Optimal Remedies for Patent Infringement

Abstract

This paper derives optimal remedies for patent infringement, examining damages awards and injunctions. The fundamental optimality condition that applies to both awards and injunctions equates the marginal static cost of intellectual property protection with the marginal “dynamic” benefit from the innovation thereby induced. We find that the optimal damages award may be greater than (or less than) the standard “lost profits” measure, depending on the social value of the innovation. When the social value of the patent is sufficiently high, the optimal award induces socially efficient investment by giving the innovator the entire social value of her investment.

Keywords: Optimal Patent Damages, Patent Infringement, Optimal Injunction Scope

JEL Classification: D42, K13, L40, O31, O34