Reining in the rules for ‘lost profits’ damages in patent law

Abstract

The thesis of this paper is that the prevailing model governing the computation of patent lost profits damages in Commonwealth jurisdictions does not align well with the true nature of the patent system and is therefore apt to derail the social welfare intendments of the system. The article makes this argument based on two principal considerations. The first is that the current model encourages judicial speculation on patentees' compensatory entitlement, thereby creating room for inherent lottery or windfall effects for patentees. The second, which advances the first, is that the prevailing model flies in the face of both the contemporary state of innovation and the social welfare objectives of the patent system. The submission of this paper is that to correct this state of affairs, where patented goods have perfect and imperfect market substitutes, then reasonable royalties alone are sufficient as a monetary remedy. However, where patented goods have ‘zero’ market substitutes (ie where the infringer could not have competed without infringing), only then would it be proper to apply lost profit damages.