Competition, Non-Patented Innovation, and Firm Value
67 Pages Posted: 22 Nov 2017 Last revised: 11 Aug 2019
Date Written: August 6, 2019
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: Suggested Citation