Final CELS Recap: Trolls, Anticommons, M&A

I have already posted on the papers from the Intellectual Property I session at the Conference on Empirical Legal Studies (CELS) by Aghion et al., Abrams et al., and Frakes & Wasserman. There were three more papers selected for the Intellectual Property II session on the second day of CELS, which I'll briefly describe here:

Patent Trolls: Evidence from Targeted Firms by Lauren Cohen, Umit Gurun & Scott Kominers, with commentary by Ted Sichelman. This paper claims to show that NPEs target firms based on large cash shocks rather than technological relatedness, and that NPE litigation negatively impacts the future innovative activity of targeted firms. Ted Sichelman has written a lengthy critique of this piece, arguing that "their dataset is incomplete and unrepresentative, their theoretical model is flawed, and their empirical models are unsound," and criticizing the authors for sending broad policy recommendations to congressional staffers based on an early version of this work. The authors have already made numerous changes to their paper in response to earlier comments from Sichelman, and it will be interesting to see how this debate evolves.

Disentangling Behavioral Causes of the Anticommons Dilemma for Risky and Non-Risky Goods: Strategic Incentives, Endowment Effects, and Interdependence of Outcomes by Andreas Glöckner, Stephan Tontrup & Stefan Bechtold, with commentary by Pam Samuelson. (The paper presented at CELS combines this publication with other unpublished results.) In multi-party bargains, such as a pharmaceutical company attempting to buy patents from three firms for a promising drug, at least three different effects might affect prices (and the likelihood of an efficient deal being made): (1) the endowment effect might cause actors to overvalue assets they possess, (2) actors might strategically overprice to capture a higher share of the gains from trade, and (3) the interdependence of their outcomes might cause other-regarding actors to avoid imposing negative externalities on others. Measuring any of these effects independently in real-world trades is difficult, so Glöckner et al. conduced laboratory experiments in which three people were bargaining over risky goods (lottery tickets) and non-risky goods (mugs), and they varied the design to disentangle these three effects. Among their numerous conclusions: the endowment effect and strategic overpricing were not additive, and the endowment effect was weak for risky goods but strong for non-risky goods. Many of the questions at CELS related to external validity—i.e., does this really tell us anything about real-world patent bargaining?—but it is at least a useful contribution to the bargaining literature.

Causal Effects of Patent Lawsuits on M&A Activity by Tolga Caskurlu, with commentary by Kate Litvak. To test how losing in patent litigation affects an infringer's subsequent M&A activity, this paper uses an interesting experimental design to avoid the endogeneity problem: Federal Circuit decisions in which there was a dissent are treated as effectively random (on the theory that these are a small set of close cases that could have easily gone the other way with a different panel). Using this approach, the paper concludes: "if the court finds a patent infringement, then the infringer sharply increases spending on focused acquisitions and decrease[s] spending on diversifying acquisitions," and that the infringer "acquires targets that have alternative patents to the ones it was found infringing." Many of the questions at CELS focused on whether 2-1 Federal Circuit decisions are in fact as good as random.