23On Quality of Patent and Application Behavior Related toPatent Pool(*)
Research Fellow: Naotoshi Tsukada

Cases have been found where a patent pool is formed as a mechanism to license technicalstandard-related essential patents as a package due to increasing sophistication and complicationof technology and the growing importance of intellectual property. We make a statistical analysis
regarding the incentive to participate in the patent pool which varies with the characteristics of apool-related company, and the difference in the patent-filing behavior. In particular, we use theU.S. essential patents managed by MPEG LA LLC like MPEG-2 and MPEG-4, standards ofmoving picture compression technology, as the object of analysis to examine in detail theirrelationship with the quality of a patent measured in terms of the utilization frequency ofcontinuing applications and the number of citations. At the same time, by making a comparison to
the trend seen not only in those essential patents but also in the total U.S. patents, we explain thecharacteristics of the technical standard-related essential patents. In the future, we want todiscuss issues such as the incentive to participate in the patent pool and fairness among
companies as licensors related to the pool.

I

Foreword

In this paper, we make a statisticalanalysis of the relationship between thequality of patent pool-related patents andthe utilization of continuing applications. So
far, a number of patent pools have been
operated in fields such as electricity,communications and broadcasting. And inconnection with this, studies are being madefrom an economic or jurisprudential
viewpoint. At the same time, the policy
authorities in Japan, the U.S. and Europe,
too, are going to take measurers accordingly,
such as the issuance of guidelines withrespect to issues like the formation andoperation of technical standard-related
patent pools.
A patent pool is a mechanism in which a
number of patents held by a number ofpatentees is licensed as a package. Many ofthe discussions on patent pools deal with
their relationship with technical standards,
and actually, many of the patent pools being
operated nowadays are those in which(*)

essential patents needed for conforming to a
specific technical standard have beengathered together. For companies holding
the essential patents regarding a specifictechnical standard, if a patent pool is formed
and the patents are licensed smoothly,
progress will be made in the diffusion of thattechnical standard, with royalty revenue
expected to increase as well. And forlicensees, too, it might be a desirable thing
to be able to access the market of the goods
and services without the technology being
monopolized by some specific companies. In
particular, in industries where network
externalities strongly work, if there did notexist a mechanism like the patent pool, it
would be difficult for the market to start andthestandard
specification,even
ifformulated, would become merely a standard
on paper.
In order to form a patent pool,cooperation among right holders is necessary.
However, such a cooperative relationshipdoes not necessarily come into being in asmooth way. The analytical subject taken up

This is an English translation of the Japanese summary of the report published under the Industrial Property
Research Promotion Project FY2007 entrusted by the Japan Patent Office. IIP is entirely responsible for any errors
in expressions or descriptions of the translation.
●

IIP Bulletin 2008206 ●

in this paper is closely related to how such acooperative relationship can be establishedamong licensors.
The first point is related to theallocation of license revenue earned by thepatent pool. As will be described in the latterpart of this paper, as there also exist cases
like the DVD patent pools which are said tohave been unable to unify as one pool due tothe different opinions regarding the methodtoallocatelicenserevenue,itisrecommendable that royalties should beallocated with a fair method so far as
possible. Nevertheless, in order to prevent
negotiations from becoming a mess, many
patent pools have adopted the system toallocate royalties according to the percentage
accounted for by an essential patent held by
each member licensor. On the assumption ofsuch a system, there is the incentive for eachmember licensor to increase the number of
its own essential patents. In the case of the
U.S., therefore, the system of continuing
applications is said to be widely utilized.
This time, in order to have a deep
understanding of the quality of someindividual patents in the current patentpools, we will evaluate an essential patentby the number of citations of that patent andconcurrently make a statistical analysis ofits
relationshipwiththeutilization
frequency of continuing applications.
There is another main purpose. The
incentive to participate in a patent poolvaries with the type of company. Among theholders of essential patents, there exist
various types of companies and it has been
pointed out that the incentive to participate
in a patent pool differs especially in cases of
R&D-specialized organizations and verticallyintegrated companies which conduct both
R&D and manufacture. We will make ananalysis of how large a difference can befound in patent-filing behavior and thequality of a patent.
In this study the patent pool managed by
MPEG LA LLC is used for analysis.

II

Patent Pool

1

Objective of analysis

●

207 ●

(1) Allocation of royalties
One of the issues is related topatent-filing behavior at the time ofobtaining an essential patent in the patentpool, and to the percentage accounted for byan essential patent among licensors thathave decided to participate in the pool as aresult of the patent-filing behavior and themethod to allocate royalty revenue among
licensors.
There is not necessarily a lot of
information available about the method toallocate royalty revenue within the patentpool. Kato (2006) stated: “Regarding theroyalty allocation in a patent pool, the firstissue to be faced should be whether thequality of an essential patent (such as theextent of the scope covered by the claims ofeach patent) should be taken into
consideration or the allocation is calculated
purely based on the number of essential
patents. The conclusion is that in almost allof the current patent pools, royalties areallocated based on the number of patents.”
In the MPEG-2 patent pool, too, the amountof royalties to be allocated is determinedaccording to the percentage accounted for by
the essential patents held by each licensor in
all of the patents in the pool.
The royalty rate of each patent pool has
been lowered to a relatively small amountaccording to the RAND condition, but boththe licensor and licensee sides have regarded
the current royalty rate as a problem. As wasintended by the competition authorities,
with competition in the product market
becoming keener due to the existence of thepatent pools, it has become difficult for the
licensors of the pool (which are producers aswell) to earn excess profits from sales. In
addition, as there also exist regions where itis difficult to collect licensing fees, as in thecase of Chinese companies, the licensor side
asserts that it is difficult to recover R&D
costs. On the other hand, the licensee side
asserts
thatforinstance,
regarding
IIP Bulletin 2008

DVD-related products, in addition to thelicensing fee paid to each pool, a licensing fee
should also be paid to the MPEG patent poolin order to concurrently utilize the pictureand sound compression technology, thereby
leading to an excessive amount of licensing
fees in total.
If the pool cannot be unified and is split
into several ones, this will lead to an
excessive amount in licensing fees in total,and not only is this against the interests oflicensees and by extension consumers, but
licensors have not been able to maximize
their joint profits which could have beenobtained under normal circumstances.
In the case where royalties are allocatedaccording to the percentage accounted for by
the essential patents held by each company,
there is a possibility that the system ofcontinuing applications in the U.S. may be
abused (in this paper, the continuation inpart, the continuation application and thedivisional application are expressed with thegeneral term “continuing
application”).
There are cases where a continuing
application is used for the purpose of adding
new matters not yet known to the company
at the time of filing and other claims.
The allocation of royalties in proportion
to the percentage accounted for by a patentis considered as equal only when all of thepatents have the same value. Increasing
one’s own percentage through low-quality
patents by utilizing continuing applications
leads to distortion of the allocation ofroyalties. Nagaoka et al. (2006), by means of
the data of the essential patents held by theDVD patent pool, made a statistical analysis
based on the average in units of company
about
the
relationshipbetweentheutilization
frequencyofcontinuing
applications and the quality of a patentmeasured through the number of citations.
In this study, we decided to use the total U.S.
patents managed by MPEG LA LLC to makea statistical analysis in units of patent.

(2) Incentive to participate in the patentpool
The other point is the problem of the●

IIP Bulletin 2008

incentive for companies holding essential
patents to participate in a patent pool. Bothin terms of economics and from apractitioner’s viewpoint, it has been pointed
out that there is a low incentive for
R&D-specialized organizations to participate
in a patent pool. If a vertically integrated
company which conducts both R&D andmanufacture participated in a patent pool byholding the essential patents, that company
is both a licensor and a licensee. Along withlicensing revenue earned by including its
essential patents in the pool, it can also earn
profits by producing and selling products byitself based on that technical standard. On
the other hand, for R&D-specializedorganizations like R&D ventures, as theirprofit-making source is no more thanlicensing revenue, they want a royalty rate
higher than in the case ofverticallyintegrated companies. Or, demanding a large
amount of royalties as an outsider without
participating in a pool can lead to more
profits. The structural difference in earnings
like this has brought about a difference in
the incentive.
In reality, however, pure licensors suchas universities, R&D-specialized companies
andlicensingcompanies,
too,
have
participated in the patent pool. In this study,
we want to make an analysis and add
discussions in combination with factors suchas the patent-filing behavior based on the
difference in the type of company and thequality of a patent held.

2

MPEG LA LLC

MPEG LA LLC, the object of analysis in
this study, is a company operating a patentpool and was founded in 1996 for the purposeof licensing the essential patents for the
MPEG-2 standard, a moving picture
compression technology. As of January 2008,
there existed nine pools, including MPEG-2,
in which MPEG LA takes charge ofmanagement business. Eight pools as follows
are used as the objects of analysis in thisstudy: MPEG-2, MPEG-2 System, MPEG4Visual, MPEG4 System, AVC/H.264, VC1,

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DVB-T and IEEE1394.

III The system of continuing applications
1

Explanations of the system made in
the U.S.

As the documents required at the time ofpatent application, there are those such as
the description and drawings which give a
detailed explanation of the content of an
invention, and claims in which the scope ofrequesting the grant of a patent right is
described. A continuing patent application is
utilized when the applicant has foundmatters to be added to the content of
disclosure of the invention by continuing
R&D also after filing the application.
In the continuation application and thedivisional application, new matters cannot
be added to the content of the invention
described in the description but it is allowed
to rewrite the claims described in the scopeof right requested by the applicant. In
contrast to this, continuation in part is asystem which also enables the applicant to
add new matters to the description. In thedivisional
application
andcontinuing
application, the interest on the filing date of
the parent application can be enjoyed by thesubsidiary application derived from theparent application. Regarding continuationin part, the content disclosed in the parent
application alone can enjoy the interest on
the filing date of a prior application, andregarding the new matters added thereafter,
the filing date of the said application isapplied.
In its relationship with technicalstandards, for instance, as was pointed out
by Omachi (2007), by strategically utilizing
the system of continuing application, theapplicant “can also use the following method
to obtain a patent: when preparing theclaims after the filing, the applicant, by
taking account of information about theconditions occurring after the filing date of
the prior application, especially information
about the products manufactured and soldby a third party such as a competitor or●

about the formation of a technical standard,
can contain the third party’s product in thescope of right or prepare the scope of request
in such a way that it will become an
essential patent for the technical standard.”(1) Condition of utilization of continuing
applications
If we examine the trend in utilizing
continuing applications in each filing year
based on the total registered U.S. patents,
each case shows a very similar trend ofchange. First, the utilization frequency ofcontinuing applications reached the peak in
1995. This is considered to be attributed tothe impact of the law amendment in 1995, in
which the term of the protected years of apatent was changed from 17 years startingfrom the date of registration to 20 years. The
number of filed patents per se in the years
right before the law amendment, too,
increased, but as is shown by the graph, therate of utilization of continuing applications
rose as well, and 27% of the patents utilized
a continuing application during the processof the completion. Later, the rate fell toapproximately 12%, but recently, thecontinuation application and the divisional
application in particular showed a rising
trend.
However,theutilizationofcontinuation in part continued to fallconsecutively from 1995 onward. There are
discrepancies in the condition of utilization if
judged from the field, but it is known thatthe utilization frequency is higher inchemical fields such as organic compounds
and resins and in fields such as drugs,
medicalinstruments
andinformation
storage.
Among the 290 U.S. essential patents inthe patent pools managed by MPEG LA LLC
which are the object of analysis in this study,
there were 120 patents, or 40% of the total,
for which a continuation in part, acontinuation application or a divisional
application was utilized during the processof completion. Furthermore, among the 290
essential patents, including the cases ofderiving a subsidiary patent from a parent
patent through a continuing application,
209 ●IIP Bulletin 2008

there are 150, or approximately 52%, forwhich a continuing patent application in acertain form was utilized either during or
after the process of completion.

addition, it is difficult to think thatcompanies will spend extra money tocomplete a patent which originally has a low
utility value.

IV Utilization of continuing applications
in U.S. and the quality of a patent

2

1

The continuing application and thequality of a patent

In Section III, we made an explanationof the system of continuing applications
frequently utilized during the process ofcompletion of a technical standard-related
patent. Like the patent pools managed by
MPEG LA LLC, in cases where the pool has
adopted the system to allocate its royalty
revenue according to the percentage
accounted for by an essential patent held bya participating licensor, if a continuing
application has been excessively utilized incontrast to the quality of that patent, as aresult, there is a possibility for the allocationof royalties to become distorted, even thoughthat is not done intentionally. In thefollowing section, we are going to make ananalysis of the relationship between thequality of an essential patent in the patentpool and the condition of utilization ofcontinuing applications, but before doing so,
first we are going to have a look at the trend
viewed from the total U.S. patents.
As data indicating the quality of apatent, the citation information of a patentis used. As far as we know, there does notexist any study in which the utilization ofcontinuing applications and the value of apatent are analyzed by using the number ofcitations, but basically, many of the patents
for which a continuing application was
utilized are considered to have high quality.
The reason is, as was also mentioned in
Section III, that inventions completed as apatent, for instance, by changing the scope of
disclosure covered by the invention in linewith the competitor’s technology trend oreven taking measures such as adding claims
are considered to be important patents. In●

IIP Bulletin 2008

Data

We used the data from “EPO Patent
Statistical Database, Aug., 2006 Edition”
and “Pat6302f” (hereinafter referred to as
NBER/Hall database) which is a database
updated by Bronwyn Hall using “NBER U.S.
Patent Citations Data File.” The sample sizeused for the estimation without including
the number of claims covers approximately
1.2 million registered patents from 1994 to
2002, and in the estimation formula in which
the number of claims was included, thesample size covers approximately 570,000
registered patents from 1994 till 1998

3

Variables(1) Explained variables
The explained variable is the number offorward citations created from the Patstat
database.
(2) Explanatory variables
As explanatory variables, we usedvariables which count the utilization
frequency of continuing applications during
the process of completion of a patentaccording to the continuation in part (CIP),
the continuation application (CON) and thedivisional application (DIV), respectively.
Concurrently, in the same way, variables
which count, according to the continuation inpart (CIP), the continuation application(CON) and the divisional application (DIV),
respectively, the number of subsidiarypatents derived from the said patent as theirparent patent by utilizing a continuing
application are also treated as explanatory
variables.
(3) Control variables
The objective of this section it to analyze
what kind of influence the utilization ofcontinuing applications has on the quality of210 ●a patent measured by means of the numberof citations of that patent. However, theutilization of continuing applications is no
more than a partial factor which has an
influence on the quality of a patent, andtherefore, in order to find out the effectarising from the utilization of continuing
applications on the number of forward
citations, it is necessary to concurrently
include in the estimation formula otherfactors assumed to cause change in thequality of a patent. The number of backward
citations, the number of citations of
non-patent documents, the lag of backward
citation, the number of claims, the number of
inventors, the number of applicants, adummy of year of filing, a dummy of year ofregistration and a dummy of technical field
are used.

4

Result of estimation

The number of citations of a patent for
which a continuation in part was utilized
during the process of completion issignificantly high. However, in cases where acontinuation application or a divisional
application was utilized, their effect on thenumberofcitationswasnegatively
significant.
Consequently,
if
purelyinterpreted according to the past studies
which analyzed patents by using citation
information, this means that a patent for
which a continuation in part was utilized
during the process of completion has highvalue and that completed through acontinuation application or a divisional
application has low value. Also, the number
of applications derived from that patent wasestimated to be positively significant,regardless of whether it is a continuation inpart, a continuation application or adivisional application. Therefore, this meansthat a patent from which other subsidiary
applications were derived through acontinuing application has high quality if
judged from the significance measured by
the number of citations.
However, as the applicant cannot add
new matters in the case of a continuation●

application or a divisional application, thedescription is basically identical in both theparentandsubsidiary
applications.
Regarding a later application in which it isnecessary to cite the invention of a certain
application, either application can be cited,and in that case, the possibility of merely
showing that a parent application alone wasoften cited can also be considered. However,this is a problem related only to thecontinuation application or the divisional
application, and regarding the continuationin part, the result is significantly positive,
regardless of whether it was utilized during
the process of completion or at the time ofcreating a subsidiary application. Thismeans that in both the former and the latter
cases, the value is significantly higher thanwhen a continuing application was not
utilized.
Regarding other variables, the results of
estimation were identical to the prior studies
on the whole.

V

Quality of essential patent andcontinuing applications

In Section IV, we used the total U.S.
patents as the object of analysis and mainly
analyzedtherelationshipbetweencontinuing applications and the quality of apatent measured by the number of citations,and showed patents for which continuationin parts were utilized have high value. In
this section, we will narrow down the objectof analysis on the essential patents in thepatent pools managed by MPEG LA LLC andmake an analysis in units of patent.

1

Purpose of analysis

In this section two analyses will be made.
One is to use these 290 essential patents as
the sample and analyze the relationshipbetween the utilization frequency ofcontinuing applications and the number ofcitations. The other is to make the same
estimation by using the parent application ofan essential patent as the unit. Regarding
the former analysis, basically the same as in
211 ●IIP Bulletin 2008

have a higher incentive to make their own
inventions an essential patent even byfrequently employing continuing applications.
Or, R&D-specialized organizations which
pursue higher royalty revenue utilize
continuing applications more frequently to
expand their percentage within the pool.

the analysis made in Section IV, the numberof forward citations is used as an explained
variable and the frequency of continuing
applications as an explanatory variable.
Regarding the latter, regardless of whether
or not a patent granted by utilizing acontinuing application is an essential patent,
confirmation is made as to whether or not
the frequency of continuing applications
varies with the quality of the parent patent.
We use the 290 essential patents in thepatent pools managed by MPEG LA LLC as
the object of analysis, and in the case wherecontinuing applications were utilized during
the process of completion, we designate aparent patent which was filed at the earliest
point of time and count the number ofsubsidiary applications derived from there asa result of continuing applications according
to each of the three types of continuing
applications.
In the estimation by using the 290
essential patents as the sample, if theessential patents in the patent pools show
the same tendency as the total U.S. patents,
the hypotheses below might hold water.

2

The citation information, the number ofclaims, the main IPC, the information ofcompany groups, and the information of
applicants’ names were obtained from theDelphion database compiled by Thomson
Scientific Inc. Compared to the Patstat, more
recent information of forward citations canbe obtained from it. The information ofpriority right and the data of continuing
applications were extracted from the Patstat
database.

3

In the estimation by focusing ourattention on the 189 parent applications of
the essential patents, we have the concept asfollows.
Hypothesis (2) From the patents with highquality judged from the significancemeasured by the number of forward citations,a large number of subsidiary applications
were
derivedthrough
continuing
applications.

●

IIP Bulletin 2008

Variables(1) Explained variables
In the estimation of hypothesis (1), thenumber of forward citations was used as an
explained variable, the same as in Section IV.
In the estimation of hypotheses (2) and (3),the number of subsidiary applications
derived from the earliest parent patent
through continuing applications was used as
an explained variable.

Hypothesis (1) Patents
for
which
a
continuation in part was utilized during theprocess of completion have high quality andthose for which a continuation application ora divisional application was utilized during
the process of completion have low quality.

Hypothesis (3) R&D-specializedorganizations cannot earn profits if they do
not license, as they do not produce.
Compared to other types of companies, theyData(2) Explanatory variables
In hypothesis (1), the number ofcontinuing applications during the process ofcompletion is used, and in hypotheses (2)and (3), the number of forward citations is
used.
Also, in order to verify hypothesis (3), we use
a company dummy.
(3) Control variables
As for other variables, we use the same
variables to verify the above hypotheses.
Data such as the number of backward
citations, the number of citations of
non-patent documents, the number of claims,
a dummy of year of filing, a dummy of year

212 ●of registration, and a company dummy are
used.

4

Result of estimation

The result of the estimation by using 290
essential patents as samples shows that,first, what is different from the result ofSection IV where the total U.S. patents wereused as the object of analysis is that theresult of estimation formula (1) issignificantly negative in the case where acontinuation in part was utilized during theprocess of completion. In other words, anessential patent completed by using
continuations in part after the filing of theparent patent to add new matters tends tohave lower quality than if otherwise. In asimilar way, the essential patents whichwere completed by utilizing continuation
applications also show a significantly
negative result, but this is not different fromthe trend seen in the total patents.
Next, in the result of the estimation byusing as an explained variable the figure
aggregating all continuing applications
derived from the earliest parent patent foran essential patent, the coefficient of thenumber of forward citations was estimatedto be significantly negative. In other words,
the higher the quality of a patent is in termsof the significance measured by the numberof forward citations, the less frequently acontinuing application is utilized; orcontrarily, a continuing application is more
frequently utilized in the case where thequality of the earliest parent is low. The
dummy of vertically integrated company issignificant, and it is known that as the trend
seen in all of the companies conducting bothproduction and R&D, the utilization
frequency of continuing applications is high.
According to the result obtained bynarrowing down the explanatory variable
only on the continuation in part and thecontinuation application, the coefficient of
the number of forward citations is negative
but is not statistically significant. The
dummy of R&D organization and the dummyof vertically integrated company showed a●significantly
positive
result,therebyindicating that the utilization frequency ofcontinuations in part and continuation
applications is higher than in the case of theuser type company which was set as acriterion. Furthermore, the coefficient of thedummy of R&D-specialized company islarger than that of the dummy of verticallyintegrated company. In other words, as far as
the continuation in part and the continuing
application alone are concerned, if otherconditions are brought under control, then
R&D-specialized organizations can be said tohave a tendency to utilize most frequently.
It is difficult as to how this result should
be interpreted, but it might be said thatbasically, the estimation by using thecontinuation in part and the continuation
application yielded a result consistent withhypothesis (2). In other words, according to
the theoretical analysis so far, it might beinterpreted in this way: for instance, under
the condition where there exists no side
payment,
R&D-specialized organizations
for which there is no incentive to participate
in the patent pool have strived to increase
their own allocation among the royalty
revenue of the patent pool by utilizing
systems such as continuation in part andcontinuation application.

VI Conclusion
The main conclusions we reached are as
follows. First, though as was also pointed out
in the prior studies, we again confirmed thatin contrast to the trend of the total U.S.
patents, the utilization frequency ofcontinuing applications was higher fortechnical standard-related essential patents.
And, among the total U.S. patents, the valueof a patent completed by utilizing
continuation in part during the process ofcompletion is higher in terms of thesignificance measured by the number offorward citations. And in contrast, among
the essential patents in the patent pools
managed by MPEG LA LLC, rather
contrarily, it was made known statisticallythat the value of the patents based on the213 ●IIP Bulletin 2008

same application method is significantly
lower than that of the patents within thepools for which continuing applications were
not utilized. Next, the analysis showed thatamong the standard-related applications, theutilization
frequencyofcontinuing
applications also varies with the type ofcompany. That is to say, vertically integrated
companies which conduct both production
and R&D and R&D-specialized organizations
utilized continuation in part and continuing
application relatively frequently, and further,
R&D-specialized organizations tend toutilize more frequently than verticallyintegrated companies. The study by Nagaoka
et al (2006) showed that according to theanalysis in units of company, if among theessential patents held by a certain company,
there is a high rate of patents for which
continuing applications were utilized, thenthe average number of forward citations of
the essential patents held by that company
is lower. It was not yet made known whether
there is a difference between individualcompanies, but we confirmed that this also
varies with the type of company.
According to the result of the analysis in
Section IV, on the whole, essential patents
have high value, but at the same time, whena comparison is made by using the patents
within the pools, those for which the systemof continuing applications was frequently
utilized have low quality. The patent pool isa system established with cooperation
between companies in order to avoid thetragedy of the anticommons. If the result of
this paper points to an intentional behavior,
then that is a behavior which distorts thepool’s allocation of royalty and may possibly
hurt cooperation between companies. Like
the DVD patent pool, there also exist cases
where the pool splits up. However, we might
say the ultimate problem lies in the fact thatthe value index of a patent acceptable toeveryone has not yet been developed.
So far, it has been pointed out boththeoretically and pragmatically that there isalow incentivefor
R&D-specializedorganizations to participate in the pool. In
reality,
there
exist
R&D-specialized●

IIP Bulletin 2008

organizations which participated in patentpools, and it has not necessarily been clearly
explained why they participated. Though as
one of the possible interpretations, we thinkthat if based on the assumption that anorganization
participatedinthestandardization activity, the characteristicsof the patent-filing behavior of an
R&D-specialized organization made known
in the analysis this time may point to a
behavior intended to secure and increase
royalty revenue because that organization
cannot secure the position as an outsider. We
want to examine this issue also with atheoretical approach in the future.

214 ●