Against Intellectual Monopoly

cross-licensing agreements in which firms agree to automatically
cross-license all patents that fall into certain categories.
    Despite the apparent communistic nature (no "intellectual property" for
the in-group) of these arrangements, patent pools have been widely used.
    In the United States, in a number of industries, processes of "collective invention"
were implemented by means of patent pools. Note that in some cases, patent pools
were created after having experienced phases of slow innovation due to the existence of blocking patents. In the 1870s, producers of Bessemer steel decided to share
information on design plants and performances through the Bessemer Association
(a patent pool holding control of the essential patents in the production of Bessemer
steel). The creation of this patent pool was stimulated by the unsatisfactory innovative performance of the industry under the "pure" patent system regime. In that
phase, the control of essential patents by different firms had determined an almost
indissoluble technological deadlock. Similar concerns over patent blockages led
firms operating in the railway sector to adopt the same expedient of semi-automatic
cross-licenses and knowledge sharing.24
    At the current time, patent pools are generally mandatory for participants in recognized standard-setting organizations such as the International Telecommunication Union and the American National Standards
Institute. Large microprocessor corporations, such as IBM, Intel, Xerox, and
Hewlett-Packard, engage in extensive cross-licensing. Important computer
technologies, including the MPEG-2 movie standard and other elements of
DVD technology are part of a patent pool.

    Given the widespread willingness of large corporations to voluntarily
relinquish patent protection through cross-licensing and patent pools, you
might wonder why eliminating patents would even be necessary. Unfortunately, although patent pools eliminate the ill effects of patents within
the pool, they leave the outsiders, well, outside. If the existing firms in an
industry have a patent pool, then the prospects of a newcomer entering are
bleak indeed. So, although patent pools may give a strong indication that
patents are not a terribly good idea, and that competition has many benefits, they unfortunately do not undo some of the most important harm of
government-enforced monopoly- that of preventing entry into an industry.
    In fact, the widespread existence of patent pools in industries with a wellestablished set of mildly competing insiders is wonderful, simultaneous
evidence of two important things. First, patents are inessential to compensating individual firms for the fixed cost of invention. Second, patents are
a powerful tool for establishing monopoly power and preventing entry by
potential competitors.
Comments
    A good, if dated, and relatively succinct survey of the history of technology
is in Derry and Williams." A quicker-to-find one is, as usual, the entry
"history of technology" in Wikipedia. A classical account of the view that
the Industrial Revolution would, at least, have been greatly retarded had
patents not been available in England at the end of the eighteenth century
can be found in North's book.26 A recent, and quite balanced, rendition of
this point of view is in the book by Gregory Clark,27 which also contains
various other references. One of the many extreme applications of this claim
to contemporary issues is a U.N. Economic Commission for Africa report
claiming that the Industrial Revolution missed Africa mainly because the
latter did not adopt the European system of patents.28
    Should the curious reader want to embark on a more complete survey of
the history of patent laws, the Wikipedia piece on the Statute of Monopolies
is as good, and free, starting point as any we know of outside the specialized
literature. The technical literature on the life cycle of industries is very large,
though still only a few authors seem to have paid attention to the correlation
between competition and the degree of technological innovation on the one
hand, and between obsolescence and demand for monopolistic restrictions
on the other; a paper by Braguinsky, Gabdrakhmanov, and Ohyama29 is
one recent and excellent exception containing references to the few earlier
authors that had mentioned aging industries' rent seeking as an explanation
of patents and their dynamics.

Notes
    1. The statement that the