Sue and Acquire: Evidence from Patent Lawsuits

50 Pages Posted: 11 Mar 2023 Last revised: 30 Jan 2024

See all articles by Roni Michaely

Roni Michaely

The University of Hong Kong; ECGI

Yifang Xie

Georgetown University - Department of Accounting and Business Law

Biwen Zhang

University of California, Berkeley - Haas School of Business

Date Written: March 7, 2023

Abstract

We investigate whether firms strategically launch patent lawsuits against competitors to facilitate future acquisitions of the same firm, a practice we define as sue-and-acquire. We find a heightened likelihood of mergers and acquisitions after the filing of a patent lawsuit. Notably, the sue-and-acquire practices are particularly pronounced when the initial patent lawsuit is likely to be strategically motivated. Exploiting the Supreme Court ruling on Alice vs. CLS Bank, which exogenously increased the cost of filing strategic lawsuits, we demonstrate a decline in the sue-and-acquire practices. Additional analyses of market responses to the acquisition announcements reveal that sue-and-acquire firms benefit from the practice. Lastly, we find some evidence that sue-and-acquire plaintiffs are less likely to prevail in court. Overall, our findings suggest that firms exploit the patent legal system to eliminate competition, a practice that should be of interest to patent and anti-trust regulators.

Keywords: Mergers and Acquisitions; Patent Litigation; Product Market Predation

JEL Classification: G34, G38, K21, L41

Suggested Citation

Michaely, Roni and Xie, Yifang and Zhang, Biwen, Sue and Acquire: Evidence from Patent Lawsuits (March 7, 2023). Georgetown McDonough School of Business Research Paper No. 4381547, Available at SSRN: https://ssrn.com/abstract=4381547 or http://dx.doi.org/10.2139/ssrn.4381547

Roni Michaely

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Yifang Xie (Contact Author)

Georgetown University - Department of Accounting and Business Law ( email )

McDonough School of Business
Washington, DC 20057
United States

Biwen Zhang

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

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