Patent Trolling

Lauren H. Cohen; Umit G. Gurun; Scott Duke Kominers; George  Hou

Background Note | HBS Case Collection | February 2018

Patent Trolling

by Lauren H. Cohen, Umit G. Gurun, Scott Duke Kominers and George Hou

Abstract

The U.S. Intellectual Property (IP) Ecosystem is one of the most robust and dynamic in the world—and has been for centuries. The bedrock of this system is the "patent," a legal document that allows its holder exclusive commercialization rights of a part of the "idea space" granted through the patent. Strong legal protection of IP has made the U.S. a destination of great thinkers and innovators worldwide in order to enjoy this legal protection of their valuable insights. A new threat, however, looms. The same legal system that has protected IP has been used to create an organizational form known as a "Patent Troll." Patent Trolls amass patents for the sake of opportunistically extracting rents from firms producing and commercializing products. In this Industry Note, we describe the origin, evolution, costs, benefits, and future outlook for Patent Trolling in the United States.

Keywords: Intellectual Property; Patents; Lawsuits and Litigation; United States;

Language: English

Format: Print

15 pages

Educators Purchase

Citation:

Cohen, Lauren H., Umit G. Gurun, Scott Duke Kominers, and George Hou. "Patent Trolling." Harvard Business School Background Note 218-085, February 2018.

The U.S. residential real estate agency market presents a puzzle for economic theory: commissions on real estate transactions have remained constant and high for decades even though agent entry is frequent and agents’ costs of providing service are low. We model the real estate agency market, and other brokered markets, via repeated extensive form games; in our game, brokers first post prices for customers and then choose which agents on the other side of the market to work with. We show that prices appreciably higher than the competitive prices can be sustained (for a fixed discount factor) regardless of the number of brokers; this is done through strategies that condition willingness to transact with each broker on that broker’s initial posted prices. Our results can thus rationalize why brokered markets exhibit pricing high above marginal cost despite fierce competition for customers; moreover, our model can help explain why agents and platforms who have tried to reduce commissions have had trouble entering the market.

We introduce a new model of school choice with reserves in which a social planner is constrained by a limited supply of reserve seats and tries to find an optimal matching according to a social welfare function. We construct the optimal distribution of reserves via a quartic-time dynamic programming algorithm. Due to the modular nature of the dynamic program, the mechanism is strategy-proof for reserve-eligible students.

This case is set in mid-2019, when Qualcomm was struggling with unwanted takeover battles, fights with Apple and the Chinese government, and internal dissension on the board of directors. Ten years earlier Qualcomm was hailed as a monopoly on CDMA technologies and its derivatives—it appeared to be positioned to become the next dominant technology company in the tradition of Microsoft and Intel. But as the industry changed, Qualcomm’s competitive position seriously weakened. The purpose of the case is to explore central questions in strategy formulation: 1. how to build a long-term sustainable position based on technology, 2. how to design an IP strategy to lock in customers for the long run, 3. how to build a global standard and appropriate returns on that standard, and 4. how to respond when your historical business model starts to crumble.

Faculty & Research

Patent Trolling

Abstract

Citation:

About the Authors

More from these Authors