Optimal formation rules for patent pools

Patent pools in the framework of Lerner and Tirole (2004) may enhance or reduce social welfare. The purpose of this paper is to devise a pool formation mechanism which prevents welfare decreasing pool equilibria to emerge,and which encourages welfare enhancing pool formation. In order to destabilizewelfare decreasing pools, compulsory individual licensing (CIL) has been suggested. We show that in general, CIL is not an efficient antitrust tool. Welfare decreasing incomplete pools are weakly or even strongly stable to individual licensing. However, CIL under exclusive pool membership avoidsstability problems of welfare enhancing pools, while it creates instability of welfare decreasing pools.