Patent Enforcement, Shareholder Value, and Firm Innovations: Evidence from the Supreme Court Ruling on TC Heartland (2017)
37 Pages Posted: 24 Oct 2020
Date Written: July 1, 2020
This paper studies the impact of patent enforcement on shareholder value and firms’ innovation patterns. Using the landmark U.S. Supreme Court case TC Heartland LLC vs. Kraft Foods Group Brands LLC (2017), which significantly constrained the forum shopping practices in patent litigation, we find that the weakening of patent holders’ ability to enforce intellectual property protection leads to more negative stock return reactions for firms that are more innovation-intensive before the ruling. We further find that weakened enforcement of patent protection shifted firms’ innovation patterns. While innovation-intensive firms do not reduce the overall R&D investment, they choose to keep their innovation outputs as trade secrets and apply for patents significantly less frequently. Our findings shed new light on the current debate on intellectual property protection.
Keywords: Patent Enforcement, Shareholder Value, Firm Innovation Activities
JEL Classification: D2, K1, O31, G20
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