Patent Infringement: Lessons from Industrial Economics

Once a patent is found to have been infringed the law generally entitles the patentholder to monetary losses suffered as the result of the illegal conduct. It is shown here that there are important differences between the losses awarded under U.S. case law and those that economic models of competition indicate would allow patentholders to just capture the social value of their innovations and, with that, provide private incentives for efficient levels of innovation. The prevailing case law generally overestimates the harm, providing an incentive for the patentholder to opportunistically claim infringement. In the end this increases the reward to innovation and encourages overinvestment. The record of the widely read State Industries vs. Mor-Flo Manufacturing Co. (883 F.2d 1573, Fed. Cir. 1989, cert. denied, 493 U.S. 1022, 1990) provides a case study.