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PATENT DAMAGES AND SPATIAL COMPETITION -super-*

  • MATTHEW D. HENRY
  • JOHN L. TURNER

We analyze price competition between a spatially differentiated product patentee and an imitator anticipating probabilistic future patent damages. We compare the performance of three damage regimes. The 'reasonable royalty' regime, which yields symmetric equilibrium pricing, maximizes static welfare and yields the highest innovation incentives when patent enforcement is nearly certain. The 'lost profits' regime, which may deter infringement, yields the highest innovation incentives when patent enforcement is less-than-certain and products are sufficiently valuable. The 'unjust enrichment' regime yields low static efficiency and low innovation incentives. We offer new insights into the 'hypothetical negotiation' that courts use to construct reasonable royalties. Copyright 2010 The Authors. Journal compilation 2010 Blackwell Publishing Ltd. and the Editorial Board of The Journal of Industrial Economics.

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Article provided by Wiley Blackwell in its journal The Journal of Industrial Economics.

Volume (Year): 58 (2010)
Issue (Month): 2 (06)
Pages: 279-305

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Handle: RePEc:bla:jindec:v:58:y:2010:i:2:p:279-305
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