Bankrupt Innovative Firms
49 Pages Posted: 24 Jan 2017 Last revised: 1 Jun 2021
Date Written: May 31, 2021
We study 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: Failed Firms, Innovation, Patent, Bankruptcy, Creditor Control
JEL Classification: G33, O34
Suggested Citation: Suggested Citation