So Sue Me! Patent Litigation and the Cross-section of Stock Returns
51 Pages Posted: 21 Dec 2017 Last revised: 2 Dec 2018
Date Written: December 1, 2018
Using comprehensive patent lawsuit data from 2000 to 2014, we find that a stock portfolio consisting of firms involved in patent lawsuits as either plaintiffs or defendants provides significantly positive returns and risk-adjusted alphas (between 0.56% to 1.02% per month) in the following year. We propose and examine several possible explanations for this pattern, including industry heterogeneity, unknown or unspecified systematic risk, financial constraints, cash-driven lawsuits, and undervaluation of the benefits associated with patent litigation. Further evidence based on firms’ future profitability and competition, as well as information delay, suggests that the positive association between patent litigation and stock returns can be attributed to investors’ undervaluation of potential benefits related to patent litigation.
Keywords: Patent Litigation, Stock Returns, Information Delay, Underpricing
JEL Classification: G11, G14, O34
Suggested Citation: Suggested Citation