NPEs suing tech peers of initiated cases is detrimental to them economically

[Feng Chen, Yu Hou, Jiaping Qui, Gordon Richardson, Feng and Gordon are from the Rotman school of management, Yu is from the smith school of business, and Jiaping is from the Degroote school of business, April 2023, Science Direct, “Chilling effects of patent trolls,” , accessed: 7-11-24, ES]

Our results reveal significant market value losses for at-risk technology peers around the filing of NPE-initiated material cases. The equally weighted average CARs for all at-risk technology peer firms are −1.49 % in the three-day window around the litigation announcements. In terms of dollar values, we estimate that at-risk technology peers incur an average market value loss of $29.8 million per firm when NPEs sue their technologically related defendants. We further show that market value losses of technology peer firms surrounding the lawsuit filing date are significantly associated with their probabilities of being sued, suggesting that investors react to sequential lawsuit strategies of NPEs. We also show that the negative market reactions around the filings of patent lawsuits are much more pronounced if the lawsuits are initiated by NPEs rather than by PEs. The average market value loss for each technology peer involved in PE litigations is only $9.2 million on the filing days, consistent with the findings that the likelihood of being sued for at-risk technology peers is significantly higher for NPE patent litigation but not for PE patent litigations. Taken together, the results show that the uniqueness of sequential litigation strategies of NPEs causes significantly higher market value losses for at-risk technology peer firms.