Protecting Intellectual Property Rights: Are Small Firms Handicapped?

This paper studies the determinants of patent suits and settlements during 1978-1999 by linking information from the U.S. patent office, the federal courts and industry sources. We find that litigation risk is much higher for patents owned by individuals and firms with small patent portfolios. Patentees with a large portfolio of patents to trade, or other characteristics that facilitate “cooperative” resolution of disputes, are much less likely to prosecute infringement suits. However, post-suit outcomes do not depend on these characteristics. These findings show that small patentees are at a significant disadvantage in protecting their patent rights, since their greater litigation risk is not offset by more rapid resolution of their suits. Our empirical estimates of the heterogeneity in litigation risk can help in developing private patent litigation insurance to mitigate the adverse affects of high enforcement costs. JEL Codes: K41, O34