Welfare-Optimal Royalty Damages Under Quantity Competition with Multiple Infringement
30 Pages Posted: 17 Aug 2016 Last revised: 1 Sep 2016
Date Written: July 1, 2016
We study the effect of patent royalty damages on social welfare in an entry model of quantity competition. We show that fixed royalties are more effective than per-unit royalties in mitigating the inappropriability problem and promoting social welfare. Intuitively, per-unit royalties help overcome the over-entry problem only by distorting downstream competition, while fixed royalties do not. Welfare-optimal fixed royalties reflect the well-known business stealing effect of market entry. Such royalties may be useful in designing minimums for courts to use when determining reasonable royalties.
Keywords: patents, damages, royalties, invention, entry
JEL Classification: K2, O3
Suggested Citation: Suggested Citation