Patentee Overcompensation and the Entire Market Value Rule

Abstract:     
This article studies the "entire market value rule," a U.S. patent law doctrine that, when applied, allows the owner of a component invention to capture the entire value of a larger infringing product that unlawfully incorporates its invention. I argue that the entire market value rule systematically results in the overcompensation of patent owners relative to their inventive contributions to society. First, I examine the current state of entire market value rule case law. I track the doctrine's evolution over time and explain that, from its modest origins, the doctrine has been expanded far beyond the rationales that led to its creation. Second, I present the case for modifying the entire market value rule. I introduce an economic model that demonstrates the doctrine's overcompensating effect and also address the negative consequences that result when patent rights are overvalued. Third, using a hypothetical infringing personal computer system as a case study, I explore how the entire market value rule will likely be applied in future patent litigation involving complex electronic devices. Finally, I suggest patent reform measures to counteract the doctrine's overapplication and the problems caused by the overvaluation of patented inventions.

Keywords: patent law, entire market value rule, patent damages, reasonable royalty

JEL Classifications: 034

Accepted Paper Series