Out of court settlements are ubiquitous in patent litigation, due to the significant costs of pursuing a trial and uncertainty over its outcome. This is believed to encourage "frivolous" litigation, however the secretive nature of settlement agreements poses a challenge to evaluating the quality of cases filed and the cost they impose on innovators. I develop a dynamic model of litigation in which the defendant screens out plaintiffs through a series of sequential out-of-court settlement offers, exploiting heterogeneity in the likelihood of cases to be dismissed or successful. Employing a newly constructed dataset that combines granular information on all patent infringement cases filed in the US from 2007-2021 and data on the parties involved, I estimate my model. This allows me to retrieve (i) the distribution of the ex-ante probability of victory for plaintiffs, (ii) the unobserved distribution of settlement amounts and (iii) the relative bias of courts towards plaintiffs and defendants. I find that patent litigation costs over $48.8 billion a year to listed defendants, $24.7  billion of which are from settlement transfers. Furthermore, cases brought to court by patent assertion entities are smaller in size, lower in quality and more likely to settle for smaller amounts. I then consider two counterfactuals. First, I consider several fee-shifting rules, finding that conditional fee-shifting is effective in discouraging frivolous litigation, however it can induce costly delays before settlements. Then, I turn to forum shopping. I find that restricting plaintiffs' discretionality in the choice of venue would dramatically reduce the incentives to file low-quality cases, especially in the E.D. of Texas.

Patent Assertion Entities (PAE) or ``Patent Trolls'' are firms specialized in purchasing patents with the sole purpose of seeking licensing revenues or asserting them in Court. Even though economic models offer ambiguous predictions, Patent Trolls are generally believed to be stifling innovation. Fee-shifting policies like ``the loser pays all'' are seen as a potential solutions to PAE's alleged disruptive influence on innovation. In this paper, I investigate both the impact of PAEs on innovation and the causal effect of fee shifting policies on PAEs behavior and patent applications. Exploiting a Supreme Court Judgement affecting attorneys' fee awards and the cross-industry variation in the levels of litigiousness, I identify the effect of fee shifting on patent applications and on the litigation behavior of product firms and PAEs. I find that the Supreme Court decision was effective in reducing the number of lawsuits filed by Patent Trolls, especially the most  ``frivolous''. Furthermore, using a dif-in-dif design, I show that sectors most affected by patent litigation experienced an increase in their patent applications as a result of the judgement.

The strategy of innovation by acquisition is commonly discussed in MBAs classes and featured in the news, however, little research exists on its effects on startups entry and innovation. This paper evaluates the effect of systematic acquisition of startups from oligopolistic incumbents on the incentives for the former to invest in R&D. I propose a general "Musical Chairs'' model of competition, where demand depends substantially on the ordinal quality ranking of incumbents and only a fixed number of firms can operate with profits. Several common demand system fall within this framework. I assume that startups hold asymmetric information about the quality of their assets, however they can be acquired before they enter the market. Two main motives drives the acquisitions: preemption and technological race. Market leaders are strongly motivated to buy startups to prevent followers to catch up, while laggard are mostly motivated by the risk of being pushed out of the market from new entrants. Depending on the industry structure, I find that either force can prevail, determining which incumbent acquires the startup and the acquisition price. Young and competitive industries lead to high incentives for innovation, while established industries with significant technological gaps between the leaders and the laggards provide very weak incentives to invest. I enrich the model introducing dynamics and allowing incumbents to be forward-looking, and I discuss key indicators for antitrust concerns on the dynamics effect of these acquisitions.