Originally received: April 11, 2016. Final revision: April 27, 2016. Accepted: April 27, 2016. Available online: June 1, 2016. Manuscript no. 2016-739. 1 Singapore National Eye Centre, Singapore, Republic of Singapore. 2 Singapore Eye Research Institute, Singapore, Republic of Singapore. 3 Department of Ophthalmology and Visual Sciences, Duke-NUS Medical School, Singapore, Republic of Singapore...

We study several interconnected problems that arise under the current U.S. patent system when a patent covers one component or feature of a complex product. This situation is common in the information technology sector of the economy. Our analysis applies to cases involving reasonable royalties but not lost profits. First, we show using bargaining theory that the threat to obtain a permanent in...