Abstract:
This paper contributes to the fundamental discussion of setting optimal
liabilities in restitution law by analyzing the effects that the existing
multitude of indemnification rules for patent infringements have on
innovative and imitative activity. From a theoretical legal standpoint, the
choice of patent law is particularly enlightening due to its hybrid public and
private nature. From an economic perspective its relevance lies in regulating
the driving forces of welfare in highly industrialized societies. Our analysis
of regulations from six different jurisdictions (US, JP, DE, UK, FR, NL)
reveals that from a scholarly standpoint none of the regulations sets optimal
liabilities in general. Our major finding is that an expectation damage rule
based on a renegotiation outcome from an ex-ante perspective (falling in
between the generic legal notions of ‘lost profits’ and ‘infringer’s profits’)
between licensor and licensee appears optimal in patent infringement cases
to avoid dynamic inefficiencies. The result is intuitive, however, was not
predicted by the existing literature on indemnification law.
Keywords: Patents, litigation, damage awards, innovation,
infringement
JEL-Classifications: K41,L00, L20
The paper argues that society should vary the sanction applied to a
criminal defendant with the weight of the evidence against him or her.
This is optimal when it is costly for society to apply sanctions, since it can
yield the same degree of deterrence while requiring fewer resources to be
spent on sanctioning. Furthermore, when the unfairness of convicting an
innocent defendant increases with the size of the sanction, this provides a
further rationale for graduating sanctions with the probability of guilt.
Some objections are briefly discussed, mainly that it is inherently unfair
to apply different sanctions on people, who have committed the same
offense, and that the legal system will lose legitimacy if it allows sanctions
to vary in the way suggested.