Patent Privateering

Abstract
In a patent privateering strategy, firms sell patents to a non-practicing entity (NPE) with the expectation that the NPE sues the seller’s rivals for patent infringement. We examine whether firms under competitive pressure and facing barriers to direct litigation engage in privateering. We find that firms facing technological competition and retaliation risk sell more patents to NPEs, and that these patents are disproportionately asserted against the original owner’s competitors. Privateering sales are especially pronounced among firms in technology areas characterized by frequent litigation or extensive collaboration. Contrary to the view that NPEs primarily serve as enforcement agents for small firms, privateering-motivated patent sales are concentrated among well-resourced firms. In fact, following these sales we observe significant declines in venture capital activity and reductions in peers’ patenting in the technology space. Together, these patterns suggest that patent privateering may alter competitive dynamics and impose disproportionate costs on smaller, innovation-oriented firms. Our findings highlight an overlooked player in the policy debate over patent trolls: the firms that “feed” the trolls in the first place.