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The Value of Certainty in Intellectual Property Rights: Stock Market Reactions to Patent Litigation

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Author Info
Marco, Alan C. () (Vassar College Department of Economics)

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Abstract

Using a sample of patents litigated between 1977 and 1997, I estimate stock market reactions to patent litigation decisions and to patent grants. I find that the resolution of uncertainty over validity and infringement is worth as much to the firm as the initial patent right. Each is worth about 1 to 1.5% excess returns. Additionally, I find that there are significant differences pre and post-1982 with the establishment of the Court of Appeals for the Federal Circuit. I also find that there are significant differences in reactions for plaintiff patent-holders and defendant patent-holders. Interestingly, there is no similar effect for appellate court decisions relative to the district court. To my knowledge, this is the first study that measures the stock market reactions to legal outcomes of patent cases.

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Paper provided by Vassar College Department of Economics in its series Vassar College Department of Economics Working Paper Series with number 82.

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Date of creation: Nov 2006
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Handle: RePEc:vas:papers:82

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  1. Bronwyn H. Hall, Adam Jaffe and Manuel Trajtenberg., 2000. "Market Value and Patent Citations: A First Look," Economics Working Papers E00-277, University of California at Berkeley. [Downloadable!]
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  2. Joshua Lerner, 1994. "The Importance of Patent Scope: An Empirical Analysis," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 319-333, Summer. [Downloadable!] (restricted)
  3. Michael J. Meurer, 1989. "The Settlement of Patent Litigation," RAND Journal of Economics, The RAND Corporation, vol. 20(1), pages 77-91, Spring. [Downloadable!] (restricted)
  4. Mark A. Lemley & Carl Shapiro, 2005. "Probabilistic Patents," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 75-98, Spring. [Downloadable!] (restricted)
  5. Jean Olson Lanjouw, 1994. "Economic Consequences of a Changing Litigation Environment: The Case of Patents," NBER Working Papers 4835, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Austin, David H, 1993. "An Event-Study Approach to Measuring Innovative Output: The Case of Biotechnology," American Economic Review, American Economic Association, vol. 83(2), pages 253-58, May. [Downloadable!] (restricted)
  7. John Allison & Mark Lemley & Kimberly Moore & Derek Trunkey, 2003. "Valuable Patents," Berkeley Olin Program in Law & Economics, Working Paper Series 1090, Berkeley Olin Program in Law & Economics. [Downloadable!]
  8. Reinganum, Jennifer F., 1989. "The timing of innovation: Research, development, and diffusion," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 14, pages 849-908 Elsevier. [Downloadable!] (restricted)
  9. Waldfogel, Joel, 1995. "The Selection Hypothesis and the Relationship between Trial and Plaintiff Victory," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 229-60, April. [Downloadable!] (restricted)
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  10. Choi, Jay Pil, 1998. "Patent Litigation as an Information-Transmission Mechanism," American Economic Review, American Economic Association, vol. 88(5), pages 1249-63, December. [Downloadable!] (restricted)
  11. Kortum, Samuel & Lerner, Josh, 1999. "What is behind the recent surge in patenting?1," Research Policy, Elsevier, vol. 28(1), pages 1-22, January. [Downloadable!] (restricted)
  12. Matthew D. Henry & John L. Turner, 2006. "The Court of Appeals for the Federal Circuit’s Impact on Patent Litigation," Journal of Legal Studies, University of Chicago Press, vol. 35, pages 85-117. [Downloadable!]
  13. Ruud, Paul A., 1991. "Extensions of estimation methods using the EM algorithm," Journal of Econometrics, Elsevier, vol. 49(3), pages 305-341, September. [Downloadable!] (restricted)
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