Patent Pooling is an agreement between two or more patent owners to license their patent to each other or to a third party. The practice often concerns complex technologies which require complementary tools to provide an efficient technical solution. While Patent Pooling normally involves mature technology, it also represents the basic industrial standard that supplies companies with the required technology for developing compatible products and services—making it also relevant for under developed technology.
Patent Pooling is an often contested topic from both a legal and economic perspective. On one hand, patent pooling may have a positive impact on competition and innovation, the sharing of IPs could help companies develop new products and reduce transactional cost. However, on patent pooling could also encourage anti-competitive actions, such as cooperation with competitor which may lead to inherent collusive strategies.
In Indonesia, Indonesian Competition Commission enacted an Indonesian Competition Commission Regulation Number 2/2009 regarding The Exclusion Guidelines for the Application of Law Number 5/1999 Regarding the Prohibition of Monopolistic Practices and Unfair Business Competition against Agreements Related to Intellectual Property Rights. The development of this regulation is highlighted in Article 50 of the law, which for the harmonization of the IPR regime and the business competition law. That article also regulates the exception to Law Number 5 Year 1999, which includes licensing. The full passage read as follows:
“…agreement related to Intellectual Property such as licensing, patent, trademark, copyright, industrial product design, integrated electronic circuit, trade secrets, and a franchise related agreement.”
The aforementioned guideline also stipulates the steps to analyze on whether a licensing agreement that would qualify for an exclusion from Law Number 5/1999. They are as follows:
- Pooling Licensing and Cross Licensing
Pooling licensing is cooperation between businesses and their business partner to compile intellectual property licenses for a certain product component. While Cross licensing is a mutual agreement of IP sharing between businesses partners that is commonly done for Research and Development (R&D).
To analyze whether or not a this type of agreement carries an anti-competitive quality, we must first note that the licensor is able to conduct pool licenseing and cross licensing. However, if such action causes the production or the marketing of a certain product is to be dominantly controlled by a certain business, then that license agreement may being anti-competitive.
- Tying Arrangement
In principle, a licensor may combine two or more of his registered IPs to be marketed to the public. However, consumers should be provided with a choice to purchase one product only. If a license agreement contains a clause that requires the licensee sell the product as one unit, which prevents the consumer from purchasing the original individual products separately, that agreement may be regarded as anti-competitive.
- Raw materials restrictions
A licensor may give restrictions to licensee regarding the usage raw materials. This is considered necessary to maximize function, safety, and the prevention of information leaks. However, such restrictions may potentially give the licensee a lack of freedom in selecting raw materials and supplier, which could lead to an inefficient implementation of the licensing agreement
If a license agreement contains restriction clauses that cause the licensee to use technology ineffectively, then those restrictions may eliminate competitors from trade opportunity and cause an unfair disadvantage to other party.
- Production and sales restrictions
A licensor may establish restrictions on trade locations or the number of products manufactured by their technology. However, restrictions limit licensee from exploring technological innovation. Such clause would be deemed as anti-competitive.
- Sale and resale price restrictions
A licensor may decide the price in which product would be marketed at, in accordance with product investment. However, price restrictions may limit the business between licensee and distributors, which could diminish competition and make product development inefficient. Therefore, license agreement that contains restrictions of sale and resale price by setting floor prices can be seen as anti-competitive.
- Grant-back
A grant-back clause in a license agreement requires the licensee to consistently share information with the licensor regarding any improvements or developments made to the licensed products.
This requirement might hinder the licensee’s ability to advance in technological expertise and is also considered unfair as it grants the licensor continuous rights to work they did not create. Consequently, a license agreement containing a grant-back obligation may be deemed anti-competitive
Conclusion:
Patent Pooling offers both opportunities and challenges for businesses aiming to collaborate on Intellectual Property. While fostering innovation and reducing costs, these agreements must navigate the fine line between collaboration and anti-competitive behavior.
At Am Badar & Am Badar, our firm specializes in guiding businesses through the complexities of Intellectual Property Law in Indonesia. If you require expert legal advice or assistance in patent-related matters, reach out to us at ambadar@ambadar.com. Let our expertise ensure your innovation thrives within the bounds of fair competition.
Sources:
- WIPO, Patent Pools and Antitrust—A comparative analysis, 2014
- Peraturan Komisi Pengawas Persaingan Usaha Republik Indonesia Nomor 2 Tahun 2009 tentang Pengecualian Penerapan Undang-Undang Nomor 5 Tahun 1999 tentang Larangan Praktik Monopoli dan Persaingan Usaha Tidak Sehat terhadap perjanjian yang berkaitan dengan hak atas kekayaan intelektual.
