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An optimal rule for patent damages under sequential innovation

Yongmin Chen () and David Sappington

RAND Journal of Economics, 2018, vol. 49, issue 2, 370-397

Abstract: We analyze the optimal design of damages for patent infringement when a follow†on innovator may infringe the patent of an initial innovator. We consider damage rules that are linear combinations of the popular “lost profit†(LP) and “unjust enrichment†(UE) rules, coupled with a lump†sum transfer between innovators. Such linear rules can sometimes induce the socially optimal levels of sequential innovation and the optimal allocation of industry output. The optimal linear rule achieves the highest welfare among all rules that ensure a balanced budget for the industry, and often secures substantially more welfare than either the LP rule or the UE rule.

Date: 2018
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https://doi.org/10.1111/1756-2171.12229

Related works:
Working Paper: An Optimal Rule for Patent Damages Under Sequential Innovation (2016) Downloads
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