One crucial benefit of the patent system is that it invites parties to negotiate and collaborate on innovation. Inventors may deal with patent owners based strictly on patent doctrine, yet both parties will have incentive to contract directly for mutual benefit. This aspect of the patent licensing market reduces transaction costs in innovation as licensors and licensees have incentive to clear patent rights. In contrast, the FOSS development and business model may have a particularly difficult time in ameliorating transaction costs associated with intellectual property rights clearances.

The patent licensing market is antithetical to anticommons, the over-fragmentation of intellectual property rights characterized by burdensome transaction costs inventors must harbor to search and negotiate with intellectual property owners. Anticommons may deter the commercialization of new products, and consequently stifle innovation. But inventors can free-up inputs to inventions through licensing, cross-licensing, patent pools and standards bodies. In some instances, inventors can strategically waive their full rights under patent doctrine, to clear important inputs. In each of these methods of fending a “tragedy of the anticommons,” inventors leverage the patent system’s disclosure requirement,” and direct contracting. Formal capital-organizational structures of innovating entities, with clear assignment of patents, further facilitates rights clearing and deterrance of anticommons.

FOSS entities may face particular disadvantages in clearing intellectual property rights, and consequently, their emphasis on the “commons” may result in a tragedy of its own.

Unlike clearing patent rights, which requires negotiation and contracting, with FOSS firms, a path dependence may originate from the initial licensing of technologies- restricting the adaptability and flexibility of FOSS businesses. Relatively integrated proprietary firms combine both internal and external intellectual property rights in their products, while the intellectual property rights of FOSS products are predominently owned by those outside the firm, possibility making transaction costs associated with rights clearances innately higher for FOSS firms. Further, there may be insufficient mutual incentive between the FOSS community and FOSS firms, as there is between patent licensees and licensors, to facillitate contract negotiations.

While proprietary firms are fluid and amenable to competitive market conditions, FOSS business are strapped down by their licenses. Imagine a FOSS firm seeking even a minor change in a licensing arrangement, perhaps attempting a dual-licensing scheme, or relicensing under a more permissive (or even restrictive) license. The modularized nature of FOSS technologies, often touted as a strength of the FOSS development model, may result in extensive fragmentation of rights with insurmountable transaction costs. FOSS licensors, unless they’re making a living from FOSS development, may be difficult to indentify and track down. FOSS licensees must gain permissions from licensors that have no formal ties to their organization and it is questionable whether FOSS licensors are attuned to business concerns. FOSS firms, in other words, may be locked-in to a shapeless entity they call their community.

Competition in the technology industries already poses challenges to innovators, yet FOSS entities can find themselves losing not to competitors, but to themselves.