Wednesday 5 March 2008

Calculating patent damages in the US

Via NERA Economic Consulting I've just come across an article, "Patent Damages and Real Options: How Judicial Characterization of Non-Infringing Alternatives Reduces Incentives to Innovate", by the triumvirate of Gregory Leonard, Jerry Hausman J. Gregory Sidak -- all US academics with impressive credentials. According the note on NERA,

"The legal framework under which patent damages are calculated changed substantially after the Federal Circuit decided Grain Processing Corp. v American Maize-Products Co. in 1999. Grain Processing eased the restriction on the set of non-infringing substitutes available in the but-for world by allowing an infringer to claim that it would have offered a non-infringing product that, although not actually sold in the marketplace, was technically feasible at the time and could have been made commercially available relatively quickly.

[The authors] examine a factor that the authors see as one of the decision's most important economic ramifications: the grant of a free option to the infringer. Although it is widely appreciated how Grain Processing has made it more difficult for patent holders to claim lost profits damages, it is less well understood how Grain Processing has affected the incentives of companies to risk litigation by using patented technology (without a license) rather than to avoid infringement by using an economically inferior non-infringing technology".

This decision presumably contrasts unfavourably for patent owners, when compared with the position in the European Union following the implementation in 2006 of the IP Enforcement Directive, which makes it easier for patent claimants to obtain lost profits damages and has incentivised them to invest in litigation.
Abstract here.

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