Abstract: How do non-practicing entities impact innovation? This question has enormous relevance to industrial policy, with virtually no direct evidence to inform it. There are two dominant theoretical perspectives, one of which views Non-Practicing Entities (NPEs) as benevolent middlemen reallocating intellectual property (IP) to where it can be best used. The other view sees NPEs as pernicious constructs, exploiting the patent system to extract rents and hurting innovation.
In this paper we seek to inform the debate with a large data set of patents obtained directly from NPEs. We find that NPEs acquire non-core assets from innovators and license them to companies where they are more central. But we also find evidence that forward citations to NPE-held patents decline upon acquisition, which bolsters the “stick-up artist” view. We further find that smaller entities are more likely to sell patents with a high likelihood of litigation. Together the evidence is mixed and suggests that a more nuanced perspective on NPEs as well as additional empirical work is necessary before informed policy decisions can be made.