How Patent Strategy Affects the Timing and Method of Patent Litigation Resolution

Abstract Patent litigation consists of non-market actions that firms undertake to access intellectual property rights defined by prior legislation and enforced by the courts. Thus, patent litigation provides an interesting context in which to explore aspects of firm’s non-market strategies. In contrast with prior non-market strategy research that has largely focused on how political institutions define the rules of the game for market competition, non-market actions within patent litigation primarily seek to access and apply these broad policies to specific situations, products, or assets that matter to the firm. Furthermore, because such non-market actions are directly influenced by the firms’ market strategies, they represent a promising area for research on integrated (market and non-market) strategies as well. The goal of this paper is to explain how generic patent strategies that firms use to support their competitive advantage in the product-market influence non-market outcomes related to the timing of patent litigation resolution. In contrast with prior research that has studied settlement in patent litigation essentially as a one-shot bargaining game, this paper seeks to explain litigation resolution as an outcome of the competing mechanisms of settlement and adjudication that operate continually during litigation. Using a large sample of patent litigations in research medicines and computers, I model the timing of patent litigation resolution in a proportional hazards framework, wherein settlement and adjudication are competing risks. The evidence found is consistent with the proposition that the speed with which patent litigation is resolved by either settlement or adjudication reflects the use of proprietary, defensive, and leveraging patent strategies by firms. These findings also help to explain unexpected and anomalous findings regarding the settlement of patent litigation reported in prior research.