Distinguishing Damages Paid from Compensation Received: A Thought Experiment

40 Pages Posted: 7 Aug 2017

See all articles by Peter Lee

Peter Lee

University of California, Davis - School of Law

Date Written: August 4, 2017


This symposium contribution argues that the shortcomings of patent damages doctrine arise in part from the conflicting normative aims of this body of law. On the one hand, patent damages should provide just enough compensation to induce invention and commercialization of a technology but nothing more, thus mitigating deadweight loss. On the other hand, damages should deter infringement and shunt would-be infringers into licensing negotiations with patentees. The current regime of “make-whole” damages largely effectuates the second aim by providing patentees with the full market value of their infringed technologies, even when such damages exceed inducement costs. To help resolve this divergence, this Article proposes distinguishing the amount of compensation that patentees receive from the amount of damages that infringers pay. Within this framework, infringers would pay damages based on the current regime of make-whole damages, thus deterring infringement and encouraging licensing. However, courts would compensate a patentee up to this amount based on the patentee’s inducement costs of invention and commercialization, including a reasonable profit. If make-whole damages paid by an infringer exceed inducement costs, courts would allocate any surplus to government agencies to fund research and development, thus advancing the goals of the patent system. This Article assesses the pros and cons of this proposal, observing that such a “decoupling” regime encourages patentees and infringers to settle, thus eliminating any patent surplus. This is a feature rather than a bug, however, as such settlement would promote more competitive market entry relative to the current status quo while guarding against overly diminishing incentives to invent.

Keywords: patents, infringement, damages, remedies, inducement, decoupling, settlement

Suggested Citation

Lee, Peter, Distinguishing Damages Paid from Compensation Received: A Thought Experiment (August 4, 2017). Texas Intellectual Property Law Journal (2017, Forthcoming), UC Davis Legal Studies Research Paper , Available at SSRN: https://ssrn.com/abstract=3013793

Peter Lee (Contact Author)

University of California, Davis - School of Law ( email )

Martin Luther King, Jr. Hall
Davis, CA CA 95616-5201
United States

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