Patent Damages Heuristics

Abstract

In many domains, including law, decisionmakers often resort to heuristics, which others have aptly described as “shortcuts that simplify and speed up decision making” by, for example, “ignor[ing] some of the available information” to arrive at “adequate, though often imperfect, answers to difficult questions.” In this paper, I argue that a patent system that more readily accepts the use of damages heuristics may better serve public policy than one that requires patent owners to substantiate every aspect of their claimed damages with rigorous proof. More specifically, policymakers confronted with the choice between a proposed heuristic and an open-ended, nonheuristic standard (or an alternative heuristic) ideally should choose the proposed heuristic when the sum of the administrative and error costs associated with its use is lower than the sum of the administrative and error costs resulting from the use of the nonheuristic (or alternative heuristic). To be sure, there often may be no easy way to evaluate whether this condition is satisfied — due both to the paucity of the evidence and to the fact that the cost one attributes to error depends in part on the value one places on the importance of accurate damages calculations to patent policy. Nevertheless, I will argue that, at least in some recurring situations, policymakers can reach a reasoned conclusion whether or not use of a particular heuristic is likely to improve social welfare; and that, more generally, the patent system would benefit if courts were more mindful of both the necessary tradeoffs to be made in calculating damages and where the gaps in our knowledge lie.

Keywords: Patents, damages, remedies, heuristics, royalties, FRAND