INTELLECTUAL PROPERTY RIGHTS RELATED TO PATENT LAWS

Technology and knowledge have played a crucial role in the economic growth of world developed economies as well as emerging ones. Intellectual Property despite being clearly identified in most countries has not yet been recognized as an economic asset for most of the developing countries. Intellectual Property Rights protection has the ability to encourage innovation and the formation of a well-functioning market system in developing countries, which leads to economic growth. Patent trolls are organizations that own patents but do not make or use the patented technology directly, instead using their patent portfolios to target firms with patent-infringement claims. This paper provides evidence that state anti-troll laws have had a net positive effect for small firms in high-tech industries. There is no significant effect for larger or non-high-tech firms. In this paper an attempt is made to analyze how frivolous patent-infringement claims made by “patent trolls” affect small firms’ ability to create jobs, raise capital, and survive. Our identification strategy exploits the staggered passage of anti-patent-troll laws at the state level. It is found that the passage of this legislation leads to a 2% increase in employment at small firms in high-tech industries, which are a frequent target of patent trolls. By contrast, the laws have no significant impact on employment at larger or non-high-tech firms. Anti-troll legislation is also associated with fewer business bankruptcies. Financing appears to be a key channel driving our findings: in states with an already established presence, the passage of anti-troll laws leads to a 19% increase in the number of firms receiving funding. The findings suggest that measures aimed at curbing the litigation threat posed by patent trolls may play an important role in reducing both the real and financing frictions faced by small businesses. It also found that, small business owners identified taxes, government regulations and requirements, quality of labor, and poor sales as the top four problems they face today. Many small business owners just decide to do their own taxes by default, to try to save money.