Brand Value and Stock Markets: Evidence from Trademark Litigations

The paper investigates whether equity markets incorporate the value of an important category of intangible assets, namely, brand value of a firm. Using a novel dataset of trademark infringement lawsuits filed in US district courts from 2000-2012, this paper analyzes whether shocks to a firm’s brand value in the form of public announcements of filings and verdicts of trademark infringement lawsuits are priced in the market. Using an event study framework, we find that an announcement of the filing of a complaint results in statistically significant 0.34% mean abnormal return for the plaintiff firm and statistically insignificant returns for the defendant firm on the day of announcement. An announcement of a verdict in favor of the plaintiff results in 0.57% mean abnormal return for plaintiff firms and, -1.76% abnormal returns for the defendant firms. Also, consistent with literature on the use of trademark infringement lawsuits as complementary advertisement, the results show that litigation news provides larger hype effect and demand rotation for smaller brands. We find that abnormal returns around complaints are higher for plaintiff firms with worse brand rankings and abnormal returns around favorable verdicts for plaintiff firms are higher for firms with worse brand rankings.