Master Thesis Master track: Small business & Entrepreneurship “Patent litigations in collaborations in the biotechnological and pharmaceutical industry”

Master Thesis

Master track: Small business & Entrepreneurship

“Patent litigations in collaborations in the biotechnological and

pharmaceutical industry”

By

MATHIJS DIK

University of Groningen Faculty of Economics and Business

22 June 2015

Supervisor: Dr. F. Noseleit

Co-assessor: Dr. W.W.M.E. Schoenmakers

Word count: 10.551

2

ABSTRACT

Much research has emphasized the benefits of collaboration between firms. Also, there is much literature about conflicts in collaboration. However, little work has focused on conflict in terms of patent litigations between collaboration. This study is primarily focused on asymmetric partnerships (collaboration between small and large firms) and symmetric partnerships (collaboration between small firms and collaboration between large firms). This study shows that partnerships between relatively larger firms are more likely to result in a patent litigation compared to partnerships between relatively smaller firms. This study also shows that asymmetric partnerships are less likely to result in a patent litigation compared to symmetric partnerships. Further, this study reveals that after a litigation between large firm partners, there is not a higher likelihood of countersuits in comparison to smaller firm partners. At least, after a litigation between asymmetric partners, there is not a high likelihood that the larger firm will use a countersuit.

Keywords: collaboration, asymmetric partnerships, symmetric partnerships, collaboration

3

1. INTRODUCTION

Firms in collaboration can have a complex relationship. Economics, organization, and strategy research argue that businesses often benefit from collaborative relationships (Dyer and Singh, 1998; Williamson, 1991). Several studies show that businesses are more likely to survive if they collaborate (Mitchell and Singh, 1996). Some empirical studies have identified some of the conditions under which collaborations are or are not beneficial (Baum, Calabrese, and Silverman, 2000; Khanna, Gulati, and Nohria, 1998; Singh, 1997; 1Singh and Mitchell, 1996). However, many analyses of collaborating businesses report above-average corporate-level profitability for businesses with collaborative links and above-average industry level profitability for industries in which collaboration is common

(Hagedoorn and Schakenraad, 1994), although with exceptions (Anand and Khanna, 2000; McConnell and Nantel, 1985). Main conclusion that can be derived from collaborative research is that businesses that collaborate often achieve superior performance, although with substantial variation in outcomes (Hagedoorn and Schakenraad, 1994). Asymmetric collaboration (collaboration between small and large firms) is necessary for both firms. Small firms need the critical resources and capabilities possessed by the large firms, because the resources may be limited in the environment (Hewitt-Dundas, 2006). Large firms use the smaller firms to occupy unique niches or markets that large firms may not easily create (Adner,2006; Rothaermel, 2001). An asymmetric partnership, brings major benefits to the collaborating firms (Blomqvist, 2005). Firms that do not collaborate compete for resources in the same environment, and those that fail to gain necessary resources are doomed to perish (Carroll & Hannan, 2000; Hannan & Freeman, 1977, 1984). An industry leader normally possesses abundant resources to which its multiple small partners are eager to gain access (Stuart, Hoang, & Hybels, 1999). To collaborate, firms set up complex contractual arrangements that specify the actual distribution of responsibilities. However, no matter how many details are covered by specific arrangements, these contracts specifying the property rights in co-owned patents will remain incomplete, relational contracts. This may leads to hold-ups and conflicts. Conflicts arise when specific collaboration situations do not meet expectations (Leever et al, 2010) The most extreme case of conflicts are patent litigations. Patent litigations are a reflection of conflicts (Lanjouw and

4 in collaborations. This study distinguishes between asymmetric collaboration and patent litigation and symmetric collaboration and patent litigations. Besides that, it provides also insight in the amount of countersuits. To execute this study, the paper is focused on the biotechnological and pharmaceutical industry where patent litigations are most likely to occur (Bessen & Meurer, 2005).

Assumptions in this study

5

2. LITERATURE REVIEW

Large sized firms are likely to possess more specialised assets, business networks, patents and skilled labour (Hagedoorn and Schakenraad, 1994, Teece, 1986) and, therefore, are more engaged in building strategic alliances than their smaller competitors (Hagedoorn, 1995). Small sized firms, on the other hand, usually suffer from lack of resources, lack of technology, lack of access to finance and lack of skilled labour and therefor need larger firms. (Chung et al., 2006, & Jaouen and Gundolf, 2007). Many researchers have argued that firm size plays an important role in the partnership formation process and in collaborating behaviour (Agardi, 2008, and Burgers et al., 1993). Shan and Hamilton (1991) found in their empirical research that small firms are more likely to cooperate than large firms. To

compensate for their size, smaller firms are expected to use strategic alliances for sharing resources, knowledge and risk between partnering firms. An alliance with a large pharmaceutical firm may be construed as a sign of quality for a new biotechnology company (Stuart, Hoang, & Hybels, 1999). The alliance aims at long-term co-operation in order to achieve a better market position and increased competitiveness. Small firms may even perform better in business collaborations than large firms (Chung et al. 2006). One of the reasons may be that smaller firms are more innovative than large firms (Marion et al., 2012). Small firms that are especially innovative are more likely to either grow or attract large firms into their region (Agrawal et al., 2014).

A successful alliance is characterized by partners’ mutual access to complementary resources. Previous research has shown that a small firm, which is typically resource-scarce, may benefit tremendously from partnering with large established firms that possess more abundant resources, accumulated from their relatively longer alliance termination between asymmetric partners operational experience and larger scales (Baum, Calabrese, & Silverman, 2000). Likewise, a large established firm may benefit from associating with small young firms in an industry, as such

entrepreneurial firms may occupy unique niches in either technologies or markets that large firms may not easily create (Adner, 2006; Rothaermel, 2001).

6 from the partnership by increasing the variety for different customer segments and markets and also by finding niches.

The prior studies suggest a resource-access explanation for the observed performance improvements: collaborative relationships provide access to a wider scale and scope of information, technology, manufacturing capabilities, financial resources, products, and markets than would be available if a firm operated independently. Collaboration benefits include sharing costs, acquiring tacit knowledge, commercializing complex technology, expanding into new markets, entering new industries,

complementing product lines, and increasing market power (Arora and Gambardella, 1990; Baum et al, 2000; Dyer and Singh, 1998; Khanna et al, 1998; Oliver, 1990).

2.2 Conflict in collaboration

7 negatively affect the relationship because it may create dissatisfaction, conflict, disproportionate efforts and ultimately relationship collapse (Anderson & Weitz, 1992; Gundlach, Achrol, & Mentzer, 1995).

When two or more parties are involved, the transaction costs of cross-licensing between all of the parties can be prohibitive, and additional economic barriers exist such as hold-ups and double marginalization may occur (Clarkson & DeKorte, 2006) In the literature on patent litigation, Lemley and Shapiro (2006) links hold-ups to patent litigations.

Genuine uncertainly and the potential for honest misunderstandings leave ample room for not-so-honest misunderstandings that derive from hidden agendas and lead to misrepresentation. Partners are often caught in a "catch-22" situation in which if they contribute too little to the partnership, it will fail (not meet their expectations), and if they contribute too much too openly, their partner will gain the upper hand in the implicit or explicit bargaining power balance in the partnership. This obviously leads to less than full cooperation, but seldom to mutual recognition and joint discussion of the competitive dimension within the partnership itself (Doz, 1987).

Collaboration may cause risks. Risks include loss of proprietary information, dependence on a partner, and confusion during attempts to adapt (Hamel, Doz, and Prahalad, 1989; Williamson, 1991; Singh and Mitchell, 1996)

2.3 conflicts in asymmetric collaboration

Small firms that co-operate with larger firms can lead to asymmetric power relationships between the partners. For that reason, firms of larger size might derive more benefit from the alliance compared to small firms (Wincent 2005). The relative weaknesses of small firms compared to large ones lie in the constraints they face on gaining access to critical resources and capabilities for innovation (Hewitt-Dundas, 2006). The advantages of scale and scope provided by the size of large firms make them better equipped for innovations that require large and specialized teams or sophisticated equipment (Cohen and Klepper, 1992). An intriguing challenge lies in determining when the benefits outweigh the costs and when the reverse is true. In a lot of partnerships, there is an almost visceral fear, on the part of managers and owners of the smaller firm, of the bigger firm's taking detrimental action that the small firm cannot resist, and that could put its future in jeopardy. This may range from abrupt

8 time horizon, often stemming from the partners' having products at different stages of their life cycle, also make genuine agreement difficult, and may lead to opportunistic behaviour. One of the partners may give very high priority to rapid development of a product (e.g., the smaller firm that envisions a big opportunity) while the other may see no need to hurry (e.g., the larger firm that has entered the partnership to gain access to a new-generation product, but sees no need to replace its own mature, older-generation, but highly profitable, product). The larger firm may regard the partnership as insurance, but not be keen to see it succeed quickly. Worse, some partnerships are not meant to succeed at all. A partnership may represent a blocking position, meant to prevent the partner from entering an alliance with another firm, at least temporarily. In other words, partnerships may be a way to temporarily immobilize, or at least constrain, the moves of other players in an industry. The value of the partnership may be not so much in its success as in its slowing down of competitive actions. Finally, the relative values of the respective contributions of the partners vary over time, and may be very asymmetrical at almost any given point in time. There is a need, then, to keep in perspective the contributions over the life (potential) of the partnership, and not to be swayed by what currently looks like a serious imbalance (Doz, 1987).

2.4 Patents in collaboration and patent litigations

To protect the inventions developed by a firm, firms make use of patents. A patent prevents others from making, using, selling, or importing the invention (Hanley, 2008). Ventures make use of patents as collateral. Patents yield constant royalties and, can be considered a liquid asset with a clear future revenue stream (Fischer & Ringler, 2014) or as the returns on innovation (Popp, 2002, 2006). Levin et al., (1987) describes that patents are an effective mechanism for appropriating value from a product. Patents can protect the business from competition in that they grant a monopoly for the patented technology. Quite frequently patent applications are used to show potential investors that they are serious about their intellectual property and believe it to be unique, even if they never ultimately receive a patent (Hanley, 2008). However, patents are not a perfect protection against imitation. It only grants the patentee the right to sue intruders once they have been identified. His reaction may be to go to court, to settle an agreement or to accept the entry . If the patentee cannot observe

infringement, if he cannot identify the infringer, or if enforcement is too costly, the patent is

undermined. It follows that while patents are typically viewed in the economic literature as a perfect exogenously given protection against imitation, their efficiency depends on their idiosyncratic characteristics and on the effort of the patent owner in trial and settlement procedures (Crampes & Langinier, 2002). The economic value of the patent, the characteristics of the owner of the patent, and her propensity to litigate determines if a patent is going to be litigated (Chien, 2011).

9 and although patenting firms are a small fraction of all firms, they account for a large proportion of economic activity which support the use of patents as meaningful proxies of firm-level innovation.

Firms in a partnership can make use of co-patents. Co-patenting implies the joint ownership of collaborative outcomes. Hagedoorn (2003) explained that: co-owned patents are largely the result of small scale inter-firm R&D laborations where companies are unable to divide the invention among the partners joint patenting is thus more likely to arise following informal R&D collaborations and small joint research projects when the outcome of the collaboration is indivisible. Patents, in such cases may, therefore, encourage the collective process of innovation by facilitating the sharing of the dividends of collaborations. However earlier research on this particular phenomenon emphasizes the disadvantages of co-patenting and co-owned patents are generally seen as suboptimal. For example, Hagedoorn (2003) labels co-patenting as a second-best strategy that firms prefer to avoid. Belderbos et al., (2010) find a negative relationship between the share of co-patents in a firm’s patent portfolio and its

financial performance. If companies would have a choice, it seems they would prefer to have only regular patents. In their attempt to regulate the property rights that come with joint patenting

companies embed their co-owned patents in specific, complex contractual arrangements that specify the actual distribution of responsibilities and the concrete terms of third-party licensing, payments, litigation etc. However, no matter how many details are covered by specific arrangements, these contracts specifying the property rights in co-owned patents will remain incomplete, relational contracts (Hagedoorn, 2003). This can lead to a conflict and possible litigation.

Patent lawsuits are among the fiercest, most enduring, and most consequential disputes among organizations in biotechnology and pharmaceuticals. Patent lawsuits arise from the patentee’s claims that the alleged infringer has made, used, sold, or imported a patented invention without authority during the patent’s term (Sytch, 2014) Patent litigations are also complex, expensive and

unpredictable. (Chien, 2011 & Kesan and Ball, 2011). Even the judiciary systematically encourages patent litigants to settle. Between 65-68% of patent cases are settled at the district court level, and more settle on appeal. Less than 15% are going into a lawsuit / litigation (La Belle, 2014) The high stakes and high cost of a patent litigation causes that patent litigations are usually settled rather than adjudicated to judgment (Chien, 2011 & Kesan and Ball, 2011). In patent litigation, moreover, the initiating party risks losing the rights to its intellectual property and thereby opening the floodgates to competition if the court declares its patents invalid or unenforceable. Somaya (2003) describes that patent litigations are extremely costly. The cost of litigating patents can reach $5.5 million per lawsuit, excluding damages and royalties. For example, Impax Laboratories, a specialty

10 biotechnology and pharmaceuticals are closely linked to actual product portfolios, and because a relatively small number of products typically drive company success, verdicts in patent infringement or claims can be particularly consequential (Hall & Ziedonis, 2001). For instance, in 2007,

GlaxoSmithKline and a group of retailers filed antitrust claims against Abbott Laboratories for attempting to monopolize the AIDS drug market with its Norvir product. The action led to Abbott Laboratories’ paying $52 million to settle the case. Likewise, when Transkaryotic Therapies (TKT) was found in 2001 to have infringed Amgen’s patent on Epogen (an anemia drug for patients undergoing kidney dialysis and chemotherapy), TKT’s stock plunged 17%. In the 2002 patent infringement case between Chiron and Genentech over Genentech’s breast cancer drug Herceptin, Chiron sought as much as $300 million in royalties, albeit in vain. It is no wonder that these lawsuits often entail fully fledged conflictual relationships characterized by intensely negative affect and animosity among the executives of the litigating companies (Sytch, 2014). The cost of litigation are likely to be higher for smaller firms and individuals because of higher financing cost and their greater reliance on external legal counsel (Lanjouw et al, 1998). Larger firms have on the other hand, experts and departments dealing with patent litigations. In the smaller firms, it is more likely that things are done informally (Blomqvist, 2005).

In short, partnerships have many advantages, but can have a couple of disadvantages and risk. This may lead to conflicts. In some cases there may be a chance that conflicts will result in a patent litigation. However, through the high stakes and cost, there will be a small chance that a patent litigation occur. Larger firms have more financial capital and have also experts and internal departments dealing with patent litigations. For smaller firms, patent litigations are more costly because of the greater reliance on external legal counsels. Therefore the following hypothesis can be derived:

Conceptual model for hypothesis 1a.

Hypotheses 1a: Partnerships between relatively larger firms are more likely to result in a patent

11 Despites the fear of the smaller firms and the possible negative outcomes of an asymmetric

partnership, most asymmetric partnerships brings major benefits to the collaborating firms (Blomqvist, 2005). The benefits vary from lower risk, access to resources, access to new markets, prevent hiring employees and shorter time-to-market. Therefore, the following hypotheses can be derived:

Conceptual model for hypothesis 1b.

Hypotheses 1b: Asymmetric partnerships (collaborations between small and large firms) are less

likely to result in a patent litigation compared to symmetric partnerships.

2.5 Patent litigation and countersuits

Pre-filing deliberations in litigation, in turn, typically entail a careful analysis of any collaborative activities with the potential litigant, since litigation can affect the revenue stream from such ongoing collaboration and carry an increased likelihood of counterclaims. In this context, it is reasonable to expect that the dynamics of collaboration and conflict will be interrelated. Conflictual ties exist between collaborative companies. Those ties can be expected to crowd out or to diminish the collaborative relationships. One reason for this is that the negative affect that such conflictual relationships evoke makes it difficult for the disputants to discover, evaluate, and pursue new opportunities for collaboration. For example, the collaboration between Abbott Laboratories and Baxter International was characterized by several patent litigations and by bitter hostility. The enduring conflictual relationship between Abbott and Baxter imposed substantial constraints to collaborate with each other. Thus, although both were exceptionally active in pursuing

12 frequently provoke counterclaims. Other risks are the mere threat of treble damages, coupled with the loss of patent rights, obviously raises the stakes of patent holders (Steinman,2001)

Often countersuits are ‘the weapon of choice’ for defendants facing patent litigations (Steinman, 2001) A counterclaim can be arising out of two kinds of occurrence. It can be arising out of the same

transaction or it can be a suit not arising out of the same transaction. (McFarland, 2007). For an countersuit to succeed, the plaintiff must prove that a suit was instituted against him without probable cause, that the suit was decided in his favour on the merits, that it was instituted maliciously and that he sustained damages (Sokol, 1984)

Some lawsuits, at least, are brought to punish or silence the press, or to coerce an out-of-court settlement. A possible solution to this problem is filing counterclaims against those who bring meritless suits. There is some indication that a threat to bring a counterclaim if a suit is not dropped may work. But a countersuit is unlikely to succeed simply because it probably will be classified as an action for malicious prosecution or abuse of process. This actions are not favored by courts, and the pursuit of a counterclaim may be too time-consuming and expensive considering the small likelihood of success. However threats of counterclaims for malicious prosecution or abuse of process may prevent a frivolous suit from coming to trial (Stevens, 1985)

Because countersuits are often seen as malicious prosecution or as abuse of the process, the likelihood of success will be very small. In partnerships, larger firms can more afford a loss, because of the higher financial resources of the larger firm and because larger firms use a spider web of smaller firms which increase the likelihood of survival for the larger firm. Therefore the larger firm will be earlier willing to use a countersuit in comparison to a smaller firm. Smaller firm are often resource scarce and dependent on partnerships. Therefore the following hypothesis can be derived:

Conceptual model for hypothesis 2a.

Hypotheses 2a: After a litigation between large firm partners, there is a higher likelihood of

13 Conceptual model for hypothesis 2b.

Hypotheses 2b: After a litigation between asymmetric partners, there is a high likelihood that the

14

3. METHOD

The focus of this study is on collaboration and patent litigations. This study uses patent litigations to have an objective measurement for conflicts. Patent litigations as a measurement of conflict is also used in other studies. For example in a study of Lanjouw & Schankerman (2001) they use patent litigations as a reflection of conflicts. Because literature and data on patent litigations is relatively scarce, the focus in this study is on the biotechnology and pharmaceutical industry in which patent litigations are most likely to occur (Bessen & Meurer, 2005). First of all, I need to figure out the amount of alliances. The information about alliances is extracted from Thomson-Reuters SDC Platinum database. I have chosen all alliances in the years 2000 – 2003 in the pharmaceutical and biotechnology industry. In total there were 738 partnerships. I put all the firms in an Excel worksheet. After that I investigate the amount of litigations between the collaborative partners. I search the alliance firms in the litigation database and investigate if there are any patent litigations between these two firms. To search for patent litigations I make use of the website search.rpxcorp.com. When firms do have patent litigations the patent litigations will be registered. After filling all the firms and patent litigations I used the database Orbis. This database provides information about companies such as number of employees, country of firm if a firm was taken over and so on. To determine the size of the firms I focus on the amount of employees. I compare this information with the collected data to establish if a firm is a small or a large firm. (see assumptions). I have put all the firms with size and amount of patent litigations. I excluded the partnerships with an unknown amount of employees. The elimination of this firms has no effect on the amount of partnerships with patent litigations. The firms with partnerships will be enriched with the number of countersuits. To prevent confusions in the analysis I have filtered the all the information into four separate overviews. One with all the firms, size of firm and amount of partnerships with patent litigations. Another overview with only the firms who were in conflict enriched with the total amount of patent litigations, an overview with the partnerships who were involved in countersuits and an overview of the partnerships with the amount of

countersuits. To present the data in an organized manner I create tables which shows the compositions of the firms (small & small, small & large, large & small and large & large), the amount of patent litigations, regression, amount of partnerships who were involved in countersuits and the amount of countersuits.

15

Wilcoxon Signed Rank test. In order to compare the different partnerships compositions I use the

Wilcoxon Signed Rank test. I carried out this test because the amount of partnerships and the amount of patent litigations in one compositions is related to the amount of partnerships and the amount of patent litigations in the other compositions. The Wilcoxon Signed Rank test will also be performed for the countersuits for the same reason.

Regression with dummy variables.. In order to analyse if there is a linear relation between the

composition of the partnership and the amount of conflicts, I first set up 4 dummy variables. One for the small & small composition (not a small & small composition; coded as 0 and a small & small composition; coded as 1). For the small & large composition I divide them into two groups. A small & large composition and a large & small composition. This is important because the first mentioned firm is the plaintiff in these cases and the second mentioned firm is the defendant. For small & large composition (not a small & large composition; coded as 0 and a small & large composition; coded as 1). For the large & small composition (not a large & small composition; coded as 0 and a large & small composition; coded as 1). And the last one for the large & large composition. Because the large & large composition is the largest group in both amount of partnerships that have a patent litigations and the amount of patent litigations, this group will be used as the reference group (all this

compositions are coded as 0).

Control variables. In order to analyse if the relationship between the composition of the partnership

16

4. RESULTS

After eliminating partnerships I found 609 partnerships. In the 609 partnerships there are 16 cases where partnerships have patent litigations. Table 1 gives a clear overview of the partnership composition and how often patent litigations occur between the compositions. The bold numbers provides insights in how often a partnership has patent litigations. For example, in the composition of small & small there are 3 partnerships who have a couple of patent litigations. The percentages in the row ‘total’ gives a relative percentage of how often patent litigations occur in that composition in comparison with the total partnerships in that composition. For example, in the small & small composition there are 233 partnerships. 1,28% of the 233 (3 in total, see above) had patent litigations with the other collaborative small firm.

Patent litigations Collaboration

composition Small Large Total

No Small 230 140 370 Large 129 94 223 Total 359 235 594 Yes Small 3 (1,28%) 4 (2,78%) 7 Large 3 (2,27%) 6 (6%) 9 Total 6 10 16

Total amount of partnerships

including all partnerships Small 233 144 377

Large 132 100 232 Total 365 244 609 Total composition of asymmetric partnerships 276 (2,54%) Total composition of symmetric partnerships 333 (2,70%)

Table 1

It becomes clear that patent litigations between partnerships are an scarce event. This may due to the fact that firms need each other. Supporting the arguments of among others (Dyer and Singh, 1998, Williamson, 1991, Hewitt-Dundas, 2006, Hagedoorn and Schakenraad, 1994, Mitchell and Singh, 1996). The table makes a distinction between the small & large composition. This is done to indicate that if there were patent litigations, there need to be a distinction between plaintiff and defendant. In the column yes, the left column represent the plaintiff in the table and the row above represent the defendant. In the three compositions (small & small, small & large and large &large) most partnerships are in the composition of small & large. This may due to the fact that asymmetric

17 more likely to result in patent litigations. Despite that the total amount of partnerships is lower in comparison with the other groups, the total amount of partnerships that have patent litigations is the most (6 partnerships) Investigating the amount of symmetric and asymmetric partnerships, there are more symmetric partnerships (333 collaborations) than asymmetric partnerships (276 collaborations).

18

Patent litigations Defendant

Plaintiff Small Large Total Wilcoxon signed

rank test

Small 3 (1,28%) 4 (2,78%) 7 0,705

Amount of patent litigations 8 (12%) 7 (11%) 15 (30%) 0,796

Regression with dummy variables P = 0,525 P = 0,326

Partnership countersuits 3 1 Amount of countersuits _{4 1} Large 3 (2,27%) 6 (6%) 9 0.317

Amount of patent litigations 17 (28%) 33 (49%) 50 (70%) 0,048**

Regression with dummy variables P = 0,927

Partnership countersuits 1 ₂

Amount of countersuits 2 16 65 (100%)

25 (38%) 40 (62%)

Wilcoxon signed rank test 1,000 0,527

0,05* 0,00***

Table 2

*** Significant at the 0,01 level ** Significant at the 0,05 * Significant at the 0,1 level

In partnerships a smaller firm summons the other firm 7 times and a larger firm summons the other firms 9 times. On the amount of patent litigations a smaller firm as plaintiff represent 30% of all the patent litigations. A large firm as plaintiff represent 70% of all the patent litigations.

19 in relative terms the symmetric partnerships scores higher. Symmetric partnerships (2,70%) and asymmetric partnerships (2,54%). (See table 1)

To provide more insight in the collaboration compositions, further analyses has been performed.

Wilcoxon Signed Rank test. To investigate if the composition of the partnerships are equal or not on

the amount of partnerships that has patent litigations, I execute the Wilcoxon Signed Rank test. For the amount of partnerships the Wilcoxon Signed Rank test isn’t significant. For the all the composition applies that the Z – value is not smaller than -1,96 or larger than 1,96 and all the p – values are bigger than 0,1. For the small & small and the small & large composition: Z- value = -0,378, p = 0,705. For the small & small composition and the large & small composition: Z – value = 0,000, P = 1,000. For the small & large composition and the large & large composition: Z- value = -,632, p = 0,527. For the large & small and large & large composition: Z-value = -1,000, p = 0,317.

For the amount of patent litigations in the compositions the Wilcoxon Signed rank test provides the following outcomes. For the comparison between small & small and small & large: Z-value = -0,258, p > 0,1. This means that there are no differences between this group on the amount of patent

litigations. For the comparison between the small & small and large & small: Z-value = -1,961, P = ,050*. The Z-value is smaller than -1,96 and the P-value is significant at the 0,1 level. Therefore it can be stated that there are differences between these groups on the amount of patent litigations. For the comparison between small & large and large & large, Z-value = -4,003, p = 0,000***. The Z-value is smaller than – 1.96 and the p-value is significant at the 0,01 level. There are differences between these groups for the amount of patent litigations. For the comparison between the large & small and the large & large group, Z-value = - 1.980, p = 0,048**. Also here, the Z-value is smaller than – 1,96 and the p-value is significant at the 0,05 level. Also in this comparison there are differences between this groups for the amount of patent litigations.

There is not a significant difference between the compositions on the amount of partnerships that has patent litigations. The total amount of patent litigations in the compositions is significant except for the comparison small & small and small & large. Between the three other compositions there are differences on the amount of patent litigations.

Regression with dummy variables. The regression analysis was not significant, R2=0,097, F(0,428) =

20

Control variable. In order to analyse whether or not the control variables influence the relationship

between the collaboration compositions and the number of patent litigations, I performed an regression analysis with the composition of the firms (independent variables), the amount of patent litigations (dependent variables) and the year of alliance (control variable). The control variable year of alliance is for all outcomes not significant. The marks between the brackets shows the B and P value of the controlling variable. Controlling for the year 2000, the small & small composition R2 = 0,03 F = 0,203, (B = -2032, p = 0,618) B = 0,032, p = 0,994. For the small & large composition, R2 = 0,128, F = 0,950, (B = -3,111, p = 0,345), B = -3,444, p = 0,250. For the large & small composition R2 = 0,049, F = 0,338, (B = -2,348, p = 0,481), B = 1,652, p = 0,618) and for the large & large composition R2 = 0,06, F = 0,415, (B = -1,238, p = 0,7222), B = 1,762, p = 0,533. Controlling for the year 2001, the small & small composition R2 = 0,054, F = 0,371, (B = 2,060, p = 0,455) B = -1,284 p = 0,693. For the small & large composition R2 = 0,098, F = 0,705, (B = 1,854, p = 0,4492), B = -2,512,p = 0,387. For the large & small R2 = 0,075, F = 0,526, (B = 2,650, p = 0,361), B = 2,250, p = 0,510. And for the large & large composition R2 = 0,071, F = 0,609, (B=1,484, p = 0,604), B = 1,688, p = 0,539.

Controlling for the year 2002, the small & small composition R2 = 0,086, F = 0,609, (B = 3,864, p = 0,321) B = -0,636, p = 0,844. For the small & large composition R2 = 0,186, F = 1,489, (B = 5,000, p = 0,184), B = -3,500, p = 0,221. For the large & small composition R2 = 0,083, F = 0,590, (B = 3,919, p = 0,330), B = 0,226, p = 0,946. For the large & large composition R2 = 0,187, F = 1,498, (B = 5,375, p = 0,163) B = 3,208 p = 0,219. Controlling for the year 2003, the small & small composition R2 = 0,110, F = 0,801, (B = -3,214, p = 0,251), B = -2,714, p = 0,4228. For the small & large composition R2 = 0,111, F = 0,808, (B= -2,091, p = 0,420), B = 2,318, p = 0,424. For the large & small

composition R2 = 0,73, F = 0,510, (B = -2,363, p = 0,369), B = 1,110, p = 0,730. For the large & large composition R2 = 0,143, F = 1,083, (B= - 2,944, p = 0,258), B = 2,722, p = 0,294.

None of the outcomes are significant, which means that the control variable doesn’t change the relationship between the compositions and the number of patent litigations.

21

4.2 Partnerships and countersuits

Countersuits Defendant Total amount of

a countersuit Wilcoxon Small Large Small plaintiff 3 (100%) 1 (33,33%) 4 0,317 Amount of countersuits 4 (50%) 2 (28,57%) 0,18 Large plaintiff 1 (25%) 2 (33,34 %) 3 0,564 1 (5,88%) 16 (48,48%) 0,002 *** Amount of countersuits Wilcoxon 0,317 0,564 0,414 0,000 *** Table 3

*** Significant at the 0,01 level ** Significant at the 0,05 * Significant at the 0,1 level

Asymmetric and symmetric partnerships Amount of partnerships involved in countersuits Asymmetric 2 Symmetric 5 Table 4

Table 3 gives a clear overview of the partnership composition and how often countersuits occur. The bold numbers provides insights in partnerships who were involved in countersuits. For example, in the composition small & small there are 3 partnership who had 4 countersuits. This means that 1

partnership had 2 countersuits. After the bold marks the relative percentage of the total amount of partnerships who were involved in a countersuit in comparison with the total amount of partnerships who were involved in patent litigations are shown. For example, in the large & large composition there were 2 partnerships who were involved in countersuits. This 2 partnerships represent 33,34% of the total amount of partnerships in this composition. Remarkably is that all partnerships in the small & small composition have countersuits. In the large & large composition 2 partnerships executes

22 involved in countersuits. 3 partnerships from the small & small composition and 2 partnerships from the large & large composition.

Table 4 provides insights between the differences of asymmetric and symmetric partnerships on countersuits. In total there are 5 symmetric partnerships which have countersuits and 2 asymmetric partnerships which have countersuits. In table 3 it becomes clear that large firms represent 25% of the countersuit in asymmetric collaboration. In the four cases that a small firm summons a large firm, a large firm summons a small firm once. Based on this data hypotheses 2b (After a litigation between asymmetric partners, there is a high likelihood that the larger firm will use a countersuit) can be rejected. An interesting finding is that after a large firm summons a small firm, there in one case the smaller firm also summons the larger firm. In asymmetric collaboration there were two partnerships who were involved in countersuits. 1 countersuit from the smaller firm and 1 countersuit from the larger firm.

Wilcoxon Signed Rank test

On the amount of partnerships the Wilcoxon Signed Rank test isn’t significant. For the all the

composition applies that the Z-value is not smaller than -1,96 or larger than 1,96 and all the p – values are bigger than 0,1. This is mainly caused by the limited amount of partnerships in which a countersuit occur. For the small & small and the small & large composition: Z-value = -1,000, p = 0,317. For the small & small and small & large composition: Z-value = – 1,000, p = 0,317. For the large & small and large & large composition: Z-value = -0,557, p = 0,564. And for the small & large and large & large composition: Z-value = 0,577, p = 0,564. This means that there are no differences between these groups on the amount of partnerships who were involved in countersuits.

On the amount of countersuits the Wilcoxon Signed rank test gives the following outcomes. For the comparison between small & small and small & large: Z-value = -1,342, p = 0,180 and therefore this means that there are no differences between these groups on the amount of countersuits. For the comparison between the small & small and large & small: Z-value = -,816, p = 0,4147. There are also for this comparison no differences between this groups on the amount of countersuits. For the

comparison between small & large and large & large, Z-value = -3,500, p = 0,000 ***. The Z-value is smaller than – 1.96 and the p-value is significant at the 0,01 level, this means that there are differences between this groups for the amount of countersuits. For the comparison between the large & small and the large & large group, Z-value = - 3.153, p = 0,002 ***. Also here, the Z-value is smaller than – 1,96 and the p-value is significant at the 0,05 level. There are differences between this groups for the amount of countersuits. There is not a significant difference between the compositions on the amount of partnerships that has countersuits. The total amount of countersuits in this compositions is

23

5. DISCUSSION

There is not much literature and case studies on the amount of patent litigations between collaborating companies. One of the reasons is that according to La Belle, (2014) in general most of the patent suits have been settled. However, literature on patent litigation is growing (Trimble, 2014) Therefore this study contributes to the growing literature by providing insight in patent litigations between

partnerships. Especially in the case of asymmetric collaboration. It provides insight into how many patent litigations occur and who, the small or the large firms most often summons the other firm. Besides this contributions, this study also provides insight about countersuits. How often does countersuits occur, which types of firms (small or large) countersuits the collaborative firm more and it shows the differences between asymmetric collaboration and symmetric collaboration on

countersuits.

5.2 Limitations and implication for further research

Patent litigations in partnerships is a scarce event and is therefore tricky to investigate. Because of the limited data, it is difficult to support the arguments statistically.

Besides the limited amount of patent litigations there are interesting possibilities for future research. First, this study examines only if there where patent litigations or not in collaborations. It does not take the consequences into account. It does not investigate if the firms are still together after the litigations and it also does not investigate if a firm won or lose. It would be interesting to investigate what happened after the patent litigation(s). Second, this study does not investigate the content of patents and patent litigations. It would be meaningful to investigate the content of the patent litigations. Were the litigations based on infringements, or were they based on frivolous grounds. And it would also be meaningful to investigate the content of the patents who were involved. Third, it would be interesting to investigate how the outcomes of the patent litigations influence the likelihood of countersuits. Is there are a relation between for example frivolous patent litigations and countersuits or between patent infringements and countersuits. Fourth, from this study it becomes clear that the composition of small & small has a limited amount of partnerships who were involved in patent litigations. However, all these partnerships who were involved in patent litigations were also involved in countersuits. It would be interesting to investigate especially these partnerships. At least, well executing this study I

24

5.3 Conclusion

This study shows that there were 16 partnerships out of 738 partnerships who were involved in patent litigations. A couple of partnerships were deleted for the analyses because it was unclear for this firms to establish if these firms were small or large. In total 609 partnerships remains. From the 16

partnerships there were 7 partnerships who were involved in countersuits. This study shows that partnerships between relatively larger firms are more likely to result in a patent litigation compared to partnerships between relatively smaller firms. This study also shows that asymmetric partnerships are less likely to result in a patent litigation compared to symmetric partnerships. Hypothesis 2a and 2b were rejected which means that after a litigation between large firm partners, there is not a higher likelihood of countersuits in comparison to litigations between small firms partners. Rejecting

25

6. REFERENCES

Adner, R. 2006. Match your innovation strategy to your innovation ecosystem. Harvard Business

Review, 84: 98–107.

Agardi, I. A. B. A. (2008). The moderator role of size in alliance performance relationships. ACTA

Oeconomica, 58, 185-99.

Agrawal, A., Cockburn, L., Galasso, A., & Oettl, A. (2014) Why are some regions more innovative than others? The role of small firms in the presence of large labs. Journal of Urban Economics, 81, 149-165.

Anand, B. N., & Khanna, T. (2000). Do firms learn to create value? The case of alliances. Strategic

management journal, 21(3), 295-315.

Anderson, E., & Weitz, B. A. (1992). The use of pledges to build and sustain commitment in distribution channels. Journal of Marketing Research, 29 (1), 18–34.

Arora, A., & Gambardella, A. (1990). Complementarity and external linkages: the strategies of the large firms in biotechnology. The Journal of Industrial Economics, 361-379.

Balasubramanian, N. & Sivadasan, J. (2011) What happens when firms patent? New evidence from U.S. Economic Census Data. The review of Economics and Statistics, 93, 126-146.

Baum, J. A., Calabrese, T., & Silverman, B. S. (2000). Don't go it alone: Alliance network composition and startups' performance in Canadian biotechnology. Strategic management

journal, 21(3), 267-294.

Belderbos, R., Faems, D., Leten, B., Looy, B. (2010). Technological activities and their impact on the financial performance of the firm: exploitation and exploration within and between firms. Journal of

Product Innovation Management, 27, 869–882.

26 Blomqvist, K. (2002). Partnering in the dynamic environment: The role of trust in asymmetric

technology partnership formation. Lappeenranta University of Technology.

Blomqvist, K., Hurmelinna, P., & Seppänen, R. (2005). Playing the collaboration game right— balancing trust and contracting. Technovation, 25 (5), 497-504

Bucklin, L. P., & Sengupta, S. (1993). Organizing successful co-marketing alliances. Journal of

Marketing, 57 (2), 32–46.

Burgers, W. P., Hill, C. & Kim, W. C. (1993). A theory of global strategic alliances: The case of the global auto industry. Strategic Management Journal, 14, 419-432.

Carroll, G. R., & Hannan, M. T. (2000). The demography of corporations and industries. Princeton University Press.

Chen, H., & Chen, T. J. (2002). Asymmetric strategic alliances: A network view. Journal of Business

Research, 55(12), 1007-1013.

Chien, C. V. (2011) Predicting patent litigation. Texas Law Review. 90, 283-329.

Chung, Q. B., Luo, W., & Wagner, W. P. (2006). Strategic alliance of small firms in knowledge industries A management consulting perspective. Business Process Management Journal, 12, 206-233.

Clarkson, G., & DeKorte, D. (2006). The problem of patent thickets in convergent technologies. Annals of the New York Academy of Sciences,1093(1), 180-200.

Cohen, W. M., & S. Klepper (1992). The Anatomy of Industry R&D Intensity Distributions,

American Economic Review, 82, 773–799.

Crampes, C., & Langinier, C. (2002). Litigation and settlement in patent infringement cases. RAND

Journal of Economics, 258-274.

Doz, Y. L. (1987). Technology partnerships between larger and smaller firms: some critical issues. International Studies of Management & Organization, 31-57.

27 Fischer, T., & Ringler, P. (2014) What patent are used as collateral? An empirical analysis of patent reassignment data. Journal of Busines Venturing. 29, 633-650.

Frazier, G. L., & Summers, J. O. (1986). Perceptions of interfirm power and its use within a franchise channel of distribution. Journal of Marketing Research, 23 (3), 169–176.

Gaski, J. (1984). The theory of power and conflict in channels of distribution. Journal of Marketing, 48(3), 9–29.

Gundlach, G. T., Achrol, R. S., & Mentzer, J. T. (1995). The structure of commitment in exchange.

Journal of Marketing, 59 (1), 78–92.

Hagedoorn, J. (1995). A note on international market leaders and networks of strategic technology partnering. Strategic Management Journal, 16, 241-250.

Hagedoorn, J., (2003). Sharing intellectual property rights – an exploratory study of joint patenting amongst companies. Industrial and Corporate Change, 12, 1035–1050.

Hagedoorn, J., & Schakenraad, J. (1994). The effect of strategic technology alliances in information technologies. Strategic Management Journal, 15, 291-309.

Hall, B., & Ziedonis, R. H. 2001. The patent paradox revisited: An empirical study of patenting in the U.S. semiconductor industry, 1979–1995. Rand Journal of Economics, 32: 101–128.

Hamel, G., Doz, Y. L., & Prahalad, C. K. (1989). Collaborate with your competitors and win. Harvard

business review, 67(1), 133-139.

Hanley, M.E. (2008). What does your patent application say about you? Intellectual property &

technology law journal, 5, 23-27.

Hannan, M. T., & Freeman, J. (1977). The population ecology of organizations. .American journal of

sociology, 929-964.

Hannan, M. T., & Freeman, J. (1984). Structural inertia and organizational change. American

sociological review, 149-164.

28 Heyman, P. (2005). Using a patent portfolio to defend against a patent infringement suit. Intellectual

Property & Technology Law Journal, 17(7), 9-15.

Jaouen, A., & Gundolf, K. (2007). Strategic alliance between microfirms specific patterns in the French context. International Journal of Entrepreneurial Behaviour & Research, 15, 48-70.

Johnson, J. L., Sakano, T., Cote, J. A., & Onzo, N. (1993). The exercise of interfirm power and its repercussions in US-Japanese channel relationships. Journal of Marketing, 57 (2), 1–10.

Jonsson, P., & Zineldin, M. (2003). Achieving high satisfaction in supplier-dealer working relationships. Supply Chain Management: An International Journal, 8 (3), 224–240.

Kabanoff, B. (1991). Equity, equality, power, and conflict. Academy of Management Review, 16(2), 416-441.

Kesan, J. P., & Ball, G.G. (2011). Judical experience and the efficiency and accuracy of patent

adjudication: An empirical analysis of the case for a specialized patent trial court. Harvard Journal of

Law & Technology, 24, 394-467.

Khanna, T., Gulati, R., & Nohria, N. (1998). The dynamics of learning alliances: Competition, cooperation, and relative scope. Strategic management journal,19(3), 193-210.

La Belle, M. M. (2014) Against settlement of (some) patent cases. Vanderbilt Law Review. 67, 375-441.

Lanjouw, J. O., Pakes, A., & Putnam, J. (1998). How to count patents and value intellectual property: The uses of patent renewal and application data. The Journal of Industrial Economics, 46(4), 405-432.

Lanjouw, J. O., & Schankerman, M. (2001). Characteristics of patent litigation: a window on competition. RAND journal of economics, 129-151.

29 Leever, A. M., Hulst, M. V. D., Berendsen, A. J., Boendemaker, P. M., Roodenburg, J. L. N., & Pols, J. (2010). Conflicts and conflict management in the collaboration between nurses and physicians–A qualitative study. Journal of interprofessional care, 24(6), 612-624.

Lemley, M. A., & Shapiro, C. (2006). Patent holdup and royalty stacking. Tex. L. Rev., 85, 2163.

Levin, R. C., Klevorick, A.K., Nelson, R. R., & Winter, S. G. (1987) Appropriating the Returns from Industrial-Research and Development, Brookings Papers on Economic Activity, 3, 783–831.

Lusch, R. F. (1976). Channel conflict: Its impact on retailer operating performance. Journal of

Retailing, 52 (2), 89–90.

Marion, T., Dunlap, D., & Friar, J. (2012). Instilling the entrepreneurial spirit in your R&D team: What large firms can learn from successful start-ups.Engineering Management, IEEE Transactions

on, 59(2), 323-337.

McConnell, J. J., & Nantell, T. J. (1985). Corporate combinations and common stock returns: The case of joint ventures. Journal of Finance, 519-536.

McFarland, D. D. (2007). In Search of the Transaction or Occurrence: Counterclaims. Creighton Law

Review, 40, 699.

Meurer, M. J., & Bessen, J. E. (2005). Lessons for patent policy from empirical research on patent litigation. Lewis & Clark Law Review, 9(1), 1-27.

Milgrom, P, and J. Roberts (1992), Economics, Organization and Management. Prentice-Hall: Englewood Cliffs, NJ.

Mitchell, W., & Singh, K. (1996). Survival of businesses using collaborative relationships to commercialize complex goods. Strategic management journal,17(3), 169-195.

1

Mitchell, W., & Singh, K. (1996). Precarious collaboration: Business survival after partners shut down or form new partnerships. Strategic Management Journal, 17(3), 95-115.

Morgan, R. M., & Hunt, S. D. (1994). The commitment-trust theory of relationship marketing.

30 Nyaga, G. N., Lynch, D. F., Marshall, D., & Ambrose, E. (2013). Power asymmetry, adaptation and collaboration in dyadic relationships involving a powerful partner. Journal of Supply Chain

Management, 49(3), 42-65.

Oliver, C. (1990). Determinants of interorganizational relationships: Integration and future directions. Academy of management review, 15(2), 241-265.

Popp, D. (2002). Induced innovation and energy prices. American Economic Review, 92, 160–180.

Popp, D. (2006). They don’t invent them like they used to: an examination of energy patent citations over time. Economics of Innovation and New Technology, 15, 753–776.

Rothaermel, F. T. (2001). Incumbent's advantage through exploiting complementary assets via interfirm cooperation. Strategic Management Journal, 22(6‐7), 687-699.

Shan, W., & Hamilton, W. (1991). Country-specific advantage and international cooperation.

Strategic Management Journal, 12, 419-432.

Singh, K. (1997). The impact of technological complexity and interfirm cooperation on business survival. Academy of Management Journal, 40(2), 339-367.

Sokol, D. J. (1984). Current Status of Medical Malpractice Countersuits, The Am. JL & Med, 74 (11); 85-87.

Somaya, D. (2003). Strategic determinants of decisions not to settle patent litigation. Strategic

Management Journal, 24(1), 17-38.

Steinman, D. R., & Fitzpatrick, D. S. (2001). Antitrust Counterclaims in Patent Infringement Cases: A Guide to Walker Process and Sham-Litigation Claims. Tex. Intell. Prop. LJ, 10, 95.

Stevens, G. E. (1985). Frivolous Lawsuits Against The Press: The Counterclaim Problem. Newspaper

Research Journal, 7(1).

Stuart, T. E., Hoang, H., & Hybels, R. C. (1999). Interorganizational endorsements and the performance of entrepreneurial ventures. Administrative science quarterly, 44(2), 315-349.

Sytch, M., & Tatarynowicz, A. (2014). Friends and foes: The dynamics of dual social structures.

31 Teece, D. J. (1986). Profiting from technological innovation: Implications for integration,

collaboration, licensing, and public policy. Research Policy, 15, 285-305.

Trimble, Marketa (2014). Foreigners in U.S. Patent Litigation: An Empirical Study of Patent Cases Filed in Nine U.S. Federal District Courts in 2004, 2009, and 2012. Vanderbilt Journal of

Entertainment & Technology Law. 1, 175-210.

Williamson, O. E. (1991). Comparative economic organization: The analysis of discrete structural alternatives. Administrative science quarterly, 269-296.

Williamson, O. E., & Winter, S. G. (1993). The nature of the firm: origins, evolution, and development. Oxford University Press.