Working Paper: NBER ID: w28856
Authors: Song Ma; Joy Tianjiao Tong; Wei Wang
Abstract: This paper studies how innovative firms manage their innovation portfolios after filing for Chapter 11 reorganization using three decades of data. We find that they sell off core (i.e., technologically critical and valuable), rather than peripheral, patents in bankruptcy. The selling pattern is driven almost entirely by firms with greater use of secured debt, and the mechanism is secured creditors exercising their control rights on collateralized patents. Creditor-driven patent sales in bankruptcy have implications for technology diffusion—the sold patents diffuse more slowly under new ownership and are more likely to be purchased by patent trolls.
Keywords: bankruptcy; innovation; secured debt; technology diffusion
JEL Codes: G33; O32; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| secured creditors exert control rights (G33) | reallocation of innovation assets (O36) |
| secured debt levels (G32) | reallocation of innovation assets (O36) |
| creditor rights (G33) | patent sales (O34) |
| bankrupt innovative firms (G33) | sell core patents (L24) |
| secured debt ratios (above-median) (G32) | sell core patents (L24) |
| secured creditors with significant rights (G33) | enforce sale of collateralized patents (G33) |
| firms in bankruptcy (G33) | sell collateralized patents (G33) |
| presence of DIP financing (G32) | core patent sales (L17) |
| patents sold in bankruptcy (K35) | diffuse more slowly (F12) |
| patents sold in bankruptcy (K35) | acquired by patent trolls (O36) |