ABSTRACT:
Do firms that earn revenues from licensing their patent portfolios, rather than producing physical products—often referred to as patent assertion entities (PAEs)—frustrate or facilitate innovation? Based on data from the SEC filings of 26 publicly-traded firms that an expert (RPX Corporation) has categorized as PAEs, covering the period 2000 to 2016, we estimate: their spending on R&D, patent acquisition, and litigation; and their revenues, rates of return on assets, market returns, and risk-return ratios. We also estimate an upper bound of the transfer from operating companies to those 26 firms, including the cost of defending against their lawsuits. We find that the RPX- identified public PAEs spent twice as much, on average, on R&D (as a percentage of revenues) than the average for America’s large high technology companies. We also find that most of the RPX-identified public PAEs lost money, both on an accounting basis and as investments for their shareholders. Finally, we find that even if we set the analysis of R&D and profitability aside, the magnitude of the transfer from operating companies to these 26 firms (plus associated legal defense costs), represents only 0.28 percent of the revenues of the U.S. high technology market. These findings are not consistent with the characterization of the PAE business model in an influential policy and academic literature.
Read the paper: An Empirical Analysis of the Patent Troll Hypothesis: Evidence from Publicly-Traded Firms
