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2004 Stan. Tech. L. Rev. 3 (2004)

handle is hein.journals/stantlr2004 and id is 1 raw text is: _Stanford Technology Law Review Antitrust for Patent Pools: A Century of Policy Evolution RICHARDJ. GILBERT* CITE AS: 2004 STAN. TECH. L. REv. 3 I. INTRODUCTION On June 26, 1997, the Department of Justice (DOJ) issued the first in a series of business review letters dealing with antitrust risks posed by patent pooling arrangements. The first letter responded to a request by the MPEG LA group' in connection with the group's intention to pool and jointly license patents necessary to comply with the MPEG-2 standard.2 MPEG-2 is a digital technology for video and audio compression. Nine different entities owned patents that were essential to use the MPEG technology. The MPEG group proposed a jointly owned agent (MPEG LA) that would license the essential patents as a single package. On December 16, 1998 and June 10, 1999, the Antitrust Division issued similar business review letters in connection with the Digital Versatile Disc (DVD) technology.3 The letters responded to proposals to offer package licenses for patents necessary to manufacture DVDs and players in compliance with the DVD-ROM and DVD- video formats. The DOJ reacted favorably to both the MPEG and DVD proposals. These proposals included the following competitive safeguards: 1. Limitation of the portfolio to technically essential patents which, by definition, are not competitive with each other. 2. Portfolio patents are clearly identified and can be licensed individually as well as in a package. 3. Issue of worldwide non-exclusive licenses. 4. Licensee liability for royalties conditioned on actual use of the patents. 5. Freedom of licensees to develop and use alternative technologies. 6. Requirement that licensees grant back non-exclusive, non-discriminatory licenses to use patents that are essential to comply with the technology. The DOJ business review letters provide a template for patent pooling arrangements that should not run afoul of the antitrust laws.4 The letters embody a new thinking in economics and law and Professor of Economics and Chair, Department of Economics, University of California, Berkeley. I am grateful to Joseph Farrell, Michael Katz, Mark Lemley, and Michael Riordan for helpful discussions, and to Grace Chung for excellent research assistance. 1 MPEG stands for Moving Picture Experts Group. 2 Letter from Joel I. Klein, Assistant Attorney General, U.S. Department ofJustice, to Garrard R. Beeney, Sullivan & Cromwell (June 26, 1997). 3 Letter from Joel I. Klein, Assistant Attorney General, U.S. Department ofJustice, to Garrard R. Beeney, Sullivan & Cromwell (Dec. 16, 1998); Letter from Joel I. Klein, Assistant Attorney General, U.S. Department of Justice, to Carey R. Ramos, Paul, Weiss, Rifrind, Wharton & Garrison (June 10, 1999). 4 The DOJ responses were not without controversy. See, e.g, Steve C. Carlson, Note: Patent Pools and the Antitrust Dilemma, 1999 YALE J. ON REG. 359, 399 (Antitrust agencies should not adopt a per se rule of legality for the pooling of blocking patents and

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