Patent trolls, litigation and the market for innovation

Abstract

We examine the role of non-practicing entities (NPEs), often called patent trolls, in patent litigation. We present a theoretical model that predicts that cases with NPE patentees resolve faster. We test this prediction using a hand-collected data set of US patent litigation cases. We find that NPEs challenge larger and more technology intensive firms, and use more valuable patents from technology areas that have a less fragmented ownership base compared to the control group. Controlling for these factors, we find that NPE cases are indeed resolved faster. NPEs help to increase the speed of diffusion of technology into the economy; therefore, increasing the effectiveness of the market for innovation. Keywords: litigation, patents, patent trolls, technology diffusion.