6 Analysis of Various Issues Concerning the“Tragedy of the Anticommons”
Many patents relate to the research, development, production, and sales of one product. This situation, aso-called “patent thicket,” has given rise to concerns that such a thicket will cause various problems forcorporate activities. The most worrisome of those problems is the “tragedy of the anticommons,” in which the useof a patented technology is made impossible by another patent.
In this study, we conducted a positive analysis through a macro-economic approach on the results of the“Survey of Intellectual Property-Related Activities” conducted by the Patent Office. In addition, we heldinterviews with companies that represent each business field to obtain their views on the current situation
regarding “patent thickets” and also on their respective stances.
The results of this study indicate that, in most cases, companies have taken measures including suchmanagement strategies as patent and license exchanges in order to prevent “patent thickets” from causing
damage to their business. However, this does not deny the possibility of existence of the “tragedy of the
anticommons.”

Ⅰ Introduction
This report presents the results of anempirical study on issues that could be caused by“patent thickets.” This study was conductedbased mainly on the “Survey of Intellectual
Property-Related Activities.” The term “patent
thicket” can be defined as a situation where acompany needs to use a collection of many
patents owned by other companies for the
production, sales, or research of its products. The
company needs those patents to complement its
own patents. There are two major reasons for theformation of a “patent thicket,” which are that (1)Products and the production processes (orresearch processes) thereof are so complex thatthe use of many complementary technologies isnecessary and (2) Many companies are involved
in research. Even if the number of necessary
patents is large, the issue of “patent thickets”
does not arise as long as many substitutetechnologies exist or as long as a certain company
owns a set of complementary patents.
It is feared that a “patent thicket” might
prevent companies from using available
technologies in an efficient combination. This issince the necessary patents are owned by somany companies that it is difficult to negotiate
effectively with all the patent holders. For thisreason, the use of patented technologies isprevented. This situation is called the “tragedy of
the anticommons.” The occurrence of the“tragedy of the anticommons” could cause
intellectual property rights to decrease theappropriability of the results of research and

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development despite the common understandingthat the most basic function of intellectual
property rights is to actually increase theappropriability of the results of research anddevelopment.
A “patent thicket” does not necessarily cause
the “tragedy of the anticommons” because it
could be prevented through an explicit or implicit
agreement between companies. However, if suchan agreement is ineffective, this will barely beable to stop a patented technology from being
stored away forever and will not be able toprevent a decrease in the profitability of theresults of research and development. Therefore,
in order to examine the degree of seriousness of
the “tragedy of the anticommons” in reality, weneed to conduct a positive analysis as to whether
companies are suffering such problems.
We studied this issue by reviewing the resultsof the Survey of Intellectual Property-Related
Activities and conducting interviews withcompanies. We will outline the study in Chapter II
and Chapter III below and present our conclusion
at the end of this report.
At this stage, if someone asks us whether a“patent thicket” causes the “tragedy of the
anticommons,” our answer will be as follows. A“patent thicket” tends to encourage companies tosubmit patent applications and also to increase
their legal expenses incurred in negotiations withother companies for matters such as theconclusion of license agreements and thesettlement of legal proceedings in order toprevent the formation of a “patent thicket” in thefields where measures against “patent thickets”● 44 ●

are important. However, we have found noevidence that suggests that a “patent thicket” hascontributed to decreasing the profitability of
research and development or of patent acquisitionin the industries facing a serious problem of“patent thickets.” The results of our interviews
with companies indicate that, in most cases,
companies have taken measures including anappropriate management strategy in order toprevent latent problems related to “patent
thickets” from becoming serious.
However, it would be wrong to assume thatthe “tragedy of the anticommons” does not exist.
To prevent the tragedy from causing substantial
damage, we consider it important for thefollowing steps to be made:(1) Intellectual property rights should be granted
only for such inventions and creations thatmeet very stringent requirements. For
instance, a patent should be given only forsuch an invention as one that involves asignificant inventive step. Such a policy islikely to alleviate the problem of “patent
thickets” and also increase the profits to begained by rights holders because theirinventions tend to be more innovative under
this policy;(2) In order to prevent a “patent thicket” from
causing problems, companies should be
encouraged to exchange patents and licenses
for technologies more frequently by suchmeans as patent pools and cross licenses. It is
important to promote the smooth use ofcomplementary technologies. At the sametime, it is also important, from theperspective of competition policy, to takemeasures to stop cooperation among rival
companies from having an anti-competitiveeffect on the product market or technology
market; and(3) Standardization organizations should enhancetheir intellectual property policies (such as
the clarification of a basic policy about rational
and indiscriminate licensing and theclarification of the duty of disclosure) in sucha way that promotes cooperation between
companies that own patents essential forstandardization
andprevents
hold-upproblems.
(Sadao NAGAOKA)Ⅱ Analysis of Various Issues
Related to the “Tragedy of the
Anticommons”
1 The effects of a “patent thicket” onprofitability and compensatory cost ofpatent use, research, and development
There has been a concern that a “patent
thicket” could prevent companies from using
technologies in an efficient combination, which
would cause the “tragedy of the anticommons.”
However, a “patent thicket” does not necessarily
cause the “tragedy of the anticommons” ifcompanies take such preventive measures as
cross licensing and using NAP clauses (NonAssertion of Patents). In this study, we used thefrequency of cross licensing as an index for theformation of a “patent thicket” in each industry inorder to empirically identify the effect of a“patent thicket” on the acquisition and use of apatent, the profitability of research anddevelopment, and the payment of compensation
for an employee invention.
The major findings of the analysis are as
follows:(1) The propensity to patent is high amongindustries where cross licensing is common
and also among companies whose use ofcross licensing is relatively common
regardless of industry;(2) The ratio of patent use is high among thecompanies and industries where crosslicensing is common. In the calculation of thisratio, the licenses granted by othercompanies are included. Cross licensing does
not have significant effects on the use of theirown patents regardless of the level of use(regarding coefficients, the variable for thecompany level is negative, whereas the one
for the industry level is positive.);(3) The ratio of defensive patents is low in theindustries where cross licensing is common;(4) There is no trend whereby the effect of acompany’s investment in research anddevelopment or acquisition of a patent on thecorporate profits is relatively small in theindustries where cross licensing is common;and(5) Advocates of the incentive theory believethat a compensation system for inventions (inparticular, compensation linked to the
profitability of an invention) is ineffective inindustries where tactful navigation through a“patent thicket” is the key to success (=● 45 ●IIP Bulletin 2006

industries where cross licensing is common)and therefore that the compensation for an
invention will decrease. Such a trend,
however, has not been observed.
The results described in (1) through (4)above indicate the absence of evidence thatsuggests that a “patent thicket” has adverse
effects on companies in terms of the profitabilityof patent use and of research and development.
This does not necessarily deny the existence of
the “tragedy of the anticommons.” In order toavoid this problem, it is important for companies
to conclude an effective agreement for the use ofeach invention jointly made by companies (or by acompany and an individual inventor). Such an
agreement could take a form of advance license
agreement. The result described in (5) above
seems to indicate that the compensation for an
invention is paid in compliance with relevant
rules rather than based on its effectiveness.
(Sadao NAGAOKA, Yoichiro NISHIMURA)
2 Relationship between a “patent thicket”
and the effectiveness and results ofresearch and development activities[Part I] Does the tragedy of a “patent thicket”
exist?
A “patent thicket” can be defined as asituation where multiple patentees haveoverlapping patent rights to a technology
necessary for the commercialization of a certain
product. In this sense, our study revealed that a“patent thicket” contributes to reducing thenumber of onerous contracts concluded for theexchange of technologies and also to raising thelicense fees, causing an increase in thetransaction costs of technology exchanges. As aresult, a “patent thicket” influences the researchand development activities of companies,
exerting downward pressure on the profitabilityof research and development. A rise intransaction costs caused by a “patent thicket” isattributable in part to business practices and also
to the technical strategies of companies such as
the direction of technical development and thediversification of technology.
Although a “patent thicket” could makeresearch and development less effective in the
short run, a “patent thicket” might be necessary
in some cases because it allows many researchersand engineers who take slightly different
approaches to develop new technologies by trial
and error. This way of research and development

IIP Bulletin 2006

is especially useful at the stage where thedirection of technological development has not
yet been established. Therefore, we should not
try to eliminate “patent thickets” by establishingpatent policies to regulate the scope of a patentand the effectiveness of patent rights. Rather, weshould enhance the market for technology
exchanges in order to reduce transaction costs
that have risen due to “patent thickets.”[Part II] The efficiency of research anddevelopment activities and “patent thickets”
We studied the effects of a “patent thicket” on
the efficiency of the research and development
activities of companies and discovered that a“patent thicket” functions as a disincentive tocorporate research and development. However,
we also found that companies facing this situation
take steps to prevent the formation of a “patent
thicket” by sharing intellectual property withother companies. Such sharing is realized byvarious means including cross licensing.
Moreover, we analyzed the influence of theeffectiveness of research and development on thefrequency of cross licensing and the use of owned
patents and discovered a proportional andsignificant relationship between the efficiency of
research and development and the frequency of
cross licensing. In this analysis, we used the DEA(Data Envelopment Analysis) method, taking into
account the cost of research and development andthe number of employees engaged in researchand development as an input and estimating theefficiency of research and development based on
an index created by regarding the number ofpatents as an output. We also considered the useof cross licenses and owned patents as asurrogate variable for a “patent thicket.” On theassumption that the thickness of a “patent
thicket” is reflected in the number of crosslicenses, we should be able to evaluate theefficiency of research and development by the
number of patents acquired. According to thisevaluation, companies’ efforts to deal with a“patent thicket” have contributed to enhancing
the effectiveness.
(Fumio FUNAOKA, Joji TOKUI, Fumihiko KOYATA)
3 Study on the effects of “patent thickets”
oncorporate
intellectual
property
strategies
In this chapter, we present the results of ananalysis of the relationship between a “patent
thicket” and corporate intellectual property● 46 ●

strategies. The analysis was conducted by using
the “Survey of Intellectual Property-Related
Activities” and the “IIP Patent Database.”
Regarding a “patent thicket,” we defined this as atechnical field in which a large number of patentapplications is submitted for one IPC(International Patent Classification) group.
According to the results of the analysis, the IPCs
where “patent thickets” exist (“patent thicket
IPCs”) belong mainly to the IT sector including
the software and telecommunications industries
and also to the biotechnology sector including thepharmaceuticalandgenetic
engineering
industries. We noticed that the intellectual
property strategies of companies facing “patent
thickets” (companies submitting many patentapplications in “patent thicket IPCs”) differ
depending on the industry. For example,
companies in the chemical sector have arelatively high ratio of unused patents to owned
patents and also hold many patents for the
purpose of defense. The pharmaceutical sector
also has a high ratio of unused patents, while theratio of patents that pharmaceutical companies
are willing to license is relatively high. Thissuggests that their intellectual property
strategies are more open. On the other hand, theelectronics industry has a lower ratio of unused
patents, while the ratio of cross licenses is high.
Our regression analysis revealed that theirintellectual property strategies differ dependingon whether the technologies necessary to
produce a product are complementary or
substitutional.
(Kazuyuki MOTOHASHI)
4 Creation of indexes for “patent thickets”
and analysis of each industry
A “patent thicket” is caused by multiple
factors such as the need for the use of many
patents in the production of certain products andthe availability of complementary patents owned
by other companies. Therefore, in order tostructurally understand the current situation
regarding “patent thickets” in consideration of
those factors, we need to create an index for eachfactor. In this chapter, we designed such indexes
based on the data obtained from the “Survey ofIntellectual Property-Related Activities” andcalculated the index for each industry. The
calculated indexes were used to outline thedifferences between industries from theviewpoint of the “possibility of the formation of apatent thicket” and the “possibility of the removalof a patent thicket.” We studied the trend of eachindex over the period from 2002 through 2004 anddiscovered that the number of patents used for asingle product has been on the rise whereas theavailability of patents owned by other companies
has been on the decline. This trend indicates thatthe problem of “patent thickets” has gradually
been spreading. As a result, the risk of getting
involved in a lawsuit has risen. Furthermore, we
discovered that the spread of a “patent thicket”
was caused by one of the two reasons dependingon the industry in question: an increase in thenumber of necessary patents or a decrease in theavailability of other companies’ patents. We
presented our view that the first case would be
attributable to the increasing complexity of
products and production processes whereas thesecond case would be attributable to theintensifying competition among companies fortechnologicaldevelopment.
The
analysisconducted in this chapter should be further
deepened in order to follow the newdevelopments in “patent thickets” from a politicalstandpoint.
(Akiya NAGATA, Satoko IDA)
5 Analysis of the trends in patent
infringement lawsuits, licensing, andintellectual property costs in relation to“patent thickets”
In this paper, we conducted a study oncompanies and outlined the trends in patent
infringement lawsuits, licensing, and intellectual
property costs, which have a close relationshipwith “patent thickets.”
Our industry-level analysis did not provide
evidence that the number of lawsuits is extremely
high in the electronics industry, which seems toface a serious problem of “patent thickets,” incomparison with other industries. The analysis,
however, did reveal that the cost of negotiations
among companies such as the conclusion oflicense agreements and the settlement of
lawsuits is relatively high in the electronics
industry and the precision machinery industry.
These analysis results indicate that domestic
companies in such industries manage to preventthe problem of “patent thickets” by concluding
license agreements. For this reason, they seem toincur higher transaction costs in comparison withcompanies in other industries.
(Yosuke OKADA, Koichiro ONISHI)● 47 ●IIP Bulletin 2006

6 Study of the corporate behavior of licensing-- Positive analysis of a bargaining model
The purpose of this study is to clarify thefactors determining a patent license price andthereby to check the validity of concerns that
research and development companies contributeto worsening the “tragedy of the anticommons.”
We conducted a positive analysis and found thatthe higher development cost and appropriabilityof a patent exert upward pressure on the average
license price. On the other hand, the size ofcomplementary property has a negative effect on
the license price. These findings suggest thatlarge companies that own a lot of complementary
property tend to have low-quality patents on
average and to refrain from licensing importantinventions for fear of licensees becoming theirrivals in the future. Although we predicted that
research and development companies might
naturally possess higher negotiation skills
because they, as research and development
companies, specialize in supplying newtechnologies, we did not obtain any results thatverify our prediction. On the contrary, we
discovered that research and development
companies tend to agree to low license prices dueto their lack of complementary property anddifficulty in exploiting patented inventions.
(Kenta NAKAMURA, Hiroyuki ODAGIRI)
7 Patents, standards, and innovation
The patent system has played an importantrole in promoting innovation.
However, some problems in the system havebeen pointed out in recent years. For instance, insome industries including the electronics industry,in the case where many patents are involved in asingle product, if the technical standards for the
product have already been established, theinability to use a patent related to the standards
will prevent the standards from serving theirproper roles, impeding the use of technologies
and the development of the product. Some people
are concerned that the mutual use of technologies
will be hindered if an increasing number of
non-manufacturers such as venture companies
and universities, which engage only in technicaldevelopment, start owning patents in theseindustries in addition to manufacturers, which
engage in production as well as in technicaldevelopment.
In this chapter, we conducted a preliminary
study on issues concerning technical standards,

IIP Bulletin 2006

patents, and innovation. First, in order to clarify
the relationship between technical standards andinnovation, in other words, in order to identify
the effects of standard-setting on thedevelopment of technology, we studied the case ofVTRs where a de facto standard had become theofficial standard as well as the case of fax
machines where a de jure standard had become
the official standard. Second, we used atheoretical model to predict the effects of theintroduction of a new system on industrial
innovation. The new system is designed to force
venture companies to share technologies if they
belong to the industries where the elemental
technologies necessary for the production of
products are owned individually by venturecompanies that engage only in research anddevelopment and not in production, as well as bymanufacturers that internally conduct research,development, and production in a vertical andintegrated manner. We concluded that the
introduction of such a system will promote thedevelopment of technology under certain
conditions.
(Akira GOTO, Yoshihito YAZAKI)Ⅲ Interviews with Companies--- Various Issues Concerning the“Tragedy of the Anticommons”
from the perspective of companies
We conducted interviews with two companies
each in the electronics industry, the automobile
industry, and the pharmaceutical industry
respectively. In each of these industries, many
patents have been issued for inventions thatoverlap in terms of technical areas. None of thecompanies said they would suspend theirresearch projects or business plans for fear of
being caught in “patent thickets.” This indicatesthat they take necessary measures to avoid“patent thickets” as technology exchanges andcooperation in standard-setting.
However, we should not deny the possibilityof the “tragedy of the anticommons” worsening in
the future. We need to keep in mind that thesefindings were made from the interviews
conducted with companies skilled in intellectual
property management and also that the findings
were made in Japan, where we have not seen theemergence of outsiders who cause hold-up
problems.
Therefore, we consider it necessary tomonitor future developments with special
attention paid to the following points:● 48 ●

(1) Any unused and reserved rights could createa “patent thicket” that causes the “tragedy of
the anticommons” to occur in the future;(2) We should not deny the possibility of a“patent thicket” made of defensive patents
causing the “tragedy of the anticommons” toindividuals and small companies that do nothave the system or means to prevent theformation of a “patent thicket”;(3) The risk of the “tragedy of the anticommons”
is considered likely to increase when an
agreement or a transaction has to be canceled
for some reason or when a “patent thicket”
emerges; and(4) It is feared that any problems in a part of a“patent thicket” could influence the entire
thicket because the thicket is formed based on
overlapping multiple layers of collaborative
relationships among relevant parties.
(Secretariat)

Ⅳ Issues Regarding the “Surveyof Intellectual Property-Related
Activities” Conducted by the
Patent Office and Remedial
MeasuresIn this study, an analysis was conducted based
mainly on the data obtained through the “Surveyof Intellectual Property-Related Activities”
conducted by the Patent Office. For further study,
we need to seek more accurate analysis results.
To discuss the issues concerning this study andremedial measures, each member of the Study
Committee identified issues relating to his or her
area and exchanged views with other members inorder to devise countermeasures as follows:(1) One of the issues is that the number ofsamples is insufficient. We need to increase
our effort to solicit responses from survey
participants and, at the same time, to identify
the reasons for non-response and takemeasures to raise the response rate;(2) We should carry out a theoretical check. If any
irregularity is detected, we should check thatcase in question separately;(3) An appropriate method to supplement blankanswers should be adopted at the stage ofstatistics calculation; and(4) Prior to a survey, we should raise awarenessin order to prevent errors. We also need toreview the sample design if outliers aredetected.
(Senior Researcher :Takashi HORINAKA)● 49 ●IIP Bulletin 2006