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Welfare-Optimal Royalty Damages Under Quantity Competition with Multiple Infringement

30 Pages Posted: 17 Aug 2016 Last revised: 1 Sep 2016

Fernando J Leiva Bertran

Arizona State University

John L. Turner

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics

Date Written: July 1, 2016

Abstract

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

Leiva Bertran, Fernando J and Turner, John L., Welfare-Optimal Royalty Damages Under Quantity Competition with Multiple Infringement (July 1, 2016). Available at SSRN: https://ssrn.com/abstract=2823515

Fernando J Leiva Bertran

Arizona State University ( email )

Farmer Building 440G PO Box 872011
Tempe, AZ 85287
United States

John L. Turner (Contact Author)

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics ( email )

Athens, GA 30602-6254
United States

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