The Contagion of Patent Litigation Concerns
46 Pages Posted: 20 Jan 2022
Date Written: May 31, 2021
Patent infringement lawsuits have been rising at an alarming rate since 2009 in the US. With immense attention being attracted to the sufferings of the targeted firms, the reactions of their unlitigated peers are quite under-researched. Our study sets out to fill the gap by exploring the innovation strategy of unlitigated firms in response to increasing patent litigation concerns throughout the industry. We demonstrate that firms increase their R&D and patent filings, and selectively file high-quality patents with increasing patent litigation involvements of their industry peers. The reaction is taken especially when more patent lawsuits are initiated by patent trolls and the effect captures firms’ willingness to protect their core innovative areas instead of holding patents for purely litigation purposes. Furthermore, the reaction is more pronounced among firms that are more likely to be litigated, firms with more conservative CEOs, and firms that perform in a more competitive market. The results indicate that rising patent litigation concerns have enhanced firms' awareness of R&D and patent protection, which motivate innovation and patent filings. The paper echoes the traditional wisdom that patent enforcement can provide sustainable motivation for innovation.
Keywords: R&D, Firm innovation, Peer effect, Patent litigation, Patent trolls, Patents
JEL Classification: O31, O34, D22, K1
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