An Optimal Rule for Patent Damages Under Sequential Innovation

Chen, Yongmin and Sappington, david (2016): An Optimal Rule for Patent Damages Under Sequential Innovation.

Abstract

We analyze the optimal design of damages for patent infringement in settings where the patent of an initial innovator may be infringed by a follow-on innovator. We consider damage rules that are linear combinations of the popular "lost profit" (LP) and "unjust enrichment" (UE) rules, coupled with a lump-sum transfer between the innovators. We identify conditions under which a linear rule can induce the socially optimal levels of sequential innovation and the optimal allocation of industry output. We also show that, despite its simplicity, the optimal linear rule achieves the highest welfare among all rules that ensure a balanced budget for the industry, and often secures substantially more welfare than either the LP rule or the UE rule.

• Item Type: MPRA Paper
• Language: English
• Keywords: Patents, sequential innovation, infringement damages, linear rules for patent damages.
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design; K - Law and Economics > K2 - Regulation and Business Law; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights

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