Research / BFI Working PaperMar 25, 2019

The Patent Troll: Benign Middleman or Stick-Up Artist?

David S. Abrams, Ufuk Akcigit, Gokhan Oz, Jeremy Pearce

How do non-practicing entities (“Patent Trolls”) impact innovation and technological progress? We employ unprecedented access to NPE-derived patent and financial data and a novel model to answer this question. We find that NPEs tend to acquire litigation-prone patents from small firms and acquire patents less core to the seller’s business. When NPEs license patents, those that generate higher fees are closer to the licensee’s business and more litigation-prone. More- over, downstream innovation drops when patents are acquired by NPEs. Quantitatively, the overall impact of NPEs depends on the share of infringements that come from non-innovating producers.

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