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A model of patent trolls

Listed author(s):
  • CHOI, Jay Pil
  • GERLACH, Heiko

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.

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File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/27473/1/070_hiasDP-E-9.pdf
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Paper provided by Hitotsubashi Institute for Advanced Study, Hitotsubashi University in its series Discussion paper series with number HIAS-E-9.

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Length: 47 p.
Date of creation: Sep 2015
Handle: RePEc:hit:hiasdp:hias-e-9
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  1. Silvana Krasteva & Huseyin Yildirim, 2012. "Payoff uncertainty, bargaining power, and the strategic sequencing of bilateral negotiations," RAND Journal of Economics, RAND Corporation, vol. 43(3), pages 514-536, 09.
  2. Jay Pil Choi & Heiko Gerlach, 2013. "A Theory of Patent Portfolios," CESifo Working Paper Series 4405, CESifo Group Munich.
  3. Carl Shapiro, 2010. "Injunctions, Hold-Up, and Patent Royalties-super-1," American Law and Economics Review, Oxford University Press, vol. 12(2), pages 509-557.
  4. Choi, Jay Pil, 2009. "Alternative damage rules and probabilistic intellectual property rights: Unjust enrichment, lost profits, and reasonable royalty remedies," Information Economics and Policy, Elsevier, vol. 21(2), pages 145-157, June.
  5. Lauren Cohen & Umit Gurun & Scott Duke Kominers, 2014. "Patent Trolls: Evidence from Targeted Firms," NBER Working Papers 20322, National Bureau of Economic Research, Inc.
  6. Che, Yeon-Koo & Yi, Jong Goo, 1993. "The Role of Precedents in Repeated Litigation," Journal of Law, Economics and Organization, Oxford University Press, vol. 9(2), pages 399-424, October.
  7. James Bessen & Jennifer L. Ford & Michael J. Meurer, 2011. "The Private and Social Costs of Patent Trolls," Working Papers 1103, Research on Innovation.
  8. Lemley, Mark A & Shapiro, Carl, 2007. "Patent Hold-Up and Royalty Stacking," Competition Policy Center, Working Paper Series qt8638s257, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
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