The Ties That No Longer Bind: Inventor Mobility and Patent Litigation

Abstract

The retention of inventor-employees represents a core strategic concern for firms in innovative industries. In this paper, we examine the impact of reduced patent enforceability on the mobility of inventor-employees, and explore alternative retention methods firms can employ when legal instruments become less effective. To analyze the relationship, we use the US Supreme Court ruling eBay Inc. v. MercExchange, L.L.C., which decreased the use of injunctions in patent infringement cases and, consequently, the risk firms faced from being sued for patent infringement. Our analyses rely on difference-in-differences specifications that include state-year, firm, and technological fixed effects, and a host of other controls. Using patent application data to track the movements of 59,765 early career patent inventors before and after the ruling, we find that in the post period, inventor-employees at firms with higher litigiousness experience an increase in the likelihood to move. In accordance with job embeddedness theory, we hypothesize that inventor-employees with greater firm fit and links will be less affected by the ruling. Upon testing, we find that both fit and links mitigate the impact of the ruling, providing alternative retention strategies that can insulate firms from legal shocks.