Patent Assertion Entities & Privateers: Economic Harms to Innovation and Competition

Abstract

This article assesses aggressive rent-seeking activities by patent assertion entities (PAEs), especially in patent-thick industries. Patent thickets are “target-rich” environments, providing ample opportunities for rent-seeking and abuse of patents by PAEs. Fundamental differences in the strategic interests of practicing entities (PEs) and PAEs increase the opportunities for, and economic harm caused by, PAEs engaging in patent hold-up. PAEs exploit deficiencies in patent policy and enforcement, including the use of injunctions, excessive damages awards, and costly settlements stemming from actual or threatened litigation, the high cost of which increases “hold-up value.” The article also examines the threat to competition and innovation caused by “privateering”: the transfer of patents from PEs to PAEs. While there may be limits on the use of antitrust to moderate all of the harms caused by PAEs, cases involving privateering are ripe for investigation, prosecution, and remedy by enforcement agencies and private antitrust actions.