Optimal Standards of Proof in Patent Litigation : Infringement and Non-Obviousness

We build a model of innovation and patent adjudication under two forms of uncertainty; uncertainty regarding whether the original invention merits protection (non-obviousness), and uncertainty as to whether a particular competitor's product should be barred (infringement). We find that when it is practical to increase the rewards from innovation by extending patent length, the standards of proof for non-obviousness should be high. The intuition for this is that patent length should be set so that the increase in innovation from extending patent length is balanced by the increase in deadweight loss from extending monopoly pricing. In this situation, the ex-ante cost of failing to protect a good patent is minimal, but there is substantial deadweight loss from protecting a bad patent. In contrast, if non-infringing competing inventions substantially decrease the original inventor's profits, it might be desirable to have a very low standard of proof for infringement, since the deadweight loss from an incorrect finding of infringement is mostly balanced out by the increased ex-ante incentive to invent