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Alternative damage rules and probabilistic intellectual property rights: Unjust enrichment, lost profits, and reasonable royalty remedies

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  • Choi, Jay Pil

Abstract

This paper investigates how alternative damage rules in patent infringement cases shape competition when intellectual property rights are probabilistic. More specifically, I develop a simple model of oligopolistic competition to compare two main liability doctrines that have been used in the U.S. to assess infringement damages - the unjust enrichment rule and the lost profit rule. I show that the lost profit rule provides more protection to the patent holder than the unjust enrichment rule if the patent holder and infringer are equally efficient. When the lost profits from the infringement cannot be proved, the court accepts a "reasonable royalty rate" that would have been negotiated in a hypothetical bargaining situation as an alternative measure of damage. However, I point out that the concept of "reasonable" royalty rates lacks logical consistency when intellectual property rights are probabilistic.

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  • 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.
  • Handle: RePEc:eee:iepoli:v:21:y:2009:i:2:p:145-157
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    References listed on IDEAS

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    Cited by:

    1. CHOI, Jay Pil & GERLACH, Heiko, 2015. "A model of patent trolls," Discussion paper series HIAS-E-9, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    2. Silvana Krasteva, 2014. "Imperfect Patent Protection and Innovation," Journal of Industrial Economics, Wiley Blackwell, vol. 62(4), pages 682-708, December.
    3. 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, June.
    4. Chen, Yongmin & Sappington, david, 2016. "An Optimal Rule for Patent Damages Under Sequential Innovation," MPRA Paper 73438, University Library of Munich, Germany.
    5. Bertrand Chopard & Thomas Cortade & Eric Langlais, 2014. "On patent strength, litigation costs, and patent disputes under alternative damage rules," EconomiX Working Papers 2014-41, University of Paris Nanterre, EconomiX.
    6. repec:eee:indorg:v:56:y:2018:i:c:p:168-203 is not listed on IDEAS
    7. repec:eee:jeborg:v:137:y:2017:i:c:p:457-475 is not listed on IDEAS
    8. Ottoz Elisabetta & Cugno Franco, 2012. "Does Banning Side Payments in Patent Settlements Suffice to Fully Protect Consumers?," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201201, University of Turin.
    9. Ottoz, Elisabetta & Cugno, Franco, 2016. "Side payments, litigation risk and settlement outcomes," Information Economics and Policy, Elsevier, vol. 35(C), pages 76-81.

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