Essays on the Economics of Innovation (original) (raw)
Related papers
International Economic Review, 2018
This paper develops a model of patent trolls to understand various litigation strategies employed by nonpracticing entities (NPE). We show that when a NPE faces multiple potential infringers who use related technologies, it can gain a credible threat to litigate even when it has no such credibility vis-à-vis any single potential infringer in isolation. This is due to an information externality generated by an early litigation outcome for subsequent litigation. Successful litigation creates an option value against future potential infringers through Bayesian updating. This renders a credible litigation threat against the initial defendant and allows the NPE to extract more rents. We discuss policy implications including the adoption of the British system of "loser-pays" fee shifting and the use of injunctive relief.
Patent ‘Trolls’: Rent-Seeking Parasites or Innovation-Facilitating Middlemen?
SSRN Electronic Journal, 2010
I. Introduction Proponents of the U.S. patent system argue patent protection enhances economic growth by stimulating innovation (Meurer 2003). Some, however, argue any positive economic impact of the patent system has been increasingly undercut via opportunistic litigation, particularly by nonpracticing entities ("NPEs") (Chien 2009). NPEs-often disparagingly referred to as patent "trolls"-are patent owners that do not make products or 'practice' their invention (Chien 2009). According to conventional wisdom, they instead "value their (patent) rights chiefly as 'tickets' into court that give them a credible threat to sue vulnerable IP users," especially established businesses (Meurer 2003, Chien 2009). Behind this view of NPEs is the assumption that they are not practicing their patents because they have little or no applied value. If true, the economic justification for granting limited monopolies to inventors-to incent innovation-may be absent with NPE-owned patents. Instead, the primary economic impact of NPEs may be negative-to transfer wealth to themselves via wasteful litigation. Unfortunately, there is little empirical evidence regarding the frequency of NPE lawsuits, or the characteristics of NPE-asserted patents, including quality, in relation to litigated patents generally (Chien 2009). In this preliminary analysis, I seek to join a few others in working to fill the void. Using a set of 1800 patents litigated in 2000 and 2001, I first estimate the relative quality and strength of litigated patents as compared to all other patents. I find, consistent with Landjouw and
Intermediaries versus Trolls in Contests for Patents ∗
2017
Patents are increasingly perceived as ambiguous property rights, as their boundaries are often ill-defined, thereby leading to potential inadvertent infringement and to an explosion in patent litigation. We study the emergence of non-practicing entities in the market for patents. While patent trolls monetize their patents through the threat of litigation against alleged infringers, intermediaries instead protect their affiliated firms by buying patents that would otherwise fall in trolls’ hands. We develop a model of patent acquisition through a common-value auction incorporating both trolls and intermediaries. We find that firms can never win the auction when individually competing against the troll, while the seller’s revenue sharply increases in response to the troll’s participation in the auction. We then introduce an intermediary who, in exchange for an endogenous membership fee, participates in the auction on firms’ behalf by aggregating their bids. While the intermediary’s pr...
Patent Trolls on Markets for Technology - An Empirical Analysis of Trolls' Patent Acquisitions
SSRN Electronic Journal, 2011
Patent trolls-firms that appropriate profits from innovation by enforcing patents against infringers-are peculiar players on markets for technologies. As buyers of patents, they are solely interested in the exclusion right, not in the underlying knowledge. Similarly, when they sell or license out patents, the transaction does not involve a technology transfer. In this paper, we empirically analyze trolls' patent acquisitions. We draw on a unique dataset of 753 patents acquired by known patent trolls, which we compare to 1506 patents acquired by practicing firms. Our findings regarding patent characteristics support recent theoretical propositions about the troll business model. Trolls focus on patents that have a broad scope and that lie in patent thickets. Furthermore, and contrary to common belief, we find that troll patents are of significantly higher quality than those in the control group, a result that suggests sustainability of the troll business in the future. Extrapolating from our findings, we posit that transactions involving patent trolls may only be the tip of the iceberg of "patent-only" transactions, a conjecture with strong implications for the efficiency of markets for technologies. Managerial and policy implications are discussed.
Slaying the Troll: Litigation as an Effective Strategy against Patent Threats
Santa Clara Computer High Technology Law Journal, 2006
Litigation has traditionally been seen as a disfavored option for an accused infringer. Instead, litigation is commonly viewed as an activity that is forced on an unwilling market participant. This article proposes that the threat of litigation is a double-edged sword that affects not just the decision making process of the infringer, but also that of the patentee. The threat of litigation is particularly important when the patentee is a patent troll, counterbalancing the patent troll's ability to force a license and playing a key role in forcing low-or zero-cost settlements. This article first explores the options available to the accused infringer in the face of a patent threat, and defines the concept of a patent troll. It then examines the reasons why an infringer might choose to litigate, and describes a model through which to view the infringer and patentee's decisions. This model is then used to examine how changes in the ability ofpatentees to obtain injunctions may drive the tendency of parties to litigate and the value of settlements that occur in place of litigation. t Associate, Munger, Tolles & Olson, LLP. J.D./M.A. (History) University of Chicago. Law Clerk to the Hon. William C. Bryson, United States Court of Appeals for the Federal Circuit during 2003-04 term. The author would like to thank Douglas Lichtman, Lee Petherbridge, Joshua Fairfield, Thomas Miles and June T. Tai for their comments on earlier drafts of this article. 1. As discussed more fully in section III, because a patent troll's only assets are its patents, a troll rarely runs the risk of being countersued by a competitor. 2. See Jeremiah Chan and Matthew Fawcett, Footsteps of the Patent Troll, 10 INTELL.
The Trouble with Trolls: Innovation, Rent-Seeking, and Patent Law Reform
BERKELEY TECHNOLOGY LAW JOURNAL, 2009
This Article analyzes the secondary market for patent rights. It defines a patent troll as a participant in this market that does not contribute to the social goal the patent system was meant to serve: technological innovation. The legitimate secondary market, in which patent rights are bought and sold in ways that compensate real innovators (and also often involve the transfer of information and/or technology, in addition to the legal right), is distinguished from the more questionable market for the settlement of lawsuits involving weak, outdated or irrelevant patents. The presence of willing buyers and willing sellers does not necessarily imply that social welfare is being served; at times, the legal system must shut down markets when the things being exchanged have no social value-as in the case of blackmail. The Article reviews the prospects for corrective policies to reign in some activities in the current patent system. Political economy considerations make Congress a long shot to fix the problem, which leaves the courts, and in particular the Federal Circuit. Recent caselaw on damages is presented as a case study of a desirable Federal Circuit course correction involving the secondary market for patents. Economically rational valuation techniques applied to the question of appropriate damages for patent infringement can help to undermine the incentives to litigate, and hence the market for, patents on minor features that can be used strategically to demand large damage awards under some readings of damages doctrine.
Research Policy, 2007
Patent trolls (or sharks) are patent holding individuals or (often small) firms who trap R&D intensive manufacturers in patent infringement situations in order to receive damage awards for the illegitimate use of their technology. While of great concern to management, their existence and impact for both corporate decision makers and policy makers remains to be fully analyzed from an academic standpoint. In this paper we show why patent sharks can operate profitably, why they are of growing concern, how manufacturers can forearm themselves against them, and which issues policy makers need to address. To do so, we map international indemnification rules with strategic rationales of small patent-holding firms and large manufacturers within a theoretical model. Our central finding is that the courts' unrealistic consideration of the trade-offs faced by inadvertent infringers is a central condition for sharks to operate profitably.
Innovation Under Threat? Some Economic and Legal Considerations on the Patent Wars and Trolls
Cumulative innovations raise a number of problems that the patent system, without further institutional provisions, is ill equipped to cope with. In this article, we focus on the main problem raised by sequential innovations, namely that a patent on the first-generation innovation might confer the patentee a hold-up right over subsequent innovations. In particular, we will see how the opportunistic conduct of some firms might exacerbate this problem. Before that, we discuss the case of the smartphone industry, where the problems of cumulative innovations are particularly acute and reinforced by the strong role of standards.
Strategic uses of patents in markets for technology: A story of fabless firms, brokers and trolls
Journal of Economic Behavior & Organization, 2012
This paper analyses the strategic uses of patents in markets for technology. In particular, we study the behaviors of technological firms, patent brokers and patent trolls and explore their consequences on the amount of R&D investments of the economy. We show that patent brokers, in their pure form, are R&D increasing (i.e. they increase the R&D investments of both supplier and manufacturing firms) while patent trolls, in their pure form, are R&D decreasing. We also show that, paradoxically, an optimal positive level of trolling may exist if the probability to secure market transactions and the probability to encounter trolls are positively correlated. Then we discuss the normative implications of this research. Among others, we argue that changes in patent laws are needed in order to limit the possibility of trolling; however, the difficulty is that those changes might also affect the development of technological firms and brokers. Several possible evolutions of international patent laws are hence discussed.