An IPO Pitfall: Patent Lawsuits

Abstract

I document a previously unexplored substantial cost of initial public offerings (IPOs): patent lawsuits. I find that firms become targets of excessive patent lawsuits shortly before IPO completions, and the litigation intensity persists after firms become public. However, firms that withdraw their IPO filings do not experience an increase after the withdrawal date. Unlike an IPO, being acquired leads to a decrease in lawsuits. Overall, these results show that going public makes firms perilously vulnerable to litigation. The cost is gaining importance as the percentage of IPO firms affected by patent lawsuits has been surging in the last two decades.