DP14172 Acquisition for Sleep

Author(s): Pehr-Johan Norbäck, Charlotta Olofsson, Lars Persson
Publication Date: December 2019
Keyword(s): Acquisitions, Innovation, IP law, ownership, Sleeping patents
JEL(s): G24, L1, L2, M13, O3
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14172

Within the policy debate, there is a fear that large incumbent firms buy small firms' inventions to ensure that they are not used in the market. We show that such "acquisitions for sleep" can occur if and only if the quality of a process invention is small; otherwise, the entry profit will be higher than the entry-deterring value. We then show that the incentive for acquiring for the purpose of putting a patent to sleep decreases when the intellectual property law is stricter because the profit for the entrant then increases more than the entry-deterring value does.