Intellectual Property Protection Lost and Competition: An Examination Using Machine Learning

Abstract: We examine the impact of lost intellectual property protection on innovation, competition, acquisitions, lawsuits and employment agreements. We consider firms whose ability to protect intellectual property (IP) using patents is weakened following the Alice Corp. vs. CLS Bank International Supreme Court decision. This decision has impacted patents in multiple areas including business methods, software, and bioinformatics. We use state-of-the-art machine learning techniques to identify firms' existing patent portfolios' potential exposure to the Alice decision. While all affected firms decrease patenting post-Alice, we find an unequal impact of decreased patent protection. Large affected firms benefit as their sales and market valuations increase, and their exposure to lawsuits decreases. They also acquire fewer firms post-Alice. Small affected firms lose as they face increased competition, product-market encroachment, and lower profits and valuations. They increase R&D and have their employees sign more nondisclosure agreements.

Presented at by coauthors : NBER Big Data and High-Performance Computing for Financial Economics, NBER Summer Institute Innovation workshop, EFA 2022, (scheduled) AEA 2022, University of Alberta, University of Amsterdam, Columbia University, Harvard Business School, John Hopkins University, University of Minnesota, University of Maryland, and University of Notre Dame, Peking University, UCLA, Yeshiva University