The effect of patent trolls on innovation

Though the definition varies (go here), a patent troll generally is thought of as a person or entity that buys patents and then enforces the patents through litigation against accused infringers to collect licensing fees. The troll has no intent to exploit the patent for itself — that is, no plan to use the patent to make or sell a product or supply a service. Many people, including many politicians, think that litigation brought by trolls improperly drives up costs to innovating businesses and, ultimately, consumers.

Professor Stephen Haber and grad student Seth Werbel have recently published this study that questions the prevailing view. Read this article on their research, an earlier piece in the Wall Street Journal, and the study abstract:

Why do individual patent holders assign their patents to "trolls" rather than license their technologies directly to manufacturers or assert them through litigation? We explore the hypothesis that an asymmetry in financial resources between individual patent holders and manufacturers prevents individuals from making a credible threat to litigate against infringement. First, individuals may not be able to cover the upfront costs associated with litigation. Second, unsuccessful litigation can result in legal fees so large as to bankrupt the individual. Therefore, a primary reason why individual patent holders sell to PAEs is that they offer insurance and liquidity. We test this hypothesis by experimentally manipulating these financial constraints on a representative sample of inventors and entrepreneurs affiliated with academic institutions that are particularly known for their innovative activity: Stanford University and the University of California, Berkeley. We find that in the absence of these constraints, subjects were significantly less likely to sell their patent to a PAE in a hypothetical scenario. Furthermore, treatment effects were significant only for subjects who were hypothesized to be most sensitive to these constraints.


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