Endogenous Litigation Costs: An Empirical Analysis of Patent Disputes

A theoretical literature explains how parties can strategically sink litigation costs to maximize their prospects. We explore this “endogenous litigation costs” hypothesis empirically. To do so, we introduce measures of case progression, establish and validate new proxies for party and court costs, and parse the rich information about litigation contained in novel administrative data from court dockets. As a case study, we use the universe of 16,661 patent cases filed between 2005 and 2010, containing roughly 1.5 million docket entries. We document the costs of litigants and courts throughout litigation, and find that litigation costs cluster around events that must occur in order for litigation to proceed. Finally, we present evidence that costs around stages of litigation are higher for cases that eventually reach later stages of litigation, which we argue is consistent with the endogenous litigation costs hypothesis.