District Courts and Innovation

Abstract

District courts hold exclusive legal power to make final decisions in patent infringement lawsuits. We demonstrate that when district courts systematically bias these decisions in favor of either plaintiffs or defendants, these biases create inequality in corporate incentives to innovate. To reach this conclusion, we exploit the 2017 Supreme Court ruling that has created geographical heterogeneity across firms based on whether they fall under the jurisdiction of defendant-friendly or plaintiff-friendly district courts. Firms that fall under the jurisdiction of defendant-friendly district courts enjoy an increase in market value, boost their R&D investments, and produce a higher volume of quality patents.

Keywords: Innovation, Patent litigation