The Ties That No Longer Bind: Inventor Mobility and Patent Litigation

The retention of inventor-employees represents a core strategic concern for firms in innovative industries. In this paper, we examine the impact of reduced patent enforceability on the mobility of inventor-employees and explore the related influence on firms’ innovative activities. To analyze this potential relationship, we use the US Supreme Court ruling eBay Inc. v. MercExchange, L.L.C., which decreased the use of injunctions in patent infringement cases and, consequently, the risk firms and individuals faced from being sued for patent infringement. Our analyses rely on difference-in-differences specifications that include state-year, firm, and technological fixed effects, and a host of other controls. Using patent application data to track the movements of 50,283 early career patent inventors before and after the ruling, we find that in the post period, inventor-employees at firms with a greater reliance on intellectual property are relatively more likely to leave their employer. Moreover, we find that employees most affected by the change are those involved in basic research and those with generalizable skills, suggesting that the change in patent enforceability may have improved the outside employment options for certain inventors. We further detect important implications for firm performance and the direction of firm innovation resulting from these patterns.