Does shareholder overlap alleviate patent holdup?

Patent protection can generate holdup problems for follow-on innovators when technologies protected in early patents complement their inventions. This study investigates whether institutional shareholder overlap between firms with precursory patents and follow-on innovators can reduce such patent holdup problems. Using patent citation links to track complementary patents, we find empirical support for such a holdup attenuation hypothesis of institutional shareholder overlap. Follow-on innovators with greater institutional shareholder overlap to precursory patent owners enjoy greater success with their patent portfolio, face less patent conflict as measured by patent litigation, and feature higher levels of R&D investments. The holdup attenuation effect is stronger if product complexity makes securing ex ante patent licenses more difficult. • Overlapping institutional shareholders reduces patent holdup. • Under more such overlap downstream firms increase their patent success. • More overlap reduces the downstream firm’s litigation risk for patent infringement. • More overlap increases the downstream firm’s R&D investments.