To Sue or not to Sue: Co-opetition in the Patent Market

The emergence of Non-Practicing Entities (NPEs) has drawn mixed responses from the Practicing Entities (PEs), suggesting sophisticated interactions between the two. The extant literature, however, focuses largely on the legal aggressiveness of NPEs, and the competition between NPEs and NPEs. Therefore, the aim of this study is to offer a more comprehensive view of the NPE-PE interactions, using “Game Theory”. It is revealed in this study that, when encountering NPEs, PEs' decision is critical, and might often determine the outcome of the game. And the PEs' decision is predominantly influenced by the interplay of factors, such as “the requested royalties”, the “cost of negotiation/litigation” and the “expectation of litigation outcome”. Depending on the player's decision, the “NPE - PE Game” could develop into either competition (to sue) or cooperation (not to sue). In particular, NPEs with R&D capabilities are in a strong position to engage in technology transfer, and therefore can assume diverse roles, i.e. as both competitor and complementor, in the patent market. In conclusion, “NPE-PE game” could take many forms, such as licensing partnership, litigation counterparts, or a mixture of technology and patent transactions, and consequently drive the patent market dynamics in various ways.