Those ruin innovation
Huang et al 24 (Kenneth G. Huang is a professor in the Department of Industrial Systems Engineering and Management at the National University of Singapore and in the Department of Strategy and Policy at the National University of Singapore, Mei-Xuan Li is in the Department of Finance, National Taiwan University, Carl Hsin-han Shen is in the Department of Accounting and Corporate Governance at Macquarie University, Yanzhi Wang is at the Center for Research in Econometric Theory and Applications at National Taiwan University, 19 April 2024, “Escaping the patent trolls: The impact of non-practicing entity litigation on firm innovation strategies”, Strategic Management Journal, 1–34, https://doi.org/10.1002/smj.3606)
In this study, we theorize and show how firms targeted by NPEs can reduce their litigation risk by shifting their innovation strategy. Specifically, after the initial NPE lawsuits, target firms will draw more upon their in-house technologies to reduce the potential legal ground for NPE lawsuits. Furthermore, non-target firms in related technology areas tend to shift the locus of their innovation activities away from those of the target firms to avoid the areas with high NPE litigation risks. The effects are more pronounced when R&D expenses for the patented technologies are higher and when the product markets are more competitive. Taken together, these results lend further support to the notion that firms seek to escape the patent trolls by isolating themselves in the network of technology. The findings from this paper yield important managerial implications. This study sheds light on the impact of patent infringement lawsuits initiated by NPEs on firm innovation strategies and interfirm innovation activities. Our results show that NPE litigations could interrupt the accumulation and build-up of follow-on technology, which disrupts technological development in the industry and is detrimental to inter-firm collaboration and society. Indeed, decision-makers and managers in firms should be cognizant of the impact of NPE litigations and how anti-patent troll laws can help enhance collaboration among firms and facilitate the systematic development of valuable technologies by allowing firms to build on one another’s patented technologies. This would allow them to make better plans and more informed decisions.