No. 194: IP Disclosure under IP Litigation

Legal disputes over the ownership of intellectual property (IP) have tripled over the last three decades, costing the U.S. economy hundreds of billions of dollars. In this paper, I examine how IP litigation affects the disclosure of subsequent innovation. Using the timing of patent pre-grant disclosures, I find that current IP litigation delays the disclosure of innovation (delay effect). This evidence is consistent with firms delaying the disclosure of similar technologies until IP uncertainty is resolved. In contrast, firms accelerate innovation disclosures when they have closed IP case experience (deterrence effect). While the delay effect reduces knowledge spillovers, the deterrence effect helps to mitigate incoming industry competition. I confirm these findings using the Supreme Court decision in eBay v. MercExchange within a difference-indifferences design, which lowered the potential costs of enforcement for defendants of computer patents. Patents even become more informative when firms have closed IP litigation. Finally, weak IP institutions such as more lenient courts contribute to these disclosure effects. Overall, this paper highlights both negative and positive externalities of IP litigation on the disclosure of innovation.