AIEA Seminar Series
Escaping the Patent Trolls: The Impact of Non-Practicing Entity Litigation on Firm Innovation Strategies
- Kenneth Huang (National U. of Singapore)
- Oct. 16th 9AM Taipei/Beijing/HK/Singapore & Oct. 15th, 9PM EST
- Mei-Xuan Li (National Taiwan U.), Carl Hsin-han Shen (Macquarie U.), Yanzhi Wang (National Taiwan U.)
- Umit Gurun (U. of Texas at Dallas)
ABSTRACT Non-practicing entities (NPEs) are firms that amass patents to assert their intellectual property rights but have little or no intention of further developing these patents (a practice known as patent trolling). NPEs tend to initiate lawsuits not for actual patent infringements but for the potential profits derived from out-of-court settlements. In this study, we examine how firms shift their innovation strategies in response to heightened NPE litigation risks. We theorize that firms targeted by NPEs who become defendants in NPE-initiated litigation (i.e., target firms) will subsequently draw more upon their in-house technologies to reduce the potential legal ground for such lawsuits. We further hypothesize that the non-target firms in related technology areas will shift the locus of their innovation activities away from those of the target firms to avoid the areas with high NPE litigation risks. These effects are more pronounced when research and development (R&D) expenses for the patented technologies are higher and when the product markets are more competitive. Results from our difference-in-differences estimates and instrumental variable regression analyses provide support for these hypotheses. Overall, our results suggest that firms facing NPE litigation risks would shift their follow-on innovation trajectories and distance themselves from the existing network of innovation activities in an attempt to escape patent trolling. Our study yields important managerial and policy implications for firms and policymakers.