Cost-Plus Patent Damages

54 Pages Posted: 6 Apr 2019

See all articles by Michael Abramowicz

Michael Abramowicz

George Washington University Law School

Date Written: 2018

Abstract

This Article assesses recent proposals to use risk-adjusted costs of producing an invention as a basis for either setting patent damages or valuing patents taken by eminent domain. In theory, cost-plus damages can address one of the central challenges of patent law: ensuring that a patentee does not obtain excessive rents for an invention. But cost-plus damages have three principal problems. First, risk may be difficult to estimate, and estimates may be infected by hindsight. Second, if the permitted rate of return is too low, there may be insufficient incentives to invent.

Indeed, even a rate of return that seems generous for existing companies may discourage entry into the industry. Third, inventors may spend much more on invention, anticipating that these greater expenses will not only increase the chance of success, but also increase the amount that they can charge. This Article assesses recent literature proposing cost-plus patent damages, and it offers a simulation model to assess the magnitude of these problems. It concludes that while these problems are serious, social welfare still might be increased by considering costĀ­plus damages as a factor in the patent damages calculus.

Suggested Citation

Abramowicz, Michael B., Cost-Plus Patent Damages (2018). Cost-Plus Patent Damages, 26 Tex. Intell. Prop. L.J. 133 (2018) (symposium contribution).; GWU Law School Public Law Research Paper No. 2019-15; GWU Legal Studies Research Paper No. 2019-15. Available at SSRN: https://ssrn.com/abstract=3366620 or http://dx.doi.org/10.2139/ssrn.3366620

Michael B. Abramowicz (Contact Author)

George Washington University Law School ( email )

2000 H Street, N.W.
Washington, DC 20052
United States

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