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Probabilistic Patents, Alternative Damage Rules and Optimal Trade Policy

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  • Apurva Dey
  • Arun Kaushik
  • Rupayan Pal

Abstract

This paper analyzes interdependencies between optimal trade policy and 'preferred' liability doctrine to assess infringement damages, when intellectual property rights are probabilistic, in a model of import competition between a foreign patentee and a domestic infringer. It shows two reversal results. First, a regime switch from protectionism to free trade reverses stakeholders' preferences over liability doctrines. In the free trade regime both the infringer and consumers prefer the 'unjust enrichment' rule, while the patentee prefers the 'lost profit' rule, over any convex combination of these two liability doctrines. In contrast, in the regime of trade policy intervention, the importing country's government prefers the 'lost profit' rule, which best protects interests of the infringer at the expense of both consumers and the patentee. Second, the optimal trade policy changes from an import tariff under the 'lost profit' rule to import subsidization under the 'unjust enrichment' rule, unless the patent is weak.

Suggested Citation

  • Apurva Dey & Arun Kaushik & Rupayan Pal, 2017. "Probabilistic Patents, Alternative Damage Rules and Optimal Trade Policy," Working Papers id:11748, eSocialSciences.
  • Handle: RePEc:ess:wpaper:id:11748
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    References listed on IDEAS

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    1. Schankerman, Mark & Scotchmer, Suzanne, 2001. "Damages and Injunctions in Protecting Intellectual Property," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 199-220, Spring.
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    More about this item

    Keywords

    Probabilistic intellectual property rights; Infringement; Damage rules; Import competition; Trade policy; analyzes; interdependencies; trade; policy; liability; doctrine; infringement; damages; domestic; consumers;
    All these keywords.

    JEL classification:

    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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