Sue and Acquire: Evidence from Patent Lawsuits

Firms strategically launch patent lawsuits against competitors to facilitate future acquisitions of the same firms (“sue-and-acquire”). Initiating a patent lawsuit increases the likelihood of a subsequent M&A attempt by up to 13 times. The Supreme Court’s Alice v. CLS Bank ruling, an exogenous shock increasing the costs of filing strategic lawsuits, led to a decline in sue-and-acquire practices, suggesting a causal impact. Cross-sectional tests further support the strategic use of patent lawsuits to acquire competition. Positive market responses to sue-and-acquire deals suggest firms benefit from the practice. Overall, our findings indicate that some firms exploit the patent system for predation.