Some innovations are easier to grasp than others. Innovations in physical objects we can touch, such as the iPhone, seem to routinely gain the favor of the public and policymakers. Innovations that cannot be seen often do not gain the same sort of attention. But what most innovation typically shares is the opportunity to be covered by intellectual property protections, such as patents.
Today’s electronic devices are the result of, and are dependent on, varying levels of intellectual property rights—the legally protected creativity and insight of innovators. They own the rights to specific patents and how they are used by others, often through licensing. The U.S. patent system is designed to protect and spur this constitutionally protected innovation.
One part of the U.S. patent ecosystem is the “patent pool,” which is just what it sounds like: A group of companies agreeing to cross-license patents relating to a particular technology, a sort of a co-op managing certain intellectual property.
Patent pools by design were intended to save innovators time and money by establishing cross-licensing agreements for specific technologies. To avoid charges of collusion—i.e., companies working together to the detriment of the consumer—the Department of Justice must approve of the pool and grant an anti-trust exemption.
But patent pools can be abused, exploiting the system in an attempt to maximize profits. Such action jeopardizes and creates barriers to innovation, heaping unnecessary financial burdens onto consumers.
The for-profit patent pool MPEG-LA has for years licensed the use of DVD and video streaming technology. But lately it has been charging excessive rates for access to technology that is no longer even protected by patent—that is, technology that is freely available to the public without any license. In fact, 90 percent of the patents within the MPEG 2 pool will expire by 2015, with one-half of them already expired. But MPEG-LA locks in licensees for contractual periods that extend far beyond the life of the patents it is licensing—acting like a government approved monopolist rather than the mere custodian of the patents owned by others but contributed to the pool.
So long as this practice continues, consumers are paying inflated prices and innovation is slowed.
MPEG-LA has become a rent seeker, an entity making money off of government granted protection that was intended to benefit innovators and consumers. And by doing so it is inviting regulatory intervention, which threatens the whole patent pool system, which depreciates the intellectual property contribution to innovation and the next generation of technology.
June 27, 2013