State laws solve patent trolls targetting start-ups
Appel et al 18 (Ian Appel is a professor at UVA Darden, Joan Farre-Mensa is a professor of Finance at the University of Illinois at Chicago and Elena Simintzi is a research fellow at Centre for Economic Policy Research and professor of business at University of North Carolina (UNC) at Chapel Hill, July 22, 2018, “Patent Trolls and Startup Employment”, http://dx.doi.org/10.2139/ssrn.2887104)
In response to the lack of congressional action, state legislatures, beginning with Vermont in 2013, have passed laws to limit NPEs’ ability to target local firms with “bad faith assertions of patent infringement” via demand letters (Vermont Act 44). In this paper, we exploit the adoption of 32 such laws in a difference-in-differences framework to analyze how bad-faith patent infringement claims made by NPEs affect startups’ ability to grow, create jobs, and raise capital.3 We find that state laws that restrict NPEs’ ability to make bad-faith patent infringement claims lead to higher employment at high-tech startups—a key target of patent trolls. Specifically, the adoption of state anti-troll legislation leads to an average 4.4% increase in employment at high-tech startups that are zero to three years old. This increase is mainly driven by startups in the information technology (IT) sector, where NPEs tend to be most active (Chien 2014). By contrast, we find that anti-troll laws have no effect on older high-tech firms or on non-high-tech firms regardless of their age.