This paper proposes a patent challenge mechanism with partial patent rights previously
granted to the patent-holder as the challenge reward. Transferring patent
rights to a successful challenger raises the incentive to search for patent-defeating prior
art, and, after the discovery of the information, helps deter collusion between the
patent-holder and the challenger. It also reduces costly opportunistic patenting and
therefore improves patent application quality. However, from an ex post point of view,
over-search ensues when the collusion problem is severe. The optimal re-allocation of
patent rights, then, calls for a careful balance between these costs and benefits
