Anti-foreign bias in the court: Welfare explanation and evidence from Canadian intellectual property litigations

Are judges concerned, in the same way as policy makers, with the effects of their decisions on national welfare? In this paper, we analyze this question by examining the outcomes of intellectual property rights (IPR) litigations between domestic and foreign firms. We use a simple model of oligopoly, in which IPR takes the form of a more efficient production technology, to illustrate how antiforeign bias varies across cases when judges have welfare concerns. The predictions of the model are tested using data on all Canadian IPR cases over a four-year period. We find that foreign firms have about 25 percentage points lower probability of protecting their IPR in Canadian courts relative to domestic firms. We also find that courts' decisions are aligned with national welfare maximization principles so that foreign firms are less likely to win in those cases when the implied welfare gains from not protecting foreign IPR are greater. These findings are robust to controlling for endogenous selection of firms into litigation.