Patent Damages Reform and the Shape of Patent Law

Abstract

The shape of patent law is changing. Surprisingly, one of the most significant of these changes is rooted in the arcana of how damages are calculated for patent infringement. Current reform proposals before Congress, which are hotly contested by major technology-rich industries, would radically alter the shape of the patent grant by requiring courts to tease out the "economic value" of the claimed invention as compared with previously existing technology. This paper responds empirically and theoretically to this attempt to reshape patent law through the back door of damages.

Advocates of the damages reform proposals cite empirical evidence that patent verdicts are growing excessively large. This paper reviews the existing empirical literature and presents an original study of patent verdict data obtained from the Administrative Office of the Courts. The literature review and original study presented in this paper suggest that the empirical arguments made by reform advocates are largely misplaced.

This paper also examines the theoretical underpinnings of the remedial structure for patent infringement. It discusses a string of recent Supreme Court opinions in which patent law appears to be moving from a property rule towards a liability rule of remedies.

Finally, the paper examines two key factors that have been ignored in the existing patent reform debate: price elasticity of demand and risk. Theoretical models are presented that demonstrate why attempts at reform should focus on shifting towards a restitutionary model of patent damages, with a possible premium for risk.

Keywords: patent, remedies, damages, empirical, reform proposals, apportionment