So Sue Me! Re-Discovery of Patent Value Through Litigation
53 Pages Posted: 21 Dec 2017
Date Written: December 19, 2017
We present evidence of net positive effects associated with patent litigation, both around the filing of lawsuits and in the following year. Using patent lawsuit data from 2000 to 2014, we find that firms with litigated patents and their adversaries experience significantly positive stock returns ranging between 0.33% and 1.18% in the 10 or 24 days following litigation announcements. In addition, a portfolio consisting of firms involved in patent lawsuits generates risk-adjusted alphas between 0.52% to 0.75% per month in the following year. The excess return on this portfolio is larger among firms with greater information delay. Further analysis on firms’ future profitability and their competitive landscape suggests that our finding of a positive, yet undervalued, effect of patent litigation on stock prices could be explained by investors’ underreaction to its potential associated benefits.
Keywords: Patent Litigation, Stock Returns, Information Delay, Underpricing
JEL Classification: G11, G14, O34
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