Does the Market Care About Changes in Patent Law?

Intellectual Property and Patents

Article Snapshot


Scott A. Baker, John P. Conley and Arvind Malhotra


The 3rd Annual Conference on the Law and Economics of Innovation, 2009


This study asks if the stock of firms involved in key patent cases gains or loses value when the cases are decided.

Policy Relevance

Firms that lose (and firms that side with the losers as amici in) key patent cases lose little or no significant stock value when the decision is made. Firms that win important cases make slight gains in stock value. The market does not seem to care very much about patent decisions.

Main Points

  • Previous scholarly work has continuously criticized current patent law and the methods by which it is enforced.  These scholars cite inefficiency and complexity as reasons for change.

  • It is possible, that despite the complexity of patent law, there is little effect in the downstream market.  The market may simply ignore the complexity of patent law for the sake of efficiency and simplicity.

  • Event studies use the stock market as a guide in determining how important specific events are to the larger market.  By analyzing the stock price of a group of companies before, during, and after a specific event, the importance that the market places on the event should be discernible based on how much the stock price fluctuated in relation to the decision.

  • A series of event studies were run in order to determine what effect US court decisions relating to patent law had on stock prices.  These studies were composed of three parts:

    • Creating a list of major patent decisions made by US courts,

    • Creating a second list of firms or companies that were interested in the outcome of the decision.

    • Determining whether the decision was good or bad for the firms based on the degree of stock fluctuation.
  • The event studies indicate that interested firms who loose major cases suffer little or no devaluation in stock prices and that firms who win gain only minor increases in stock value.

  • The lack of market reaction to major patent decisions could mean that either the market is ambivalent to the legal status of patents and how they are dealt with by the courts or that the cost of investigating an issue in sufficient depth to determine how much a patent issue matters to an individual company is cost prohibitive for most investors.

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