Chilling Effects of Patent Trolls

53 Pages Posted: 12 Dec 2019 Last revised: 24 Aug 2021

See all articles by Feng Chen

Feng Chen

University of Toronto - Rotman School of Management

Yu Hou

Queen's University - Smith School of Business

Jiaping Qiu

McMaster University - Michael G. DeGroote School of Business

Gordon Richardson

University of Toronto

Date Written: August 23, 2021

Abstract

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

Chen, Feng and Hou, Yu and Qiu, Jiaping and Richardson, Gordon, Chilling Effects of Patent Trolls (August 23, 2021). Available at SSRN: https://ssrn.com/abstract=3492471 or http://dx.doi.org/10.2139/ssrn.3492471

Feng Chen

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Yu Hou (Contact Author)

Queen's University - Smith School of Business ( email )

Smith School of Business - Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Jiaping Qiu

McMaster University - Michael G. DeGroote School of Business ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

Gordon Richardson

University of Toronto ( email )

105 St George Street
Toronto, Ontario M5S 3G8
Canada

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