Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Thursday, March 21, 2019

Understanding Patent 'Privateering': A Quantitative Assessment

Jay P. Kesan, University of Illinois College of Law, Anne Layne-Farrar, Charles River Associates; Northwestern University and David L. Schwartz, Northwestern University - Pritzker School of Law offer Understanding Patent 'Privateering': A Quantitative Assessment.

ABSTRACT: Since 2011, several papers and articles have speculated about the motivations, activities, and possible anticompetitive effects of hybrid patent assertion entities (PAEs), or more pejoratively, “patent privateers.” Patent privateers are non-practicing entities that obtain patent enforcement rights from practicing entities, assert those patents in litigation or licensing, and then share the earnings with the original patent holder. Most prior work has assumed that privateers are essentially extorting money from firms by making weak infringement claims employing weak patents. Under a more classical law-and-economics approach, we would expect patent privateers to acquire valuable patents to reduce litigation risk and justify patent enforcement. But to date, there has been no quantitative analysis on this form of patent holder to support or disprove either of these theoretical viewpoints. This paper is a first step toward filling that gap in the analysis by conducting an empirical assessment of patent lawsuits filed between 2010 and 2013. While several studies have provided useful analysis on who litigates patents and which patents are more likely to be litigated, we add new variables and insights to the analysis. First, our dataset identifies the business models of the parties involved, including hybrid PAEs. Second, we include data on patent reassignments, which allows us to identify when a hybrid PAE takes (partial) possession of a patent. Third, for making comparisons between litigated and unlitigated patents, our dataset includes a set of unlitigated patents that match our litigated patent dataset on several key variables. 

In this work, we explore three interesting questions: (1) what patent characteristics predict a patent’s acquisition by a hybrid PAE? (2) do hybrid PAEs acquire patents that are more likely to be litigated? and (3) does reassignment to a hybrid PAE affect the time when a patent is first asserted in litigation? We find that hybrid PAEs tend to acquire patents in Information Technology and Surgery & Medical Instrument fields more often than patents in other technology areas. Hybrid PAEs also obtain relatively higher quality patents than average, but objective quality metrics generally are on par when compared to patents litigated by firms with other business models. Our analysis also suggests that hybrid PAEs prefer patents with a broader scope of protection. Reassigning a patent to a hybrid PAE is generally associated with higher odds that the patents will be litigated. And finally, patents held by hybrid PAEs at some point in their lifespan experience their first litigation later than those never held by a hybrid PAE. In short, our analysis suggests that patent privateers appear to be focused on improving the possibility of successful patent monetization by focusing on acquiring higher quality patents with a broader scope of protection. This research is consistent with the law and economics theory that hybrid PAEs acquire valuable patents and not the extortion theory that they acquire weak patents.

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