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Learning by Suing: Structural Estimates of Court Errors in Patent Litigation

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Abstract

This paper presents structural estimates of the probability of validity, and the probability of Type I and Type II errors by courts in patent litigation. Patents are modeled as uncertain property rights, and implications of the model are tested using stock market reactions to patent litigation decisions. The estimation quantifies beliefs about patent validity and court errors in a Bayesian context. I estimate that the underlying beliefs about validity range from 0.6 to 0.7 for litigated patents. Market beliefs about courts show that Type I errors (finding a valid patent invalid) occur very frequently–an estimated probability of 0.45. However, Type II errors (finding an invalid patent valid) occur with near zero probability. Additional implications of the model address patent value. My results are the first structural estimates of court errors. Additionally, this study is the first to perform event studies on patent litigation.

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  • Marco, Alan C., 2005. "Learning by Suing: Structural Estimates of Court Errors in Patent Litigation," Vassar College Department of Economics Working Paper Series 68, Vassar College Department of Economics.
    • Handle: RePEc:vas:papers:68
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    1. BOYER, Marcel & PORRINI, Donatella, 2010. "Optimal Liability Sharing and Court Errors : An Exploratory Analysis," Cahiers de recherche 05-2010, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    2. Matthew D. Henry & John L. Turner, 2006. "The Court of Appeals for the Federal Circuit’s Impact on Patent Litigation," The Journal of Legal Studies, University of Chicago Press, vol. 35(1), pages 85-117, January.
    3. Matthew D. Henry & John L. Turner, 2016. "Across Five Eras: Patent Validity and Infringement Rates in U.S. Courts, 1929–2006," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 13(3), pages 454-486, September.
    4. Boyer, Marcel & Porrini, Donatella, 2011. "The impact of court errors on liability sharing and safety regulation for environmental/industrial accidents," International Review of Law and Economics, Elsevier, vol. 31(1), pages 21-29, March.
    5. Joseph Farrell & Carl Shapiro, 2008. "How Strong Are Weak Patents?," American Economic Review, American Economic Association, vol. 98(4), pages 1347-1369, September.
    6. Robin Christmann, 2014. "No Judge, No Job! Court errors and the contingent labor contract," European Journal of Law and Economics, Springer, vol. 38(3), pages 409-429, December.

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