This Article presents the first in a series of studies of stock market reactions to the legal outcomes of patent cases. From a sample of patents litigated during a 20-year period, we estimate market reactions to patent litigation decisions and to patent grants. These estimates reveal that the resolution of legal uncertainty over patent validity and patent infringement is, on average, worth as much to a firm as is the initial grant of the patent right. Each is worth about 1.0–1.5% excess returns on investment. There are significant differences between such market reactions before and after the establishment in 1982 of the United States Court of Appeals for the Federal Circuit. There are also significant differences among the reactions of patent holders to resolved uncertainty depending on their litigation posture as plaintiffs or defendants. Interestingly, there is no similar effect for appellate decisions relative to trial decisions. The normative implications of these findings proceed, not from the magnitude of the quantitative results—which are statistically meaningful but modest—but rather from our illustration that uncertainty in the value of patent rights is quantifiable and so can be correlated with patentee and litigant behavior in developing patent policy.
