Chilling Effects of Patent Trolls
53 Pages Posted: 12 Dec 2019 Last revised: 24 Aug 2021
Date Written: August 23, 2021
We find that, when a firm is sued by non-practicing entities (NPEs), the likelihood of its technology peers being sued increases in the subsequent year. Defendants’ technology peers experience significant market value losses around the lawsuit filing date. Moreover, defendants’ technology peers respond to NPE litigation risk by increasing R&D investments to develop workaround technologies. However, the increase in R&D incrementally generates fewer patent citations or patents with lower values. Thus, our results highlight broader wealth effects and corresponding real effects of NPE-initiated litigation on defendants’ technology peers. These results provide sharp contrasts to the insignificant wealth and real impacts on defendants’ technology peers if litigations are initiated by practicing entities (PEs). The new evidence informs the current regulatory and policy debates pertaining to NPEs.
Keywords: Peer losses; Innovation response; Patent-infringement litigation; Non-practicing entities; Technology peers
JEL Classification: G14; O34; O32; M41; K11
Suggested Citation: Suggested Citation