Reputations for Toughness in Patent Litigation: Implications for Settlement vs. Trial Decisions

This paper extends research on the consequences of “reputations for toughness” in competitive interactions, by identifying patent litigation as a largely overlooked but important domain in which such reputations can be consequential. A key juncture in patent litigation is that of going to trial, and we propose that reputations for toughness can influence whether combatants agree on a settlement before reaching this juncture or not. We propose competing hypotheses regarding the effects of plaintiffs’ reputations for toughness on this outcome, with the first following existing work in predicting that strong such reputations would slant outcomes towards the less risky and costly course (settlement) while the second suggested that this same characteristic could push plaintiffs towards going to trial as a way of maintaining their reputation for toughness. Other key hypotheses are that a firm’s industry type (“systems product” or not) can act as a key contingency in determining which competing hypothesis prevails and that the defendant’s reputation for toughness (in addition to the plaintiff’s) can influence the settlement vs. go to trial decision. Results showed support for the second of the competing hypotheses, and that this support was contingent on industry type. The defendant’s reputation mattered as predicted. We discuss implications of these findings.