Authors: Ian Appel, Joan Farre-Mensa, Elena Simintzi
Abstract: We analyze how frivolous patent-infringement claims made by “patent trolls” affect small firms’ ability to create jobs, raise capital, and survive. Our identification strategy exploits the staggered passage of anti-patent-troll laws at the state level. We find that the passage of this legislation leads to a 1.8% increase in employment at small firms in high-tech industries, which are a frequent target of patent trolls. By contrast, the laws have no significant impact on employment at larger or non high-tech firms. Anti-troll legislation is also associated with fewer business bankruptcies. Financing appears to be a key channel driving our findings: in states with an already established VC presence, the passage of anti-troll laws leads to a 19% increase in the number of firms receiving VC funding. Consistent with this financing channel, we find that the effect of patent laws on employment is driven by states with above-median VC presence. Our findings suggest that measures aimed at curbing the recent explosion in patent litigation may play an important role in reducing both real and financing frictions faced by small businesses.
Citation: Appel, Ian and Farre-Mensa, Joan and Simintzi, Elena, Patent Trolls and Small Business Employment (December 18, 2016).
Full text on SSRN: https://ssrn.com/abstract=2887104
