Economics and Patent Damages: A Practical Guide
1 November 1993
By Dr. Sumanth Addanki
This article is about the guidance that economics can provide in evaluating patent damages. The law on patent damages has changed dramatically over the past couple of decades in ways that have been documented and commented upon at length elsewhere. The overall direction of change seems to be toward increased reliance upon economic theory and principles. This is welcome news because damages are simply the earnings that would have accrued to the plaintiff but for the damaging acts and are, therefore, intrinsically economic in nature. It seems reasonable that we should be guided by economic principles when evaluating damages; courts certainly have been so guided in other damage situations. It may be an overdue development for the same principles to begin to find application in patent damage cases.
Moreover, according to a recent U.S. General Accounting Office report, prices in the U.S. are higher than they are in Britain. American onlookers may wonder why the U.S. does not have a similar means of settling pharmaceutical pricing issues by regulation. If regulation by negotiation produces such harmonious compromises, isn't it an improvement over the frantic, hostile U.S. approach to pharmaceutical pricing and a practice that is worth importing?
This paper attempts to answer these questions. Dr. Addanki first describes the operation of the PPRS in the U.K., paying special attention to the incentives it creates for pharmaceutical industry investors and managers as well as for the British government. He then considers the nature of profit regulation in the U.S. and assess how well or badly the PPRS fits into the U.S. regulatory regime. At the end, Dr. Addanki offers some conclusions regarding the applicability of the PPRS as a model for regulation of the pharmaceutical industry.
