The Effect of Non-Practicing Entity Activities on Operating Firms

Abstract

I investigate the effect of non-practicing entity (NPE) activity on counterparty operating firms by considering six types of patent-based events: acquisitions, license agreements, lawsuit filings, lawsuit wins, lawsuit losses and settlements. I show that while there are significant, positive abnormal returns to NPEs, there are no significant abnormal returns to operating firms for all types of events. I also quantify the combined shareholder wealth change caused by these events for the firms in the sample and determine that lawsuit filings, lawsuit wins, lawsuit losses, and settlements are value destroying while acquisitions and license agreements are value creating. These results empirically support that NPEs play a dual role in both technology transfer and patent enforcement.