Mark A. Lemley and Timothy Simcoe ‘How Essential Are Standard-Essential Patents?

This working paper, which can be found here, seeks to understand what happens when standard essential patents (SEPs) are litigated in court. The authors find that, contrary to expectations, courts are more likely to find that SEPs are valid patents than a matched set of litigated non-SEP patents. However, courts are also significantly less likely to find that SEPs were infringed. One of the reason for this seems to be that many SEPs are asserted in court by non-practicing entities (NPEs), and NPEs do much worse in court than other patent holders. This has interesting implications for policy debates about both SEPs and NPEs. Standard-essential patents may not be so essential after all, perhaps because companies tend to err on the size of over-disclosing patents to standard-setting organisations. On the other hand, the failure of NPEs to win cases concerning the validity of what are, prima facie, a strong set of patents raises interesting questions about the role that NPEs play…

Noel Maurer and Stephen Haber ‘An Empirical Analysis of the Patent Troll Hypothesis: Evidence from Publicly-Traded Firms’ (2018) Hoover Institution Working Paper no. 17003

Do firms that earn revenues from licensing their patent portfolios, rather than producing physical products – often referred to as patent assertion entities (PAEs) or, more disparagingly as ‘patent trolls’ – frustrate or facilitate innovation? According to one view, PAEs purchase specious intellectual property and then file frivolous lawsuits in order to extort revenues from operating companies that would rather settle than go through the expense of litigation. The revenues earned by PAEs are therefore a tax on innovation: dollars that would be spent on R&D by operating companies are diverted to non-productive uses. A business model based on using low value patents to file frivolous lawsuits for their nuisance value, with little risk of being countersued, should yield easy returns—and a high yield, low risk business model that is not characterized by barriers to entry should proliferate rapidly. It follows, accordingly, that PAEs are a systemic threat to innovation, economic growth, and consumer welfare, and thus the laws governing…