Litigation versus Spillovers

Abstract

This paper studies how patent litigation affects innovation and technology spillovers across firms. Using a unique data set on patent litigation from the United States, this paper shows that litigants are active innovators and share complementary knowledge assets with each other, creating spillovers. However, as a result of litigation, firms reduce follow-on innovation, thus impeding the effects of spillovers. Moreover, litigants fall behind the frontier, resulting in a divergence of productivity growth, which suggests a reduction of their role as intermediaries of knowledge diffusion. These findings imply that litigation, in contrast with the original objective of the intellectual property rights (IPRs) enforcement systems, can obstruct technological diffusion, which not only decreases cumulative innovation and spillovers, but also slows down productivity growth.