Patent assertion entities in technology markets: practices, recent trends, and policy concerns

This chapter reviews the literature on the activities of Patent Assertion Entities (PAEs), which have emerged as key players in the market for patents and major drivers of patent assertion. While they have created opportunities to increase inventors' returns, PAEs have also increased innovators' exposure to patent enforcement, leading to numerous concerns. We begin by overviewing the reasons underlying PAEs' emergence. The rising complexity of navigating the patent system and the asymmetries in costs and risks of litigation activity have led to the rise of intermediaries specialized in patent monetization. We proceed by quantifying PAEs' activities with patent transfer and litigation data. PAEs initiate more than 50% of U.S. patent infringement actions, whereas they account for about 10% of the European cases, and there is little PAE litigation activity outside of the U.S. and Europe. Litigation data also show that PAEs often target the Information and Communications Technology (ICT) area. Patent transfers in ICT reveal more nuanced differences between U.S. and Europe. We then review the literature on PAEs' impact. Overall, PAE activity is associated with higher costs and lower innovation investments, not only for the PAE targets but also for other firms in the same industries, while there is little evidence of a pass-through of the gains from PAE litigation to inventors. However, the evidence is far from being conclusive. We finally review the differences between types of PAEs and discuss areas for future research.