Breaking the Vicious Cycle of Patent Damages

Abstract

Patent law is implicitly, and sometimes explicitly, based upon a story of patent infringement in which technology users are presumed to be able to discover relevant patents in advance and either design around them or negotiate patent licenses before using the patented technology. That story does not hold true in many fields today, in which the scope and diffusion of potentially relevant patents renders such preclearance both infeasible as a practical matter and undesirable as a matter of economic policy. But patent damages law continues to apply this outmoded paradigm. As a result, current doctrine perpetuates a vicious cycle of excessive, socially harmful remedies. We propose a number of ways for patent law to adapt to this new reality. First, reasonable royalty rates should be based on the market value of the patent before infringement and should exclude post-infringement considerations such as lock-in that infect current doctrine and lead to exaggerated damages awards. Second, patent remedy law should distinguish between infringers in the paradigmatic story, who can be regarded as guilty infringers, and innocent infringers for whom preclearance was not practicables; and it should further distinguish between patent holders that were willing to license their patents before infringement and those that had resolved to maintain their patent monopoly. In effect there are four combinations — innocent/willing, innocent/unwilling, guilty/willing, and guilty/unwilling. Remedies should depend on which combination is at issue, and injunctions should be available only for unwilling licensors. In the innocent/unwilling scenario, the patent holder should be able to obtain an injunction only if it agrees to bear the innocent infringer’s costs of switching to a non-infringing alternative.