Patent Damages and Spatial Competition

Abstract:     
This paper examines the impact of three patent damage regimes on licensing and competition between a patentee and imitator. We focus on product patents in a differentiated, duopoly setting. Neither per-unit royalties nor fixed fees under efficient licensing are unique in equilibrium. As a result, the "reasonable royalty" damage regime's application of a hypothetical negotiation gives the court significant discretion in assigning damages. The lost profits regime, the only one that may deter infringement, typically yields the highest incentives to innovate for highly valuable products. The unjust enrichment regime is weakest. Our results offer an efficiency argument for abandoning it.

Number of Pages in PDF File: 38

Keywords: Patent, litigation, damages, spatial, differentiated

JEL Classification: K2, O3

working papers series