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PROGRAM | Economics

The Economics of Patent Litigation: An Empirical Analysis in the U.S. Federal Courts from 1996 to 2010

By: Javad Eskandarikhoee Chair: William Latham

ABSTRACT

I investigate the economic role of patent litigation and various court outcomes involving patent lawsuits from 1996 to 2010 in the U.S. federal courts by linking patent litigation data from Federal Judicial Center(FJC) to patent data from United States Patent and Trademark Office (USPTO), and litigants’ financial characteristics from Compustat database.

I present a framework for testing two types of models to explain the litigious behavior of litigants during the patent litigation process, beginning with a decision model to examine the determinants of patent litigation and various court outcomes. I provide strong evidence that demonstrates that most of the rapid increase in patent litigation and various court outcomes can be explained by the firm patenting rate (patent portfolio per R&D), capital expenditure, R&D spending, firm 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 the dominant factors driving this increase. This implies that the increase in patent litigation and various court outcomes represent a growing incentive to R&D that is likely offset by the growth in the number or value of innovation.

Secondly, I present a selection model to investigate how the selection process affects litigants’ characteristics in suits filed in relationship to distribution of patentees. I provide evidence that suits filed from pools of potential plaintiffs with greater dispersion in the distribution of their litigation cost will have a lower plaintiff win rate and lower rate of granted preliminary injunction. I conclude that patentees with a high quality patent portfolio are more likely to win a lawsuit and more likely to receive a preliminary injunction than other patentees. I find that the results are mainly consistent with the implications of the selection model.

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