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An Optimal Rule for Patent Damages Under Sequential Innovation

Yongmin Chen () and David Sappington

MPRA Paper from University Library of Munich, Germany

Abstract: We analyze the optimal design of damages for patent infringement in settings where the patent of an initial innovator may be infringed by a follow-on 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 the innovators. We identify conditions under which a linear rule can induce the socially optimal levels of sequential innovation and the optimal allocation of industry output. We also show that, despite its simplicity, 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.

Keywords: Patents; sequential innovation; infringement damages; linear rules for patent damages. (search for similar items in EconPapers)
JEL-codes: D4 K2 O3 (search for similar items in EconPapers)
Date: 2016-08-30
New Economics Papers: this item is included in nep-com, nep-cse, nep-ino, nep-ipr and nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

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Related works:
Journal Article: An optimal rule for patent damages under sequential innovation (2018) Downloads
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