Signaling, Learning and Screening Prior to Trial: Informational Implications of Preliminary Injunctions

Preliminary injunctions (PIs) are important in litigation in many settings, including antitrust, copyright, patent, trademark, employment and labor relations, and contracts. The filing of a PI and the court's ruling generate information that can impact settlement. We find that some plaintiffs request a PI to signal bounds on their damages in order to elicit better settlement offers. As a result, the parties are more likely to come to an out-of-court agreement permitting the disputed activity, compared to when a PI is motivated solely by defensive reasons to avert immediate damages during trial. Although the grant of a PI reduces ex post incentives for potential litigants to settle, this is more than offset by an increase in settlement upon a denial. Thus, ex ante, learning leads to more settlement. Nevertheless, the anticipation of learning and increased chances of settlement do not affect the initial filing decision.

Jeitschko, Thomas D. and Byung-Cheol Kim. "Signaling, Learning, and Screening Prior to Trial: Informational Implications of Preliminary Injunction." Journal of Law, Economics, and Organization 29.5 (2013):  1085-1113.

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