Economic Analysis of Lost Profits From Patent Infringement With and Without Noninfringing Substitutes
Gregory J. Werden
U.S. Department of Justice - Antitrust Division
Vanderbilt University - Strategy and Business Economics
Lucian Wayne Beavers
Waddey and Patterson; Vanderbilt University
American Intellectual Property Law Association Quarterly Journal, Vol. 27, pp. 305-333, 1999
This paper explains how basic microeconomics can be used to assess lost profits from patent infringement. The main suggested analysis is an adaptation of merger simulation. Observed prices and quantities are combined with estimated demand parameters to calibrate a model of the industry with infringement. Lost profits are then estimated by calculating an equilibrium without the infringing product(s). Simulation calculates the sales diversion, price erosion, and "quantity accretion" components of lost profits, and avoids the patent law analog to antitrust market delineation. Simulation provides a satisfactory methodology for assessing lost profits damages even in the presence of acceptable noninfringing substitutes. The facts of leading cases form the basis of illustrations.
Number of Pages in PDF File: 21Accepted Paper Series
Date posted: May 1, 2000
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