| By: |
Chen, Yongmin;
Sappington, david |
| 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. |
| JEL: |
D4 K2 O3 |
| Date: |
2016–08–30 |
| URL: |
http://d.repec.org/n?u=RePEc:pra:mprapa:73438&r=ipr |