Patent Trolls and Small Business Employment
56 Pages Posted: 19 Dec 2016 Last revised: 22 Jul 2017
Date Written: July 21, 2017
We analyze how frivolous patent-infringement claims made by non-practicing entities (NPEs, or “patent trolls”) affect small firms’ ability to grow, create jobs, and raise capital. Our identification strategy exploits the adoption of anti-troll laws in 32 US states. We find the adoption of these laws leads to a 2% increase in employment at small high-tech firms—an increase driven by IT firms, a frequent target of NPEs. By contrast, the laws have no significant impact on employment at larger or non-high-tech firms. Financing is a key channel driving our findings: In states with an established VC presence, anti-troll laws increase the number of firms receiving VC funding by 14%. Our findings suggest measures aimed at curbing the threat posed by NPEs can help reduce both the real and financing frictions faced by small firms.
Keywords: employment, patent trolls, NPEs, venture capital
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