Advancing Patent Litigation Analysis: An LLM-Based Analysis of Rationales and Performance Outcomes

Patents are widely recognized as strategic resources that confer long-term competitive advantages by protecting and monetizing intellectual property. Grounded in the resource-based view, patents can be classified as valuable, rare, inimitable, and non-substitutable. Although much attention has focused on the role of patent ownership, far less is known about the strategic significance of actively enforcing patents through litigation. Given the potential for infringement to erode critical competitive resources, patent litigation emerges not merely as a legal mechanism but as a strategic corporate tool. This study probes the performance implications of initiating patent litigation, identifying six core strategic rationales for such actions employing a novel text-based classification method and analyzing text documents from 2,845 U.S. litigation cases with the aid of a state-of-the-art large language model. We run event studies and linear regressions to investigate how patent litigation cases affect corporate performance outcomes. The results show that filing litigation increases plaintiffs’ market valuation by 0.416% (i.e., 154.1 thousand USD) on average. Moreover, litigation driven by reputational or cross-licensing rationales results in higher abnormal returns, while market protection rationales result in lower abnormal returns. By illuminating the strategic importance of patent litigation from a resource-based perspective and expanding our understanding of the underlying strategic considerations, this study contributes new insights into the relationship between patent enforcement and corporate performance.