Working Paper: NBER ID: w7086
Authors: Mark Schankerman; Suzanne Scotchmer
Abstract: Profit on proprietary research tools is determined partly by the remedies for infringement, such as damages and injunctions. We investigate how damages under a liability rule and the opportunity for injunctions under a property rule can affect the incentives to develop research tools. We show that the prevailing legal doctrine of damages under liability rule, called lost profit or reasonable royalty, suffers from a logical circularity which leads to an indeterminacy in permissible damages. This can create insufficient incentives to develop research tools. Incentives can be improved either by a property rule with injunctions or by a liability rule under the doctrine of unjust enrichment.
Keywords: intellectual property; biotechnology; legal remedies; research tools
JEL Codes: K00
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| circularity in the lost profits/reasonable royalty doctrine (K13) | indeterminate damages (K13) |
| indeterminate damages (K13) | insufficient incentives for development (O29) |
| prospective damages (K13) | licensing profitability (D45) |
| licensing profitability (D45) | damages awarded (K13) |
| injunctions (K41) | incentives to develop research tools (O31) |
| unjust enrichment doctrine (D63) | greater incentives for developing research tools (O31) |
| timing of injunctions (K41) | effectiveness of injunctions (K41) |
| sunk costs incurred by infringer (K41) | effectiveness of damages and injunctions (K41) |