Economic Analysis of Lost Profits from Patent Infringement with and Without Noninfringing Substitutes

American Intellectual Property Law Association Quarterly Journal, Vol. 27, pp. 305-333, 1999

21 Pages Posted: 1 May 2000

See all articles by Gregory J. Werden

Gregory J. Werden

U.S. Department of Justice - Antitrust Division

Luke M. Froeb

Vanderbilt University - Owen Graduate School of Management

Lucian Wayne Beavers

Waddey and Patterson; Vanderbilt University

Multiple version iconThere are 2 versions of this paper

Date Written: 1999

Abstract

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.

Suggested Citation

Werden, Gregory J. and Froeb, Luke M. and Beavers, Lucian Wayne, Economic Analysis of Lost Profits from Patent Infringement with and Without Noninfringing Substitutes (1999). American Intellectual Property Law Association Quarterly Journal, Vol. 27, pp. 305-333, 1999. Available at SSRN: https://ssrn.com/abstract=205669 or http://dx.doi.org/10.2139/ssrn.205669

Gregory J. Werden

U.S. Department of Justice - Antitrust Division ( email )

450 Fifth Street, NW
9th Floor
Washington, DC 20530
United States
202-307-6366 (Phone)

Luke M. Froeb (Contact Author)

Vanderbilt University - Owen Graduate School of Management ( email )

401 21st Avenue South
Nashville, TN 37203
United States
615-322-9057 (Phone)
615-343-7177 (Fax)

Lucian Wayne Beavers

Waddey and Patterson ( email )

414 Union Street
Suite 2020
Nashville, TN 37219
United States
(615) 242-2400 (Phone)
(615) 343-7177 (Fax)

Vanderbilt University

2301 Vanderbilt Place
Nashville, TN 37240
United States

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