One of the first patent pools was formed in 1856, by manufacturers Grover, Baker, Singer, Wheeler, and Wilson, all accusing the others of patent infringement. They met in Albany, New York to pursue their suits. Orlando B. Potter, a lawyer and president of the Grover and Baker Company, proposed that, rather than sue their profits out of existence, they pool their patents (See also: Isaac Singer/I. M. Singer & Co).
As in that example many industries could not function without patent pools since the coordination costs (risk, negotiation, etc.) would otherwise be too high. Patent pools are only one example of cases where members of an otherwise competitive industry join in common cause to create some resource that is to their collective benefit. For example the insurance industry pools claims data to collectively reduce risk; the catalog sales industry pools sales data to better model their customes; the auto industry collaborates to standardize components; and in the software industry we see open source collaboration. All these are examples of pooling to reduce risk and lower coordination costs.
In a more modern example in August 2005, a patent pool was formed by about 20 companies active in the Radio Frequency Identification (RFID) domain The RFID Consortium picked Via Licensing to administer its patent pool in September 2006
Patent pools do not eliminate risk, they only temper it. Patent holders (including other patent pools) outside the pool can still create cost and risk for the industry. While it is rare for a patent pool to indemnify licensees the pool does help to assure a common interest will emerge should one member be accused of infringement by a third party. Flaws in the design of the pool's governance can create the risk that one member can break the common cause of the group. Examples of well-known such cases include the MPEG-2, MPEG-4 Part 2 and H.264 video coding standards, and the DVD6C pool.