The anatomy of a troll? Patent licensing business models in the light of patent reassignment data

Abstract

We examine patent licensing business models of non-practicing entities that generate revenue by selling, licensing, or litigating patents. They may also pursue R&D activities, invent new technologies, or provide services to inventors or product companies. We describe their business models and patent market behavior and then compare their litigation strategies against product companies using a matched sample of highly comparable patents. The main differences among patent licensing firms stem from their technological capabilities, patent portfolio sizes, and external relationships. We find that licensing firms with technological capabilities often pursue litigation until decision and engage in forum shopping. In contrast, litigation incidence, parties involved, and outcomes are primarily determined by patent characteristics, not entity types. Licensing business models drive the acquisition of certain types of patents that influence the outcomes of the patent system. We argue that patent policy should strengthen mechanisms to discover invention quality rather than focus on the amount of litigation or types of entities.