We draw on signaling theory to argue that a tough reputation based on IP litigation can be either detrimental or instrumental to the formation of new collaborative ties. This is because under information asymmetry, potential partner firms rely on observable signals to assess partner firms’ attractiveness. While IP litigation reputation signals aggressiveness, it also signals the presence of a focal firm’s high-quality resources that it seeks to protect. In the absence of a focal firm’s prior collaboration, the latter dominates. The discouraging effect of IP litigation reputation is particularly dominant if new collaborations are with rival firms competing in the same market. We find support for these hypotheses in a simultaneous analysis of new partner collaborations of leading firms in the pharmaceutical industry, 1995-2015.
