After the Trolls: Patent Litigation As Ex-Post Market Making

Abstract

Recent patent policy emphasizes the superiority of ex ante licensing over ex post patent assertion. Ex ante means before costs are sunk by a patent defendant, so licensing at this stage avoids the leveraging of a defendant’s investments in product design which is a presumptive aspect of litigation in the ex post period. Contrary to the dominant narrative (ex ante good, ex post bad) this Article defends patent litigation as a reasonable way to award compensation in the ex post (i.e., after product development) period. The literature on strategic delay, together with the sometimes heavy costs of negotiating patent licenses during an intensive product development project (including opportunity costs), point to a productive role for patent litigation: ex post market-making. Patent litigation determines which patented inventions contributed to product success during the all-out scramble for successful product development and market entry. But it does so after development is complete and the product market is established. This temporal decoupling – separating intensive development competition from a careful assessment of the contributions of individual patented technologies – is a rational way to appropriately compensate the various contributors to a new product in fast-moving, technology-intensive markets. The last part of the Article reviews the many ways that litigation has been reformed in recent years in response to the problem of rent-seeking litigation, i.e., patent trolls. Many patent doctrines have been adjusted to better police the “troll line”: the line separating socially worthless troll patents from value-adding patents that are worth enforcing. Because of these reforms, we can be confident that patent litigation primarily serves the positive function of rewarding (ex post) the actual contributors to a new product.