Working Paper: NBER ID: w25713
Authors: David S. Abrams; Ufuk Akcigit; Gokhan Oz; Jeremy G. Pearce
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.
Keywords: patent trolls; innovation; nonpracticing entities; industrial policy
JEL Codes: O31; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| NPEs (E01) | Ambiguous overall impact on innovation (O36) |
| NPEs acquire patents from smaller firms (O36) | Probability of patent sale to NPEs increases (O39) |
| Distance of the patent from the original innovating firm (O36) | Likelihood of patent sale increases (G33) |
| Larger firms (L25) | NPEs pay more for patents (O34) |
| Distance of the patent to the seller (D45) | Acquisition price decreases (G32) |
| Distance to the licensee (D45) | Average licensing fee decreases (D45) |