The economics of patent litigation: an empirical analysis in the U.S. from 1996 to 2010
University of Delaware
I investigate the economics of patent litigation and various court outcomes involving patent lawsuits from 1996 to 2010 in the U.S. by linking patent litigation data from the Federal Judicial Center (FJC) to patent data from the United States Patent and Trademark Office (USPTO) and litigants' financial characteristics from the COMPUSTAT database. I present a framework for testing two types of models to explain the behavior of plaintiffs and defendants during the patent litigation process. I begin with a decision model to examine the determinants of patent litigation and various court outcomes. I provide strong evidence that demonstrates that the rapid increase in patent litigation can be explained by increases in firm values for the number of patents per dollar of R&D spending, capital expenditures, total R&D spending, market value, scale, liquidity level, and patent portfolio quality (measured by originality, generality, and citations). I conclude that both litigants' characteristics and patent characteristics are important factors driving this increase. Secondly, I present a selection model to investigate how the selection process affects litigants' characteristics in suits filed in relation to the distribution of patentees. I provide evidence that suits filed by pools of potential plaintiffs with greater dispersions in the distribution of their litigation costs will have lower plaintiff win rates and lower rates of granted preliminary injunctions. I conclude that patentees with higher-quality patent portfolios are more likely to win a lawsuit and more likely to receive a preliminary injunction than other patentees. I find that the results are consistent with the implications of the selection model.