Fails, trade secrets and first mover means firms won’t join
Erik Hovenkamp and Herbert Hovenkamp 17, Herbert Hovenkamp served on the ABA t advise the President on antitrust matters and is a professor of law at the University of Pennsylvania Cary Law School and Wharton, Erik Hovenkamp is a post doctorate fellow at Harvard Law School and has a PhD in economics from Northwestern and is a professor of law at Cornell, 4-10-2017, "Patent Pools and Related Technology Sharing", Cambridge Handbook of Antitrust, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2645905//susu
The existence of a pool may distort innovation behavior. For example, a firm might decide to protect a particular innovation with a trade secret rather than a patent in order to avoid committing it to a pool. Alternatively, it may rely on simple first mover advantages in order to avoid patent disclosure requirements. Another distortion results from how royalties are divided up. For example, if the pool divides royalties by the number of patents, then pool members have an incentive to make patents thinner in order to increase their number. (Baron and Delcamp, 2015) Finally, one must distinguish anticipatory innovation which occurs when a patent pool is announced (Lerner & Tirole, 2004; Dequiedt & Versaevel, 2013), from equilibrium innovation which occurs on an ongoing basis after the pool is in operation (Baron & Pohlmann, 2015).
A well-functioning patent pool should reduce the costs of sharing technology, which it can do by making it easier for manufacturers to assemble complements, eliminate double marginalization, or reduce the costs of defining or defending patent boundaries. Since all of these costs operate as a deadweight loss on innovation one would think that the impact of a well designed pool is positive. On the other side, pooling may reduce the appropriation value of innovations, particularly if pool members must commit in advance to dedicate new patents to the pool. In that case, rather than obtaining the entire return the pool member must contemplate sharing with others, and this may create common pool management problems. Each firm will have a tendency to shirk, profiting instead from the inventions of others.
The theoretical and empirical literature points in both directions, with most literature finding that most patent pools increase innovation rates (e.g., Baron & Pohlmann, 2015; see also Shapiro, 2001; Lerner and Tirole, 2004; Mossoff, 2011), although there is also literature concluding to the contrary (e.g., Lampe & Moser, 2010, 2013, 2016). Others find that pools of stronger patents tend to increase innovation while pools dominated by weaker patents more likely to be invalidated in litigation do not (Choi & Gerlach, 2013).