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ABSTRACT:
Intellectual property owners often hold the rights to several patents, each of which is essential to make or use a product. We compare the welfare properties of package licenses, under which a licensee pays the same fee regardless of the number of technologies licensed, with component licenses, under which each technology is licensed separately and there is no quantity discount. A central finding is that a long-term package license can induce incentives to invent around patents and invest in complementary assets that are closer to their socially optimal levels than are those induced by a long-term component license. We also identify settings in which a short-term license is a partial substitute for a package license and a prohibition on package licensing induces parties to adopt contracts that result in less efficient complementary investment because of hold-up.

SUGGESTED CITATION:
Richard J. Gilbert and Michael L. Katz, "Should Good Patents Come in Small Packages? A Welfare Analysis of Intellectual Property Bundling" (January 27, 2007). Competition Policy Center. Paper CPC07-066.
http://repositories.cdlib.org/iber/cpc/CPC07-066