Economic Analysis of Lost Profits from Patent Infringement with and Without Noninfringing Substitutes
Vanderbilt Law School, Joe C. Davis Working Paper No. 99-9
Posted: 6 Aug 2001
Date Written: 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.
Note: A version of this working paper has been published in 27 American Intellectual Property Law Association Quarterly 1999
Suggested Citation: Suggested Citation