“The case of the sewing machine industry suggests that the creation of a pool may soften the intensity of competition for member firms, which tend to be larger and more established, at the expense of outside firms, which tend to be smaller and younger than pool members… The experience of the sewing machine pool, however, indicates that differential license fees, which make it harder for outside firms to offer the pool technology at a competitive price, diverted the research investments of outside firms towards technologically inferior substitutes for the pool technologies… suggesting that – in the absence of effective regulation – patent pools may influence not only levels, but also the direction of technical change.
… compulsory licensing may help to increase innovation in the licensing countries, even though this increase occurs with some delay if the licensing country lags behind the technology frontier.
If a substantial share of innovations occurs outside of the patent system, policies that implement even the most drastic shifts towards stronger patents may fail to encourage innovation. If inventors’ dependence on patent protection varies across industries, implementing stronger patent rights may alter the direction of technical change. If property rights in ideas encourage inventors to publicize technical information, a shift towards patenting may encourage the diffusion of knowledge.