Competition, Non-Patented Innovation, and Firm Value

67 Pages Posted: 22 Nov 2017 Last revised: 11 Aug 2019

See all articles by Scott B. Guernsey

Scott B. Guernsey

University of Cambridge - Judge Business School

Date Written: August 6, 2019

Abstract

I exploit adoptions of state anti-plug molding laws – that prohibited “unscrupulous” reverse engineering by competitors – and their subsequent invalidation by the U.S. Supreme Court to examine how competition affects firms’ non-patented innovation and value. I find firms decrease patenting activity when the laws are effective but reinitiate it after they are invalidated. I also document that affected firms show increases in investment spending, profitability, and value following the laws’ adoptions, with value gains larger for firms more at risk of imitation or more innovative. After the laws are overturned, investment spending, profitability, and value gains dissipate, with innovative firms especially harmed.

Keywords: competition, innovation, firm value, reverse engineering, patents, anti-plug molding laws

JEL Classification: G32, K22, O31, O32, O34

Suggested Citation

Guernsey, Scott B., Competition, Non-Patented Innovation, and Firm Value (August 6, 2019). Available at SSRN: https://ssrn.com/abstract=3074622 or http://dx.doi.org/10.2139/ssrn.3074622

Scott B. Guernsey (Contact Author)

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

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