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Finding "Lost" Profits: An Equilibrium Analysis of Patent Infringement Damages

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  • James J. Anton
  • Dennis A. Yao

Abstract

We examine the impact of patent infringement damages in an equilibrium oligopoly model of process innovation where the choice to infringe is endogenous and affects market choices. Under the lost profits measure of damages normally employed by U.S. courts, we find that infringement always occurs in equilibrium with the infringing firm making market choices that manipulate the resulting market profit of the patent holder. In equilibrium, infringement takes one of two forms: a "passive" form in which lost profits of the patent holder are zero and an "aggressive" form where they are strictly positive. Even though the patentee's profits are protected with the lost profits damage measure, innovation incentives are reduced relative to a regime where infringement is deterred. Copyright 2007, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/jleo/ewm008
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Bibliographic Info

Article provided by Oxford University Press in its journal The Journal of Law, Economics, and Organization.

Volume (Year): 23 (2007)
Issue (Month): 1 (April)
Pages: 186-207

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Handle: RePEc:oup:jleorg:v:23:y:2007:i:1:p:186-207

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Cited by:
  1. Ponce, Carlos J., 2011. "Knowledge disclosure as intellectual property rights protection," Journal of Economic Behavior & Organization, Elsevier, vol. 80(3), pages 418-434.
  2. David Encaoua & Yassine Lefouili, 2005. "Choosing intellectual protection : imitation, patent strength and licensing," Cahiers de la Maison des Sciences Economiques v06039, Université Panthéon-Sorbonne (Paris 1), revised Mar 2006.
  3. Vargas Barrenechea, Martin, 2008. "Licensing probabilistic Patents: The duopoly case," MPRA Paper 9925, University Library of Munich, Germany.
  4. Yann Ménière & Sarah Parlane, 2008. "Innovation in the Shadow of Patent Litigation," Review of Industrial Organization, Springer, vol. 32(2), pages 95-111, March.
  5. Choi, Jay Pil, 2009. "Alternative damage rules and probabilistic intellectual property rights: Unjust enrichment, lost profits, and reasonable royalty remedies," Information Economics and Policy, Elsevier, vol. 21(2), pages 145-157, June.
  6. Matthew D. Henry & John L. Turner, 2010. "PATENT DAMAGES AND SPATIAL COMPETITION -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 58(2), pages 279-305, 06.

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