The information technology industry is characterized by constant innovation and substantial expenditures on research and development. Firms attempt to protect their investment in research and development and retain a competitive edge in the industry by obtaining patents and copyrights. These intellectual properties are important intangible assets that are evaluated by the financial markets and can be observed in the market price at which the common stock is traded. If a firm announces a lawsuit claiming that its intellectual property has been violated, the markets have to form an opinion about several matters, viz. the merit of the lawsuit, the probability of a verdict favoring either party, the damages which will be awarded, if any, and managerial time and effort expended in the process. We are unable to observe these inputs, but can measure the impact of these factors on the stock price.
Mohan, S.; Raghu, T.; and Rao, Raghav, "Market Reactions to Intellectual Property Infringement Litigations in the Information Technology Industry" (1996). ICIS 1996 Proceedings. 43.