The double-sided influence of IP litigation reputation on R&D collaboration

We draw on signaling theory to argue that a tough reputation based on IP litigation can be either detrimental or instrumental to the formation of new collaborative ties. Under conditions of information asymmetry, potential partner firms rely on observable signals to assess partner firms' attractiveness. While IP litigation reputation signals aggressiveness and may deter new partners from collaboration, it also signals the presence of a focal firm's high-quality resources that it seeks to protect. In the absence of information on a focal firm's prior R&D collaboration, the latter dominates. The substitutive relationship between IP litigation and prior R&D collaboration in their influence on the formation of new collaborative ties depends on the nature of information asymmetry. It is stronger if new collaborations are with rival firms competing in the same market than if they are with non-rival partners. We find support for these hypotheses using a fixed-effects multi-equation model of new partner collaborations with rivals and non-rivals in the pharmaceutical industry, 1995–2015.