Patent pools and innovation in substitute technologies—evidence from the 19th-century sewing machine industry

type="main"> <p>Patent pools, which combine complementary patents of competing firms, are expected to increase overall welfare but potentially discourage innovation in substitutes for the pool technology. This article exploits a new historical data set on changes in patenting and firm entry for a clearly defined pool technology and substitutes in the 19th-century sewing machine industry. This analysis reveals a substantial increase in innovation for an—albeit technologically inferior—substitute technology. Historical evidence suggests that the creation of a pool-diverted innovation toward an inferior substitute technology by creating differential license fees and litigation risks.