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Patent Trolls, the Sustainability of ‘Locking-in-to-Extort’ Strategies, and Implications for Innovating Firms

45 Pages Posted: 14 May 2007 Last revised: 30 Sep 2012

Joachim Henkel

TUM School of Management - Technische Universität München (TUM); Centre for Economic Policy Research (CEPR)

Markus G. Reitzig

University of Vienna

Date Written: December 17, 2010

Abstract

Patent trolls appropriate innovation rents by threatening to block other players’ R&D-related value creation. Legal loopholes and inefficiencies in court practice have been identified as drivers of these ‘locking-in-to-extort’ strategies, which might suggest that policy changes can eradicate the troll business. Through modeling interactions between trolls and manufacturers, we show that this is not the case. Patent extortion will remain viable in technologically crowded industries as long as trolls choose patents that are sufficiently sophisticated to be upheld in court and produce significant long-term switching costs for manufacturers after infringement. We analyze how innovating firms may react to the continued presence of patent trolls, and discuss adjustments to their R&D strategies regarding product design, interaction with trolls, coordination with competitors, and patenting activity overall.

Keywords: innovation strategy; patent infringement; patent troll; value appropriation

JEL Classification: M21, L24, K41, O34

Suggested Citation

Henkel, Joachim and Reitzig, Markus G., Patent Trolls, the Sustainability of ‘Locking-in-to-Extort’ Strategies, and Implications for Innovating Firms (December 17, 2010). Available at SSRN: https://ssrn.com/abstract=985602 or http://dx.doi.org/10.2139/ssrn.985602

Joachim Henkel (Contact Author)

TUM School of Management - Technische Universität München (TUM) ( email )

Arcisstr. 21
Munich, D-80333
Germany

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Markus G. Reitzig

University of Vienna ( email )

Bruenner Strasse 72
Vienna, Vienna 1090
Austria

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