Collective Rights Organizations and Investment in Upstream R&D

We examine third-party collective rights organisations (CROs) such as clearinghouses that license innovations on behalf of inventors when downstream uses require licenses to multiple complementary innova-tions. We consider two simple royalty redistribution schemes, two dif-ferent innovation environments and two di¤erent antitrust rules. We show that in most cases CROs increase incentives to invest in R&D as they increase pro\u85ts from licensing. However, incentives to invest of inventors who have the unique ability to develop a crucial component may be weakened. We also show that CROs may increase or decrease expected welfare, and are more likely to be bene\u85cial when R&D costs are relatively high, and/or the probability of success for inventors is relatively low