The Effect of Alliance Activity on Patent Litigation : In the Case of Printed Electronics

Patent litigation has been considered as a tool to protect and facilitate innovation. Ironically, yet, the misguided uses of patent litigation as a strategic tool for vigilance against competitors are acting as a hindrance for innovation. Previous studies show that the better the quality of a patent, the higher the chance of the patent being litigated. Therefore, it is particularly important for the innovating firms to take strategic precautions to minimize the risk of patent litigation. This study investigates the moderating role of firms’ past alliance experiences on the relationship between patent quality and patent litigation from the perspective of a defendant. A unique dataset on patents, infringement lawsuits, and firm performances in the printed electronics industry confirms that firms’ previous alliance experiences mitigate the impact of patent quality on infringement litigation. For instance, the results confirm that the presence of past alliance experience reduces the litigation rate by 33% for firms with median-quality patents. This paper makes two major contributions. First, it contributes to the literature on alliance experience by confirming its role as a reputation in mitigating future litigations. Second, this paper contributes to the literature on patent litigation by identifying a unique moderator, i.e., alliance experience, on the linkage between patent quality and litigation. An innovating firm is likely to become an alleged infringer under a false accusation. Therefore, this paper focuses on firms that partake in infringement lawsuits unwillingly. Despite the importance, to the best of our knowledge, this is the first study to investigate patent litigations from the perspective of defendants.