The Patent Troll: Benign Middleman or Stick-Up Artist?

56 Pages Posted: 1 Apr 2019

See all articles by David Abrams

David Abrams

University of Pennsylvania Law School

Ufuk Akcigit

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER); Center for Economic and Policy Research (CEPR)

Gokhan Oz

Analysis Group, Inc.

Jeremy Pearce

University of Chicago

Multiple version iconThere are 3 versions of this paper

Date Written: March 2019

Abstract

How do non-practicing entities ("Patent Trolls") impact innovation and technological progress? Although this question has important implications for industrial policy, little direct evidence about it exists. This paper provides new theoretical and empirical evidence to fill that gap. In the process, we inform a debate that has historically portrayed non-practicing entities (NPEs) as either "benign middlemen", who help to reallocate IP to where it is most productive, or "stick-up artists", who exploit the patent system to extract rents and thereby hurt innovation. We employ unprecedented access to NPE-derived patent and financial data, as well as a novel model that guides our data analysis. We find that NPEs acquire patents from small firms and those that are more litigation-prone, as well as ones that are not core to the seller's business. When NPEs license patents, those that generate higher fees are closer to the licensee's business and more likely to be litigated. We also find that downstream innovation drops in fields where patents have been acquired by NPEs. Finally, our numerical analysis shows that the existence of NPEs encourages upstream innovation and discourages downstream innovation. The overall impact of NPEs depends on the share of patent infringements that come from non-innovating producers. Our results provide some support for both views of NPEs and suggests that a more nuanced perspective on NPEs and additional empirical work are needed to make informed policy decisions.

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Suggested Citation

Abrams, David S. and Akcigit, Ufuk and Oz, Gokhan and Pearce, Jeremy, The Patent Troll: Benign Middleman or Stick-Up Artist? (March 2019). NBER Working Paper No. w25713. Available at SSRN: https://ssrn.com/abstract=3363451

David S. Abrams (Contact Author)

University of Pennsylvania Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States

Ufuk Akcigit

University of Chicago - Department of Economics ( email )

1126 E. 59th St
Chicago, IL 60637
United States

HOME PAGE: http://www.ufukakcigit.com

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Center for Economic and Policy Research (CEPR) ( email )

London
United Kingdom

Gokhan Oz

Analysis Group, Inc. ( email )

111 Huntington Avenue
10th floor
Boston, MA 02199
United States

Jeremy Pearce

University of Chicago ( email )

1101 East 58th Street
Chicago, IL 60637
United States

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