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<p>Non-Practicing Entities (NPEs) have been characterized as either (1) “patent trolls” who are self-serving agents that extract and appropriate the social value of inventions for private gain or (2) “benign middlemen” who may increase social welfare by facilitating commercialization for upstream inventions to resource-constrained inventors. This paper proposes a third view: NPEs as <i>financial intermediaries</i> that may improve the efficiency of technology markets by reducing patent market frictions. Using proprietary transaction-level data from Silicon Valley’s novel brokered patent market (BPM), we estimate a standard search-and-bargaining model to quantify NPEs’ contributions to patent market efficiency and the underlying mechanisms. The results suggest that Silicon Valley’s BPM is relatively inefficient for two reasons. First, there is <i>misallocative inefficiency</i>; that is, the market regularly fails to reallocate patents to the entity with the highest valuation. Reasons include search (buyer/seller matching), trading (time to transaction), and bargaining (rent sharing) frictions. Second, there is <i>mispricing-related inefficiency</i>; that is, transaction prices are below the “fair value” due to these frictions. Importantly, we find that NPEs play an ambiguous role for the efficiency of Silicon Valley’s BPM. On the one hand, NPEs reduce trading frictions; on the other, NPEs exacerbate search and bargaining frictions. In particular, transaction surplus sharing is highly asymmetric to the advantage of NPEs and disadvantage of inventors, which curtails the welfare contribution of Silicon Valley’s BPM to society. The study suggests that policymaking would benefit from a more nuanced view on NPE activity.</p>

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Non-practicing entities as financial intermediaries in the market for technology: a case study of Silicon Valley’s brokered patent market

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  • 出版模式：

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  • 发表日期：

    2026年6月30日

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  • Paul P. Momtaz

摘要

Non-Practicing Entities (NPEs) have been characterized as either (1) “patent trolls” who are self-serving agents that extract and appropriate the social value of inventions for private gain or (2) “benign middlemen” who may increase social welfare by facilitating commercialization for upstream inventions to resource-constrained inventors. This paper proposes a third view: NPEs as financial intermediaries that may improve the efficiency of technology markets by reducing patent market frictions. Using proprietary transaction-level data from Silicon Valley’s novel brokered patent market (BPM), we estimate a standard search-and-bargaining model to quantify NPEs’ contributions to patent market efficiency and the underlying mechanisms. The results suggest that Silicon Valley’s BPM is relatively inefficient for two reasons. First, there is misallocative inefficiency; that is, the market regularly fails to reallocate patents to the entity with the highest valuation. Reasons include search (buyer/seller matching), trading (time to transaction), and bargaining (rent sharing) frictions. Second, there is mispricing-related inefficiency; that is, transaction prices are below the “fair value” due to these frictions. Importantly, we find that NPEs play an ambiguous role for the efficiency of Silicon Valley’s BPM. On the one hand, NPEs reduce trading frictions; on the other, NPEs exacerbate search and bargaining frictions. In particular, transaction surplus sharing is highly asymmetric to the advantage of NPEs and disadvantage of inventors, which curtails the welfare contribution of Silicon Valley’s BPM to society. The study suggests that policymaking would benefit from a more nuanced view on NPE activity.