KikovicEach year, the small northeast Texas town of Marshall pulls out all of the stops for its annual Wonderland of Lights festival. And for years, South Korean electronics company Samsung also worked hard to make it special.
The festival started with the Samsung Holiday Celebration Show, featuring music by the local symphony as 250,000 Christmas lights lit up the county courthouse. Then revelers could head to the Samsung Ice Skating Rink, the only outdoor venue of its kind in all of Texas—which also happened to be located right next door to the courthouse. Some of those skaters might even be high-school graduates who had received one of the numerous scholarships Samsung had sponsored.
All of this company largesse struck Harvard Business School Professor Lauren Cohen as a bit suspicious—especially seeing how Samsung had been sued repeatedly inside the very courthouse it took such pains to bedeck in holiday spirit.
“Samsung has more active US patents than any other firm,” says Cohen, the L.E. Simmons Professor at HBS. “They have also been sued more than any other firm.” Many of these suits were by so-called patent trolls—companies that buy patents in order to sue others for infringing on them—and Marshall was considered a favorable place to sue, since the town had a habit of ruling in the plaintiffs’ favor.
While researching patent suits, Cohen was struck by just how much Samsung did to get its name in front of juries deciding cases against them. (Perhaps more tellingly, once its suits changed venue, Samsung dropped its holiday sponsorships like so much Christmas coal.)
“I think what we are seeing is just the tip of the iceberg”
“We saw the lengths that Samsung was going through to curry favor in Marshall,” he says. “It got us wondering what weapons other firms use to sway verdicts in their favor.”
The results of that inquiry can be found in a new National Bureau of Economic Research working paper, titled Buying the Verdict, co-written with Umit Gurun of the University of Texas at Dallas. Together, they found that Samsung is hardly alone in targeting advertising dollars to tip the scales of justice in local court cases—and companies following such strategies earned much more than local appreciation for their efforts.
What’s more, the strategy usually works to return favorable verdicts from juries.
Follow the advertising
To study the phenomenon, Cohen and Gurun used a database that tracks litigation against 1,000 top firms in the US stock market, looking at all lawsuits between 1995 and 2013. They cross-referenced that with a database of advertising spending by the same companies in more than 200 local markets across the country.
“We can see in fine spatial detail how Walmart advertises in Akron versus Toledo versus L.A.,” Cohen says. Sure enough, they found that advertising dollars increased in local areas by an average of 23 percent after a lawsuit was filed there.
In addition, the probability of launching new advertising in an area rose from 4 to 30 percent once a suit was filed there. “These are big numbers,” says Cohen. They do not even include advertising on social media, where companies can target specific locations and demographics.
“I think what we are seeing is just the tip of the iceberg.”
Companies aren’t just spreading their generosity around wherever they are sued, but seem to be particularly targeting areas where they can get the biggest return on investment with more eyeballs on their brands. For example, Cohen and Gurun found they were more apt to spend those dollars in smaller areas, where there were fewer other advertisers.
They were especially likely to spend in areas where trials are decided by juries, rather than bench trials (i.e., decided by judges), where advertising increases were statistically zero. “You are not buying billboards to influence judges,” Cohen says. In fact, looking at television advertising that breaks down spending by age group, the researchers found that companies specifically targeted 45 to 55-year-olds—the very people most likely to serve on juries.
Marketing dollars are working
The bigger question is whether they are getting their money’s worth. Cohen and Gurun found that verdict to be an unequivocal “yes.”
“[TiVo] paid $10,000 to buy a champion steer during a local county fair, renaming the bull ‘TiVo' before donating it back”
For cases that aren’t settled out of court, companies serving as defendants typically win 44 percent of the time. For every $250,000 they spend on advertising over an average of $1 million, they increase their chance of winning by 6 percentage points, researchers found. That can make advertising a worthwhile investment when tens of millions of dollars are at stake.
Sometimes companies even get their verdicts at a bargain. In 2006, TiVo was facing a patent dispute in Marshall that threatened to break the company. It paid $10,000 to buy a champion steer during a local county fair, renaming the bull “TiVo” before donating it back. Two weeks later, a jury ruled in TiVo’s favor, awarding the company damages of $74 million. (TiVo’s lawyer insisted the purchase “didn’t affect the outcome of the case.”)
Cohen stresses that there is nothing illegal about spending money on advertising—or bulls or skating rinks, for that matter. “Firms are free to advertise how they want and in whatever mode they want.”
On the other hand, he says, our legal system is predicated on a jury of our peers deciding a case based on their own independent opinions, not on their warm feelings from the advertisement they saw on their way to the courthouse.
To prevent unfair persuasion, Cohen recommends that judges make mention of this phenomenon in instructions given to juries. “We want to shine a light on this, and let everyone know, firms are going to be doing this, and so if you see more of these advertisements, try to realize they are not doing this out of their own motivation; they have an acute need to seem like the good guys.”
All that advertising shouldn’t change the facts of a case, no matter how many scholarships a company sponsors—or how many Christmas lights it puts on the courthouse.
Related Reading:
Dragging Patent Trolls Into the Light
Research Paper Playing Favorites: How Firms Prevent the Revelation of Bad News
What do you think of this research?
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