Taming the Trolls: The Effect of Non-Practicing Patent Assertion Entity Litigation Risk On Innovation

Abstract

I assess the innovation effects of non-practicing patent assertion entities, otherwise known as patent trolls. I exploit the passage of anti-troll laws and the strengthening of anti-troll laws through the TC Heartland Supreme Court Decision as natural experiments to study how firms respond to a reduction in the risk posed by patent troll litigation. I find that R&D expenditure significantly increases in firms protected by anti-patent troll laws both after the law is passed and after the law is strengthened through TC Heartland, with the effect being larger after the law is initially passed. I additionally find that firms with anti-patent troll law protection increase their patenting activity after the passage of anti-troll laws and TC Heartland, though more recent patent data is needed to make definitive claims regarding the effect of patent trolls on patenting activity. My results suggest that the threat of patent trolls reduces innovation activity in public firms. As such, I reveal a need for the passage of new policies that further limit patent trolls.