Skip to main content
SpringerLink
Log in

Market reaction to patent infringement litigations in the information technology industry

  • Published:
Information Systems Frontiers Aims and scope Submit manuscript

Abstract

Intellectual property portfolios that include unique inventions and discoveries are potentially inimitable resources that provide strategic leverage to Information Technology (IT) firms. The increasing patent related litigations in the IT industry, and the high costs associated with litigations make this an economically significant activity. Taking a market oriented view to this issue we investigate the economic impact of patent infringement litigation on both the plaintiff and the defendant firms in IT industry. Event study methodology is used to assess the effect of the litigation on the stock market returns around the date of litigation announcement as well as the date of settlement/termination. Our results suggest that the news of patent infringement litigation was unfavorably accepted in the stock market for the defendants. On the other hand, abnormal returns for plaintiff firms around litigation announcement date as well as settlement/termination date were significantly positive. We find evidence to the effect that patent litigations are not zero-sum games since combined abnormal returns for the plaintiff and defendant firms are negative. Patents belonging to the electronic and electric categories are more likely to influence market returns, whereas computer and communications patent categories are less likely to do so. Patent importance (as measured by patent citations) is found to be an important contributor to market’s evaluation of a patent litigation’s impact.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Abril, P. S., & Plant, R. (2007). The patent holder’s dilemma: Buy, sell or troll? Communications of the ACM, 50(1), 37–44.

    Article  Google Scholar 

  • Agarwal, G., & Kamakura, W. (1995). The economic worth of celebrity endorsers: An event study analysis. Journal of Marketing, 53(3), 56–62.

    Article  Google Scholar 

  • Bhagat, S., Bizjak, J., & Coles, J. L. (1998). The shareholder wealth implications of corporate lawsuits. Financial Management, 27, 5–27.

    Article  Google Scholar 

  • Bhagat, S., Brickley, J. A., & Coles, J. L. (1994). The costs of inefficient bargaining and financial distress: Evidence from corporate lawsuits. Journal of Financial Economics, 35(2), 221–247.

    Article  Google Scholar 

  • Bhagat, S., & Romano, R. (2002). Event studies and the law: Part I: Technique and corporate litigation. American Law and Economic Review, 4(1), 141–167.

    Google Scholar 

  • Cavusoglu, H., Mishra, B., & Raghunathan, S. (2004). The effect of internet security breach announcements on market value: Capital market reactions for breached firms and internet security developers. International Journal of Electronic Commerce, 9(1), 70–104.

    Google Scholar 

  • Chakrabarti, A. K. (1991). Competition in high technology: Analysis of patents for Canada, France, USA, Japan, UK and West Germany. IEEE Transactions on Engineering Management, 38(1), 78–84.

    Article  Google Scholar 

  • Chakrabarti, A. K., Dror, I., & Eakabuse, N. (1993). Interorganizational transfer of technology: An analysis of patent citations of a defense firm. IEEE Transactions on Engineering Management, 40(1), 91–94.

    Article  Google Scholar 

  • Cockburn, I., & Griliches, Z. (1988). Industry effects and appropriability measures in the stock market’s valuation of R&D and patents. American Economic Review, 78(2), 419–423.

    Google Scholar 

  • Cohen, W. M., Nelson, R. R., & Walsh, J. P. (2000). Patenting their intellectual Assets: Appropriability conditions and why US manufacturing firms patent (or not). NBER Working Paper #7522.

  • Dang, Z., Lev, B., & Narin, F. (1999). Science & technology as predictors of stock performance. Financial Analysts Journal, 55(3), 20–32.

    Article  Google Scholar 

  • Davenport, T. H., De Long, D. W., & Beers, M. C. (1998). Successful knowledge management projects. Sloan Management Review, 37(4), 43–57.

    Google Scholar 

  • Dodd, P., & Warner, J. B. (1983). On corporate governance: A study of proxy contests. Journal of Financial Economics, 11, 401–438.

    Article  Google Scholar 

  • Dos Santos, B. L., Peffers, K., & Mauer, D. C. (1993). The impact of information technology investment announcements on the market value of the firm. Information Systems Research, 4(1), 1–23.

    Article  Google Scholar 

  • Earl, M. (2001). Knowledge management strategies: Toward a taxonomy. Journal of Mangement Information Systems, 18(1), 215–233.

    Google Scholar 

  • Ewert, A. (1995). Is IP litigation in the US really worth it? Managing Intellectual Property, 50, 27–31.

    Google Scholar 

  • Fama, E. F. (1970). Foundations of finance. New York: Basic Books Inc.

    Google Scholar 

  • Gallini, N. T., & Wright, B. D. (1990). Technology transfer under asymmetric information. RAND Journal of Economics, 21(1), 147–160.

    Article  Google Scholar 

  • Gilbert, R., & Shapiro, C. (1990). Optimal patent length and breadth. RAND Journal of Economics, 21(1), 106–112.

    Article  Google Scholar 

  • Hall, B. H., Jaffe, A. B., & Tratjenberg, M. (2001). The NBER patent citation data file: Lessons, insights and methodological tools. NBER Working Paper #8498.

  • Hall, B., & Ziedonis, R. (2001). The patent paradox revisited: An empirical study of patenting in the US semiconductor industry, 1979–1995. RAND Journal of Economics, 32(1), 101–128.

    Article  Google Scholar 

  • Jaffe, A. B. (1986). Technological opportunity and spillovers of R&D: evidence from firms’ patents, profits and market value. American Economic Review, 76(5), 984–1001.

    Google Scholar 

  • Klemperor, P. (1990). How broad should the scope of patent protection be? RAND Journal of Economics, 21(1), 113–130.

    Article  Google Scholar 

  • Koku, P. S., Qureshi, A. A., & Akhigbe, A. (2001). The effects of news on initial corporate lawsuits. Journal of Business Research, 53, 49–55.

    Article  Google Scholar 

  • Kortum, S., & Lerner, J. (1998). Stronger patent protection or technological revolution: What is behind the recent surge in patenting? Carnegie-Rochester Conference Series on Public Policy, 48, 247–304.

    Article  Google Scholar 

  • Lanjouw, J. O., & Schankerman, M. (2001). Characteristics of patent litigation: A window on competition. RAND Journal of Economics, 32(1), 129–151, Spring.

    Article  Google Scholar 

  • Lerner, J. (1994). The importance of patent scope: An empirical analysis. RAND Journal of Economics, 25(2), 319–333.

    Article  Google Scholar 

  • Levin, R. C., Klevorick, A. K., Nelson, R. R., & Winter, S. G. (1987). Appropriating the returns from industrial research and development. Brookings Papers on Economic Activity, 3, 783–820.

    Article  Google Scholar 

  • Lunney, G. S. J. (2005). Direct and indirect stock price reactions to patent decisions. New Orleans: Tulane University.

    Google Scholar 

  • Millonzi, K., & Passannante, W. (1996). Beware of the Pirates: How to protect intellectual property. Risk Management, 43(8), 39–42.

    Google Scholar 

  • Muoghalu, M. I., Robinson, H. D., & Glascock, J. L. (1990). Hazardous waste lawsuits, stockholder returns, and deterrence. Southern Economic Journal, 57(2), 357–370.

    Article  Google Scholar 

  • Nordhaus, W. (1969). Invention, growth, and welfare. Cambridge, Mass.: MIT Press.

    Google Scholar 

  • Ohlson, J. (1980). Financial ratios and the probabilistic prediction of bankruptcy. Journal of Accounting Research, 18, 109–131.

    Article  Google Scholar 

  • Porter, M. (1980). Competitive strategy. New York: Free Press.

    Google Scholar 

  • Ranganathan, C., & Brown, C. V. (2006). ERP investments and the market value of firms: Toward an understanding of influential ERP project variables. Information Systems Research, 17(3), 145–161.

    Article  Google Scholar 

  • Rivette, K. G., & Kline, D. (2000). Rembrandts in the attic: Unlocking the hidden value of patents. Boston, MA: Harvard University Press.

    Google Scholar 

  • Rutter, N. (1993). The great patent plague. Forbes, 58–66, Mar. 29.

  • Shapiro, D. M., & Lorne, N. S. (1993). The stock market response to changing drug patent legislation: The case of compulsory licensing in Canada. Managerial Decision Economics, 14(3), 247–259.

    Article  Google Scholar 

  • Smyth, D. J., Samuels, J. M., & Tzoannos, J. (1972). Patents, profitability, liquidity and firm size. Applied Economics, 4(2), 77–86.

    Article  Google Scholar 

  • Somaya, D. (2003). Strategic determinants of decisions not to settle patent litigation. Strategic Management Journal, 24, 17–38.

    Article  Google Scholar 

  • Tirole, J. (1988). Theory of industrial organization. Cambridge: MIT Press.

    Google Scholar 

  • Vishwasrao, S. (1994). Intellectual property rights and the mode of technology transfer. Journal of Developmental Economics, 44(2), 381–402.

    Article  Google Scholar 

  • Wier, P. (1983). The costs of antimerger lawsuits: Evidence from the stock market. Journal of Financial Economics, 11(4), 207–224, Apr.

    Article  Google Scholar 

  • Ziedonis, R. H. (2003). Patent litigation in the US semiconductor industry. In W. A. Cohen & S. A. Merrill (Eds.), Patents in the knowledge-based economy. Washington, D.C.: National Academies Press.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Information Systems, Arizona State University, Tempe, AZ, 85287, USA

    T. S. Raghu

  2. Graduate School of International Studies, Ewha University, Seoul, 120-750, South Korea

    Wonseok Woo

  3. SBM Associates, Bowling Green, OH, USA

    S. B. Mohan

  4. 325C Jacobs Management Center, Suny at Buffalo, NY, 14260, USA

    H. Raghav Rao

Authors
  1. T. S. Raghu
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Wonseok Woo
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. S. B. Mohan
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. H. Raghav Rao
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to H. Raghav Rao.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Raghu, T.S., Woo, W., Mohan, S.B. et al. Market reaction to patent infringement litigations in the information technology industry. Inf Syst Front 10, 61–75 (2008). https://doi.org/10.1007/s10796-007-9036-5

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10796-007-9036-5

Keywords

Search

Navigation