Essays on the U.S. patent system
Henry, Matthew David
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This dissertation examines various aspects of the U.S. Patent System. The ¯rst chapter reviews the literature and traces the development of U.S. patent law with an eye toward recent reform proposals. In the second chapter, I measure the value of patents to ¯rms and identify factors that contribute to that value by observing the abnormal change in ¯rms' stock market values following court decisions. I ¯nd that ¯rms lose .85% (about $19 million) of their value following a decision that one of their patents is Invalid." Firms only gain about .7% of their value following a Valid & Infringed" decision. I ¯nd that factors that that a®ect the expectations of investors as to the enforceability of patent rights are at least as important in determining the contribution of the patent to the ¯rm's market value as are characteristics of the patent. Most prominently, Invalid" decisions caused a .7% (about $15.5 million) greater loss of ¯rm value after the Court of Appeals for the Federal Circuit was created. I conclude that patents are substantially more valuable to ¯rms because of this change in the legal landscape. The third chapter examines the impact, on market competition and e±cient bargaining over a license, of three regimes used to calculate damages in patent cases. I focus on product patents in a di®erentiated, duopoly setting. I ¯nd that regardless of the damage regime, the per-unit royalty under e±cient bargaining is not unique. As a result, the reasonable royalty" damage regime's application of a hypothetical negotiation" gives the court signi¯cant discretion in assigning damages. If ¯rms expect the court to choose reasonable royalty damages to maximize incentives to innovate, and patent enforcement is certain, then the reasonable royalty regime generates higher incentives to innovate than the lost pro¯ts" or unjust enrichment" regimes. However, if patent enforcement is uncer- tain, the lost pro¯ts" regime yields better incentives to innovate for patents covering the most valuable products, as it is the only regime that may deter infringement. The unjust enrichment" regime is the weakest of the three. My results o®er an e±ciency argument for abandoning it.