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So Sue Me! Re-Discovery of Patent Value Through Litigation

53 Pages Posted: 21 Dec 2017  

Frederick L. Bereskin

University of Delaware

Po-Hsuan Hsu

University of Hong Kong

William R. Latham III

University of Delaware - Department of Economics

Huijun Wang

University of Delaware

Date Written: December 19, 2017

Abstract

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

Suggested Citation

Bereskin, Frederick L. and Hsu, Po-Hsuan and Latham, William R. and Wang, Huijun, So Sue Me! Re-Discovery of Patent Value Through Litigation (December 19, 2017). Available at SSRN: https://ssrn.com/abstract=3090551

Frederick Bereskin (Contact Author)

University of Delaware ( email )

Alfred Lerner College of Business and Economics
Newark, DE 19716
United States

Po-Hsuan Hsu

University of Hong Kong ( email )

Pokfulam Road
Hong Kong
China

William Latham

University of Delaware - Department of Economics ( email )

Newark, DE 19716
United States
302-731-1464 (Phone)
302-831-6968 (Fax)

Huijun Wang

University of Delaware ( email )

B & E Finance, UD
306 Purnell Hall
NEWARK, DE Delaware 19716
United States

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