Hands off my Brand! The Financial Consequences of Protecting Brands through Trademark Infringement Lawsuits

Well-known brands are frequently imitated, misused, or tampered with. Firms facing these threats routinely turn to the legal system and file trademark infringement lawsuits in an attempt to prevent revenue losses and brand equity dilution. In this article, the authors address the largely unexplored issue of brand protection. First, they categorize all major types of trademark infringement. Second, using signaling and prospect theories, they present a conceptual model that outlines the financial consequences of defending a brand in court. The authors test the predictions of this framework using a large sample of trademark infringement lawsuits and find that although investors react negatively in the short term to firms’ filing and even to firms’ winning such cases, the long-term performance of firms that successfully leverage the legal system to protect their brands is positive.