Strategic uses of patents in markets for technology: A story of fabless firms, brokers and trolls

Abstract

This paper analyses the strategic uses of patents in markets for technology. In particular, we study the behaviors of technological firms, patent brokers and patent trolls and explore their consequences on the amount of R&D investments of the economy. We show that patent brokers, in their pure form, are R&D increasing (i.e. they increase the R&D investments of both supplier and manufacturing firms) while patent trolls, in their pure form, are R&D decreasing. We also show that, paradoxically, an optimal positive level of trolling may exist if the probability to secure market transactions and the probability to encounter trolls are positively correlated. Then we discuss the normative implications of this research. Among others, we argue that changes in patent laws are needed in order to limit the possibility of trolling; however, the difficulty is that those changes might also affect the development of technological firms and brokers. Several possible evolutions of international patent laws are hence discussed.