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Patent trolls and startup employment

Author

Listed:
  • Appel, Ian
  • Farre-Mensa, Joan
  • Simintzi, Elena

Abstract

We analyze how frivolous patent infringement claims made by nonpracticing entities (NPEs, or “patent trolls”) affect startups’ ability to grow and create jobs, innovate, and raise capital. Our identification strategy exploits the staggered adoption of anti-troll laws in 32 US states. The laws lead to a 4.4% increase in employment at high-tech startups—an increase driven by IT firms, a frequent target of NPEs. Increased access to financing, both venture capital and patent-backed lending, is a key channel driving our findings. Measures aimed at curbing the threat posed by NPEs can thus help reduce the real and financing frictions faced by startups.

Suggested Citation

  • Appel, Ian & Farre-Mensa, Joan & Simintzi, Elena, 2019. "Patent trolls and startup employment," Journal of Financial Economics, Elsevier, vol. 133(3), pages 708-725.
    • Handle: RePEc:eee:jfinec:v:133:y:2019:i:3:p:708-725
    DOI: 10.1016/j.jfineco.2019.01.003
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    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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