Overuse of Exclusivity in Patent Law

Liability Rules in Patent Law

“…175 Ayres and Talley (1995), pp. 178 Epstein (1997Epstein ( ), p. 2092 Swope and Schmitt claim to have found empirical evidence for this behaviour in their experiment: Swope and Schmitt (2008), p. 13. 176 Rachlinski and Jourdan find evidence for this argument in their behavioural study: cf.…”

“…178 In a competitive market, i.e., where equivalents or substitutes are available, potential buyers can play one seller off against another until the price equals marginal costs, and no deadweight loss will result from the transaction. Under a property rule, a hold-out problem may especially arise whenever the circumstances limit each side to a single trading partner.…”

“…When there is awareness of a positive attribute with respect to economic efficiency, the owner may tend to bribe potential users or buyers if he values his entitlement higher than the expected objectively determined compensation. 182 The outcome may, however, depend on other factors such as litigation costs. 180 These deals are themselves potentially inefficient and cause deadweight losses since potential users or takers spend resources to find such assets and owners spend resources to protect them.…”

“…190 Property rules should induce a frame of mind that focuses on the profits of exchange rather than on the good that is given up. 193 (d) Are Parties Acting Fairly Under Property Rules? 191 However, Korobkin's critique was that no empirical findings support these hypotheses and that Lewinsohn-Zamir's arguments are based on wrong assumptions.…”

“…Therefore, liability rules instituted by the legislature may be necessary and more efficient than property rules in these cases. 220 , p. 12753. 223 It was argued that a patentee would have an incentive to invest in institutions with a liability rule structure that lower transaction costs if he 217 Ayres and Klemperer (1999), p. 1027 et seq.…”