From Patent Thickets to Patent Networks: The Legal Infrastructure of the Digital Economy
Scholarly and popular commentary often asserts that markets characterized by intensive patent issuance and enforcement suffer from "patent thickets" that suppress innovation. This assertion is difficult to reconcile with continuous robust levels of research and development (R&D) investment, coupled with declining prices, in technology markets that have operated under intensive patent issuance and enforcement for several decades. Using network visualization software, I show that information and communication technology (ICT) markets rely on patent pools and other cross-licensing structures to mitigate or avoid patent thickets and associated inefficiencies. Based on the composition, structure, terms, and pricing of selected leading patent pools in the ICT market, I argue that those pools are best understood as mechanisms by which vertically integrated firms mitigate transactional frictions and reduce the cost of accessing technology inputs. Appropriately structured patent pools can yield cost savings or intermediate users, which may translate into reduced prices for end users, but at the risk of undercompensating R&D suppliers.