Litigating Monetization and Patent Trolls: Evidence from the Patent Market

Abstract

Firms’ valuation of resources depends on their expected value appropriation from the resource. Being important resources, patents are used by firms to practice the technology and to exclude other firms from using the technology. However, the valuation of patents can be drastically different depending on the monetization method, especially when the firm has no interest in the product market. This paper studies patent assertion entities (PAEs) which are firms that use legal threats as the business model to monetize patents. The paper sheds light on various value appropriation mechanisms from patents by examining PAEs’ patent acquisitions in the market of technology. I theorize and show that patents with stronger but older technologies are more likely to be acquired by PAEs. Also, PAEs purchase patents with medium exclusion scope. Besides, I show the dependence of litigating monetization on the legal regime by exploiting the enactment of America Invents Act (AIA).