Having introduced the ex post patent market, it becomes necessary to focus on the chief condition responsible for its ordering, namely patent law remedies, or the body of rules that fashions or governs the enforcement of patents. As axiomatically expressed by Blackstone:
34 Carrie Menkel-Meadow, ‘Ethics and the Settlements of Mass Torts: When the Rules Meet the
Road’ (1995) 80 Cornell Law Review 1172.
35 Carrie Menkel-Meadow, ‘Whose Dispute Is It Anyway?: A Philosophical and Democratic
Defense of Settlement (In Some Cases)’ (1995) 83 Georgetown Law Review 2669-2670; see also Carrie Menkel-Meadow, ‘Toward Another View of Legal Negotiation: The Structure of Problem Solving’ (1984) 31 University of California Law Review 755-840.
36 James Bessen and Michael Meurer, ‘Lessons for Patent Policy from Empirical Research on
Patent Litigation’ (2005) 9 Lewis and Clark Law Review 4-6.
37 James Bessen and Michael Meurer, ‘The Private Costs of Patent Litigation’ (2008) Boston
University School of Law Working Paper No. 07-08, available at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=983736 (last viewed 7/05/2016).
38 Kevin Casey, ‘Alternate Dispute Resolution and Patent Law’ (1993) 3 Federal Circuit Bar
Journal 1-14; Vivek Koppikar, ‘Using ADR Effectively in Patent Infringement Disputes’ (2007) 89
The remedial part of a law is so necessary… that laws must be very vague and imperfect without it. For in vain would rights be declared, in vain directed to the observed, if there were no method of recovering and asserting these rights, when wrongfully withheld or invaded.39
This statement can be best appreciated by viewing enforcement rules, as reasoned by Becker,40 as prices that induce the demand and supply of (prohibited)
activities.41 In other words, the more prohibitive and privately costly the remedies
for breach of rights are to a wrongdoer, the more likely he or she will avoid acts that amount to breach.42
The reverse is equally true: the more lenient the sanctions against legal wrongs, the higher the incentive to engage in them, as the private costs of wrongdoing are low. Generally, as persons are rational economic actors, they will only take part in (wrongful) acts to the extent that it benefits them and they can afford to bear the legal consequences.43 Accordingly, the nature of remedies that reinforce rights
determines the price that the rights owner can demand in settlement arrangements. In other words, remedies determine the bargaining power of both the rights owner and the wrongdoer in private settlement of legal disputes.44
The ex post patent market, like all settlement arrangements, is conducted in the shadow of the law. An interesting statement from Mnookin and Kornhauser’s work on settlement in divorce cases captures this point:45
39 William Blackstone, Commentaries on the Laws of England: In Four Books (A. Strahan and W.
Woodfall, 11th edition, 1791)55-56.
40 Gary Becker, ‘Crime and Punishment: An Economic Approach’ (1968) 76 Journal of Political
Economy 169-217.
41 Richard Posner, Economic Analysis of Law (Aspen Publishers, 8th edition, 2011) 4; see also
Richard Posner, ‘An Economic Theory of the Criminal Law’ (1985) 85 Columbia Law Review 1193.
42SeeLawrence Lessig, ‘The New Chicago School’ (1998) 27 Journal of Legal Studies 661-691; see
also Richard Posner, ‘The Law and Economics Movement’ (1987) 77 American Economic Review 1.
43 See Richard Posner, ‘Rational Choice, Behavioral Economics, and the Law’ (1998) 50 Stanford
Law Review 1551-1575.
44 Jeffrey Rachlinski and Forest Jourden, ‘Remedies and the Psychology of Ownership’ (1998) 51
Vanderbilt Law Review 1541-1580.
45 Robert Mnookin and Lewis Kornhauser ‘Bargaining in the Shadow of the Law: The Case of
Divorcing parents do not bargain over the division of family wealth and custodial prerogatives in vacuum; they bargain in the shadow of the law. The legal rules governing alimony, child support, marital property, and custody give each parent certain claims based on what each would get if the case went to trial. In other words, the outcome that the law will impose if no agreement is reached gives each parent certain bargaining chips …46
Patent settlements are likewise modelled on likely judicial outcomes, as foreshadowed by the design of legal remedies, should disputes end in court. The extent to which remedial rules protect a rights owner determines the degree to which the disputing parties can actualise strategic behaviour so as to advance individual gains in the settlement process. As posited by Cooter et al, what causes failure in settlements is not the excessive optimism of a party as to his or her chances of success in litigation, but the inordinate self-pursuit for advantageous distribution of gains from the settlement.47 However, prudent parties will try to
settle on terms that make the eventual distribution of gains favourable to each side in such a way that leaves each better off than were negotiations to fail.48 In ex-post
bargaining it is the possibility of strategic behaviour in the bargaining process that creates room for opportunism on either the patentee or infringer’s side.
As noted above, legal remedies do not merely inform ex post bargaining outcomes, but also influence ex ante bargains and the general attitude of entities towards legal entitlements.49 This corroborates Wright’s position that ‘[t]he law of
remedies is, inevitably, a social institution’50 because ‘[d]ecisions on remedies
questions have an inescapable effect upon social order’.51 The implications of
remedies on the decision-making of individuals can be explained from an economics perspective. Mathis expresses the view that rational persons, seeking
46 Ibid, 968.
47 Robert Cooter, ‘Bargaining in the Shadow of the Law: A Testable Model of Strategic Behavior’
(1982) 11 Journal of Legal Studies 225-251.
48 Ibid.
49 See Roberto Galbiatiai and Pietro Vertovab, ‘How Laws Affect Behavior: Obligations, Incentives
and Cooperative Behaviour’ (2014) 38 International Review of Law and Economics 48-57.
50 Charles Wright, ‘The Law of Remedies as a Social Institution’ (1955) 18 University of Detroit
Law Journal 391.
to advance their interests, do so in the light of two factors: preferences and constraints.52 ‘Preferences’ can be described as motivations to engage in
something, whereas ‘constraints’ are external limitations or incentives. 53
Economic actors, Mathis maintains, pursue their preferences to the extent that external limitations or incentives allow them.54 Thus, legal remedies are akin to
the constraints referred to in Mathis’ analysis. Accordingly, it is necessary to understand the nature of legal remedies in patent law to lay a foundation for understanding patent opportunism.