Executive Summary

In several key industries, including semiconductors, biotechnology, computer software, and the Internet, our patent system is creating a patent thicket: an overlapping set of patent rights requiring that those seeking to commercialize new technology obtain licenses from multiple patentees. The patent thicket is especially thorny when combined with the risk of holdup, namely the danger that new products will inadvertently infringe on patents issued after these products were designed. The need to navigate the patent thicket and holdup is especially pronounced in industries such as telecommunications and comput-ing in which formal standard setting is a core part of bringing new technologies to market. Cross licenses and patent pools are two natural and effective meth-ods used by market participants to cut through the patent thicket, but each in-volves some transaction costs. Antitrust law and enforcement, with its historical hostility to cooperation among horizontal rivals, can easily add to these transaction costs. Yet a few relatively simple principles, such as the desir-ability package licensing for complementary patents but not for substitute pat