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Patent Trolls: Evidence from Targeted Firms

Author

Listed:
  • Lauren Cohen

    (Harvard Business School, Boston, Massachusetts 02163; National Bureau of Economic Research, Boston, Massachusetts 02163)

  • Umit G. Gurun

    (National Bureau of Economic Research, Boston, Massachusetts 02163; University of Texas at Dallas, Richardson, Texas 75080)

  • Scott Duke Kominers

    (Harvard Business School, Boston, Massachusetts 02163; National Bureau of Economic Research, Boston, Massachusetts 02163; Department of Economics, Center of Mathematical Sciences and Applications, and Center for Research on Computation and Society, Harvard University, Cambridge, Massachusetts 02138)

Abstract
We provide the first large-sample evidence on the behavior and impact of nonpracticing entities (NPEs) in the intellectual property space. We find that, on average, NPEs appear to behave as opportunistic “patent trolls.” NPEs sue cash-rich firms and target cash in business segments unrelated to alleged infringement at essentially the same frequency as they target cash in segments related to alleged infringement. By contrast, cash is neither a key driver of intellectual property lawsuits by practicing entities (e.g., IBM and Intel) nor of any other type of litigation against firms. We find further suggestive evidence of NPE opportunism: targeting of firms that have reduced ability to defend themselves, repeated assertions of lower-quality patents, increased assertion activity nearing patent expiration, and forum shopping. We find, moreover, that NPE litigation has a real negative impact on innovation at targeted firms: firms substantially reduce their innovative activity after settling with NPEs (or losing to them in court). Meanwhile, we neither find any markers of significant NPE pass-through to end innovators, nor of a positive impact of NPEs on innovation in the industries in which they are most prevalent.

Suggested Citation

  • Lauren Cohen & Umit G. Gurun & Scott Duke Kominers, 2019. "Patent Trolls: Evidence from Targeted Firms," Management Science, INFORMS, vol. 65(12), pages 5461-5486, December.
  • Handle: RePEc:inm:ormnsc:v:65:y:2019:i:12:p:5461-5486
    DOI: 10.1287/mnsc.2018.3147
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    Keywords

    patent trolls; non-practicing entities; innovation; patent assertion entities; litigation; patents;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • K1 - Law and Economics - - Basic Areas of Law
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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