Don't Feed the Trolls

Abstract

Many vociferous opponents to patent trolls claim that trolls are a drag on society. Patent trolls are accused of using the patent system to extort unreasonable royalty payments from companies who benefit the economy by developing products that consumers want. The extortionary royalty payments, it is said, constitute a "tax" that ultimately leads to less product development and higher prices for consumers.

But, is there an economic case to be made against trolls? Would society be better off without them? In this paper, we examine a range of issues surrounding patent trolls. We begin by defining what kind of patent owner qualifies as a troll; we find that the answer to this question is not so clear-cut. We then seek to understand the effects of troll activity on innovation. Next, we consider the question of whether or not trolls should be allowed to exclude from the market entities that produce goods that embody their patents, in light of the recent Supreme Court opinion in MercExchange v. eBay. Finally, we discuss competing considerations regarding the ultimate public policy question-what can be said about whether restrictions, or a downright prohibition, on trolls would increase or decrease social welfare?