Threat Of Litigation Research Articles

How tall is your claim? Strategically acing patent scope

Purpose The article examines strategically directing the breadth of scope of a patent and hazards of litigation vis-à-vis the length of claims for innovating firms. Design/methodology/approach This paper enumerates latest literature on assessing patent scope and hence protection afforded to firm innovations. Based on prior research findings, this paper proposes to maintain a balanced and nuanced approach to claim drafting to assure grant of patent while minimizing litigation threats. Findings To strategically manage patent grant and minimize litigation threat, firms would better take a leaf out of academic discourse and streamline claim drafting – not too wide to earn an examiner’s ire and not too narrow to let an infringer bypass by. Unlike smaller firms or universities, big firms are less likely to renew a patent with less scope. Research limitations/implications The study sample in contemporary literature is exclusive to patents from US Patent and Trademark Office. Whether the same result will be replicated for diverse countries is uncertain. Practical implications The understanding that patent scope not only influences grant chances but also is an indicator of future litigation threat can help patent practitioners and innovating firms in strategically directing the patent. Originality/value The paper draws from the findings of three well-articulated recent research papers. The paper’s originality and value is in providing practical insights on how to perfect patent scope in a real world based on academic discourse.

Patent protection and threat of litigation in oligopoly

In a context of imperfect patent protection, this paper analyses the strategic use of patents from a novel perspective; patents are seen as a means available to the incumbent firm to control entry and, more importantly, to influence the post-entry market interaction process effectively, by creating the conditions that favour collusion. The level of patent protection chosen by the incumbent affects the likelihood that a potential entrant will be found guilty of patent infringement. This mechanism can operate as a punishment device that eases the conditions for collusion sustainability. Therefore, in a sense, patent protection can be regarded as an instrument allowing replication of the monopoly outcome in the context of a contestable market.

Explicit expression of anti-black biases in the full-service restaurant industry: Legal responsibilities and risks

Anecdotes detailing racial prejudices and discriminatory treatment of Black Americans while dining in full-service restaurants surface routinely in the popular press. These anecdotes are buttressed by a small number of studies documenting evidence of racist language and observed mistreatment of Black restaurant customers. In an effort to further explore the pervasiveness and correlates of such explicit expression of anti-Black biases in restaurant workplaces, this study presents findings from an online survey that was administered in two independent, large, and demographically diverse samples of current restaurant employees. We find that on average between 15 % (Qualtrics sample) and 24 % (Facebook sample) of participants agreed with statements indicating that racist language and discrimination against Black customers is common in the restaurants where they work. We explore the individual and organizational correlates of such explicit expression of anti-Black biases in restaurant workplaces and highlight the associated legal ramifications. We conclude by encouraging restaurateurs to take action against manifestations of racial prejudice in their establishments in order to fulfill their legal responsibilities to both their customers and their employees and thereby to minimize the threat of litigation.

Barriers to the Enhancement of Effective Communication in Neurosurgery

Communication issues play a major role within neurosurgery. There has been a growing awareness of the necessity of enhanced patient-centered communication between the physician and patient to improve patient satisfaction, compliance, and outcomes. In addition, the threat of malpractice litigation within neurosurgery is of particular concern, and improved communication may lead to some degree of risk mitigation. Within the neurosurgical and medical team, effective transmittal of vital clinical data is essential for patient safety. Despite the recent recognition of the critical role that communication plays in all aspects of medical care, multiple impediments hinder the improvement and use of effective techniques. We have identified 8 unique barriers to the advancement of communication practices: lack of recognition of the importance of communication skills; cognitive bias; sense that it "takes too much time"; cultural hierarchy within medicine; lack of formal communication skill training; fear that disclosure of medical errors will lead to malpractice litigation; the electronic medical record; and frequent shift changes and handoffs.

Securities litigation and corporate tax avoidance

We examine whether litigation risk is systematically related to corporate tax avoidance. We find that the exogeneous reduction in the threat of securities class action litigation due to the 1999 ruling of the Ninth Circuit Court of Appeals effectively increases corporate tax avoidance, which is consistent with the notion that the threat of shareholder litigation plays a disciplinary role in curbing managerial rent extraction from tax avoidance activities. This finding is robust to alternative model specifications including two placebo tests and propensity score matching. We further find that labor union and alternative external governance mechanisms such as analyst coverage and institutional ownership mitigate this effect. Overall, our paper provides a significant contribution to the understanding of the relation between corporate governance and tax avoidance.

Does Consumer Protection Enhance Disclosure Credibility in Reward Crowdfunding?

ABSTRACTWe study how the interplay of disclosure and regulation shapes capital allocation in reward crowdfunding. Using data from Kickstarter, the largest online reward crowdfunding platform, we show that, even in the absence of clear regulation and enforcement mechanisms, disclosure helps entrepreneurs access capital for their projects and bolsters engagement with potential project backers, consistent with the notion that disclosure mitigates moral hazard. We further document that, subsequent to a change in Kickstarter's terms of use that increases the threat of consumer litigation, the association between project funding and disclosure becomes stronger. This evidence suggests that consumer protection regulation enhances the perceived credibility of disclosure. We find the effect of the change in terms of use to be more pronounced in states with stricter consumer protection regulations. Taken together, our findings yield important insights on the role of disclosure, as well as on the potential effects of increased regulation on crowdfunding platforms.

Does Consumer Protection Enhance Disclosure Credibility in Reward Crowdfunding?

We study how the interplay of disclosure and regulation shapes capital allocation in reward crowdfunding. Using data from Kickstarter, the largest online reward crowdfunding platform, we show that, even in the absence of clear regulation and enforcement mechanisms, disclosure helps entrepreneurs access capital for their projects and bolsters engagement with potential project backers, consistent with the notion that disclosure mitigates moral hazard. We further document that, subsequent to a change in Kickstarter’s terms of use that increases the threat of consumer litigation, the association between project funding and disclosure becomes stronger. This evidence suggests that consumer protection regulation enhances the perceived credibility of disclosure. We find the effect of the change in terms of use to be more pronounced in states with stricter consumer protection regulations. Taken together, our findings yield important insights on the role of disclosure, as well as on the potential effects of increased regulation on crowdfunding platforms.

Estimating Effects of Affirmative Action in Policing: A Replication and Extension

Many police departments in the United States have experienced externally-imposed affirmative action plans designed to increase the shares of nonwhite and female police officers. This paper examines whether externally-imposed affirmative action plans have impacted the rates of reported offenses and/or offenses cleared by arrest, seeking to replicate and extend Lott (2000) and McCrary (2007). Using a series of modern econometric strategies, including difference-in-differences decomposition and generalized synthetic controls, we do not find a significant effect of court-imposed affirmative action plans on the rates of reported offenses or reported offenses cleared by arrest, a finding consistent with McCrary (2007). We also consider whether unlitigated agencies change their practices due to the threat of litigation, but, like McCrary (2007), are unable to identify causal evidence of such threat effects. We suggest that, in the spirit of Miller and Segal (2018), future research seek to estimate the potentially racially heterogeneous treatment effects of race-based affirmative action plans on public safety outcomes.

Shareholder litigation risk and real earnings management: a causal inference

PurposeThe authors study how shareholder litigation risk impacts a firm’s decision of real earnings management (REM). This paper aims to shed light on how shareholder litigation risk impacts REM. The authors further explore how the intensifying effect varies systematically conditioning on the degree of information asymmetry and the strength of internal corporate governance.Design/methodology/approachIn this study, the authors use the 1999 Ninth Circuit Court ruling as a quasi-experiment that reduces shareholder litigation risk to address endogeneity and establish a causal inference.FindingsThe difference-in-difference tests suggest lower shareholder litigation risk intensifies REM. In other words, higher litigation risk mitigates REM. Cross-sectional test results suggest the negative effect of decreased shareholder litigation is more pronounced when monitoring difficulty is higher, when information environment is more impoverished and when internal corporate governance is weaker. The negative effect is also stronger in firms with higher sensitivity to legal threats.Originality/valueProtection of investors’ interest is the focus of corporate governance. Designed as an important corporate governance mechanism, shareholder litigation enables investors to pursue legal actions to recover their losses in the event of corporate misbehaviors. However, whether shareholder litigation is an effective corporate governance tool and beneficial to shareholders and firms is not without controversy. The authors contribute to the debate by providing evidence that supports the argument that shareholder litigation threat significantly disciplines REM, a form of costlier earnings management technique and myopic investment behavior.

Optimal cross-licensing arrangements: Collusion versus entry deterrence

This paper analyzes optimal cross-licensing arrangements between incumbent firms in the presence of potential entrants. The optimal cross-licensing royalty rate trades off incentives to sustain a collusive outcome vis-a-vis incentives to deter entry with the threat of patent litigation. We show that a positive cross-licensing royalty rate, which would otherwise relax competition and sustain a collusive outcome, dulls incentives to litigate against entrants. Our analysis can shed light on the puzzling practice of royalty free cross-licensing arrangements between competing firms in the same industry as such arrangements enhance incentives to litigate against any potential entrants and can be used as entry-deterrence mechanism.

Patent Policy, Imitation Incentives, and the Rate of Cumulative Innovation

We study an infinite-horizon cumulative innovation model, in which patents are characterized by their length and the likelihood of being ruled valid in a patent infringement litigation. Strengthening patent protection via a greater validity or length has two opposing effects on innovation: 1) a negative litigation effect due to increasing the litigation threat for future innovators; and 2) a positive competition effect due to reducing profit-eroding imitation by competitive firms without innovation capacity. The optimal innovation-maximizing patent policy balances these two opposing effects. For moderate patent validity, longer remaining lifetime increases innovation due to the competition effect. The opposite is true for higher validity, for which the litigation effect dominates. Moderate validity and infinite patent length maximizes innovation when future profits are subject to greater discounting and R&D costs are low, while strong validity and finite length stimulates more innovation under lower discounting and higher R&D costs.

Does Litigation Risk Deter Insider Trading? Evidence from Universal Demand Laws

We exploit US states’ staggered adoption of Universal Demand laws to study how the risk of shareholder lawsuits affects opportunistic insider trading. UD laws, which make it harder for shareholders to bring derivative lawsuits against directors and officers (see, e.g., Houston, Lin and Xie 2018; and Appel 2019), lead to significantly more profitable insider trades, especially sales. This effect is greater in firms with higher information asymmetry or lower institutional monitoring, and comes from more opportunistic and riskier timing of trades. Our findings suggest that a decrease in litigation threat emboldens insiders to increase risk-taking and trade more profitably.

Earnings Management in Domestic and Foreign IPOs in the United States: Do Home Country Institutions Matter?

Using a large sample of domestic and foreign IPOs in the US, we investigate how threats of enforcement by the Securities and Exchange Commission (SEC) and private litigation influence earnings management in IPO prospectuses. We propose that perceptions of foreign institutions may influence SEC enforcement action and private litigation. We provide evidence that enforcement and litigation threats are negatively related to the strength of legal institutions in the foreign IPO’s country of origin. We find earnings management is more pronounced in foreign IPOs from countries with strong legal institutions. We further explore whether earnings management is priced in the IPO market and find no relation between IPO proceeds and earnings management. Our results are consistent with upward earnings management as in Stein (1989), the magnitude of which is reduced when the anticipated cost of enforcement and litigation is higher. Collectively, our results cast doubt on the validity of the bonding hypothesis.

Being True to Trulia: Do Disclosure-Only Settlements in Merger Objection Lawsuits Harm Shareholders?

A significant debate within mergers and acquisitions law concerns the explosive popularity of the “merger objection lawsuit” (MOL), a shareholder action seeking to enjoin an announced deal on fiduciary duty grounds. MOLs blossomed during the Financial Crisis, becoming popularly associated with “shareholder shakedowns,” whereby quick-triggered plaintiff attorneys would file against — and then rapidly settle with — acquirers, typically on non-monetary terms containing modest added disclosures in exchange for blanket class releases and attorney fee awards. This practice unleashed a torrent of criticism from lawyers, commentators, academics, and (ultimately) judges, culminating in a doctrinal shift in Delaware law in the January 2016 Trulia opinion, which virtually prohibited disclosure-only settlements. This paper investigates the implications of this doctrinal shock from a shareholder welfare perspective. We argue that — notwithstanding the intuitive appeal of prohibiting / discouraging disclosure settlements — it is far from clear whether doing so helps or hurts target shareholders ex ante, since the threat of MOLs interacts with other intra-corporate agency costs (such as those of managers and buyers negotiating deals). Reducing the credibility of a litigation threat may deter shakedowns at the cost of reduced deal premia and shareholder value — consequences inconsistent with conventional commitments of corporate law. We develop a theoretical model of company acquisitions formally demonstrating that the competing equilibrium effects of Trulia are indeterminate, an insight that hoists a flag of caution regarding the doctrinal innovation. Moreover, our model delivers testable implications related to Trulia, which we investigate empirically. Our empirical analysis suggest that the recent doctrinal shock does not appear to have resulted in a discernible increase to target shareholder welfare.

Did Bioethics Matter? A History of Autonomy, Consent, and Intersex Genital Surgery.

This article argues that the rise of bioethics in the post-WWII era and the emergence of the legal doctrine of informed consent in the late 1950s should have had a greater impact on patients with intersex traits (atypical sex development) than they did, given their emphasis on respect for autonomy and beneficence toward patients. Instead, these progressive trends collided with a turn in intersex management toward infants, who were unable to provide autonomous consent about their medical care. Patient autonomy took a back seat as parents heeded physicians' advice in an environment even more hierarchical than we know today. Intersex care of both infants and adults continues to need improvement. It remains an open question whether the abstract ideals of bioethics-respect, patient autonomy, and the requirement of informed consent-are alone adequate to secure that improvement, or whether legal actions (or the threat of litigation) or some other reforms will be required to effect such change.

U.S. Supreme Court Amicus Brief of Professor D. Theodore Rave in Support of Appellees, Rucho v. Common Cause, No. 18-422

In Davis v. Bandemer, 478 U.S. 109 (1986), this Court held that political gerrymandering claims are justiciable. A majority of this Court reaffirmed that holding in Vieth v. Jubelirer, 541 U.S. 267 (2004). But in Vieth, several members of this Court raised legitimate concerns about whether the federal courts are well suited to police such an inherently political process as redistricting. Reaffirming the justiciability of political gerrymandering claims and affirming the district court in this case will not inevitably involve the federal courts in supervising every redistricting decision. The purpose of this amicus brief is to explain how the Court can create incentives for states to adopt independent redistricting processes to which the federal courts can safely defer. As this Court, the Framers, and foundational political theory have recognized, elected officials, such as Members of Congress and state legislators, are fiduciaries who have a duty to loyally serve the interests of the people they represent, not their own interests. This commitment to fiduciary government is embedded deep in the constitutional structure. But the process of redistricting is rife with conflicts of interest where incumbent legislators can manipulate the process to entrench themselves and their political allies — a breach of their fiduciary obligation. Courts are no better at reviewing business judgments than political ones. But when faced with the analogous problem of self-dealing directors in corporate law, courts do not just throw up their hands and declare the whole matter nonjusticiable. Instead, corporate law creates a two-track system of judicial review. Decisions made by conflicted fiduciaries are subjected to exacting scrutiny, but corporate law creates a safe harbor for decisions made or ratified through independent processes. When conflicted directors run their decisions through an independent process, the taint of self-dealing is cleansed, and reviewing courts can safely defer to the substantive outcome so long as they ensure that the process was independent. Finding an unconstitutional political gerrymander in this case will not plunge the federal courts ever deeper into the political thicket if this Court creates a safe harbor for redistricting decisions made through independent processes. State legislatures are insufficiently independent from their co-partisans in Congress. But the threat of litigation and skeptical judicial review of districts drawn by conflicted state legislatures will create a powerful incentive for those legislatures to adopt independent processes — like the citizens redistricting commissions in Arizona and California — to engage in the complex and delicate task of redistricting without the temptation to manipulate district lines for partisan entrenchment. Courts can safely defer to the substantive redistricting decisions of these institutions and confine their review to ensuring that the process was fair and independent — a task for which courts are well suited. If, however, the Court decides to overrule Bandemer and Vieth, the Court should limit its holding to congressional gerrymandering and not reach the justiciability of political gerrymandering claims involving state legislative districts. Neither this case nor Lamone v. Benisek, No. 18-726, involves state districts, and the contexts are sufficiently different that the Court should not reach the question here.

Patent Markets and Innovation in the Era of Big Platform Companies

In many industries, the arc of our contemporary economy bends towards bigness. The now-ubiquitous digital platform companies such as Amazon, Facebook, and Netflix and (in China) Baidu, Tencent, and Alibaba are the best-known examples. While some concerned onlookers propose structural remedies, our constrained antitrust law plus the logic of natural monopoly means we are likely to be living with this reality for the foreseeable future. In this setting, it is imperative that we preserve multiple sources of rivalrous innovation even as the reach of Big Platforms continues to grow. We need to carve out and preserve a niche for innovative small and medium sized companies. One way to do this is to promote and protect the secondary patent market. Sale of patents is one way small firms can remain viable in the shadow of Big Platforms. I argue that patent markets are superior in some cases to complete acquisition of a small firm by a Big Platform company, because by selling patents a small firm survives as an independent entity. Recent patent system reforms support this pro-secondary market policy: the era of easy, extortionate patent litigation (which has been associated with the secondary patent market) is coming to a close. After these reforms, patent sales and licensing, at times backed by the threat of litigation, can and will promote small company innovation. This is crucial: if history is any guide, though Big Platforms are today young and vigorous, in the long run they will become less innovative. Preserving multiple small innovators – through the patent market and otherwise – is the best way to prepare for this long run reality.

Profile of Cases of Alleged Medical Negligence at Tertiary Care Centre: -A Retrospective Study

The concept of medical negligence is not new in India. It is there for a long time but since the last 2 decades, medical negligence and legal aspects of medicine have acquired great significance. Today the number of cases of medical litigation is increasing and already it has become a great problem especially for surgeons, anesthetists, obstetricians and gynecologists. The threat of litigation has increased to a great extent after the inclusion of medical services under the preview of Consumer Protection Act 1986 and 2002. The present study is an attempt to discover the ground realisms and basic drawbacks in the service of the healthcare which gives a boost to allegations against the medical practitioners. In this study we have taken into consideration the cases of alleged medical negligence that are referred for expert opinion to the Government medical college, Aurangabad in the period of 2011 to 2015. In the present study Large no. of allegations cases were related to the age group 21–30 years (35.94%). Females in the reproductive age-group (21–40) years had the most frequent no. of cases (54.71%) of allegations. Large no. of cases (78.13%) were related to urban population as against rural population (21.88%). Cases related to allegations against the private hospitals scored more (71.88%) than against government hospitals. 47% of cases were related to surgical specialties which was more than the medicinal aspect.

Disclosure of Internal Control Weaknesses and Auditors' Litigation Risk

In contrast to research showing that private litigation discourages audit clients from disclosing internal control weaknesses, we find that auditors’ litigation concerns have a countervailing effect. Our empirical results show that adverse internal control opinions reduces the likelihood of auditors being implicated in lawsuits against their clients, which suggests that disclosing internal control weaknesses can protect auditors from litigation. Consistent with the notion that such litigation protection in turn encourages auditors to issue adverse internal control opinions, we find that both new and incumbent auditors are more likely to issue adverse internal control opinions for clients with higher ex ante litigation risk. Moreover, for restating firms that eventually acknowledge the existence of internal control weaknesses, ex ante litigation risk is positively associated with earlier adverse internal control opinions. Overall, our evidence suggests that litigation threat provides an incentive rather than a disincentive for auditors to issue adverse internal control opinions in a timely fashion. As both new and incumbent auditors have such incentives, auditors’ litigation concerns suppress clients’ opportunistic internal control opinion shopping.

Earnings Management in Domestic and Foreign IPOs in the United States: Do Home Country Institutions Matter?

Using a large sample of domestic and foreign IPOs in the US, we investigate how threats of enforcement by the Securities and Exchange Commission (SEC) and private litigation influence earnings management in IPO prospectuses. We propose that perceptions of foreign institutions may influence SEC enforcement action and private litigation. We provide evidence that enforcement and litigation threats are negatively related to the strength of legal institutions in the foreign IPO’s country of origin. We find earnings management is more pronounced in foreign IPOs from countries with strong legal institutions. We further explore whether earnings management is priced in the IPO market and find no relation between IPO proceeds and earnings management. Our results are consistent with upward earnings management as in Stein (1989), the magnitude of which is reduced when the anticipated cost of enforcement and litigation is higher. Collectively, our results cast doubt on the validity of the bonding hypothesis.