Patent sharks and the sustainability of value destruction strategies

Patent sharks (a.k.a. patent trolls) appropriate innovation rents by threatening to patent-block other players' R&D-related value creation. Scholars have identified two inefficiencies in legal practise (patentee-friendly injunctions and the granting of excessive damage awards) as drivers of these 'destructive' strategies, suggesting that policy changes can suppress the shark business in the future. Modelling interactions between sharks and manufacturers within a biform game, we show formally that the shark problem is more subtle from a theoretical managerial perspective and sustainable to policy changes in part. Patent extortion will remain a viable strategy in technologically crowded industries when sharks choose patents on inventions that (1) can be invented around rather easily before infringement, but (2) are sufficiently sophisticated to be upheld in court and (3) create significant mid-term switching costs for manufacturers after infringement. By presenting original data on all publicly reported cases of patent shark attacks, we provide empirical indications a) that different sharking strategies as predicted by theory exist in practise and b) that a significant share of professional shark firms already pursue strategies that are likely to remain sustainable after legal changes. We discuss implications for management theory in the area of innovation strategy and business strategy more broadly.