Fight or Surrender to Counterfeiters: Litigation as a Response to Trademark Infringement

Abstract

This research explores the role of trademark litigation as a deterrent strategy against counterfeiters in markets where government trademark enforcement is weak. Litigation can convey to potential counterfeiters that a trademark-holding firm would sue upon entry. We explore this idea empirically in the context of pharmaceutical trademarks in India using the framework of a stylized theoretical model. We construct a database of trademarks and examine litigation activity by certain trademark-holders. Our findings indicate that litigation reduces subsequent counterfeiting. Because litigation can be extremely costly for a trademark-holding firm, it is worthwhile only when it has legal advantages in pursuing cases. Not all trademark-holding firms have such legal advantages and are, therefore, better off surrendering to infringers and incurring a cycle of settlements with future counterfeiters.