IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

Real Options And Patent Damages: The Legal Treatment Of Non-Infringing Alternatives, And Incentives To Innovate

  • Jerry Hausman
  • Gregory K. Leonard

Patent litigation has become an increasingly important consideration in business strategy. Damage awards in patent litigation are supposed to compensate the patent owner for economic harm created by infringement and are therefore important for protecting returns to innovation. We analyze the effects that a recent court decision in the United States, called Grain Processing , has had on the incentives of potential infringers to infringe and innovators to innovate. We find that Grain Processing has decreased the expected value of damages awards in patent cases by conferring a 'free option' on infringers. Grain Processing also concluded that the patent owner in the case did not suffer lost profits due to the infringement because the infringer would have adopted an (inferior) non-infringing technology had it not infringed. We demonstrate that this conclusion is inconsistent with standard economic models. Copyright 2006 The Authors Journal compilation � 2006 Blackwell Publishing Ltd.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
File Function: link to full text
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Wiley Blackwell in its journal Journal of Economic Surveys.

Volume (Year): 20 (2006)
Issue (Month): 4 (09)
Pages: 493-512

in new window

Handle: RePEc:bla:jecsur:v:20:y:2006:i:4:p:493-512
Contact details of provider: Web page:

Order Information: Web:

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:bla:jecsur:v:20:y:2006:i:4:p:493-512. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)

or (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.