Universities undermine the entire patent market through pricing schemes, rent-seeking litigation, and by encouraging patent aggregator trolling

[Christopher J. Jr., et al. "The Hidden Cost of University Patents." Berkeley Business Law Journal, vol. 21, no. 1, 2024, pp. 203-249. HeinOnline -tm]

One of the ways that universities, through their technology transfer offices, extract appropriable rents is in the form of licensing their patents to intermediaries. In sum, these intermediaries contract with product developers to bring the patentable product to market. All things considered, coordination of this chain of transactions by the university is not terribly nefarious on its own, and is classic evidence of both economically rational and firm behavior. However, this hypothetical chain of transactions, wherein university research leads to commercial products via benign intermediaries, is oftentimes not the case. The vast majority of university patents have little marketable value by themselves. As such, they never make it to consumers, because the transaction costs of developing them into marketable products is too high given the limited utility of the underlying patent. Thus, universities frequently look to similar but alternative methods of extracting appropriable rents for their research.

Through patent auctions, low-value patents can be "marketed" for low, low prices. This, again, represents significant losses on research and development investment. In sum, these discounted sales devalue the overarching patent market, harming the marketable prices of legitimate patents and negatively impacting the economic efficiency of the university patent sector. But these are not the only mechanisms universities deploy to extract appropriable rents in ways that yield potential harm.

Worse still, universities license or sell patents to entities that would use the patent as a tool to do far more damage.103 Enter non-university patent aggregators and patent assertion entities. These firms buy rights to patents to seek out potential infringers, sue them, and extract revenue via the patent infringement litigation process.104 As previously mentioned, on average, nearly 95 percent of a given university's patent portfolio is not commercially licensed. This dramatic lacuna of commercial licensing incentivizes technology transfer offices to recoup some of the university's research investment by licensing or selling low-value patents at terms well below research and development costs. This ability to purchase patents at discounted rates allows aggregators to pursue their business model. And it makes universities among the most prime of targets for the sustainment of such a business model, given the glut of under-commercialized patents universities hold.

Regardless of whether universities engage in these transactions (and they do), they undeniably rent-seek via patent litigation. If one "follows the money"­ from the federal fisc, to universities, to patent assertion-one can observe that all constitute a firm: an interrelated set of transactions where the costs of transactions are unified in one nexus,10s the university. Thus, whether or not they explicitly desire to be, universities are firms. And their horizontal coordination with state sponsorship and private industry-to extract revenue from the patents they are issued by virtue of state-sponsored subsidy-makes those parties necessary components of the university qua firm. However, with respect to the incentives to which universities respond within the bounds permitted by the current patent regime, universities can be said to fuel and even occupy part of the underbelly of the patent sector. To the extent that they partner with patent aggregators, transact with other intermediaries, or go it alone, they participate in rent extraction by engaging in patent litigation. We seek to test the extent to which these firm behaviors result in universities' greater propensity to engage in patent litigation by examining various determinants of university patent litigation through an empirical lens.