The Effect of Patent Litigation and Patent Assertion Entities on Entrepreneurial Activity
41 Pages Posted: 23 Jun 2014 Last revised: 25 Jun 2014
Date Written: June 22, 2014
This paper empirically investigates the statistical relation between levels of patent litigation and venture capital ("VC") investment in the U.S. We find that VC investment, a major funding source for entrepreneurial activity, initially increases with the number of litigated patents, but that there is a "tipping point" where further increases in the number of patents litigated are associated with decreased VC investment, which suggests an inverted U-shaped relation between patent litigation and VC investment. This appears strongest for technology patents, and negligible for products such as pharmaceuticals. There is some evidence of a similar inverted U-shaped relation between patent litigation and the creation of new small firms. Strikingly, we find evidence that litigation by frequent patent litigators, a proxy for PAE litigation, is directly associated with decreased VC investment with no positive effects initially.
Keywords: Intellectual Property, Patents, Patent Assertion Entities, Patent Litigation, Patent Trolls, Entrepreneurship, Venture Capital
JEL Classification: K41, M20
Suggested Citation: Suggested Citation