To Settle or Not to Settle: Defending Firm Reputation in Litigation Response

Litigation can pose significant threats to a firm’s competitive advantage, requiring firms to respond strategically, particularly in deciding whether to settle. While prior research on litigation responses has primarily emphasized legal and economic drivers, it has paid limited attention to reputational considerations, offering an incomplete account of settlement decisions. Drawing on the theoretical mechanism of stakeholders’ situational expectations of the firm, we propose and show that a firm’s reputation for innovation is associated with a lower likelihood of settlement in patent litigation. We further find that this relationship is contingent on industry-level innovation intensity and plaintiff type. By examining how reputation shapes litigation responses, we make several important contributions to research on reputation and litigation.