Elves or Trolls? The role of nonpracticing patent owners in the innovation economy

Firm structure and the degree of vertical integration lie at the core of a key intellectual property concern currently under debate: "patent trolls." While court opinions and competition agency decisions have focused on "non-practicing" patent holders as synonymous with trolls and hold up problems, this view of upstream specialists is far too narrow. In fact, patents in the hands of nonpracticing entities can increase competition, increase innovation, lower downstream prices, and enhance consumer choice. We explain why and when and argue for more business-model-neutral policy when it comes to patent licensing. Clearly, patents are a complex subject that cannot be portrayed as either all good or all bad; tradeoffs will always be involved. Likewise, patents in the hands of nonpracticing entities cannot be viewed as either all good or all bad. Without a better understanding of the many complicated effects of patents in high technology markets, we run the very real risk of misguided policy decisions. In light of that risk, we argue that more attention needs to be devoted to finding meaningful ways of identifying harmful behaviors, rather than on categorical labels based on firm structure or business model.