Reconstructing Trademark Infringement Damages from the Perspective of Option Theory

We often assume property rules and liability rules as
opposing concepts. The option theory proposed by Professor Ian
Ayres of Yale Law School and other scholars abolishes this
dichotomy and introduces a consistent explanation for the two rule
types.

This article focuses on the types of monetary relief in
trademark infringement cases. Section 35 of the Lanham Act provides
various methods for measuring the harm suffered by trademark
owners in such cases. However, no consistent explanation to connect
the different types of remedies has been introduced previously. Using
option theory to blend property rules and liability rules can facilitate
the establishment of a consistent theory of the methods of calculating
trademark damages. This model can also account for various hybrid
regimes. An accounting of profits is closest along the continuum to
property rules; actual damages are closest to liability rules; and the
consideration of reasonable royalties, which is located between
property and liability rules on this spectrum, is consonant with the
exchange paradigm suggested by the law and economics literature.

Judicial application of the principle of equity in awarding
damages allows judges the flexibility to move between property
rules and liability rules to create various hybrid regimes. This
theoretical construction allows courts to incorporate different
policy considerations and not to limit themselves merely to
measuring actual damages. This research article further suggests
that courts can use the equity principle to combine different
justifications and elements of calculation methods more freely in
order to achieve a fuller realization of the goals of monetary
damages.