Patent Trolls, the Sustainability of ‘Locking-in-to-Extort’ Strategies, and Implications for Innovating Firms

Abstract:     
Patent trolls appropriate innovation rents by threatening to block other players’ R&D-related value creation. Legal loopholes and inefficiencies in court practice have been identified as drivers of these ‘locking-in-to-extort’ strategies, which might suggest that policy changes can eradicate the troll business. Through modeling interactions between trolls and manufacturers, we show that this is not the case. Patent extortion will remain viable in technologically crowded industries as long as trolls choose patents that are sufficiently sophisticated to be upheld in court and produce significant long-term switching costs for manufacturers after infringement. We analyze how innovating firms may react to the continued presence of patent trolls, and discuss adjustments to their R&D strategies regarding product design, interaction with trolls, coordination with competitors, and patenting activity overall.

Number of Pages in PDF File: 45

Keywords: innovation strategy; patent infringement; patent troll; value appropriation

JEL Classification: M21, L24, K41, O34

working papers series