The Private and Social Costs of Patent Trolls
35 Pages Posted: 19 Sep 2011 Last revised: 30 Sep 2012
Date Written: September 19, 2011
In the past, non-practicing entities (NPEs) - firms that license patents without producing goods - have facilitated technology markets and increased rents for small inventors. Is this also true for today’s NPEs? Or are they “patent trolls” who opportunistically litigate over software patents with unpredictable boundaries? Using stock market event studies around patent lawsuit filings, we find that NPE lawsuits are associated with half a trillion dollars of lost wealth to defendants from 1990 through 2010, mostly from technology companies. Moreover, very little of this loss represents a transfer to small inventors. Instead, it implies reduced innovation incentives.
Keywords: patent, litigation, litigation cost, non-practicing entities, software patents
JEL Classification: O31, O34, K41
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