Litigating Monetization and Patent Acquisition: Evidence from the PAEs
Firms’ acquisition of resources depends on their expected value appropriation from the resource. Being important resources, patents are used by firms to practice the technology and to exclude other firms from using the technology. However, firms can also appropriate value from enforcing patent rights without participation in the product market. Such firms that do not produce products or services and specialize in monetizing patents via legal actions are called Patent Assertion Entities (PAEs). This paper studies such litigating monetization of patents and patent acquisitions driven by litigating monetization. Decoupling the technological strength from the exclusion scope of the patent, I theorize and show that patents with strong but old technologies and patents with medium scopes are more likely to be acquired by PAEs. Also, I present evidence that weak appropriability discourages patents acquisition by identifying effects of law changes following the America Invents Act (AIA). I test the theory using data on patent transactions, patent litigation, and a unique dataset on PAEs.