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Track T3-3: Corporate Theory
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The Efficiency of Patent Litigation 1Harvard Business School; 2University of Toronto; 3Terry College of Business, University of Georgia; 4University of Michigan and NBER How efficient is the U.S. patent litigation system? We quantify the extent to which the litigation system shapes innovation using a novel dynamic model, in which heterogeneous firms innovate and face potential patent lawsuits. We show that the impact of a litigation reform depends on how heterogeneous firms endogenously select into lawsuits. Calibrating the model, we find that weakening plaintiff rights through fewer defendant injunctions increases firm innovation and output growth, improving social welfare by 3.32%. Raising plaintiff pleading requirements, which heightens barriers to filing lawsuits, likewise promotes innovation, boosts output growth, and enhances social welfare.
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