Patent Thickets, Trolls and Unproductive Entrepreneurship
John L. Turner
University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics
May 23, 2014
I introduce and analyze an equilibrium model of discovery, innovation, patenting and inadvertent infringement. Profitable use of innovations requires adaptation to complementary technologies. This adaptation carries a direct cost if and only if the required technology has not been discovered by another firm, and may lead to inadvertent infringements that carry a dispute cost. The main analysis considers whether and when it is optimal to have some firms discover and patent only --- that is, behave as non-practicing entities. I find that non-practicing entities are desirable only if the relative cost of technology adaptation is higher than the dispute cost. And in that case, if royalties are "too high," then "too many" firms choose to be non-practicing entities instead of innovate, and welfare would be higher without non-practicing entities. I identify optimal patent fees and royalties for all cases.
Number of Pages in PDF File: 38
Keywords: discovery, innovation, litigation, non-practicing entities, patents, patent assertion entities, thickets, trolls
JEL Classification: K2, L2, O3
Date posted: August 25, 2011 ; Last revised: January 3, 2015
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