. With component licenses, the licensee pays a separate fee for each patent. Licenses can run for short or long terms.

  • Package licensing is often desirable for everyone because more patents can be added to the package at low cost.

  • Package licenses can discourage attempts to invent around packaged patents. But this extra research expense would not necessarily help consumers in any case. And the patent holder has the flexibility to change the price if a patent is invented around.

  • Short term contracts and some long term contracts can help patent holders adapt to uncertainty about prices and the value of innovation.

  • Prohibiting package licensing means that buyers must paying separate fees for each license, and worry that patent holders for essential technology licensed last will inflate prices. This concern can hold up innovation and harm everyone.

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