The Market Effects of Patent Litigation

Abstract

<p class="MsoNormal"> <span lang="EN-US">This study measures the value of patents to firms and identifies factors that contribute to that value by observing the abnormal change in firms</span><span lang="EN-US">’</span><span lang="EN-US"> stock market values following court decisions. Firms lose </span><span lang="EN-US">0</span><span lang="EN-US">.85% (about $19 million) of their value following a decision that one of their patents is “Invalid”, but only gain about </span><span lang="EN-US">0</span><span lang="EN-US">.7% following a </span><span lang="EN-US">“</span><span lang="EN-US">Valid & In</span><span lang="EN-US">fringed</span><span lang="EN-US">”</span><span lang="EN-US"> decision. The factors that that affect the expectations of investors as to the enforceability of patent rights are at least as important in determining the contribution of the patent to the firm</span><span lang="EN-US">’</span><span lang="EN-US">s market value as are characteristics of the patent. Most prominently, this confirms the substantial impact that the creation of the Court of Appeals for the Federal Circuit (CAFC) had on the value of patents. After the creation of the CAFC, “Invalid” decisions resulted in a </span><span lang="EN-US">0</span><span lang="EN-US">.7% (about $15.5 million) greater loss of firm value. Clearly, patents are more valuable because of this change in the legal landscape.</span><span lang="EN-US"><o:p></o:p></span> </p

Patent Litigation Strategy and Its Effects on the Firm

“…Wang (), based on lawsuit verdicts in Taiwan, affirms that plaintiffs win and achieve significantly positive abnormal returns. Marco (, ) and Henry () find that the US Court of Appeals for the Federal Circuit (CAFC) is a pro‐patent agent, and the market reacts toward plaintiffs’ gain and defendants’ loss. They conclude, however, that the positive impact is unsubstantial and may be unworthy of the effort, time and money for litigation.…”

“…While prior work recognizes the confounding effects of mixed verdicts on the market value, it seems difficult to conclude the degree of impact. Some studies have examined patent litigation tactics in the form of validity and infringements together, and may further exacerbate the confounding effect (Henry ), providing ground for further investigation of the relationship.…”

“…Second, prior studies yield varied findings, so we assess them to reveal consistency and contradictions, and make justified arguments. For example, it would be insufficient to examine the characteristics of litigated patents and their relationship with firm value (Henry ). This is because heterogeneity exists in value among patents although ‘litigation can help extract returns from patented innovation’ (Lanjouw and Schankerman , p. 131).…”

Legal Fights for Patent Rights: Are the Judicial Concerns of Small Companies Justified?

“…Researchers in technology management cover many aspects of patenting, such as motives to patent, appropriation strategies, behavior of various industries and technology domains, state of patenting in entrepreneurial and SME companies [20]. Marco [31] and Henry [19] discuss how patent litigations affects company market valuation, finding that the resolution of uncertainty decided by adjudication is as valuable to the firm as the initial patent grant. So, when a patent is granted its value to the company is limited because of the uncertainty of the patent's validity.…”

“…William and Ester Otsakorpi foundation has provided financial support to Mr. Juhani Talvela for this work, which he notices with great appreciation. __________________________________________________ A copy of this paper is presented and published in Portland International Conference on Management of Engineering and Technology 2019 (PICMET' 19) Prior research has indicated that fear of high costs and financial obligations deter entrepreneurs from patenting. The higher the potential cost, the lower are the chances that they are able to survive, less alone thrive through legal disputes.…”