Innovation Effect on Patent Pool Formation:Empirical Case of Philips’ Patents in Digital Versatile Disc 3C

The aim of this paper is to understand the evolution of a patent pool over time, focusing on an individual firm. The legitimacy of patent pools requires a careful balance between innovation incentives, anti-competitive possibilities and consumer surpluses. Thus, it is an empirically important issue whether a patent pool continues to maintain this carefully struck balance even as the mix of its patent assets continues to evolve. The particular focus of this study is to examine the quality and quantity of Phillips’ patent holdings within the DVD 3C patent pool in order to understand the extent of the firm’s innovation within that patent pool over its lifetime, measured by four indicators that previous scholars have linked to the notion of patent quality. The result shows that, while the four indicators of patent quality varied, they together reveal that the breadth of exclusivity expanded significantly during the life of the patent pool, but that this expansion represented little innovative activity. Most of the patents issued post-formation are extensions of patents granted before pool-formation.