Abstract

Over the years the number of patent infringement lawsuits in the Information Technology industry has increased tremendously. The increase in patent disputes can be partly attributed to the increase in the number of patents issued. The number of patents issued for software developments alone has risen from 25 in 1970 to 600 in 1991. The total number of patents issued till 1992 was about 9000. The damages awarded to patentees in such litigations is substantial. It is argued that some of these high technology companies are using the intellectual property rights laws as a weapon to thwart competition in their markets. In the US, while the inventor is waiting for the patent on the invention, manufacturers may develop and begin using similar technology, but once the patent has been issued, the inventor can demand the damages from the manufacturer using the technology. Many of the top executives believe that it is beneficial to settle infringement cases than dispute it in a court of law. This view is again raised in the patent infringement dispute between Intel Corp. and AMD Corp., who spent almost $200 million on the patent dispute over several years. To our knowledge no empirical study has been undertaken to study the impact of patent infringement lawsuits on the information technology companies involved. Though markets analysts have suggested that the market value of the firms fluctuates in accordance with the direction of the lawsuit proceedings, no concrete evidence of these effects have been shown in the literature. This study aims to study the impact of the patent infringement lawsuits and the lawsuit decisions on the IT companies involved. The impact on the stock holder returns is used as the empirical evidence of the impact of the litigation on the IT company. Findings of thestudy are expected to provide valuable insights into market perception of the ethical issues in a high technology industry. More specifically, how does the market view the ethical conduct of an IT company? Does it impose a high risk on a company suspectedof unethical conduct in its business strategies?. In addition to the ethical issues involved, the economic viability of fighting a law suit is also examined, i.e., does the market perceive a net benefit or loss to the company as a result of fighting a lawsuit? Does the market perceive a net benefit or loss to the company as a result of the decision made on the law suit?. The findings of the study would be useful to both the policy formulators and managers alike

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