Patent Damages: What Reforms Are Still Needed?
31 May 2010
By Dr. Mario Lopez with former NERA economist Dr. Gregory K. Leonard
In the ongoing attempts to reform the US patent system, one of the key areas of contention is whether new rules are needed to govern how damages are calculated in patent litigation. Companies in high-tech industries have led a drive to rewrite the rules for damage calculation so that the fact finder would be required to "apportion" the value of a product across the various inputs that contribute to the product. This would serve to limit the value attributed to any one patent and thus would tend to lower damage awards. On the other side of the divide are the pharmaceutical and manufacturing industries. Companies in these industries maintain that full patent protection is necessary to protect the substantial sunk-cost investments they are required to make into research and development. This paper, published in the May/June issue of Landslide Magazine, shows that the application of the same set of economic principles leads to the "right" answer in both cases. An economic approach identifies the value of the next best alternative to the patented technology, and the assessment of the implications for the defendant's profitability of using that next best alternative instead of the patented technology. In this way, the patented technology can be appropriately valued, whether the patent is "major" or "minor."
