Patent Thickets and Mergers and Acquisitions

We examine the relation between patent thickets and acquisitions. Patent thickets are dense webs of overlapping intellectual property rights that create costs by complicating licensing negotiations and increasing the risk of holdup and litigation. We find that firms are less likely to be acquired when they are in a denser thicket comprised of many patent owners, which exposes firms to these costs. In contrast, firms are more likely to be acquired when the thicket created by their own patents is denser, which insulates firms from these costs. We also find that when a firm occupies the same thicket as the acquirer, it is more likely to be acquired when it can impose these costs on the acquirer but less likely to be acquired when it can have these costs imposed on it by the acquirer. Importantly, our results are not explained by patent count, patent citations, or technological overlap. Overall, we show that patent thickets play an important role when acquiring innovation