The more innovative a company, the more meritless lawsuits it faces
- Highly innovative companies tend to attract a disproportionate share of costly, meritless class-action lawsuits, according to research by Chicago Booth’s Elisabeth Kempf and Tilburg University’s Oliver Spalt.
- Using data on more than 880 lawsuits filed between 1996 and 2011 against 6,099 US companies, the researchers find that innovators were several times more likely to be the target of a meritless lawsuit—one that was dismissed by a federal court and wasn’t settled—than other companies in the same industry and year.
- Successful innovators lost 2.8 percent of market value in the seven days around a lawsuit filing, about 1 point more than companies that are less innovative, the research finds. Because innovative companies tend to be larger, the corresponding losses amounted to $95 million for a successful innovator, but $13 million for a less innovative company.