Finding "lost" profits: An equilibrium analysis of patent infringement damages
We examine the impact of patent infringement damages in an equilibrium oligopoly model of process innovation where the choice to infringe is endogenous and affects market choices. Under the lost profits measure of damages normally employed by U.S. courts, we find that infringement always occurs in equilibrium with the infringing firm making market choices that manipulate the resulting market profit of the patent holder. In equilibrium, infringement takes one of two forms: a "passive" form in which lost profits of the patent holder are zero and an "aggressive" form where they are strictly positive. Even though the patentee's profits are protected with the lost profits damage measure, innovation incentives are reduced relative to a regime where infringement is deterred. © The Author 2006. Published by Oxford University Press on behalf of Yale University. All rights reserved.
Volume / Issue
Start / End Page
Electronic International Standard Serial Number (EISSN)
International Standard Serial Number (ISSN)
Digital Object Identifier (DOI)