Trolls or Market-Makers? An Empirical Analysis of Nonpracticing Entities

Nonpracticing entities (NPEs) are firms that rarely or never practice their patents, and instead focus on earning licensing fees. NPEs may have patented inventions on their own or bought the patents from other inventors. NPEs have been the subject of much controversy over the past few years. Critics of these firms have labeled them “patent trolls” and claim that they use weak and vague patents to extract excessive licensing fees or to engage in frivolous infringement litigation against product manufacturers. NPEs and their supporters, on the other hand, claim that these firms enhance innovation and competition by providing capital to independent inventors and creating an efficient market for trade in technological information. This Note uses patent data from the U.S. Patent and Trademark Office (PTO) and infringement litigation information from Stanford Law School’s Intellectual Property Litigation Clearinghouse (IPLC) to test some of the arguments made for and against NPEs and to determine whether these firms benefit or harm innovation.