Friday, 6 March 2009

Patent damages as an incentive to transact

I spent a couple of hours this afternoon talking to Professor Paul Heald in Oxford. Paul is an enthusiast/expert in the field of damages for patent infringement. In brief, on the assumption that all systems of remedies are designed to influence behaviour, Paul thinks that patent remedies should be designed to induce the optimal amount of transacting between inventive firms and those who need inventions. He rejects the commonly-made assertion that damages can be calibrated to induce the optimal amount of investing in R&D. Looking at the patent world through the transactional lens lets him to solve (or claim to solve) serious practical questions such as when an injuntion should issue, how and to what extent an infringer's intent or knowledge should effect damages, and when an accounting is appropriate.

Paul has authored a very impressive paper, "Optimal Remedies for Patent Infringement: A Transactional Model". The abstract reads as follows:
"In a world of zero transaction costs, one should observe optimal invention and innovation. As long as a system of enforceable contracts were in place, firms with inventive capacity and firms requiring inventions would negotiate for the optimal production of new creations. With adequate information, an observer could accurately predict which transactions would occur between firms and which transactions would not, thereby permitting description of the conditions for optimal inventiveness. Patent remedies in a world with transactions costs can be calibrated so that real firms behave as ideal firms, providing incentives for real world transactions to mimic those in a world without transactions costs. The goal of remedies for patent infringement should therefore be to provide incentives for efficient transactions to occur, while minimizing the cost of transacting. This approach sets the framework for a comprehensive revision of current patent remedies and resolves current debates over the relevance of an infringer's knowledge, independent invention, and the proper scope of injunctive relief."
You can read this paper in full here.

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