Patent Clearinghouse and Technology Diffusion: What is the Contribution of Arbitration Agreements?

One of the acknowledged advantages of patent clearinghouses is that they favor the diffusion of technology. In traditional clearinghouses, patents are usually bundled in pools and sold at a pre-set price. Recently, in the biotechnology industry a new form of clearinghouse has been observed, where patent tariffs are instead bargained over by the clearinghouse members. Exchange is then guaranteed by arbitration agreements to which the negotiating parties are bound, should their bargaining reach a dead end. This paper assesses the effect on technology diffusion of this new type of clearinghouse. We show that such arbitration agreements, through their effect on the outside options, may reduce the incentives of a member of the clearinghouse to license to non-members. This result highlights the role of such arbitration agreements in the diffusion of technology outside the clearinghouse.