A Model of Patent Trolls

Jay Choi and Heiko Gerlach

No 5536, CESifo Working Paper Series from CESifo

Abstract: This paper develops a model of patent trolls to understand various litigation strategies employed by nonpracticing entities (NPE). We show that when a NPE faces multiple potential infringers who use related technologies, it can gain a credible threat to litigate even when it has no such credibility vis-à-vis any single potential infringer in isolation. This is due to an information externality generated by an early litigation outcome for subsequent litigation. Successful litigation creates an option value against future potential infringers through Bayesian updating. This renders a credible litigation threat against the initial defendant and allows the NPE to extract more rents. We discuss policy implications including the adoption of the British system of “loser-pays” fee shifting and the use of injunctive relief.

Keywords: patent portfolios; patent litigation; non-practicing entities; patent troll (search for similar items in EconPapers)
JEL-codes: D43 L13 O30 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: A MODEL OF PATENT TROLLS (2018)
Working Paper: A model of patent trolls (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_5536

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