This article develops a model of patent trolls to understand various litigation strategies employed by nonpracticing entities (NPEs). When an 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. We discuss policy implications including legal fee shifting and the use of injunctive relief.
Bibliographical noteFunding Information:
1 We would like to thank the editor Harold Cole and two anonymous referees as well as Scott Baker, Erik Hovenkamp, Louis Kaplow, Scott Duke Kominers, Jorge Lemus, Alvaro Parra, Kathy Spier, Emanuele Tarantino, and participants in various conferences and seminars for valuable discussions and comments. Jay Pil Choi was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF-2016S1A5A2A01022389). Please address correspondence to: Heiko Gerlach, School of Economics, University of Queensland, St Lucia, QLD 4072, Australia. Phone +61-7-3346-0572. Fax +61-7-3365-6666. E-mail: firstname.lastname@example.org. 2 NPEs are also called patent-asserting entities (PAEs).
All Science Journal Classification (ASJC) codes
- Economics and Econometrics