Assessing the Impact of Non-Practicing Entities on U.S. Innovation

National Bureau Of Economic Research Inc, Cambridge MA

Investigators

Abstract

The United States government protects intellectual property (IP) in order to encourage innovation; however, the use and assertion of ownership claims on patent rights has recently undergone a striking shift. A new organizational form, the non-practicing entity (NPE), has emerged as a major driver of IP litigation. NPEs amass patents not for the sake of producing commercial products, but in order to claim license fees and/or litigate infringement on their patent portfolios. Proponents of NPEs argue that NPEs serve a key financial intermediary role, policing infringement by well-funded firms that could otherwise infringe upon small inventors' IP at will. Opponents cast NPEs as organizations that simply raise the costs of innovation by exploiting the fact that an imperfect legal system will rule in their favor sufficiently often -- even if no infringement has actually occurred -- that the credible threat of the legal process can yield rents from producing, innovative firms. In the past few years, Congress has considered a dozen bills to regulate the licensing and assertion of patents, and the United States Patent and Trademark Office has undertaken an initiative on "Enhancing Patent Quality." This project will provide both data- and theory-driven approaches to reducing patent trolling by NPEs, and stands to guide policy regarding NPEs more generally. This project will systematically investigate the behavior and impacts of NPEs. The work will provide the first large-sample evidence on precisely which corporations NPEs target in litigation, when NPE litigation occurs, and how NPE litigation impacts targeted firms' innovative activity. This research will determine how NPEs' IP holdings and strategies differ from those of more standard practicing entities that produce commercial products). Additionally, the work will uncover how NPE litigation affects both firm- and industry-level innovation. The results will inform new policy strategies for changing the incentives surrounding IP to reduce "patent trolling" (that is, to reduce low-quality patent assertion). Finally, the work will yield novel indices that researchers, practitioners, and policymakers can use to assess patent litigation risk.