Do firms profit from patent litigation? The contingent roles of diversification and intangible assets

Abstract

Prior research suggests that firms’ ability to benefit from their technologies is determined by the strength of intellectual property (IP) laws and the inimitability of their technologies. We complement this explanation by suggesting that the generation of profits from technology is also driven by how effectively firms engage in patent infringement litigation (i.e., take legal action against their rivals) to create isolating mechanisms and protect their technologies. We contend that patent infringement litigation is characterized by industry and geographic specificity that affect (disproportionately) revenue generation and costs and, therefore, its net effect on firm profitability. By identifying contingencies that influence the economic returns from patent litigation, the analysis helps us understand why firms experience different profitability outcomes even when they operate in similar IP regimes and possess similar portfolios of technologies.