| 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. |