Error Costs, Ratio Tests, and Patent Antitrust Law

31 Pages Posted: 4 Apr 2019

See all articles by Keith N. Hylton

Keith N. Hylton

Boston University - School of Law

Wendy Xu

Boston University

Date Written: March 5, 2019

Abstract

This paper examines the welfare tradeoff between patent and antitrust law. Since patent and antitrust law have contradictory goals, the question that naturally arises is how one should choose between the two in instances where there is a conflict. One sensible approach to choosing between two legal standards, or between proof standards with respect to evidence, is to consider the relative costs of errors. The approach in this paper is to consider the ratio of false positives to false negatives in patent antitrust. We find that the relevant error cost ratio for patent antitrust is the proportion of the sum of the monopoly profit and residual consumer surplus to the deadweight loss. This error cost ratio, for a wide range of deterministic demand functions, ranges from infinity to a low of roughly three. This suggests that patent antitrust law should err on the side of protecting innovation incentives.

Keywords: Patent Antitrust, Patent Monopoly, False Positives, False Convictions, False Negatives, False Acquittals, Error Costs, Ratio Tests

JEL Classification: K21, L43, O31, O34

Suggested Citation

Hylton, Keith N. and Xu, Wendy, Error Costs, Ratio Tests, and Patent Antitrust Law (March 5, 2019). Boston Univ. School of Law, Law and Economics Research Paper No. 19-5. Available at SSRN: https://ssrn.com/abstract=3365034 or http://dx.doi.org/10.2139/ssrn.3365034

Keith N. Hylton (Contact Author)

Boston University - School of Law ( email )

765 Commonwealth Avenue
Boston, MA 02215
United States
617-353-8959 (Phone)
617-353-3077 (Fax)

Wendy Xu

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

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