Collective Rights Organizations and Upstream R&D Investment

We examine the e¤ect of collective rights organizations (CROs) on upstream innovation. CROs are established to facilitate downstream use, such as production and downstream innovation, of upstream intellectual property, We consider two simple royalty redistribution schemes, two di¤erent innovation environments and two di¤erent antitrust rules. We show that in most cases CROs increase upstream R&D incentives as they increase pro…ts from licensing. However, CROs may weaken incentives of inventors who have the unique ability to develop a crucial component (ex-ante monopolist). We also show that CROs may increase or decrease expected welfare, and are more likely to be bene…cial when R&D costs are relatively high, and/or the probability of success for inventors is relatively low. Keywords: Intellectual property, patent licensing, collective rights organizations, anticommons, antitrust, royalty. JEL: L24, O31, O34 We thank Jay Pil Choi, Stephen Maurer and Suzanne Scotchmer for very helpful comments, and the Japan Society for the Promotion of Science for …nancial support. The paper was formerly called “Intellectual Property Clearinghouses and Investment in R&D” (Aoki and Schi¤, 2008b)