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PATENT DAMAGES AND SPATIAL COMPETITION *
Author(s) -
HENRY MATTHEW D.,
TURNER JOHN L.
Publication year - 2010
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/j.1467-6451.2010.00416.x
Subject(s) - incentive , damages , enforcement , competition (biology) , negotiation , patent infringement , product (mathematics) , industrial organization , business , microeconomics , probabilistic logic , economics , construct (python library) , intellectual property , law , computer science , ecology , programming language , geometry , mathematics , political science , biology , artificial intelligence
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.