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Abstract:
Courts and scholars have increasingly assumed that intellectual property is a form of property, and have applied the economic insights of Harold Demsetz and other property theorists to condemn the use of intellectual property by others as free riding. In this article, I argue that this represents a fundamental misapplication of the economic theory of property. The economics of property is concerned with internalizing negative externalities - harms that one person's use of land does to another's interest to it, as in the familiar tragedy of the commons. But the externalities in intellectual property are positive, not negative, and property theory offers little or no justification for internalizing positive externalities. Indeed, doing so is at odds with the logic and functioning of the market. From this core insight, I proceed to explain why free riding is desirable in intellectual property cases except in limited circumstances where curbing it is necessary to encourage creativity. I explain why economic theory demonstrates that too much protection is just as bad as not enough protection, and therefore why intellectual property law must search for balance, not free riders. Finally, I consider whether we would be better served by another metaphor than the misused notion of intellectual property as a form of tangible property.

Abstract:
Courts and scholars have increasingly assumed that intellectual property is a form of property, and have applied the economic insights of Harold Demsetz and other property theorists to condemn the use of intellectual property by others as "free riding." In this article, I argue that this represents a fundamental misapplication of the economic theory of property. The economics of property is concerned with internalizing negative externalities - harms that one person's use of land does to another's interest to it, as in the familiar tragedy of the commons. But the externalities in intellectual property are positive, not negative, and property theory offers little or no justification for internalizing positive externalities. Indeed, doing so is at odds with the logic and functioning of the market. From this core insight, I proceed to explain why free riding is desirable in intellectual property cases except in limited circumstances where curbing it is necessary to encourage creativity. I explain why economic theory demonstrates that too much protection is just as bad as not enough protection, and therefore why intellectual property law must search for balance, not free riders. Finally, I consider whether we would be better served by another metaphor than the misused notion of intellectual property as a form of tangible property.

Abstract:
Economic scholarship has recently focused a great deal of attention on the phenomenon of network externalities, or network effects: markets in which the value that consumers place on a good increases as others buy the good. Though the economic theory of network effects is less than fifteen years old, and is still not thoroughly understood, network effects are increasingly playing a role in legal argument. Judges, litigators and scholars have suggested that antitrust law, intellectual property, telecommunications law, Internet law, corporate law, contract law and even the law of racial discrimination need to be modified to take account of network effects. Their arguments reflect a wide range of views about what network effects are and how courts should react to them. In this Article, we explore the application of network economic theory in each of these contexts. We suggest ways in which particular legal rules should -- and should not -- be modified to take account of network effects. We also attempt to draw some general conclusions about the role of network economic theory in the legal enterprise, and about the way in which courts should revise legal doctrines in response to theories from fields outside the law.

Abstract:
The traditional theory of IP is that the prospect of future reward provides an ex ante incentive to innovate. An increasingly common justification for longer and more powerful IP rights is ex post - that IP will be "managed" most efficiently if control is consolidated in a single owner. This argument is made, for example, in the prospect and rent dissipation literature in patent law, in justifications for expansive rights of publicity, and in defense of the Bono Copyright Term Extension Act. Taken to an extreme, this argument justifies perpetual protection with no real exceptions. Those who rely on this theory take the idea of IP as "property" too seriously, and reason that since individual pieces of property are perpetually managed, IP should be too. But IP isn't just like real property; indeed, it gives IP owners control over what others do with their real property. The ex post justification is strikingly anti-market. We would never say today that the market for paper clips would be "efficiently managed" if put into the hands of a single firm. We rely on competition to do that for us. But that is exactly what the ex post theory would do.

In this paper, I explore the sub rosa development of this ex post theory of IP. I argue that the basis for continued control is the assumption that the value of IP rights will be dissipated if they are used too much. This argument is fundamentally at odds with the public goods nature of information. It stems from a particular sort of myopia about private ordering, in which actions by individual private firms are presumed to be ideal and the traditional role of the market in disciplining errant firms is ignored.

Abstract:
The traditional theory of IP is that the prospect of future reward provides an ex ante incentive to innovate. An increasingly common justification for longer and more powerful IP rights is ex post - that IP will be "managed" most efficiently if control is consolidated in a single owner. This argument is made, for example, in the prospect and rent dissipation literature in patent law, in justifications for expansive rights of publicity, and in defense of the Bono Copyright Term Extension Act. Taken to an extreme, this argument justifies perpetual protection with no real exceptions. Those who rely on this theory take the idea of IP as "property" too seriously, and reason that since individual pieces of property are perpetually managed, IP should be too. But IP isn't just like real property; indeed, it gives IP owners control over what others do with their real property. The ex post justification is strikingly anti-market. We would never say today that the market for paper clips would be "efficiently managed" if put into the hands of a single firm. We rely on competition to do that for us. But that is exactly what the ex post theory would do.

In this paper, I explore the sub rosa development of this ex post theory of IP. I argue that the basis for continued control is the assumption that the value of IP rights will be dissipated if they are used too much. This argument is fundamentally at odds with the public goods nature of information. It stems from a particular sort of myopia about private ordering, in which actions by individual private firms are presumed to be ideal and the traditional role of the market in disciplining errant firms is ignored.

Abstract:
The role of institutions in mediating the use of intellectual property rights has long been neglected in debates over the economics of intellectual property. In a path-breaking work, Rob Merges studied what he calls "collective rights organizations," industry groups that collect intellectual property rights from owners and license them as a package. Merges finds that these organizations ease some of the tensions created by strong intellectual property rights by allowing industries to bargain from a property rule into a liability rule. Collective rights organizations thus play a valuable role in facilitating transactions in intellectual property rights.

There is another sort of organization that mediates between intellectual property owners and users, however. Standard-setting organizations (SSOs) regularly encounter situations in which one or more companies claim to own proprietary rights that cover a proposed industry standard. The industry cannot adopt the standard without the permission of the intellectual property owner (or owners).

How SSOs respond to those who assert intellectual property rights is critically important. Whether or not private companies retain intellectual property rights in group standards will determine whether a standard is "open" or "closed." It will determine who can sell compliant products, and it may well influence whether the standard adopted in the market is one chosen by a group or one offered by a single company. SSO rules governing intellectual property rights will also affect how standards change as technology improves.

Given the importance of SSO rules governing intellectual property rights, there has been surprisingly little treatment of SSO intellectual property rules in the legal literature. My aim in this article is to fill that void. To do so, I have studied the intellectual property policies of dozens of SSOs, primarily but not exclusively in the computer networking and telecommunications industries. This is no accident; interface standards are much more prevalent in those industries than in other fields. In Part I, I provide some background on SSOs themselves, and discuss the value of group standard setting in network markets. In Part II, I discuss my empirical research, which demonstrates a remarkable diversity among SSOs even within a given industry in how they treat intellectual property. In Part III, I analyze a host of unresolved contract and intellectual property law issues relating to the applicability and enforcement of such intellectual property policies. In Part IV, I consider the constraints the antitrust laws place on SSOs in general, and on their adoption of intellectual property policies in particular. Part V offers a theory of SSO intellectual property rules as a sort of messy private ordering, allowing companies to bargain in the shadow of patent law in those industries in which it is most important that they do so. Finally, in Part VI I offer ideas for how the law can improve the efficiency of this private ordering process.

In the end, I hope to convince the reader of four things. First, SSO rules governing intellectual property fundamentally change the way in which we must approach the study of intellectual property. It is not enough to consider IP rights in a vacuum; we must consider them as they are actually used in practice. And that means considering how SSO rules affect IP incentives in different industries. Second, there is a remarkable diversity among SSOs in how they treat IP rights. This diversity is largely accidental, and does not reflect conscious competition between different policies. Third, the law is not well designed to take account of the modern role of SSOs. Antitrust rules may unduly restrict SSOs even when those organizations are serving procompetitive ends. And enforcement of SSO IP rules presents a number of important but unresolved problems of contract and intellectual property law, issues that will need to be resolved if SSO IP rules are to fulfill their promise of solving patent holdup problems.

My fourth conclusion is an optimistic one. SSOs are a species of private ordering that may help solve one of the fundamental dilemmas of intellectual property law: the fact that intellectual property rights seem to promote innovation in some industries but harm innovation in others. SSOs may serve to ameliorate the problems of overlapping intellectual property rights in those industries in which IP is most problematic for innovation, particularly in the semiconductor, software, and telecommunications fields. The best thing the government can do is to enforce these private ordering agreements and avoid unduly restricting SSOs by overzealous antitrust scrutiny.

patents, standards, networks, antitrust, intellectual property, innovation

Abstract:
In this paper, we address the question of "open access" and its relationship to the architecture of the Internet. It is our view that the extraordinary growth and innovation of the Internet depends crucially upon this architecture. Changes in this architecture should be viewed with skepticism, as they may in turn threaten this innovation and growth. Many cable companies have recently adopted or threatened a policy of bundling high-speed cable modem service with ISP service. This bundling threatens to compromise an important architectural principle of the Internet: the Internet's "End-to-End" design. In our view, this change could have profound implications for the future of growth and innovation on the net. The FCC's analysis of the cable modem industry to date has not considered these principles of the Internet's design. It therefore does not adequately evaluate the potential threat that bundling presents to open access to the Internet. Neither does the FCC's approach properly account for its role in creating the conditions that made the Internet possible. Under the banner of "no regulation," the FCC threatens to permit this network to calcify as earlier telecommunications networks did. Further, and ironically, the FCC's supposed "hands off" approach will ultimately lead to more rather than less regulation. We do not yet know enough about the relationship between these architectural principles and the innovation of the Internet. But we should know enough to be skeptical of changes in its design. The strong presumption should be in favor of preserving the architectural features that have produced this extraordinary innovation. The FCC's presumption should be against approving mergers or policies that threaten these design principles, without a clear showing that the threat would not undermine the Internet's innovation.

Abstract:
In this paper, we address the question of "open access" and its relationship to the architecture of the Internet. It is our view that the extraordinary growth and innovation of the Internet depends crucially upon this architecture. Changes in this architecture should be viewed with skepticism, as they may in turn threaten this innovation and growth. Many cable companies have recently adopted or threatened a policy of bundling high-speed cable modem service with ISP service. This bundling threatens to compromise an important architectural principle of the Internet: the Internet's "End-to-End" design. In our view, this change could have profound implications for the future of growth and innovation on the net. The FCC's analysis of the cable modem industry to date has not considered these principles of the Internet's design. It therefore does not adequately evaluate the potential threat that bundling presents to open access to the Internet. Neither does the FCC's approach properly account for its role in creating the conditions that made the Internet possible. Under the banner of "no regulation," the FCC threatens to permit this network to calcify as earlier telecommunications networks did. Further, and ironically, the FCC's supposed "hands off" approach will ultimately lead to more rather than less regulation. We do not yet know enough about the relationship between these architectural principles and the innovation of the Internet. But we should know enough to be skeptical of changes in its design. The strong presumption should be in favor of preserving the architectural features that have produced this extraordinary innovation. The FCC's presumption should be against approving mergers or policies that threaten these design principles, without a clear showing that the threat would not undermine the Internet's innovation.

Abstract:
While the theory of the patent system is premised on the idea that patents will be used to exclude competitors, only a tiny fraction of patents are ever enforced. Legal and economic scholars have theorized as to how to identify valuable patents based on their individual characteristics. In this paper, we present the results of the largest empirical study ever conducted of the patent system. We compare the characteristics of litigated patents to those of issued patents generally, and we find important differences in a range of dimensions. These data confirm some predictions in the literature regarding patent value and refute others. New patents are more likely to be litigated than old patents. Foreign patent owners are less likely to litigate than domestic patent owners. Patents that issue to individuals or small companies are much more likely to be litigated than those that issue to big companies, though many of those patents have changed hands by the time they are brought to court. Patents that cite more prior art are more likely to be litigated, and those that are litigated tend to be cited more elsewhere. Most significantly, there are substantial differences between industries in the likelihood of patent litigation. Patents in the mechanical, computer, and medical device industries are significantly more likely to be litigated, for example, than patents in the chemical and semiconductor industries.

In the paper, we explore the implications of these findings in detail. Taken together, the data give a profile of a few valuable patents that stand out from a field of ordinary ones. They are the patents that their owners spend the most time and money in prosecuting. They are the ones that competitors recognize as most important. They are concentrated in a few industries in which patents play a more significant role in encouraging innovation. And they are patents that issue to individuals or small companies with asymmetric stakes in patent litigation, not to large companies. These conclusions in turn have significant implications for the design of the patent system, patent reform efforts and patent valuation theories - implications we consider at the end of the paper.

patents, patent valuation, patent litigation, intellectual property

Abstract:
While the theory of the patent system is premised on the idea that patents will be used to exclude competitors, only a tiny fraction of patents are ever enforced. Legal and economic scholars have theorized as to how to identify valuable patents based on their individual characteristics. In this paper, we present the results of the largest empirical study ever conducted of the patent system. We compare the characteristics of litigated patents to those of issued patents generally, and we find important differences in a range of dimensions. These data confirm some predictions in the literature regarding patent value and refute others. New patents are more likely to be litigated than old patents. Foreign patent owners are less likely to litigate than domestic patent owners. Patents that issue to individuals or small companies are much more likely to be litigated than those that issue to big companies, though many of those patents have changed hands by the time they are brought to court. Patents that cite more prior art are more likely to be litigated, and those that are litigated tend to be cited more elsewhere. Most significantly, there are substantial differences between industries in the likelihood of patent litigation. Patents in the mechanical, computer, and medical device industries are significantly more likely to be litigated, for example, than patents in the chemical and semiconductor industries.

In the paper, we explore the implications of these findings in detail. Taken together, the data give a profile of a few valuable patents that stand out from a field of ordinary ones. They are the patents that their owners spend the most time and money in prosecuting. They are the ones that competitors recognize as most important. They are concentrated in a few industries in which patents play a more significant role in encouraging innovation. And they are patents that issue to individuals or small companies with asymmetric stakes in patent litigation, not to large companies. These conclusions in turn have significant implications for the design of the patent system, patent reform efforts and patent valuation theories - implications we consider at the end of the paper.

patents, patent valuation, patent litigation, intellectual property

Abstract:
Software patents have received a great deal of attention in the academic literature. Unfortunately, most of that attention has been devoted to the problem of whether software is or should be patentable subject matter. With roughly 40,000 software patents already issued, and the Federal Circuit endorsing patentability without qualification, those questions are for the history books. The more pressing questions now concern the scope to be accorded software patents. In this paper, we examine the implications of some traditional patent law doctrines for innovation in the software industry. We argue that patent law needs some refinement if it is to promote rather than impede the growth of this new market, which is characterized by rapid sequential innovation, reuse and re-combination of components, and strong network effects that privilege interoperable components and products. In particular, we argue for two sorts of new rules in software patent cases.

First, we advocate a limited right to reverse engineer patented computer programs in order to gain access to and study those programs and to duplicate their unprotected elements. Such a right is firmly established in copyright law, and seems unexceptional as a policy matter even in patent law. But because patent law contains no fair use or reverse engineering exemption, patentees could use the grant of rights on a single component of a complex program to prevent any "making" or "using" of the program as a whole, including those temporary uses needed in reverse engineering. While patent law does contain doctrines of "experimental use" and "exhaustion," it is not at all clear that those doctrines will protect legitimate reverse engineering efforts. We suggest that if these doctrines cannot be read broadly enough to establish such a right, Congress should create a limited right to reverse engineer software containing patented components for research purposes.

Second, we argue that in light of the special nature of innovation within the software industry, courts should apply the doctrine of equivalents narrowly in infringement cases. The doctrine of equivalents allows a finding of infringement even when the accused product does not literally satisfy each element of the patent, if there is substantial equivalence as to each element. The test of equivalence is the known interchangeability of claimed and accused elements at the time of (alleged) infringement. A number of factors unique to software and the software industry - a culture of reuse and incremental improvement, a lack of reliance on systems of formal documentation used in other technical fields, the short effective life of software innovations, and the inherent plasticity of code - severely complicate post hoc assessments of the "known interchangeability" of software elements. A standard for equivalence of code elements that ignores these factors risks stifling legitimate, successful efforts to design around existing software patents. To avoid this danger, courts should construe software claims narrowly, and should refuse a finding of equivalence if the accused element is "interchangeable" with prior art that should have narrowed the original patent, or if the accused improvement is too many generations removed from the original invention.

Abstract:
Software patents have received a great deal of attention in the academic literature. Unfortunately, most of that attention has been devoted to the problem of whether software is or should be patentable subject matter. With roughly 40,000 software patents already issued, and the Federal Circuit endorsing patentability without qualification, those questions are for the history books. The more pressing questions now concern the scope to be accorded software patents. In this paper, we examine the implications of some traditional patent law doctrines for innovation in the software industry. We argue that patent law needs some refinement if it is to promote rather than impede the growth of this new market, which is characterized by rapid sequential innovation, reuse and re-combination of components, and strong network effects that privilege interoperable components and products. In particular, we argue for two sorts of new rules in software patent cases.

First, we advocate a limited right to reverse engineer patented computer programs in order to gain access to and study those programs and to duplicate their unprotected elements. Such a right is firmly established in copyright law, and seems unexceptional as a policy matter even in patent law. But because patent law contains no fair use or reverse engineering exemption, patentees could use the grant of rights on a single component of a complex program to prevent any "making" or "using" of the program as a whole, including those temporary uses needed in reverse engineering. While patent law does contain doctrines of "experimental use" and "exhaustion," it is not at all clear that those doctrines will protect legitimate reverse engineering efforts. We suggest that if these doctrines cannot be read broadly enough to establish such a right, Congress should create a limited right to reverse engineer software containing patented components for research purposes.

Second, we argue that in light of the special nature of innovation within the software industry, courts should apply the doctrine of equivalents narrowly in infringement cases. The doctrine of equivalents allows a finding of infringement even when the accused product does not literally satisfy each element of the patent, if there is substantial equivalence as to each element. The test of equivalence is the known interchangeability of claimed and accused elements at the time of (alleged) infringement. A number of factors unique to software and the software industry - a culture of reuse and incremental improvement, a lack of reliance on systems of formal documentation used in other technical fields, the short effective life of software innovations, and the inherent plasticity of code - severely complicate post hoc assessments of the "known interchangeability" of software elements. A standard for equivalence of code elements that ignores these factors risks stifling legitimate, successful efforts to design around existing software patents. To avoid this danger, courts should construe software claims narrowly, and should refuse a finding of equivalence if the accused element is "interchangeable" with prior art that should have narrowed the original patent, or if the accused improvement is too many generations removed from the original invention.

Abstract:
This article addresses the problems presented by the effective overlap of copyright's exclusive rights in the context of transmission on computer networks. Simple activities such as sending email or posting to Web pages may implicate the reproduction right, the adaptation right, the distribution right, the performance and display rights, and the new digital performance as well as triggering liability for contributory infringement and under the proposed transmission right. The article suggests that this overlap creates serious problems not only for user rights and defenses, but also for copyright owners who wish to license only a subset of their rights or who wish to divide ownership of their copyright. The article considers as possible solutions to this problem a theory of implied license, as well as a unified statutory transmission right that displaces other exclusive rights.

Abstract:
This article addresses the problems presented by the effective overlap of copyright's exclusive rights in the context of transmission on computer networks. Simple activities such as sending email or posting to Web pages may implicate the reproduction right, the adaptation right, the distribution right, the performance and display rights, and the new digital performance as well as triggering liability for contributory infringement and under the proposed transmission right. The article suggests that this overlap creates serious problems not only for user rights and defenses, but also for copyright owners who wish to license only a subset of their rights or who wish to divide ownership of their copyright. The article considers as possible solutions to this problem a theory of implied license, as well as a unified statutory transmission right that displaces other exclusive rights.

Abstract:
We have studied all final patent validity decisions issued by the federal courts between 1989 and 1996 reported in United States Patents Quarterly. We test this dataset to determine a number of facts of interest to scholars and patent litigators, including the rate at which patents are held valid, the subject matter of the patents litigated, the rate at which judges and juries hold patents valid, the most common grounds for invalidity, how validity decisions fare on appeal, and numerous other hypotheses.

Abstract:
We have studied all final patent validity decisions issued by the federal courts between 1989 and 1996 reported in United States Patents Quarterly. We test this dataset to determine a number of facts of interest to scholars and patent litigators, including the rate at which patents are held valid, the subject matter of the patents litigated, the rate at which judges and juries hold patents valid, the most common grounds for invalidity, how validity decisions fare on appeal, and numerous other hypotheses.

Abstract:
At the time patent applications are reviewed, the Patent and Trademark Office has no way of identifying the small number of applications that are likely to end up having real economic significance. Thus patent applications are for the most part treated alike, with every application getting the same - and by necessity sparse - review. In this short magazine piece, we urge in response three basic reforms. First, we would weaken the presumption of validity that today attaches to all issued patents. The modern strong presumption simply does not reflect the reality of patent review; presumptions, in short, should be earned. Second, because legitimate inventors need as much certainty as the law can provide, we would give applicants the option of earning a presumption of validity by paying for a thorough examination of their inventions. Put differently, applicants should be allowed to "gold-plate" their patents by paying for the kind of searching review that would merit a strong presumption of validity. Third and finally, because competitors also have useful information about which patents worry them and which do not, we support instituting a post-grant opposition system, a process by which parties other than the applicant would have the opportunity to request and fund a thorough examination of a recently issued patent. As we explain in the piece, these reforms would together allow the Patent Office to focus its resources on patents that might actually matter, and it would also both reduce the incentive to file patents of questionable validity and reduce the harm caused by such patents in any event.

patent law, patent reform, patent, post-grant, gold-plate

Abstract:
One of the oddest things to an outsider about the United States patent system is that due to continuation practice it is impossible for the U.S. Patent and Trademark Office (PTO) ever to finally reject a patent application. Continuation applications have led to abuse of the patent prosecution process. They serve very little useful purpose, and what benefits they confer may be outweighed by their potential for mischief. In an effort to study the pervasiveness of continuation practice, we compiled an original dataset comprising 2,224,379 patents, every patent issued from 1976 through 2000. We found that while continuations are filed in 23% of all patent applications, patents based on continuation applications represent 52% of all litigated patents. Although continuations are used in a minority of all patents, it is the most important minority because it is the minority most likely to end up in litigation. We examine the efforts undertaken to control the problems associated with continuation patents (changing the patent term, publishing applications, prosecution laches) and find them insufficient. The world would probably be a better place if they were abolished. Recognizing, however, that the abuse of continuation practice is not as pervasive as some might think, we propose a number of means by which Congress and the courts could strengthen existing rules designed to limit their abuse while preserving the practice. At a minimum, the empirical data we present can provide litigants and judges with a baseline for assessing the reasonableness of delay caused by the filing of multiple continuations by the patentee in determining the applicability of equitable remedies such as prosecution laches.

patent law, empirical studies, intellectual property

Abstract:
One of the oddest things to an outsider about the United States patent system is that due to continuation practice it is impossible for the U.S. Patent and Trademark Office (PTO) ever to finally reject a patent application. Continuation applications have led to abuse of the patent prosecution process. They serve very little useful purpose, and what benefits they confer may be outweighed by their potential for mischief. In an effort to study the pervasiveness of continuation practice, we compiled an original dataset comprising 2,224,379 patents, every patent issued from 1976 through 2000. We found that while continuations are filed in 23% of all patent applications, patents based on continuation applications represent 52% of all litigated patents. Although continuations are used in a minority of all patents, it is the most important minority because it is the minority most likely to end up in litigation. We examine the efforts undertaken to control the problems associated with continuation patents (changing the patent term, publishing applications, prosecution laches) and find them insufficient. The world would probably be a better place if they were abolished. Recognizing, however, that the abuse of continuation practice is not as pervasive as some might think, we propose a number of means by which Congress and the courts could strengthen existing rules designed to limit their abuse while preserving the practice. At a minimum, the empirical data we present can provide litigants and judges with a baseline for assessing the reasonableness of delay caused by the filing of multiple continuations by the patentee in determining the applicability of equitable remedies such as prosecution laches.

patent law, empirical studies, intellectual property

Abstract:
Suing actual infringers is passe in copyright law. In the digital environment, the real stakes lie in suing those who facilitate infringement by others. There is of course a good reason copyright owners are filing such suits. They see themselves as under threat from a flood of cheap, easy copies and a dramatic increase in the number of people who can make those copies. The high volume of illegal uses, and the low return to suing any individual, make it more cost-effective to aim as far up the chain as possible. From the perspective of the movie industry, it's easier and more effective to shut down Napster than to sue the millions of people who traded files illegally on Napster. So far, the courts have been willing to go along, shutting down a number of innovative services in the digital music realm.

In this article, we argue that unrestricted liability for anyone who is in any way involved with copyright infringement is a bad idea. Indirect liability is a continuum, in which acts most closely related to infringement and with the fewest affirmative benefits are the easiest to condemn. Going after makers of technology for the uses to which their technologies may be put threatens to stifle innovation. The fundamental difficulty is that while courts can make decisions about direct infringement on a case-by-case basis, lawsuits based on indirect liability necessarily sweep together both socially beneficial and socially harmful uses of a program or service, either permitting both uses or condemning both.

Optimal digital copyright policy would do two things: stop deterring innovators, and permit cost-effective enforcement of copyright in the digital environment. In this paper, we suggest at least two possible alternatives that might provide ways out of the digital copyright morass. Both alternatives stem from the basic economics of copyright enforcement. It is not currently cost-effective for copyright owners to sue individual infringers, because there are tens of millions of them, because lawsuits are expensive, and because each infringer would be liable only for minimal damages. They are happy to sue facilitators instead, because there are fewer of them and both damages and the benefits of injunctive relief are substantial. Copyright owners have no incentive to permit optimal innovation by facilitators, because they do not benefit from that innovation except indirectly. Individual infringers in turn have no incentive to change their behavior or to subscribe to fee-based services, because they suffer none of the costs of infringement.

One solution is to change the incentives of individuals. Because individual users of peer-to-peer (p2p) networks know that it is extremely unlikely they will be sued, economic theory suggests that the only way to effectively deter infringement is to increase the effective sanction substantially for those who are caught. Were the government to begin criminally prosecuting selected users of peer-to-peer services - or were the RIAA to sue end users in earnest - it could have a substantial deterrent effect on many illegal users. Selective prosecution has other advantages as well - the government could target the relatively few keystone providers of illegal files on p2p sites, and those are precisely the users who are least likely to be engaged in fair use. While particular prosecutions won't stop illegal file trading altogether, copyright owners have never been able to prevent all piracy. All they need to do is reduce piracy enough that they can make a return on their investment.

Another solution is to change the incentives of copyright owners to sue individual infringers by reducing the cost of such a suit. One such approach would be a levy system. Levies on equipment or services have the virtue of permitting automatic collection of royalties, reducing the enforcement cost dramatically, but at the cost of taxing legal as well as illegal uses. A levy solves the enforcement problem at the front end, but it is similar in many ways to the current approach of suing facilitators. The main difference is that under a levy system the copyright owner is protected by a compulsory license rather than a property rule.

An alternative proposal to reduce the cost of enforcement is to create some sort of quick, cheap arbitration system that enables copyright owners to get some limited relief against abusers of p2p systems. The existing domain name trademark arbitration system is a model in some respects - its speed and low cost - but a cautionary tale in others - its lack of process protections. Such a system would permit low-cost enforcement of copyright infringement against direct infringers, reducing the need for content owners to sue facilitators. Relative to levies, an arbitration system would trade off some increase in cost for accuracy, targeting only those making illegal uses rather than all users of computers or p2p networks. It would be fairer than selective criminal prosecution, because the burden would fall more evenly on each wrongdoer, rather than imposing stark punishment on a few in order to serve society's interest in deterring the rest. The system could also be designed to improve accuracy relative to the binary choice the courts face in indirect infringement cases today. We could design the system so that it is limited to clear cases. We could also build in a defense for arguable fair uses, so that a user who could prove they were space-shifting CDs they already own would have a defense.

Abstract:
This article evaluates the economics of the Internet and Internet-related software markets, which are heavily driven towards standardization. It suggests that a traditional section 2 antitrust analysis will fail to effectively regulate competition in such a market, particularly if it is directed at structural relief. Instead, the article recommends that section 2 play a limited role in regulating conduct in a standards competition. The article also suggests that private standard-setting may play a procompetitive role in the Internet context, and that section 1 should be relaxed in order to permit such joint activity (within certain limits).

Abstract:
This article evaluates the economics of the Internet and Internet-related software markets, which are heavily driven towards standardization. It suggests that a traditional section 2 antitrust analysis will fail to effectively regulate competition in such a market, particularly if it is directed at structural relief. Instead, the article recommends that section 2 play a limited role in regulating conduct in a standards competition. The article also suggests that private standard-setting may play a procompetitive role in the Internet context, and that section 1 should be relaxed in order to permit such joint activity (within certain limits).

Abstract:
The patent statute creates a general set of legal rules that govern a wide variety of technologies. With only a few exceptions, the statute does not distinguish between different technologies in setting and applying legal standards. In theory, then, we have a uniform patent system that provides technology-neutral protection to all kinds of innovation. Technology, however, is anything but uniform, and displays highly diverse characteristics across different sectors. A wealth of empirical evidence demonstrates deep structural differences in how industries innovate. Industries vary in the speed and cost of Research and Development ("R&D"), in the ease with which inventions can be imitated by others, in the need for cumulative or interoperative innovation rather than stand-alone development, and in the extent to which patents cover entire products or merely components of products. We show that there is no reason to assume that a unitary patent system will optimally encourage innovation in the wide range of diverse industries that it is expected to cover.

Despite the appearance of uniformity, however, patent law is actually as varied as the industries it seeks to foster. Closer examination of patent law demonstrates that it is unified only in concept. In practice the rules actually applied to different industries have shown increasing divergence. As a practical matter, it appears that although patent law is technology-neutral in theory, it is technology-specific in application. The differential application of patent standards to different industries correlates with a larger theoretical confusion in patent law. While most theorists agree on the general utilitarian framework of patent law - that is, they agree on the goals the patent statute is intended to achieve - they have offered radically different ideas regarding how patent law should be interpreted to achieve those goals. We examine the various different theoretical approaches to patent law. We suggest that none of these theories is entirely correct. Neither are they entirely wrong. We show how various different theories of patent law succeed in explaining the application of patent law to particular industries, but fail when taken outside the narrow context of those industries.

The fact that economic evidence, patent doctrine, and legal theory all vary by industry leads us to question whether patent law should explicitly attempt to tailor protection to the needs of specific industries. We point out a number of risks inherent in such a technology-specific approach, particularly one administered by Congress. In particular, concerns about rent seeking and the inability of industry-specific statutes to respond to changing circumstances lead us to conclude that we should not jettison our nominally uniform patent system in favor of specific statutes that protect particular industries. Nonetheless, there are other ways the law can take account of the needs of different industries. We argue that it makes sense to take economic policy and industry-specific variation explicitly into account in applying general patent rules to specific cases. Patent law gives the courts substantial freedom to do this by means of flexible legal standards we call "policy levers." We identify ten sets of policy levers that already exist in patent law, and the ways in which they implicitly or explicitly permit the courts to take account of different types of innovation in different industries. We also identify a variety of other places where the statute grants the courts substantial discretion, and suggest ways that those discretionary standards could serve as policy levers. Finally, having identified certain policy levers and the method of their employment, we consider the economic characteristics of innovation in five different industries that appear to be likely candidates for industry-specific rules: chemistry, pharmaceuticals, biotechnology, semiconductors, and software. We offer concrete suggestions as to how the court can and should apply particular policy levers to help encourage innovation in these very different industries.

patents, intellectual property, innovation, rules, standards, biotechnology, software, pharmaceuticals, cumulative innnovation, prospect theory

Abstract:
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. First, we show using bargaining theory that the threat to obtain a permanent injunction greatly enhances the patent holder's negotiating power, leading to royalty rates that exceed a natural benchmark level based on the value of the patented technology and the strength of the patent. Such royalty overcharges are especially great for weak patents covering a minor feature of a product with a sizable price/cost margin. These royalty overcharges do not disappear even if the allegedly infringing firm is fully aware of the patent when it initially designs its product. However, the holdup problems caused by the threat of injunctions are reduced if courts regularly grant stays to permanent injunctions to give defendants time to redesign their products to avoid infringement when this is possible. Second, we show how holdup problems are magnified in the presence of royalty stacking, i.e., when multiple patents read on a single product. Third, using third-generation cellular telephones and Wi-Fi as leading examples, we illustrate that royalty stacking has become a very serious problem, especially in the standard-setting context where hundreds or even thousands of patents can read on a single product standard. Fourth, we discuss the use of reasonable royalties to award damages in patent infringement cases. We report empirical results regarding the measurement of reasonable royalties by the courts and identify various practical problems that tend to lead courts to over-estimate reasonable royalties in the presence of royalty stacking. Finally, we make suggestions for patent reform based on our theoretical and empirical findings.

Abstract:
It is common to assert that the Patent and Trademark Office does a bad job of examining patents, and that it should spend more time and money weeding out bad patents. In this article, Professor Lemley challenges that conventional wisdom. Using available data regarding the cost and incidence of patent prosecution, litigation, licensing and other uses of patents, he demonstrates that strengthening the examination process is not cost effective. The core insight is that very few patents are actually litigated or licensed; most simply sit on a shelf unused, or are used only for noncontroversial purposes like financing. Because of this, society would be better off spending its resources in a more searching judicial inquiry into validity in those few cases in which it matters than paying for a more protracted examination of all patents ex ante. In economic terms, the patent office is "rationally ignorant" of the objective validity of the patents it issues.

Abstract:
In this article, I introduce the interaction between intellectual property (IP) and antitrust law. I describe the ways in which these two important areas of government regulation are and are not in tension, and discuss the history of the relationship between these laws. I argue that IP and antitrust have cycled between over- and under-protection, and that we are currently (and mistakenly) conditioned to think of private property and private ordering as efficient in and of themselves, rather than as efficient only in the context of robust market competition. Further, I argue that antitrust can serve the goals of innovation and dynamic efficiency directly in circumstances in which competition, not monopoly, serves as a spur to innovation. The goal of the IP and antitrust laws should be to seek a robust balance between competition and monopoly in the service of dynamic efficiency. When IP laws are strong, antitrust laws should also be strong, and vice versa.

Abstract:
The overwhelming majority of intellectual property lawsuits settle before trial. These settlements involve agreements between the patentee and the accused infringer, parties who are often competitors before the lawsuit. Because these competitors may agree to stop competing, to regulate the price each charges, and to exchange information about products and prices, settlements of intellectual property disputes naturally raise antitrust concerns. In this paper, we suggest a way to reconcile the interests of intellectual property law and antitrust law in evaluating intellectual property settlements. In Part I, we provide background on the issue. Part II argues that in most cases courts can determine the legality of a settlement agreement without inquiring into the merits of the intellectual property dispute being settled, either because the settlement would be legal even if the patent were invalid or not infringed, or because the settlement would be illegal even if the patent were valid and infringed. Only in a narrow class of cases will the merits of the intellectual property dispute matter. In Part III, we argue that in that narrow middle set of cases antitrust's rule of reason is unlikely to be helpful. Rather, courts must inquire into the validity, enforceability, and infringement issues in the underlying case, with particular sensitivity to both the type of intellectual property right at issue and the industrial context of the dispute. In Part IV, we apply our framework to a number of common settlement terms, most notably the use of exclusion payments to settle pharmaceutical patent disputes. We argue that exclusion payments that exceed litigation costs should be deemed illegal per se. There is no legitimate reason for such payments, and the most likely reason - to permit the patentee to exclude competition that would likely have occurred absent the payment - is anticompetitive. Further, legitimate patent disputes can be settled in other ways than with an exclusion payment - for example, by licensing the defendant or by agreeing to delay entry.

antitrust, patent, settlement, intellectual property, Hatch-Waxman, exit payments

Abstract:
Patent law is territorial. It is also designed to deal with the circumstance of unified infringement by a single actor. But modern commerce is not limited by national boundaries or by corporate forms. Patents written to cover modern technologies, particularly network computing technologies, are attempting to bring the distributed acts of different users around the globe into the ambit of a territorial legal system that looks for a single infringer. Not surprisingly, the effort to do so has created significant problems for patent cases.

Two of those problems are the subject of our article. They involve what we call divided or distributed patent claims - claims that are infringed only by aggregating the conduct of more than one actor, or aggregating conduct that occurs in more than one country. Patent law doesn't deal well with either class of divided patent claim. Prosecutors and litigators need to be aware of these problems in order to most effectively represent their clients.

Abstract:
Patent law has a general set of legal rules to govern the validity and infringement of patents in a wide variety of technologies. With a very few exceptions, the statute does not distinguish between different technologies in setting and applying legal standards. In theory, then, we have a unified patent system that provides technology-neutral protection to all kinds of technologies.

Of late, however, we have noticed an increasing divergence between the rules themselves and the application of the rules to different industries. The best examples are biotechnology and computer software. In biotechnology cases, the Federal Circuit has bent over backwards to find biotechnological inventions nonobvious, even if the prior art demonstrates a clear plan for producing the invention. On the other hand, the court has imposed stringent enablement and written description requirements on biotechnology patents that do not show up in other disciplines. In computer software cases, the situation is reversed. The Federal Circuit has essentially excused software inventions from compliance with the enablement and best mode requirements, but has done so in a way that raises serious questions about how stringently it will read the nonobviousness requirements. As a practical matter, it appears that while patent law is technology-neutral in theory, it is technology-specific in application.

The paper explains how the application of the same general legal standards can lead to such different results in diverse industries. Much of the variance in patent standards is attributable to the use of a legal construct, the "person having ordinary skill in the art" (PHOSITA), to determine obviousness and enablement. The more skill those in the art have, the less information an applicant has to disclose in order to meet the enablement requirement - but the harder it is to meet the nonobviousness requirement. The level of skill in the art affects not just patent validity, but also patent scope.

We do not challenge the idea that the standards in each industry should vary with the level of skill in that industry. We think the use of the PHOSITA provides needed flexibility for patent law, permitting it to adapt to new technologies without losing its essential character. We fear, however, that the Federal Circuit has not applied that standard properly in either the biotechnology or computer software fields. The court has a perception of both fields that was set in earlier cases but which does not reflect the modern realities of either industry. The changes in an industry over time present significant structural problems for patent law, both because law is necessarily backward-looking and precedent-bound and because applying different standards to similar inventions raises concerns about horizontal equity. Nonetheless, we believe the courts must take more care than they currently do to ensure that their assessments of patent validity are rooted in understandings of the technology that were accurate at the time the invention was made.

patents, biotechnology, software, PHOSITA, patent scope, Federal Circuit

Abstract:
We have studied a large, random sample of U.S. patents issued between 1996 and 1998. We collected a variety of information about these patents, including area of technology, national origin, the number of inventors, nature and size of the owning entity, the number and type of prior art references, and the time spent in prosecution. We seek to establish relationships between a number of variables in issued patents-such as number of inventors, numbers and types of references to the prior art, numbers and types of claims, and length of time between application and issuance-and a number of defined areas of technology. We identify the countries in which particular inventions originated--almost one-half of all issued U.S. patents cover inventions originating in other countries--and test for relationships between the above variables and countries of origin. We also evaluate relationships between countries of origin and areas of technology. The conclusions are somewhat surprising, and point to a patent system that is far from unitary in the way it treats different inventors and different inventions.

Abstract:
Electronic contracting has experienced a sea change in the last decade. Ten years ago, courts required affirmative evidence of agreement to form a contract. No court had enforced a shrinkwrap license, much less treated a unilateral statement of preferences as a binding agreement. Today, by contrast, it seems widely (though not universally) accepted that if you write a document and call it a contract, courts will enforce it as a contract even if no one agrees to it. Every court to consider the issue has found clickwrap licenses, in which a user clicks I agree to standard form terms, enforceable. A majority of courts in the last ten years have enforced shrinkwrap licenses, on the theory that people agree to the terms by using the software they have already purchased. Finally, and more recently, an increasing number of courts have enforced browsewrap licenses, in which the user does not see the contract at all but in which the license terms provide that using a Web site constitutes agreement to a contract whether the user knows it or not. Collectively, we can call these agreements terms of use because they control (or purport to control) the circumstances under which buyers of software or visitors to a public Web site can make use of that software or site.

The rise of terms of use has drawn a great deal of attention because of the mass-market nature of the resulting agreements. Terms of use are drafted with consumers or other small end users in mind. Commentators - myself among them - have focused on the impact of this new form of contract on consumers. But in the long run they may have their most significant impact not on consumers but on businesses. The law has paid some attention to the impact of terms of use on consumers. Virtually all of the cases that have refused to enforce a browsewrap license have done so in order to protect consumers; conversely, virtually all the cases that have enforced browsewrap licenses have done so against a commercial entity. And shrinkwrap and clickwrap cases, while enforcing some contracts against consumers, have protected those consumers against certain clauses considered unreasonable. Businesses, however, are presumed to know what they are doing when they access another company's Web site, so courts are more likely to bind them to that site's terms of use. Sophisticated economic entities are unlikely to persuade a court that a term is unconscionable. And because employees are agents whose acts bind the corporation, the proliferation of terms of use means that a large company is likely agreeing to dozens or even hundreds of different contracts every day, merely by using the Internet. And because no one ever reads those terms of use, those multiple contracts are likely to have a variety of different terms that create obligations inconsistent with each other and with the company's own terms of use.

We have faced a situation like this before, decades ago. As business-to-business commerce became more common in the middle of the 20th Century, companies began putting standard contract terms on the back of their purchase orders and shipment invoices. When each side to a contract used such a form, courts had to confront the question of whose form controlled. After unsuccessful judicial experimentation with a variety of rules, the Uniform Commercial Code resolved this battle of the forms by adopting a compromise under which if the terms conflicted, neither party's terms became part of the contract unless the party demonstrated its willingness to forego the deal over it. Rather, the default rules of contract law applied where the parties' standard forms disagreed, but where neither party in fact insisted on those terms.

I have three goals in this paper. First, I explain how courts came to enforce browsewrap licenses, at least in some cases. Second, I suggest that if browsewraps are to be enforceable at all, enforcement should be limited to the context in which it has so far occurred - against sophisticated commercial entities who are repeat players. Finally, I argue that even in that context the enforcement of browsewraps creates problems for common practice that need to be solved. Business-to-business (b2b) terms of use are the modern equivalent of the battle of the forms. We need a parallel solution to this battle of the terms. In Part I, I describe the development of the law to the point where assent is no longer even a nominal element of a contract. In Part II, I explain how the recent decisions concerning browsewrap licenses likely bind businesses but not consumers, and the problems that will create for commercial litigation. Finally, in Part III, I discuss possible ways to solve this coming problem and some broader implications the problem may have for browsewrap licenses generally.

Abstract:
In theory, we have a unified patent system that provides technology-neutral protection to all kinds of technologies. However, we have recently noticed an increasing divergence between the rules actually applied to different industries. Biotechnology provides one of the best examples. In biotechnology cases, the Federal Circuit has repeatedly held that uncertainty in predicting the structural features of biotechnological inventions renders them nonobvious, even if the prior art demonstrates a clear plan for producing the invention. At the same time, the court claims that the uncertain nature of the technology requires imposition of stringent patent enablement and written description requirements that are not applied to patents in other disciplines. Thus, as a practical matter it appears that although patent law is technology-neutral in theory, it is technology-specific in application. Much of the variance in patent standards is attributable to the use of a legal construct, the "person having ordinary skill in the art" (PHOSITA), to determine obviousness and enablement. We do not challenge the idea that the standards in each industry should vary with the level of skill in that industry. We think the use of the PHOSITA provides needed flexibility for patent law, permitting it to adapt to new technologies without losing its essential character. We fear, however, that the Federal Circuit has not applied that standard properly in biotechnology. The court has a static perception of the field that was set in its initial analyses of biotechnology inventions, but which does not reflect the realities of the industry. In the final part of the paper, we offer a very preliminary policy assessment of these industry-specific patent cases. We suggest that the special rules the Federal Circuit has constructed for biotech cases are rather poorly matched to the specific needs of the industry. Indeed, in some ways the Federal Circuit cases have it exactly backwards. We offer a few suggestions as to what a consciously designed biotechnology patent policy may look like.

patents, biotechnology, law and economics, obviousness, PHOSITA

Abstract:
Trademark law has expanded dramatically in the last fifty years, with a number of trends combining to give trademark owners something they have never had before--protection of marks akin to the protection given real property. Professor Lemley evaluates these changes, and suggests that they are not supported by the economic learning on the functions of trademarks and advertising. He argues that many of these legal developments are unwarranted, particularly the cases which give trademark owners power to prevent political and social commentary, or to own the trademark as a thing in itself.

Abstract:
Trademark law has expanded dramatically in the last fifty years, with a number of trends combining to give trademark owners something they have never had before--protection of marks akin to the protection given real property. Professor Lemley evaluates these changes, and suggests that they are not supported by the economic learning on the functions of trademarks and advertising. He argues that many of these legal developments are unwarranted, particularly the cases which give trademark owners power to prevent political and social commentary, or to own the trademark as a thing in itself.

Abstract:
Proposed Uniform Commercial Code article 2B, which will govern transactions in information, will remake the law of intellectual property licensing in a radical way. But federal and state intellectual property policy impose significant limits on the ability of states to change these rules by contract law. One such limit is preemption, but preemption is unlikely to provide sufficient protection for the established rules of intellectual property law. Three other sets of doctrines will limit the ability of parties to set their terms by contract, even in the UCC 2B world. The first doctrine is copyright misuse, which has been applied against restrictive licensing provisions. The second set of doctrines provides that a number of licensing rules are decided as questions of federal, not state, law. The third doctrines are state public policies that cannot be overriden by contract. Taken together, these doctrines create a patchwork federal policy of intellectual property law that UCC 2B cannot alter.

Abstract:
Proposed Uniform Commercial Code article 2B, which will govern transactions in information, will remake the law of intellectual property licensing in a radical way. But federal and state intellectual property policies impose significant limits on the ability of states to change these rules by contract law. One such limit is preemption, but preemption is unlikely to provide sufficient protection for the established rules of intellectual property law. Three other sets of doctrines will limit the ability of parties to set their terms by contract, even in the UCC 2B world. The first doctrine is copyright misuse, which has been applied against restrictive licensing provisions. The second set of doctrines provides that a number of licensing rules are decided as questions of federal, not state, law. The third doctrines are state public policies that cannot be overriden by contract. Taken together, these doctrines create a patchwork federal policy of intellectual property law that UCC 2B cannot alter.

Abstract:
Imagine a stock market in which buyers and sellers couldn't find out the prices at which anyone else sold a share of stock. If you wanted to buy (or sell) a share of stock, you'd have to guess what it was worth. The result, everyone would agree, would be massively inefficient. Willing buyers and sellers would often miss each other. Patents, however, exist in just such a blind market. Want to know if you're getting a good deal on a patent license, or acquiring rights in a technology? Too bad. Even if that patent or ones like it have been licensed dozens of times before, the terms of those licenses, including the price itself, will almost invariably be confidential. Patent owners who want to put their rights up for sale face the same problem.

The result? Willing licensors and licensees can't find each other. Patent auctions often fizzle, because without a thick market - one with an array of buyers and sellers bidding on price - no one can know whether they are getting a steal or being had. When parties do license patents, the prices are (to the extent we can tell) all over the map. And the rest of the world has no idea what those prices are. This in turn means that courts lack adequate benchmarks to determine a ¿reasonable royalty¿ when companies infringe patents.

The solution is straightforward: require publication of patent assignment and license terms. Doing so won't magically make the market for patents work like a stock exchange; there will still be significant uncertainty about whether a patent is valid and what it covers. But it will permit the aggregate record of what companies pay for rights to signal what particular patents are worth and how strong they are, just as derivative financial instruments allow markets to evaluate and price other forms of risk. It will help rationalize patent transactions, turning them from secret, one-off negotiations into a real, working market for patents. And by making it clear to courts and the world at large what the normal price is for patent rights, it will make it that much harder for a few unscrupulous patent owners to hold up legitimate innovators, and for established companies to systematically infringe the rights of others.

Abstract:
Internet intermediaries - service providers, Web hosting companies, Internet backbone providers, online marketplaces, and search engines - process hundreds of millions of data transfers every day, and host or link to literally tens of billions of items of third party content.

Some of this content is illegal. In the last 12 years, both Congress and the courts have concluded that Internet intermediaries should not be liable for a wide range of content posted or sent through their systems by another. The reasoning behind these immunities is impeccable: if Internet intermediaries were liable every time someone posted problematic content on the Internet, the resulting threat of liability and effort at rights clearance would debilitate the Internet.

While the logic of some sort of safe harbor for Internet intermediaries is clear, the actual content of those safe harbors is not. Rather, the safe harbors actually in place are a confusing and illogical patchwork. For some claims, the safe harbors are absolute. For others, they preclude damages liability but not injunctive relief. For still others they are dependent on the implementation of a "notice and takedown" system. And for at least a few types of claims, there is no safe harbor at all. This patchwork makes no sense. In this article, I suggest that it be replaced with a uniform safe harbor rule. A single, rationally designed safe harbor based on the trademark model would not only permit plaintiffs the relief they need while protecting Internet intermediaries from unreasonable liability, but would also serve as a much needed model for the rest of the world, which has yet to understand the importance of intermediaries to a vibrant Internet.

Abstract:
Economists often assume that a patent gives its owner a well-defined legal right to exclude others from practicing the invention described in the patent. In practice, however, the rights afforded to patent holders are highly uncertain. Under patent law, a patent is no guarantee of exclusion but more precisely a legal right to try to exclude. Since only 0.1% of all patents are litigated to trial, and since nearly half of fully litigated patents are declared invalid, this distinction is critical to understanding the economic impact of patents. The growing recognition among economists and legal scholars that patents are probabilistic property rights has significant implications for our understanding of patents in four important areas: (1) reform of the system by which patents are granted; (2) the legal treatment of patents in litigation; (3) the incentives of patent holders and alleged infringers to settle their disputes through licensing or cross-licensing agreements rather than litigate them to completion; and (4) the antitrust limits on agreements between rivals that settle actual or threatened patent litigation.

Abstract:
The U.S. government's policy towards open standards in electronic commerce is inconsistent. On the one hand, the Magaziner Report endorses the idea of interoperable standards and open standard-setting processes for electronic commerce. It also suggests that governments should not be involved in setting technical standards. Unfortunately, the Report also endorses government intervention in the standard-setting process in the case of encryption. Further, it recommends expanding intellectual property rights, without acknowledging the difficulties this can cause for open standards. Professor Lemley's article draws attention to this inconsistency, and suggests ways that the government could help promote open standards if it truly wished to do so.

Abstract:
The U.S. government's policy towards open standards in electronic commerce is inconsistent. On the one hand, the Magaziner Report endorses the idea of interoperable standards and open standard-setting processes for electronic commerce. It also suggests that governments should not be involved in setting technical standards. Unfortunately, the Report also endorses government intervention in the standard-setting process in the case of encryption. Further, it recommends expanding intellectual property rights, without acknowledging the difficulties this can cause for open standards. Professor Lemley's article draws attention to this inconsistency, and suggests ways that the government could help promote open standards if it truly wished to do so.

Abstract:
Universities and companies are rushing to the patent office in record numbers to patent nanotechnology inventions. This rush to the patent office is so significant that many law firms have established nanotechnology practice groups, and the U.S. Patent and Trademark Office has now created a new technology class designed to track nanotechnology products. Three big differences between the emerging science of nanotechnology and other inventions make the role of patents more significant here than elsewhere. First, this is the first new field in a century in which people started patenting the basic ideas at the outset. In most other fields of invention over the past century - computer hardware, software, biotechnology, the Internet - the basic building blocks of the field were unpatented. In nanotech, by contrast, companies and universities alike are patenting early and often. A second factor driving the importance of patents in nanotechnology is its unique cross-industry structure. Unlike other new industries, in which the patentees are largely actual or at least potential participants in the market, a significant number of nanotechnology patentees will own rights not just in the industry in which they participate, but in other industries as well. This may significantly affect their incentives to license the patents. Finally, a large number of the basic patents have issued to universities, who have become far more active in patenting in the last 25 years. While universities have no direct incentive to restrict competition, their interests may or may not align with the optimal implementation of building-block nanotechnology inventions.

Abstract:
For cyberlibertarians, the other shoe is rapidly dropping. In a curious inversion, those who argued less than a decade ago that cyberspace was a place all its own - and therefore unregulable by territorial governments - are finding their arguments and assumptions used for a very different end. Instead of concluding that cyberspace is outside of the physical world, courts are increasingly using the metaphor of cyberspace as a "place" to justify application of traditional laws governing real property to this new medium. Dan Hunter's excellent article explains how and why this is happening with uncanny accuracy, pointing to the power of metaphor in influencing legal thinking and the particular strength of metaphor in making the new seem familiar. He also quite correctly observes that reliance on the cyberspace as place metaphor is leading courts to results that are nothing short of disastrous as a matter of public policy. Finally, he concludes that there is no way for the Internet to escape the firmly entrenched spatial metaphor, either by substituting another metaphor or by eschewing metaphor altogether. Already, he concludes, the idea of cyberspace as a place is too well-established in our minds. The result is a paper that is both extraordinarily important and profoundly depressing.

In this essay, I do not challenge Hunter's argument that the cyberspace as place metaphor is rampant, nor his conclusion that judicial use of the metaphor has had pernicious consequences. Rather, I focus on the logical steps that courts seem to be missing as they move from metaphor to decision. Thus, in Part I, I explain why the cyberspace as place metaphor is not a particularly good one. In Part II, I suggest some ways courts might take account of these differences between the real world and the Internet. In Part III, I observe that even if one accepts the place metaphor in toto, it need not follow that everything in this new place must be privately owned. Nor must it follow that private ownership rights include complete rights of exclusion. My conclusion is somewhat more optimistic than Hunter's. While acknowledging the dangers of the cyberspace as place metaphor and the fact that courts have already started down the wrong road, I suggest that courts and commentators who think seriously about the nature of the Internet still have ample room to make reasoned policy decisions. Though we may easily be misled by metaphor, we need not be its slaves.

cyberspace, metaphor, trespass to chattels, eBay v. Bidder's Edge

Abstract:
Patents constitute our foremost policy tool for encouraging innovation. However, because each new technology provides an important input to subsequent innovation, the exclusive rights conferred by a patent may also impose significant costs upon follow-on innovators. Optimal patent policy should seek to maximize the patent incentive effect, while minimizing burdens placed on future innovation by tailoring the scope of the patent to the characteristics of each technological sector affected.

In the case of software, recent scholarship has illuminated the innovation profile of the current industry. Software is characterized by incremental innovation, relatively low development costs, and short, volatile product life cycles. Interoperability and compatibility between complementary products is a major concern, making technical transparency or reverse engineering critical to product development. This suggests a need for relatively narrow patents that are relatively easy to obtain, and subject to the exceptions necessary to ensure interoperation and follow-on development.

However, current software patent doctrine bears little relationship to this industrial profile. The United States Court of Appeals for the Federal Circuit has set an extremely lax standard of disclosure software patents, resulting in patents scope unconstrained by doctrines of enablement and written description. Recent changes that make patent law amenable to software have produced a flood of new applications, allowing firms to adopt a patent thicket strategy for licensing leverage. At the same time, Federal Circuit case law suggests that a stringent standard for patent non-obviousness will be applied to such patents, resulting in relatively few valid software patents. Optimal software patent doctrine would constrain scope to deal with patent thicket while lowering the non-obviousness standard to validate more issued software patents.

software, innovation policy, patents

Abstract:
This is a review of James Boyle's new book, Shamans, Software and Spleens: Law and the Construction of the Information Society. Boyle's book ranges across the law of information, which he argues should be treated as a unified discipline. Boyle applies his analysis of "romantic authorship" to the law of information, arguing that in copyright and elsewhere, the law gives new works too much protection because it wrongly discounts the sources on which those works necessarily build. In this review, I suggest that whatever its merits as legal argument, "romantic authorship" does not explain very much about the features of copyright law, nor why copyright protection is expanding over time. I suggest an alternative explanation: that a particular strand of law and economics scholarship that endorses strong property rights is pushing for the "propertization" of all valuable information.

Abstract:
This is a review of James Boyle's new book, Shamans, Software and Spleens: Law and the Construction of the Information Society. Boyle's book ranges across the law of information, which he argues should be treated as a unified discipline. Boyle applies his analysis of "romantic authorship" to the law of information, arguing that in copyright and elsewhere, the law gives new works too much protection because it wrongly discounts the sources on which those works necessarily build. In this review, I suggest that whatever its merits as legal argument, "romantic authorship" does not explain very much about the features of copyright law, nor why copyright protection is expanding over time. I suggest an alternative explanation: that a particular strand of law and economics scholarship that endorses strong property rights is pushing for the "propertization" of all valuable information.

Abstract:
In this Article, we compare a data set of 1000 U.S. patents issued between 1996 and 1998 to a similarly random sample of 1000 patents issued twenty years earlier, between 1976 and 1978. By studying the differences between the groups, we can get a clear picture of how the patent system has changed over time. The results are dramatic. By almost any measure - subject matter, time spent in prosecution, number of prior art references cited, number of claims, number of continuation applications filed, number of inventors - the patents issued in the late 1990s are more complex than those issued in the 1970s. While some of these effects are attributable to the patenting of new technologies like biotechnology and software, unknown in the early 1970s, the increase in complexity is robust even across areas of technology. Further, the patent system in the 1990s is more heterogeneous than it was in the 1970s. There are far greater differences by area of technology and by nationality in how patents are being prosecuted in the 1990s than there were in the 1970s. We explore a number of possible explanations for these results, and discuss the policy implications of the lack of uniformity that now characterizes our patent system.

Abstract:
The confluence of two significant developments in modern patent practice leads me to write a paper with such a provocative title. The first development is the rise of hold-up as a primary component of patent litigation and patent licensing. The second development in the last three decades is the massive surge in university patenting. At the confluence of these developments is a growing frustration on the part of industry with the role of universities as patent owners. Time and again, when I talk to people in a variety of industries, their view is that universities are the new patent trolls.

In this paper, I argue that Universities should take a broader view of their role in technology transfer. University technology transfer ought to have as its goal maximizing the social impact of technology, not merely maximizing the university's licensing revenue. Sometimes those goals will coincide with the university's short-term financial interests. Sometimes universities will maximize the impact of an invention on society by granting exclusive licenses for substantial revenue to a company that will take the invention and commercialize it. Sometimes, but not always. At other times a non-exclusive license, particularly on a basic enabling technology, will ultimately maximize the invention's impact on society by allowing a large number of people to commercialize in different areas, to try out different things and see if they work, and the like. University policies might be made more nuanced than simply a choice between exclusive and nonexclusive licenses. For example, they might grant field-specific exclusivity, or exclusivity only for a limited term, or exclusivity only for commercial sales while exempting research, and they might condition continued exclusivity on achievement of certain dissemination goals. Finally, particularly in the software context, there are many circumstances in which the social impact of technology transfer is maximized either by the university not patenting at all or by granting licenses to those patents on a royalty-free basis to all comers.

Finally, I think we can learn something about the raging debate over who's a patent troll and what to do about trolls by looking at university patents. Universities are non-practicing entities. They share some characteristics with trolls, at least if the term is broadly defined, but they are not trolls. Asking what distinguishes universities from trolls can actually help us figure out what concerns us about trolls. What we ought to do is abandon the search for a group of individual companies to define as trolls. In my view, troll is as troll does. Universities will sometimes be bad actors. Nonmanufacturing patent owners will sometimes be bad actors. Manufacturing patent owners will sometimes be bad actors. Instead of singling out bad actors, we should focus on the bad acts and the laws that make them possible.

Abstract:
Congress, the courts, scholars, and the press have focused more and more attention on what is shaping up to be the central public policy problem in intellectual property law today: the problem of holdup by patent owners, particularly but not exclusively in the context of standard setting. I will suggest ten things we might do to deal with this problem, and at least one thing we probably ought not to do.

Abstract:
A number of scholars have suggested that the law should defer to social norms on the Internet, either by abdicating its role entirely to cyberspace self-governance, or by carving out particular roles for nonlegal rulemaking. I challenge these assertions. I argue that Internet norms are elusive and rapidly changing, and that in most cases there is nothing like the consensus required for norm creation. I contend that Internet norms are likely to be inefficient, particularly when they are enforced by the underlying threat of exclusion from the network itself. Finally, I suggest that neither Net "vigilantes," judges, nor code itself can be relied upon to identify and enforce Internet norms with an appropriate sensitivity to efficiency and policy concerns.

Abstract:
A number of scholars have suggested that the law should defer to social norms on the Internet, either by abdicating its role entirely to cyberspace self-governance, or by carving out particular roles for nonlegal rulemaking. I challenge these assertions. I argue that Internet norms are elusive and rapidly changing, and that in most cases there is nothing like the consensus required for norm creation. I contend that Internet norms are likely to be inefficient, particularly when they are enforced by the underlying threat of exclusion from the network itself. Finally, I suggest that neither Net "vigilantes," judges, nor code itself can be relied upon to identify and enforce Internet norms with an appropriate sensitivity to efficiency and policy concerns.

Abstract:
Inherency is a puzzle that runs throughout patent law. Patents are based upon descriptions of technology. However, technologies may have qualities that are unappreciated or unidentified in a patent description, but which are nonetheless present. The law refers to these unknown attributes as inherent in the product or process. What should be done about such characteristics or qualities of a technology that exist but are not explicitly described, either through ignorance or inadvertence? This problem is explicitly presented in at least five different patent doctrines: anticipation, the on-sale bar, priority disputes, double-patenting, and enablement; and it casts its shadow across the law governing subject matter, infringement, and obviousness.

Inherency is also perhaps the most elusive doctrine in all of patent law. The cases appear to flatly contradict each other, are often accompanied by dissents, and in the last three years alone have triggered one abortive en banc rehearing and strong calls for a second. In particular, the courts have split sharply over whether an element can be inherent in a prior art reference even if people of ordinary skill in the art do not appreciate the existence of that element.

In this Article, we argue that this confusion is largely unnecessary. While many courts have recited as gospel the idea that inherency requires knowledge or appreciation of the inherent element, in no case does the application of the inherency doctrine actually turn on knowledge of the element. Rather, the inherency cases are all ultimately about whether the public already gets the benefit of the claimed element or invention. If the public already benefits from the invention, even if they don't know why, the invention is inherent in the prior art. If the public doesn't benefit from the invention, there is no inherency.

In Part I, we examine the main thread of inherency cases, those arising out of the novelty and statutory bar provisions of the Patent Act. We explain how the courts got off track in their focus on knowledge, and why a focus on benefit clearly and consistently explains the doctrine. In Part II, we consider inherency in a different context, one in which the inventor must show possession of the claimed invention, either to prevent a new matter rejection or to establish priority of invention. Finally, in Part III, we discuss the broader implications of this rule, including what the inherency doctrine may mean for patents on DNA sequences and patents on drugs derived from traditional knowledge. A proper understanding of the inherency doctrine may offer a logical explanation for the product of nature cases, undermining the last significant exception to patentable subject matter.

Abstract:
In order to construe the claims of a patent, the court must fix the meaning of the claim terms as of a particular point in time. Both the knowledge of the PHOSITA in a particular field and the meaning of particular terms to that PHOSITA will frequently change over time. But at which point in time shall we fix the meaning of the claims?

It is a fundamental principle of patent law that the time at which we determine the meaning of claim terms varies depending on what legal rule is at issue. Where the question is one of novelty or nonobviousness - whether the invention is truly new - the courts compare the patented invention to the prior art as both were understood at the time of the invention. Where the question is one of enablement or written description - whether the inventor understood and described the invention in sufficient detail - courts evaluate the adequacy of the disclosure based on the meaning of the claims at the time the patent application was filed. Where the question involves the meaning of a special patent claim element called a means-plus-function claim, courts evaluate the scope of that claim element at the time the patent issues. And where the question involves alleged infringement of the patent, courts evaluate infringement in at least some circumstances based on the meaning of the claim at the time of infringement.

An equally fundamental principle of patent law is that patent claims must be construed as an integrated whole. In particular, patentees (or accused infringers, for that matter) are not permitted to argue that a patent claim means one thing when it comes to validity and something else entirely when it comes to infringement. Instead, courts give claims a single meaning in any given case, engaging in only one act of claim construction for any given patent.

These two principles contradict each other. In this paper, I seek to resolve this conflict. In Part I of this paper, I document the distinguished pedigree of both principles. In Part II, I argue that patent claim terms should have a fixed meaning throughout time, and that that meaning should be fixed at the time the patent application is first filed. Part II also discusses some complications that arise as a result of the prosecution process, and how to deal with the problem of later-developed technology.

Abstract:
The Internet software market is characterized by strong network effects and omnipresent intellectual property rights. In this paper, we attempt to explore the relationship between the two, focusing on two examples: the government's antitrust proceeding against Microsoft for browser tying, and Sun's suit against Microsoft for altering Java. We conclude that the social value of the Internet lies in its ability to facilitate interoperation, and this in turn argues in favor of open access to network standards. Such open standards may be achieved in the open market. Where they are not, the law may intervene, but it must be cautious not to overreach and to avoid disturbing the incentives provided by intellectual property protection.

Abstract:
The Internet software market is characterized by strong network effects and omnipresent intellectual property rights. In this paper, we attempt to explore the relationship between the two, focusing on two examples: the government's antitrust proceeding against Microsoft for browser tying, and Sun's suit against Microsoft for altering Java. We conclude that the social value of the Internet lies in its ability to facilitate interoperation, and this in turn argues in favor of open access to network standards. Such open standards may be achieved in the open market. Where they are not, the law may intervene, but it must be cautious not to overreach and to avoid disturbing the incentives provided by intellectual property protection.

Abstract:
Economists since Demsetz have viewed property rights as a way to internalize the external costs and benefits one party's action confers on another. They have thought this internalization desirable, reasoning that if a party didn't capture the full social value of her actions she wouldn't have optimal incentives to engage in those actions. Measured by this standard, IP rights are inefficiently weak. There is abundant evidence that the social value of innovations far exceeds the private value. But there is also good evidence that, contrary to what economists might assume, these spillovers actually encourage greater innovation. The result is a puzzle for Demsetzians.

In this article, we offer three insights that help to explain the positive role of innovation spillovers. First, we note that in IP, unlike real property, a wide range of externalities matter, because IP rights are much less certain than property rights, and because the decision to create a legal entitlement will determine whether or not a transaction must occur. Second, we make the point that while society needs some ex ante incentive to innovate, it doesn't need (and doesn't particularly want) full internalization of the benefits of an invention. Third, we observe that even where internalizing externalities is desirable, property rights do not in fact do so perfectly, and they create problematic distortions in circumstances in which the buyer in a transaction makes productive reuse of the work. The result of combining these insights is that at least where innovation is concerned, we cannot rely on the easy equation of property rights with efficient internalization of externalities.

Abstract:
Most antitrust claims relating to intellectual property involve challenges to agreements, licensing practices or affirmative conduct involving the use or disposition of the intellectual property rights or the products they cover. But sometimes an antitrust claim centers on an intellectual property owner's refusal to use or license an intellectual property right, perhaps coupled with efforts to enforce the intellectual property right against infringers. The allegation may be that the intellectual property right is so essential to competition that it must be licensed across the board, or that a refusal to license it to one particular party was discriminatory, or that in context a refusal to license helped a monopolist to acquire or maintain market power.

Claims based on a unilateral refusal to license - the subject of this chapter - present important issues at the center of the tension between antitrust and intellectual property. The antitrust and intellectual property laws are not necessarily in conflict. For the most part they serve complementary goals, though each must limit the scope of the other. Unilateral refusal to license cases, however, cut to the heart of the intellectual property owner's right to exclude others from practicing the intellectual property. As such, efforts to invoke antitrust law in this context deserve special scrutiny.

Section 2 reviews the basic principles relating to unilateral refusals to license intellectual property rights. Section 3 discusses in detail the various sets of circumstances in which antitrust plaintiffs argue for exceptions to those basic rules. Section 4 distinguishes unilateral from concerted and conditional refusals to deal.

Abstract:
We recently studied the outcomes of every final written patent validity decision at both the district court and Federal Circuit levels between 1989 and 1996. The study produced a variety of interesting statistics on patent validity questions. Using the dataset from that study, and matching it with the panels serving on each case, we describe in this paper how individual Federal Circuit judges voted in patent validity cases during that period.

The results may surprise many patent litigators. While there are some interesting differences in voting patterns, our overall conclusion is that the votes of Federal Circuit judges during this period defied easy description. Judges do not fit easily into "pro-patent" or "anti-patent" categories, or into "affirmers" and "reversers." We think this is a good thing for the court system. Still, there are some interesting facts to be found in the data.

Abstract:
In theory, trademarks serve as information tools, by conveying product information through convenient, identifiable symbols. In practice, however, trademarks have increasingly been used to obstruct the flow of information about competing products and services. In the online context, in particular, some courts have recently allowed trademark holders to block uses of their marks that would never have raised an eyebrow in a brick-and-mortar setting - uses that increase, rather than diminish, the flow of truthful, relevant information to consumers. These courts have stretched trademark doctrine on more than one dimension, both by expanding the concept of actionable "confusion" and by broadening the classes of people who can face legal responsibility for that confusion. And they have based their decisions not on the normative goals of trademark law, but on unexplored instincts and tenuous presumptions about consumer expectations and practices on the Internet. We argue that this expansionist trend in Internet trademark cases threatens to undermine a central goal of the Lanham Act - to promote fair and robust competition through reducing consumer search costs.

Abstract:
A growing chorus of voices is sounding a common refrain - the U.S. Patent and Trademark Office (PTO) is issuing far too many bad patents. These criticisms are complicated by the rather surprising fact that we don't actually know what percentage of patent applications actually issue as patents. In this paper, we use a novel dataset of all published patent applications filed in January 2001 to estimate the grant rate. These data also allow us to examine the uses of continuation applications, and to assess dynamics of applicant-examiner interaction over the patent prosecution process. We find that the PTO rejects a surprisingly high percentage of patents. While more than two-thirds of all applications result in at least one patent, a significant number of applications are rejected and then finally abandoned by the applicant. We also find that the likelihood of obtaining a patent varies significantly by industry, but in surprising ways. Finally, despite a variety of reforms that might be thought to reduce the use and abuse of continuation applications, we find a high use of continuation applications of various types.

patent, patents, USPTO, intellectual property

Abstract:
This Article focuses on an unappreciated and significant aspect of the debate over property rules in the technology law context. In particular, it argues that the classic justification for legal entitlements protected by a property rule - i.e., a right to injunctive relief - depends on the ability to define and enforce property rights effectively. In the case of many technology markets, the inability to tailor injunctive relief so that it protects only the underlying right rather than also enjoining noninfringing conduct provides a powerful basis for using a liability rule (i.e., awarding the relevant damages to the plaintiff) instead of a property rule. Notably, where injunctive relief cannot be confined to protecting the underlying right, the availability of such relief can give rise to a "holdup strategy," whereby a firm threatens or uses litigation to obtain a settlement significantly in excess of any harm it suffers. Such strategies, as the Article explains, arise in a variety of technology law contexts, including patent law, digital copyright cases, and spectrum regulation. Depending on the particulars of the context, either courts or agencies should superintend the relevant liability regime and, in some cases, the administrative challenges may undermine the case for a liability rule at all. Unfortunately, legal scholars have generally focused on the substantive debate as to the proper scope of property rights - often arguing for an all or nothing solution - at the expense of evaluating the institutional considerations as to whether and when courts or agencies can superintend a liability regime in lieu of a property right.

Law and Economics, Intellectual Property, Cyberlaw, Telecommunications Regulation

Abstract:
The United States is the only country in the world that awards patents to the first person to invent something, rather than the first to file a patent application. In order to determine who is first to invent, the United States has created an elaborate set of "interference" proceedings and legal standards to define invention and decide how it may be proven. Supporters of this system claim that it is necessary to protect small inventors, who may not have the resources to file patent applications quickly, and may therefore lose a patent race to large companies who invented after they did. Advocates of global patent harmonization have suggested, however, that the first inventor is usually also the first to file, and that the first-to-invent standard is unnecessary and wasteful.

In this Article, we study U.S. Patent and Trademark Office ("PTO") interference proceedings and court cases in which the parties dispute who is first to invent. We find that the first person to file is usually, but by no means always, also the first to invent. In over 40% of the cases, the first to invent is last to file. We also find that the long-standing rule that discriminated against foreign inventors by requiring proof of inventive activity in the U.S. had surprisingly little effect on outcomes; that a large number of priority disputes involve near-simultaneous invention; and that the vast majority of such disputes could be resolved without reliance on much of the evidence the law permits. Finally, we study the role of small inventors to see whether they are disproportionately the beneficiaries of the first to invent system. While the evidence is mixed, it does not appear that small inventors particularly benefit from the first to invent system.

Part I describes the legal background for the international debate over how to determine patent priority. Part II describes our studies and discusses our results in detail. Finally, Part III draws conclusions for policy-makers from the data. There is some truth to the arguments of both sides in this debate. The first to invent system does produce significantly different results in individual cases than a first to file system would. But it is not clear that those different results are particularly fairer, or that they are worth the cost. We suggest some possible ways to modify the U.S. system to take account of these facts without changing entirely to a first-to-file system.

patent, interference, priority, harmonization, 102(g)

Abstract:
The right of publicity gives people the right to control the use of their name and likeness for commercial purposes. For years, courts have struggled to make sense of two dimensions of this right - what it means to use a name or likeness commercially, and what aspect of a person's likeness are protected against appropriation. In the absence of any clear theoretical foundation for the right of publicity, the meanings of these terms have steadily swelled, to the point at which virtually any use that brings financial benefit to someone by referencing an individual qualifies as a violation of the right of publicity. At the same time, the courts have developed no meaningful counterweight to this ever-expanding right. Instead, they have created a few ad hoc exceptions in cases where the sweeping logic of the right of publicity seems to lead to results they consider unfair.

Two types of publicity claims have raised particular problems for the courts. The first involves merchandising claims, in which individuals claim violation of their publicity right not by the use of a name in advertising, but by people who sell products that bear their name or likeness. Courts have generally resolved these claims by making a distinction between news or art, on the one hand, and merchandise, on the other - but as art and information become increasingly commodified, this distinction - if it ever made sense - has become ever harder to sustain. The second type of problematic claim involves cases in which a use draws attention away from the celebrity, or arguably sullies the celebrity's reputation in some way that harms the overall value of her identity. Properly limited, such a cause of action might have some theoretical appeal, but courts have applied it in ways that exceed any plausible theoretical justification, particularly when First Amendment considerations enter the fray.

Perhaps ironically, one root of the problems with these cases lies in the very elusiveness of a theoretical justification for the right of publicity. When the government can clearly identify a purpose in limiting speech, courts have some basis on which to evaluate whether the speech limitation lives up to that purpose. But because the right of publicity rests upon a slough of sometimes sloppy rationalizations, courts have little way of determining whether a particular speech limitation is necessary or even appropriate in order to serve the law's normative goals. Instead, they appear to assume that the sum of a set of inadequate justifications equals far more than its parts, and allow right of publicity claims to run roughshod over the speech interests of the public.

If the absence of a rationale has created the problem, then the answer lies in identifying whether and when a right of publicity might serve a legitimate government interest. Yet a review of the cases and literature reveals that no one seems to be able to explain exactly why individuals should have this right. A right of privacy can't justify it, for the right of publicity has been applied in a wide range of situations that don't implicate privacy at all. Some commentators have proposed a natural or moral right of control over one's name or likeness, but there seems no policy justification for giving such control, and the absence of such a right in most of the world and indeed throughout most of U.S. history should make us skeptical of claims based on some consensus moral belief. The moral claim to own uses of one's name also seems inconsistent with the absence of natural or moral rights justifications for other forms of intellectual property.

Of late, and particularly in the merchandising and dilution-like cases, courts and commentators have turned to the incentive-based rationale underlying copyright law in search of both a justification for and limitations on the right of publicity. Reasoning that the right of publicity gives individuals the incentive to develop valuable personas, courts reason that depriving them of the fruits of their labors will interfere with those economic incentives. Some courts have even gone so far as to create a fair use doctrine, importing from copyright law judicially created limits on the enforcement of the right. This approach turns the right of publicity into a new form of intellectual property, one based explicitly on analogies to and justifications for real property.

We think copyright is the wrong analogy. In the United States, copyright law is utilitarian. We grant copyrights in order to encourage the creation of new works of authorship. There is no similar justification for the right of publicity. Society doesn't need to encourage more celebrities, or more marketing of celebrity image. Nor is there any evidence that, even if such a result was desirable, a property-like right of publicity is well tailored to that goal. Copyright's fair use doctrine, moreover, involves tradeoffs between the interests of original creators and those who would like to make transformative uses of their creative works; the right of publicity has no similar tradeoff. Further, copyright's fair use doctrine is confusing to the point of incoherence; it is hardly a model anyone would wish to emulate. Finally, the analogy to copyright serves to obscure the important free speech interests at stake in right of publicity cases. For better or worse, copyright laws have gotten a free ride when it comes to the First Amendment; the copyright analogy may prompt courts to mistakenly extend that free ride to the right of publicity.

The Lanham Act is a far more appropriate analogy to the right of publicity. The Lanham Act in its traditional form protects trademark owners against commercial uses of a trademark by others that are likely to confuse consumers, either as to the source of goods or as to the affiliation, endorsement, or sponsorship of those goods by the trademark owner. The right of publicity is designed at least in part to do the same thing for celebrities. It prevents companies from using the name or likeness of an individual in advertising or promotion to falsely suggest that the individual has endorsed the advertised product. More recently, the Lanham Act has been expanded to prevent dilution of famous trademarks by commercial uses that draw attention away from the trademark owner, or throw it into disrepute, even if they do not confuse. Dilution, too, has analogies in the right of publicity. Uses of a celebrity's name or likeness might in rare circumstances divert attention away from the celebrity or, more likely, might tarnish the reputation of the celebrity by using her name or likeness in a disreputable connection, even in the absence of confusion or assumptions of endorsement. Finally, a few courts have expanded trademark law to include a general right to control the merchandising of goods bearing a trademark, even in the absence of confusion or dilution. This merchandising right too has analogues in the right of publicity. Indeed, the mutation of the right of publicity into a virtually unlimited property right over any use of a name or likeness can best be understood as the wholesale adoption of the putative trademark merchandising right.

Reconceiving the right of publicity as an outgrowth of trademark law has several significant benefits. First, it offers a helpful way to think about the different sorts of claims made under the rubric of publicity. We have considerable experience with each of these types of claims in trademark law, and applying that knowledge can help us understand why we might (or might not) want to prohibit particular uses, and when the law should forbid them. Most importantly, looking at the right of publicity through the lens of trademark law offers logical ways to limit the right of publicity. Trademarks are not property rights in the traditional sense, though a few commentators have argued that trademark owners should have property-like rights over their marks. The idea of a merchandising right, while recognized in a few cases and supported by trademark owners, is not commonly used to decide trademark cases. It is also a problematic concept, one that hardly deserves emulation. Trademark cases tend instead to be decided either based on likelihood of confusion or on dilution grounds. Both trademark infringement and dilution incorporate significant limiting principles designed to balance the interests of society against the interests of policy owners, and to accommodate First Amendment concerns. These limits have not been incorporated into the right of publicity, however. The result is a mutant version of trademark policy, including the affirmative rights but virtually none of the defenses or limits of trademark law.

A proper understanding of the right of publicity would draw more completely on trademark principles, limiting the right to circumstances in which the use of an individual's name or likeness is either likely to confuse consumers or is likely to dilute the significance of a famous name. Revising the right of publicity to conform to the rules we have worked out in trademark cases will avoid some of the worst abuses of the right, limit the conflict between the right of publicity and First Amendment principles, and put the right on a more solid conceptual grounding.

In Part I, we describe the growth of the right of publicity from its narrow privacy origins to a virtually unlimited, descendible, assignable property right. Part I discusses two particular excesses that this trend has brought about, and that are increasingly creating problems for the courts and the public: the expanding merchandising right, and the dilution-like cause of action. Part II discusses the existing efforts to explain the growth of the right of publicity. Those explanations have generally focused on incentive-based rationales akin to copyright law - rationales whose logic breaks down in the right of publicity context. Part II goes on to explain why copyright proves inadequate to justify or to delimit the right of publicity, with particular reference to the merchandising and dilution-like cases. In Part III, we offer a new explanation for the right of publicity, one based in trademark principles. Part III shows how the right of publicity has adopted some but not all of the rules of trademark law, and how a more complete importation of trademark principles into publicity law would solve many of the problems that plague the doctrine. Finally, in Part IV we consider some objections and compare our approach to alternative approaches for dealing with the problems of the publicity right.

Abstract:
The debate over trademark use has become a hot-button issue in intellectual property (IP) law. In Confusion over Use: Contextualism in Trademark Law, Graeme Dinwoodie and Mark Janis characterize it as a dispute over whether to limit trademark holder rights in a new and unanticipated way. Yet there is another - in our view more historically accurate - way to frame the trademark use debate: the question is whether courts should, absent specific statutory authorization, allow trademark holders to assert a new and unprecedented form of trademark infringement claim. The pop-up and keyword cases involve attempts to impose third-party liability under the guise of direct infringement suits. Dinwoodie and Janis's thorough account notwithstanding, it remains the fact that, before the recent spate of Internet-related cases, no court had ever recognized a trademark claim of the sort that trademark holders are now asserting. Trademark infringement suits have always involved allegations of infringement by parties who use marks in connection with the promotion of their own goods and services. The question raised by the trademark use cases, as we view it, is whether courts should countenance a radical departure from that traditional model without specific instruction from Congress. We think they should not.

In this paper, we explain the origins of trademark use doctrine in traditional limits on the scope of the trademark right and in the distinction between direct and contributory infringement. We also explain why we cannot simply rely on the likelihood of consumer confusion test to solve the problems the trademark use doctrine addresses, and we examine the difficult problem of defining the scope of the trademark use doctrine.

Abstract:
In the Festo decision, the Federal Circuit significantly changed the scope of the doctrine of equivalents in patent law. The doctrine of prosecution history estoppel precludes a patent owner from claiming during litigation to own ground given up during patent prosecution. Under the old rule, called the "flexible bar," estoppel was based on a multi-factor test and would apply only if the patentee had no choice but to amend its claims in the way it did. Festo replaced the flexible bar with an "absolute bar," under which virtually any amendment to a patent precludes resort to the doctrine of equivalents for that claim element.

The Supreme Court is now considering whether the flexible or absolute bar is the right rule. We believe there is middle ground in this debate that has been ignored with both parties. Whether prosecution history estoppel applies to any given amendment should depend on the reasonably foreseeable effect of that amendment. Normally, patentees will understand that they are surrendering coverage by amending their patent claims, and so a rule precluding them from reclaiming that ground makes sense. But in some cases the absolute bar will produce unexpected and unintended results. We argue that the application of estoppel should turn on whether the effect of a change would be foreseeable to a reasonable patentee at the time of the amendment. This "foreseeable" bar better balances the competing policies of strong protection for pioneering inventors and notice to improvers who wish to design around a patent.

Abstract:
It is a fundamental principle of patent law that no one infringes a patent unless they practice the complete invention. Nonetheless, patent courts have long recognized that focusing only on the party who actually practices the invention will sometimes let off the hook the party who most deserves to be held liable. Thus, for over a century patent courts have extended liability to one who does not himself infringe, but who actively induces infringement by another. Since 1952, this principle has been enshrined in section 271(b) of the patent statute. As an idea, it has proven uncontroversial.

Surprisingly, however, despite the venerable nature of inducement in patent law, the actual content of the inducement requirement has remained something of a mystery. In particular, courts have proven unable to decide two fundamental issues - what it means actually to induce infringement, and what the inducer must know and intend in order to be liable for acting. Though the United States Court of Appeals for the Federal Circuit, which was created in 1982, now handles all patent appeals, it has not brought uniformity to either issue. Indeed, there are Federal Circuit opinions taking diametrically opposed positions on the law of inducement. This confusion is doubly unfortunate given that the Supreme Court has recently imported the law of inducement from patent into copyright law. Before we adopt the concept of inducement in copyright cases, it would seem helpful to know what exactly it means in patent cases.

In this article, I set out the fundamental disagreements among the courts as to the conduct and intent prongs of inducement. I explore the policies behind inducement law, and suggest that these disagreements can best be resolved not by picking one side or the other, but by thinking of inducement as a sliding scale inquiry in which a more specific intent to infringe is required to find liability if the defendant's conduct is otherwise less egregious. This resolution not only makes policy sense, and integrates section 271(b) with the rest of the statute, but it may even have the virtue of explaining most of the apparently conflicting caselaw. Application of this sliding scale approach also has implications for secondary liability in copyright law.

Abstract:
We have argued elsewhere that peer-to-peer (p2p) file sharing poses significant new challenges to the enforcement of copyright law. Copyright owners' initial response to these challenges - to try to shut down the technologies that facilitate file sharing - is bad for society. We suggested that it would be preferable to lower enforcement costs for copyright owners by making dispute resolution by copyright owners against direct infringers quick and cheap, so that copyright owners would be more inclined to pursue such direct infringers instead of suing innovators. While enforcement costs are likely always to be too great to allow pursuit of every infringer, lower costs would allow for enforcement against more infringers, increasing any given infringer's chance of being sued. In this article, we explain how such a dispute resolution system might work, and propose a draft amendment to the copyright act to implement the system.

Abstract:
Determining the meaning of patent claims necessarily requires the judge to break the text of a claim into discrete elements or units of text corresponding to the elements or units that comprise the claimed invention - essentially, organizing the language of the claims into chunks or quanta of text. Define an element narrowly - limit it to a single word, say - and you will tend to narrow the resulting patent, because to prove infringement the patentee must show that each word has a corresponding structure in the accused device. By contrast, defining an element broadly tends to broaden the patent, because it permits the text to read on a greater range of accused devices.

For each discrete packet identified, the courts must determine the meaning of the constituent words. They can assign those words definitions that range from narrow, specific meanings to broad, general meanings. In determining the meaning of terms within a particular element, judges practicing patent claim interpretation are engaged in an exercise that to some degree resembles the famous levels of abstraction test articulated by Judge Learned Hand for analysis of infringement under copyright law's idea/expression doctrine.

There are no hard and fast standards in the law by which to make the right decision as to either the size of the textual element or the level of abstraction at which it will be evaluated. Indeed, the indeterminacy is so acute that courts generally don't acknowledge that they are even engaging in either inquiry. They define an element almost arbitrarily, and even when judges disagree as to the proper definition they can offer no principled basis for doing so. The problem may be worse than a simple failure to acknowledge subconscious decisions that affect the scope of a patent, however. This indeterminacy may well be inherent in the process of mapping words to things, as modern literary theorists suggest. While courts purport to rely on the ordinary or plain meaning of the words of a patent claim, there may simply be no such thing.

If we can't define the metes and bounds of the invention in any meaningful way, we might instead start with the patentee's invention itself, construing patent claims narrowly and in light of the actual invention when the claim terms are ambiguous. Courts could then supplement this narrower claim construction with a doctrine of equivalents analysis, which would permit them to decide how broadly to apply the principle of the invention.

Abstract:
Trademark merchandising is big business. One marketing consultant estimated the global market for licensing and marketing sports-related merchandise at $17 billion in 2001. With this much money at stake, it's no surprise that trademark holders demand royalties for use of their marks on shirts, key chains, jewelry, and related consumer products. After all, the value of these products comes largely from the allure of the trademarks, and it seems only fair to reward the party that created that value . . . doesn't it?

It turns out that the answer is more complicated than this intuitive account would predict. Trademark law historically has existed primarily to protect against the consumer deception that occurs when one party attempts to pass off its products as those of another. From an economic and policy perspective, it is by no means obvious that trademark holders should have exclusive rights over the sale of products that use marks for their ornamental or intrinsic value, rather than as indicators of source or official sponsorship. Trademark law seeks to promote, rather than hinder, truthful competition in markets for products sought by consumers; if a trademark is the product, then giving one party exclusive rights over it runs in tension with the law's pro-competitive goals, frequently without any deception-related justification. On the other hand, there may be circumstances in which consumers expect that trademark holders sponsored or produced products bearing their mark, in which case use of the mark by others - even as a part of a product - might result in genuine confusion.

Given these complexities, together with the economic interests at stake, one might expect that the law and practice of merchandising rights would be well-settled and reflect a considered balancing of the interests of trademark holders and their competitors. In reality, however, much of the multi-billion dollar industry of merchandise licensing has grown around a handful of cases from the 1970s and 1980s that established merchandising rights with little regard for the competing legal or policy concerns at stake. Those cases are far from settled law - indeed, at least as many decisions decline to give trademark owners the right to control sales of their trademarks as products. We think it is high time to revisit that case law and to reconsider the theoretical justifications for a merchandising right.

That review provides little support for trademark owners' assumptions about merchandising. Doctrinally, the most broad-reaching merchandising cases - which presumed infringement based on the public recognition of the mark as a trademark - were simply wrong in their analysis of trademark infringement and have been specifically rejected by subsequent decisions. Philosophically, even a merchandising right that hinges on likelihood of confusion raises competition-related concerns that should affect courts' analysis of both the merits and appropriate remedies in merchandising cases. Perhaps most importantly, recent Supreme Court case law suggests that, if it had the opportunity to evaluate the merchandising theory (something it has never done), the Court would deny the existence of such a right. Further, the Court would be right to do so. When a trademark is sold, not as a source indicator, but as a desirable feature of a product, competition suffers - and consumers pay - if other sellers are shut out of the market for that feature.

Abstract:
More than 2.5 million United States patents have been issued in the last twenty years. While these patents are spread across all industries, a large percentage are concentrated in the information technology (IT) industries, and others in biotechnology. The prevalence of patents in these industries has caused a number of people to worry about an "anticommons" in patent law. Given these problems, it's a wonder companies make products in patent-intensive industries at all.

And yet make products they do. Both my own experience and what limited empirical evidence there is suggest that companies do not seem much deterred by the threat of all this patent litigation from making products.

What's going on here? The answer, I think, is quite simple: both researchers and companies in component industries simply ignore patents. Virtually everyone does it. They do it at all stages of endeavor. From the perspective of an outsider to the patent system, this is a remarkable fact. And yet it may be what prevents the patent system from crushing innovation in component industries like IT. Ignoring patents, then, may be a "workaround" that allows the innovation system to function in the face of overbroad patent protection.

At the same time, ignoring patents is hardly the optimal solution. I suggest some ways we might move towards a compromise - a robust patent market in which inventors could get paid without the problems of holdup and the anticommons.

Abstract:
Patent damages are designed to compensate patentees for their losses, not to punish accused infringers or require them to disgorge their profits. The statute provides for damages "adequate to compensate for the infringement, but in no event less than a reasonable royalty." Courts interpreting this provision have divided patent damages into two groups - lost profits, available to patent owners who would have made sales in the absence of infringement, and reasonable royalties, available to everyone else. Traditionally, patentees want to prove lost profits, because only that measure captures the monopoly value of exclusion of competitors from the market. As the statutory language suggests, reasonable royalties exist as a floor or backstop for those who cannot prove that they have lost profits as a result of infringement.

In practice, however, the lines between lost profits and reasonable royalties are blurring. In significant part this is because courts have insisted on strict standards of proof for entitlement to lost profits. Specifically, patentees must prove demand for the patented product, the absence of noninfringing substitutes, the ability to meet additional demand in the absence of infringement, and the proportion of those sales that represent profits. This in turn means that many patent owners who have in fact probably lost sales to infringement cannot prove lost profits damages, and turn to the reasonable royalty measure. The result is that courts have distorted the reasonable royalty measure in various ways, adding "kickers" to increase damages, artificially raising the reasonable royalty rate, or importing inapposite concepts like the "entire market value rule" in an effort to compensate patent owners whose real remedy probably should have been in the lost profits category.

In Part I, I explain the strict requirements for proving lost profits, and give examples of patentees who have failed to meet these requirements. In Part II, I explain how relegating these patentees to reasonable royalties has led to problematic changes in reasonable royalty law. Finally, I suggest in Part III that courts should draw a sharp division between the injury suffered by patentees who compete with infringers and those who do not. Patentees who compete should be entitled to the best estimate of lost profits, even if not all elements of proof are available. Doing so will avoid overcompensating patent owners in reasonable royalty cases.

Abstract:
The United States Patent and Trademark Office is tasked with the job of reading patent applications and determining which ones qualify for patent protection. It is a Herculean task, and the Patent Office pursues it subject to enormous informational and budgetary constraints. Nonetheless, under current law, courts are bound to defer to the Patent Office's decisions regarding patent validity. In this Article, we argue for reform. Deference to previous decision-makers is appropriate in instances where those previous decisions have a high likelihood of accuracy, and the patent system should endeavor to create processes that fit this mold. But granting significant deference to the initial process of patent review is indefensible and counter-productive. Patents should be vulnerable to challenge until and unless they are significantly evaluated in an information-rich environment. At that point, they will have earned and therefore should be accorded a presumption of validity. Such an approach would better serve the patent's systems long-run incentive goals, and it would give patent applicants better incentives to file for genuine inventions but leave their more obvious and incremental accomplishments outside the patent system's purview. Here, we therefore suggest the creation of a two-tier system of patent validity, with patents that are subject to intensive scrutiny accorded a strong presumption of validity, while untested patents are left to be evaluated more fully in court.

patent law, patents, patent review, presumption, presumption of validity

Abstract:
The USPTO receives more applications today than it ever has before. What happens to those applications? Patent prosecutors all have stories and personal experiences. Until quite recently, however, this sort of “anecdata” was all that was available, because the law prevented anyone from every finding out what happened to patent applications that did not ultimately issue as patents.

That changed in 2001, when the PTO began publishing data on pending applications, and when the PAIR system allowed the public to track the fate of those applications in real time. In this paper, we use those changes to report – for the first time ever – systematic data on the fate of applications in the PTO. We are able to confirm much received wisdom, but also to offer some surprising results.

Abstract:
The Internet Corporation for Assigned Names and Numbers (ICANN) is a private non-profit company which, pursuant to contracts with the US government, acts as the de facto regulator for DNS policy. ICANN decides what TLDs will be made available to users, and which registrars will be permitted to offer those TLDs for sale. In this article we focus on a hitherto-neglected implication of ICANN's assertion that it is a private rather than a public actor: its potential liability under the U.S. antitrust laws, and the liability of those who transact with it. ICANN argues that it is not as closely tied to the government as NSI and IANA were in the days before ICANN was created. If this is correct, it seems likely that ICANN will not benefit from the antitrust immunity those actors enjoyed. Some of ICANN's regulatory actions may restrain competition, e.g. its requirement that applicants for new gTLDs demonstrate that their proposals would not enable competitive (alternate) roots and ICANN's preventing certain types of non-price competition among registrars (requiring the UDRP). ICANN's rule adoption process might be characterized as anticompetitive collusion by existing registrars, who are likely not be subject to the Noerr-Pennington lobbying exemption. Whether ICANN has in fact violated the antitrust laws depends on whether it is an antitrust state actor, whether the DNS is an essential facility, and on whether it can shelter under precedents that protect standard-setting bodies. If (as seems likely) a private ICANN and those who petition it are subject to antitrust law, everyone involved in the process needs to review their conduct with an eye towards legal liability. ICANN should act very differently with respect to both the UDRP and the competitive roots if it is to avoid restraining trade.

Abstract:
We identify the patents litigated most frequently between 2000 and 2007, and compare those patents to a control set of patents that have been litigated only once in that period. The results are startling. The most litigated patents are far more likely to be software and telecommunications patents, not mechanical or other types of patents. They are significantly different from once-litigated patents in ways that signal their value up front. And they are disproportionately owned by non-practicing entities (aka trolls). The results don’t answer all the policy questions; we offer only one important piece of a larger mosaic. But they have significant implications for debates over patent reform, since we show both that the most litigated patents are the most valuable ones and that they are most commonly in the hands of companies other than the ones building new products.

Abstract:
The Intellectual Property Litigation Clearinghouse (IPLC) will be a comprehensive online information source on IP lawsuits. Modeled on the renowned Stanford Securities Class Action Clearinghouse, the IPLC will host general statistical information, as well as text-searchable dockets, complaints, select motions, judicial opinions, and related data.

Abstract:
Preliminary injunctions against libel, obscenity, and other kinds of speech are generally considered unconstitutional prior restraints. Never mind that a libel may inflict truly irreparable harm on you: The most you can hope for is damages, or perhaps a permanent injunction after final adjudication -- not preliminary relief.

And yet in copyright and other intellectual property cases, preliminary injunctions are routine. We argue that the prior restraint doctrine has something to say about that, too. Though copyright law (like libel and obscenity law), is a constitutionally permissible speech restriction, the "First Amendment Due Process" rule against prior restraints applies even to such permissible restrictions.

We argue that preliminary injunctions in copyright cases are generally unconstitutional; the one exception is cases where there's no controversy over substantial similarity of expression or fair use (for instance, where the question turns only on whether defendant had the requisite license). We also argue the same about right of publicity cases, trademark cases, and trade secret cases, except possibly cases (such as many trademark cases) that involve commercial advertising. We believe this conclusion is dictated by the Court's prior restraint doctrine, and also makes good First Amendment policy sense.

See also the working paper by Lemley & Volokh "Freedom of Speech and Injunctions in Intellectual Property Cases".

Abstract:
Preliminary injunctions against libel, obscenity, and other kinds of speech are generally considered unconstitutional prior restraints. Never mind that a libel may inflict truly irreparable harm on you: The most you can hope for is damages, or perhaps a permanent injunction after final adjudication -- not preliminary relief.

And yet in copyright and other intellectual property cases, preliminary injunctions are routine. We argue that the prior restraint doctrine has something to say about that, too. Though copyright law (like libel and obscenity law), is a constitutionally permissible speech restriction, the "First Amendment Due Process" rule against prior restraints applies even to such permissible restrictions.

We argue that preliminary injunctions in copyright cases are generally unconstitutional; the one exception is cases where there's no controversy over substantial similarity of expression or fair use (for instance, where the question turns only on whether defendant had the requisite license). We also argue the same about right of publicity cases, trademark cases, and trade secret cases, except possibly cases (such as many trademark cases) that involve commercial advertising. We believe this conclusion is dictated by the Court's prior restraint doctrine, and also makes good First Amendment policy sense.

Abstract:
Patent law is bogged down in the minutia of claims construction. Claim construction is central to every patent dispute, but it has not provided the hoped-for certainty or notice to competitors. Quite the contrary: disputes about the importance of inventions and the scope of patents have been replaced by labyrinthine wrangling over words written by lawyers. The flaws of claim construction result largely from the problems attending "peripheral claims," that is, claims that purport to set the outermost boundaries of patent rights. In this paper, we argue that the way for the patent system to move ahead may be by looking behind, to the practice of "central claiming" that was prevalent before 1870, and which was used in many countries through the late twentieth century. Rather than relying on the illusion of peripheral "fence posts," patent law may do better to once again look to stability of central "sign posts." We examine the failure of peripheral claiming, the benefits of central claiming, and several hybrid measures that might be adopted, either in the process of moving from fence-posting to sign-posting, or as improvements over the current system that still stop short of fully adopting central claiming.

patents, intellectual property, claim construction, peripheral claiming, central claiming, Markman

Abstract:
We have conducted an empirical study of every reported doctrine of equivalents decision in both the Federal Circuit and the district courts during three periods - one before the Federal Circuit's 2000 Festo opinion, one after that opinion but before the Supreme Court's 2002 opinion, and a third after the Supreme Court's opinion. Two broader findings stand out. First, the multiple changes in the doctrine of equivalents rules over the last ten years have had surprisingly little effect on the actual outcome of doctrine of equivalents cases, and even less effect on the subset of cases dealing directly with prosecution history estoppel. Indeed, to the extent there is any relationship it is an inverse one - patentees did better under less patent-friendly rules. The attention everyone has paid to Festo as changing the value of patent rights therefore seems to have been largely wasted from a practical perspective.

The second finding is even more significant: the reason the Festo changes had so little effect seems to be that the doctrine of equivalents was already near death by the late 1990s. Even under the permissive doctrine of equivalents rules in place before 2000, while everyone was focused on the doctrine of equivalents, equivalents claims usually failed, most often on summary judgment. That became even more true after 2000, and the Supreme Court's 2002 decision didn't change the trend. In fact, district courts are more likely to reject doctrine of equivalents claims today than ever before.

This left us with a bit of a puzzle: what killed the doctrine of equivalents in the 1990s? We suspected the answer was the growth of claim construction Markman hearings after the Supreme Court's 1996 decision in that case. Once courts were construing claims as a matter of law pre-trial, and finding themselves in a position to resolve virtually all infringement issues on summary judgment, they were naturally inclined to decide the doctrine of equivalents issues too. And a court that has just rejected a literal infringement argument - the only courts likely to spend much time thinking about equivalents issues pre-trial - is unlikely to undo the work of claim construction by sending the issue of infringement by equivalents to the jury. To test this hypothesis, we constructed a fourth dataset, including cases decided in the 1993 to 1995 timeframe. That data bears out our hypothesis. The doctrine of equivalents was alive and well before Markman, but has been in decline ever since.

Abstract:
Trade secret law is a puzzle. Courts and scholars have struggled for over a century to figure out why we protect trade secrets. The puzzle is not in understanding what trade secret law covers; there seems to be widespread agreement on the basic contours of the law. Nor is the problem that people object to the effects of the law. Rather, the puzzle is a theoretical one: no one can seem to agree where trade secret law comes from or how to fit it into the broader framework of legal doctrine. Courts, lawyers, scholars, and treatise writers argue over whether trade secrets are a creature of contract, of tort, of property, or even of criminal law. None of these different justifications have proven entirely persuasive. Worse, they have contributed to inconsistent treatment of the basic elements of a trade secret cause of action, and uncertainty as to the relationship between trade secret laws and other causes of action. Robert Bone has gone so far as to suggest that this theoretical incoherence suggests that there is no need for trade secret law as a separate doctrine at all.

In this article, I suggest that trade secrets can be justified as a form, not of traditional property, but of intellectual property (IP). The incentive justification for encouraging new inventions is straightforward. Granting legal protection for those new inventions not only encourages their creation, but enables an inventor to sell her idea. And while we have other laws that encourage inventions, notably patent law, trade secrecy offers some significant advantages for inventors over patent protection.

It seems odd, though, for the law to encourage secrets, or to encourage only those inventions that are kept secret. I argue that, paradoxically, trade secret law is actually designed to encourage disclosure, not secrecy. Without legal protection, companies in certain industries would invest too much in keeping secrets. Trade secret law develops as a substitute for the physical and contractual restrictions those companies would otherwise impose in an effort to prevent a competitor from acquiring their information.

The puzzle then becomes why the law would require secrecy as an element of the cause of action if its goal is to reduce secrecy. I argue that the secrecy requirement serves a channeling function. Only the developers of some kinds of inventions have the option to over-invest in physical secrecy in the absence of legal protection. For products that are inherently self-disclosing (the wheel, say, or the paper clip), trying to keep the idea secret is a lost cause. We don't need trade secret law to encourage disclosure of inherently self-disclosing products - inventors of such products will get patent protection or nothing. But if trade secret law prevented the use of ideas whether or not they were secret, the result would be less, not more, diffusion of valuable information. The secrecy requirement therefore serves a gatekeeper function, ensuring that the law encourages disclosure of information that would otherwise be kept secret, while channeling inventors of self-disclosing products to the patent system.

My argument has a number of implications for trade secret policy. First, the theory works only if we treat trade secrets as an IP right, requiring proof of secrecy as an element of protection. If we give the protection to things that are public, we defeat the purpose and give windfalls to people who may not be inventors (what we might call "trade secret trolls"). Courts that think of trade secret law as a common law tort rather than an IP right are apt to overlook the secrecy requirement in their zeal to reach "bad actors." Second, an IP theory of trade secrets also encourages preemption of "unjust enrichment" theories and other common-law ways courts are tempted to give private parties legal control over information in the public domain. Thus, an IP theory of trade secrets is in part a "negative" one: the value of trade secret law lies in part in defining the boundaries of the cause of action and preempting others that might reach too far.


Finally, treating trade secrets as IP rights helps secure their place in the pantheon of legal protection for inventions. The traditional conception of the tradeoff between patents and trade secrets views the disclosure function of the patent system as one of its great advantages over trade secret law. And indeed the law operates in various ways to encourage inventors to choose patent over trade secret protection where both are possible. But for certain types of inventions we may actually get more useful "disclosure" at less cost from trade secret than from patent law.

Abstract:
The Google Book Search settlement has prompted a flurry of attention from commentators, including a number of respected scholars who have worried that the settlement makes Google an 'orphan works monopoly.' In this paper I evaluate these claims and find them generally unpersuasive. The Google Book Search settlement expands, rather than diminishes, access to books of all sorts, and that is particularly true of orphan works.

Abstract:
Patent law is virtually alone in intellectual property (IP) in punishing independent development. To infringe a copyright or trade secret, defendants must copy the protected IP from the plaintiff, directly or indirectly. But patent infringement requires only that the defendant's product falls within the scope of the patent claims. Not only doesn't the defendant need to intend to infringe, but the defendant may be entirely unaware of the patent or the patentee and still face liability.

Nonetheless, copying does play a role in some subsidiary patent doctrines. For example, the question of whether patent damages should be set in order to deter infringement depends critically on whether infringers are in fact aware they are infringing, or at least that they are using the plaintiff's technology. Copying - or at least intent to infringe - is also an element of claims for indirect infringement. The definition of "willful infringement" also turns on the question of culpability, at least in the popular understanding of that term. More significantly, the rhetoric of patent law (and of IP law more generally) often seems to presuppose that defendants in patent cases are in fact engaged in copying. Similarly, the outcome of public policy debates over patent reform may well turn on the perception of patent infringers as either bad actors or as innocent businesspeople who accidentally ran afoul of a patent.

Unfortunately, no one seems to know whether patent infringement defendants are in fact unscrupulous copyists or independent developers. In this paper, we seek to answer that question. Because copying is not an element of any patent cause of action, courts do not normally make explicit findings as to whether defendants have copied. Instead, we turn to a variety of proxies to try to identify the subset of cases in which copying is alleged or proven. We look both at the allegations made in a random sample of complaints and at the treatment of copying in recent reported decisions. We find that a surprisingly small percentage of patent cases involve even allegations of copying, much less proof of copying. Copying in patent law seems to be the exception, not the rule.

Abstract:
Patent law turns the attorney-client privilege on its head. Patent law punishes willful infringers by subjecting them to treble damages. An odd set of legal rules stemming from patent law's effort to determine what constitutes willful infringement effectively requires companies confronted with a patent first to obtain a written opinion of counsel and then to disclose that opinion in court. To do that, the accused infringer will have to waive its attorney-client privilege in virtually every case. Even worse, the law puts the question whether an accused infringer will have to waive privilege in the hands of the patent owner, who can send a carefully crafted letter putting a potential defendant on notice of the patent. A patent owner thus triggers the obligation to obtain a written opinion of counsel without actually threatening to sue anyone. In turn, accused infringers who are aware of these rules respond to such letters by obtaining a sort of pseudo-legal advice that both they and their attorneys recognize to be a construct. Both plaintiffs and defendants are playing a costly game.

The rules of this game have perverse consequences for patent law. Some of these consequences affect litigation - lawyers and clients who know that the lawyer's advice will be disclosed to the other side will behave differently, withholding information and candid advice from each other. But other consequences extend beyond litigation. They infect pre-litigation advice, essentially making it impossible for a competent lawyer to advise a client that a competitor's patent should be avoided. The rules of the willful infringement game set traps for the unwary, who may not realize the consequences of failing to obtain the necessary written opinion of counsel. They interfere with a client's ability to choose counsel. And they discourage engineers and companies from reading a competitor's patents at all, thereby undermining the disclosure function that is at the foundation of the patent system.

One possibility is to abolish the willfulness rule entirely. We ultimately reject this approach because we worry that ordinary patent damages alone will be insufficient to deter infringement optimally in many cases. Another possibility is to abolish the rule that requiring disclosure of opinions of counsel. While a good idea, this option would not solve the problems created by the willfulness game, because many defendants will still need to rely on the opinion of counsel in order to disprove willfulness.

Instead, we think the better approach to willful infringement is first to redefine it as adopting a technology with knowledge that it was derived from the patentee, and second to adjust the premium charged for it. Many of the problems with the willfulness rules stem from the fact that willfulness is an ongoing inquiry. The ongoing nature of the inquiry adversely affects a defendant that develops or adopts a technology in good faith but later learns it is infringing a patent. Changing the focus of the inquiry to the time of adoption is consistent with the ordinary understanding of willfulness outside of patent law and would help end the willfulness game. An independent developer could never be a willful infringer, and thus would not need either to obtain or disclose in court a written opinion of counsel merely because it later learned of a patent. By contrast, an accused infringer would need advice of counsel if it was aware of a patent and affirmatively sought to design around the patent. Such an accused infringer therefore would have to waive privilege. But since only the accused infringer's intent at the time of adoption would matter, the scope of privilege waiver would be limited to communications at the time of adoption, and would not infect the advice given by litigation counsel.

patents, intellectual property, independent invention, willfulness, attorney-client privilege

Abstract:
Legal doctrines vary in the extent to which they apply either detailed, categorical rules or broad, open-ended standards that allow for case-specific adjudication. Antitrust law is generally thought of as inhabiting the standards end of this spectrum. In fact, however, despite the generality of the enabling statutes antitrust law is rife with categorical distinctions.

In Part I, we explore not only the well-known distinction between conduct that is per se illegal and conduct judged under the rule of reason, but also a number of categorical distinctions the courts draw, either to help delineate the scope of the per se rule or to create distinctions within the scope of the rule of reason itself. By and large these rules don't come from the antitrust statutes. They are created by courts, who are in effect converting case-specific standards en masse into categorical rules.

In Part II, we identify a number of problems with these distinctions. One problem is administrative: courts spend a great deal of time trying to parse conduct in order to put it on one side or another of the lines they have created. Indeed, in many cases courts spend more time on categorization than they do on actual economic analysis of the case itself. Second, judicial antitrust categories are subject to manipulation. Parties go to great lengths to fit into a box that will give them more favorable treatment, sometimes by legal argument, sometimes by restructuring a transaction, and sometimes by concealing or misrepresenting the facts of that transaction. Third, a number of the categories the courts have created make no sense, whether because they have lost their meaning over time, because their boundaries have eroded, because they actually tell us very little of relevance to the competitive effects of the transaction, or because they are simply dumb. The net result is a mess. Categories have become conclusions, displacing the fact-specific economic analysis in which antitrust law is supposed to be engaging.

In Part III, we argue that there is a better way. We evaluate the costs and benefits of the judicial creation of categories, and contend that the complex of antitrust boxes the courts have created today does more harm than good. We don't mean to suggest there is no value to categories, and that everything must be thrown into a pure cost-benefit analysis. Some rules (the per se rule against price fixing, for instance) make sense. Rather, the important thing is to make sure that the categories we use have empirical support, and that they are communicating valuable information to courts about the competitive effects of a general practice. We think the courts have gone too far in the creation of rules in a variety of cases. Finally, we suggest that courts make more use than they do of certain tools - the doctrine of direct economic effect and empirical evidence - as powerful filters for distinguishing good from bad antitrust claims.

Abstract:
We argued in our paper, "Patent Hold-Up and Royalty Stacking," that the threat to obtain a permanent injunction greatly enhances the patent holder's negotiating power, leading to royalty rates that exceed a benchmark level based on the value of the patented technology and the strength of the patent. John Golden, in his extensive comment on our paper, claims: "Lemley and Shapiro err when they claim to have proven that 'patentees whose inventions are only one component of a larger product are systematically overcompensated.'" However, the error is Golden's not ours. When patentees systematically capture value they did not create from others who did create it, they are being overcompensated by any reasonable measure, including the standard economic models on which we relied. In Part II, we briefly respond to his criticism of our empirical study of court-awarded reasonable royalties. Finally, Golden also claims that our recommendation to reduce the availability of permanent injunctions to patent holders who have claims to reasonable royalties but not lost profits remedy "threatens to distort markets for innovation." We strongly disagree. It is patent holdup, which skews damages in ways more favorable to reasonable royalties, that distorts markets for innovation. A rule such as the one we propose, in which damages are calibrated to compensate patentees for their loss, is sensible public policy.

Abstract:
Trademarks have value because they reduce consumer search costs and thus promote overall efficiency in the economy.

While the search costs theory provides a compelling argument for trademark rights, it also compels an equally important - but often overlooked - set of principles for defining and limiting those rights. Certainly, trademark laws can make it easier and cheaper for consumers to locate products with desired qualities, thus making markets more competitive. Yet if carried too far, trademark law can do the opposite: it can entrench market dominance by leading firms and make it harder for competitors to crack new markets. The evolution of trademark law reflects a continual balancing act that seeks to maximize the informational value of marks while avoiding their use to suppress competitive information.

Most of the literature on the search costs theory of trademark law has focused on the theory as a rationale for trademark protection. In this article, we examine its role in supporting trademark defenses. We find that some trademark defenses unambiguously lower consumer search costs and thus promote the goals of trademark law. Another group of defenses, however, involves behavior that increases consumer search costs for some individuals even as it improves economic conditions for others. We believe that these latter defenses - genericness, functionality, and abandonment - may sometimes go too far in accepting increased consumer search costs as the cost of achieving competition. Rather than the all-or-nothing approach suggested by these doctrines, we suggest that consumers would benefit from a more nuanced approach in these doctrines.

Abstract:
In this paper, we show that there are important differences across patent examiners at the U.S. Patent and Trademark Office (USPTO), and that these relate to the most important decision made by the USPTO: whether or not to grant a patent. We find that more experienced examiners, and those who systematically cite less prior art, are more likely to grant patent applications. These results are not encouraging as a matter of public policy. But they do point to human resource policies as potentially important levers in patent system reform.

Abstract:
The process of claim construction - determining the meaning of patent claims - is the most important part of patent litigation. There are a number of rules or canons that courts can use in applying the interpretive sources to reach an understanding of what patent claims mean. The canon that has arguably had the most significant impact on claim construction is the doctrine of claim differentiation. The claim differentiation doctrine in its broadest reading provides that no two claims in the same patent should be interpreted to cover the same thing.

As a general matter, applying the doctrine of claim differentiation results in broader constructions of patent claims, because it is most commonly used to prevent defendants from limiting a broad genus claim to the range of embodiments actually disclosed or more explicitly recited in other claims. Sometimes this is the right result, because defendants are improperly seeking to limit broader genus claims to the preferred embodiments disclosed in the specification. But at other times it leads to problematic results.

In this article, I conduct an empirical review of claim differentiation decisions in the Federal Circuit and in the district courts, and I suggest limiting principles that can be used to distinguish good uses of the doctrine from bad.

Abstract:
Patent law gives patent owners not just the right to prevent others from copying their ideas, but the power to control the use of their idea even by those who independently develop a technology with no knowledge of the patent or the patentee. In an important paper, Samson Vermont challenges this received wisdom, arguing that independent invention should be a defense to patent infringement, just as it would be in copyright or trade secret cases.

Independent invention has much to recommend it. The most significant problem facing the patent system today is the rise of so-called "patent trolls" - entities who do not manufacture products or transfer technology, but wait and assert patents against successful companies who independently developed and manufactured the technology without knowledge of the patent. An independent invention defense would eliminate the troll problem in one fell swoop. Nonetheless, I have concerns. While I agree with Vermont that we can learn a great deal from the fact of independent invention, I am not yet persuaded that we can be sure that an independent invention defense will have no undue effect on incentives. Complicating this difficult empirical question is the likelihood that the effects of an independent invention defense would be different in different industries. Further, an independent invention defense will significantly change any market for patent rights that might exist or be developing today.

In light of this, I suggest four steps we might take that take advantage of Vermont's insights without moving all the way to an independent invention system. First, we should change the definition of willful infringement to exclude independent inventors. Second, we should adopt some form of a prior user right. Third, we should give simultaneous invention greater credence in determining whether inventions are obvious. Finally, we might consider whether the defendant independently invented as a factor in deciding whether to grant injunctive relief and the conditions to impose on such relief.

Abstract:
A number of doctrines in modern copyright and patent law attempt to strike some balance between the rights of original developers and the rights of subsequent improvers. Both patents and copyrights are limited in duration and in scope. Each of these limitations provides some freedom of action to subsequent improvers. Improvers are free to use material that is in the public domain because the copyright or patent has expired. They are free to skirt the edges of existing intellectual property rights, for example by taking the ideas but not the expression from a copyrighted work or "designing around" the claims of a patent. However, improvers cannot always avoid the intellectual property rights of the basic work on which they wish to improve. Some improvements fall within the scope of the preexisting intellectual property right, either because of an expansive definition of that right or because economic or technical necessity requires that the improver hew closely to the work of the original creator in some basic respect. Here, the improver is at the mercy of the original intellectual property owner, unless there is some separate right that expressly allows copying for the sake of improvement.

Abstract:
Obviousness is the ultimate condition of patentability. The obviousness requirement - that inventions must, to qualify for a patent, be not simply new but sufficiently different that they would not have been obvious to the ordinarily skilled scientist - is in dispute in almost every case, and it is responsible for invalidating more patents than any other patent rule. It is also perhaps the most vexing doctrine to apply, in significant part because the ultimate question of obviousness has an I know it when I see it quality that is hard to break down into objective elements. That hasn't stopped the Federal Circuit from trying to find those objective elements. In the last quarter-century, the court has created a variety of rules designed to cabin the obviousness inquiry: an invention can't be obvious unless there is a teaching, suggestion, or motivation to combine prior art elements or modify existing technology; an invention can't be obvious merely because it is obvious to try; and so forth.

In KSR v. Teleflex, the Supreme Court rejected the use of rigid rules to decide obviousness cases. In its place, the Court offered not a new test, but a constellation of factors designed to discern whether the person having ordinary skill in the art (the PHOSITA) would likely think to make the patented invention. In short, the Court sought to take a realist approach to obviousness - to make the obviousness determination less of a legal construct and to put more weight on the factual determination of what scientists would actually think and do about a particular invention.

As a general principle, this realist focus is a laudable one. The too-rigid application of rules designed to prevent hindsight bias had led to a number or results that defied common sense, including the outcome of KSR itself in the Federal Circuit. But the realist approach has some (dare we say it) nonobvious implications for evidence and procedure, both in the Patent and Trademark Office (PTO) and in the courts. The greater focus on the characteristics of individual cases suggests a need for evidence and factual determinations, but the legal and structural framework under which obviousness is tested makes it difficult to make and review those determinations. The realist approach is also incomplete, because both the knowledge of the PHOSITA and the way the court approaches so-called secondary considerations of nonobviousness depend critically on the counterfactual assumption that the PHOSITA, while ordinarily skilled, is perfectly informed about the prior art. If we are to take a realist approach to obviousness, we should make it a consistent approach, so the ultimate obviousness determination actually reflects what scientists in the field would actually think. So far, despite KSR, it does not. The result of taking the realist approach seriously may be - to the surprise of many - a law of obviousness that is in some respects more favorable to patentability than the standard it displaced.

Abstract:
The trademark use doctrine plays a critical role in ensuring that trademark law serves its proper purpose of encouraging market exchange and lowering consumer search costs. As we have explained in detail elsewhere, the doctrine ensures that trademarks do not become a weapon used to suppress speech or to interfere with rather than promote the efficient operation of the marketplace.

Those goals are even more important in the context of trademark dilution. Unlike a normal cause of action for trademark infringement, trademark dilution gives broader rights to a few famous mark owners to prevent even non-confusing uses in order to protect the uniqueness of their marks against blurring and tarnishment. But because trademark dilution can exist even when goods do not compete, and even absent any likelihood of confusion, it is even more critical that the universe of actions that can give rise to dilution be cabined by a clear and effective trademark use doctrine.

The Lanham Act has had a trademark use limitation on dilution since the first dilution legislation was enacted in 1996, but recent amendments have changed the language and scope of that limitation, leading to some confusion about what is and is not protected. In this article, we parse the language and legislative history of the 2006 Trademark Dilution Revision Act and explain why the trademark use requirement in the new statute not only survives but is more robust than before.

Abstract:
Patent law is crucial to encourage technological innovation. But as the patent system currently stands, diverse industries from pharmaceuticals to software to semiconductors are all governed by the same rules even though they innovate very differently. The result is a crisis in the patent system, where patents calibrated to the needs of prescription drugs wreak havoc on information technologies and vice versa. According to Dan L. Burk and Mark A. Lemley in this book from the University of Chicago Press, courts should use the tools the patent system already gives them to treat patents in different industries differently. Industry tailoring is the only way to provide an appropriate level of incentive for each industry.

Abstract:
Antitrust law promotes competition in the service of economic efficiency. Government regulation may or may not promote either competition or efficiency, depending on both the goals of the agency and the effects of industry "capture." Antitrust courts have long included regulated industries within their purview, working to ensure that regulated industries could not use the limits that regulation imposes on the normal competitive process to achieve anticompetitive ends. Doing so makes sense; an antitrust law that ignored anticompetitive behavior in any regulated industry would be a law full of holes.

The role of antitrust in policing regulated industries appears to be changing, however. A cluster of Supreme Court decisions in the past decade have fundamentally altered the relationship between antitrust and regulation, placing antitrust law in a subordinate relationship that, some have argued, requires it to defer not just to regulatory decisions but perhaps even to the silence of regulatory agencies in their areas of expertise.

Absolute antitrust deference to regulatory agencies makes little sense as a matter either of economics or experience. Economic theory teaches that antitrust courts are better equipped than regulators to assure efficient outcomes in many circumstances. Public choice theory - and long experience - suggests that agencies that start out trying to limit problematic behavior by industries often end up condoning that behavior and even insulating those industries from market forces. And as history has shown, relying on regulatory oversight alone without the backdrop of antitrust law would leave both temporal and substantive gaps in enforcement, which unscrupulous competitors could exploit to the clear detriment of consumers. The mere existence of a competition-conscious regulatory structure cannot guarantee against abuses of that structure, or against exclusionary behavior that falls just beyond its jurisdiction. Indeed - and perhaps ironically - the very regulatory structure that exists to promote competition can create gaming opportunities for competitors bent on achieving anti-competitive goals. Such "regulatory gaming" undermines both the regulatory system itself and the longstanding complementary relationship between regulatory and antitrust law.

We argue that the risk of regulatory gaming provides an important example of the need for ongoing antitrust oversight of regulated industries. We define regulatory gaming as private behavior that harnesses pro-competitive or neutral regulations and uses them for exclusionary purposes. We identify three possible instances of regulatory gaming: (1) product-hopping, in which the branded company makes repeated changes in drug formulation to prevent generic substitution, rather than to improve the efficacy of the drug product; (2) manipulation of government standard-setting organizations; and (3) claims of price squeezes by partially regulated industries.

Our goal in this paper is not to persuade the reader that these particular examples of regulatory gaming do or do not violate the antitrust laws. Rather, our point is that whether or not particular acts of regulatory gaming harm competition is and should be an antitrust question, not merely one that involves interpreting statutes or agency regulations. Some level of antitrust enforcement - with appropriate deference to firm decisions about product design and affirmative regulatory decisions that affect market conditions - provides a necessary check on behavior, such as product hopping, that has no purpose but to exclude competition.

Abstract:
Copyright owners have persuaded the courts that they should win cases in which a defendant's use doesn't injure their market directly, but in which they could and would have charged a fee to grant permission for the use. Even assuming courts are right to have accepted this argument, it is unreasonable to then give the copyright owner not just the fee they would have charged but the power to prevent the use altogether or to collect damages far in excess of that fee. Licensing market cases are excellent choices for separating compensation and control, giving copyright owners the right to get paid without giving them control over transformative uses. Doing so is harder than simply denying injunctive relief, however. It requires us to rethink our definition of damages in copyright law with the aim of remedying injury rather than always seeking to deter infringement.

Abstract:
Trademark law centers its analysis on consumer confusion. With some significant exceptions, the basic rule of trademark law is that a defendant’s use of a mark is illegal if it confuses a substantial number of consumers and not otherwise.

As a general matter, this is the right rule. Trademark law is designed to facilitate the workings of modern markets by permitting producers to accurately communicate information about the quality of their products to buyers, and therefore to encourage them to invest in making quality products in circumstances in which that quality wouldn’t otherwise be apparent. If competitors can falsely mimic that information, they will confuse consumers, who won’t know whether they are in fact getting a high quality product and therefore won’t be willing to pay as much for that quality. I won’t pay as much for an iPod if I think there is a chance it is a cheap knock-off masquerading as an iPod.

The law of false advertising operates as an adjunct to trademark law. While trademark law prevents competitors from misrepresenting the source of their products by mimicking another’s brand name, the law of false advertising prevents false or misleading statements about the quality of one’s own or a competitor’s products. Like trademark law, false advertising law is designed to protect the integrity of markets by allowing consumers to rely on statements made by sellers.

Unfortunately, trademark law has taken the concept of confusion too far. Between 1930 and 1980, courts expanded the concept of confusion beyond confusion as to the source of a product to include the possibility that consumers are confused as to whether the trademark owner sponsors or is affiliated with the defendant’s goods. This expansion began for plausible reasons: consumers might be confused to their detriment in a variety of circumstances in which the plaintiff and the defendant do not actually compete directly. But sponsorship and affiliation confusion has taken on a life of its own, resulting in a large number of cases in which companies or individuals are prevented from doing things that might conceivably confuse consumers, but do not confuse consumers in any way that harms their decision-making process or that the law should care about. In Part I, we offer a number of examples of “confusion” that courts have found actionable even in circumstances in which that confusion was unlikely to matter to the operation of the market. Part II explains how we arrived at this unfortunate pass.

We suggest in Part III that trademark law should focus its attention on confusion that is actually relevant to purchasing decisions. We would make the source of the goods the central element of confusion analysis. It is confusion as to source that is most obviously relevant to the purposes behind trademark law. That does not mean, however, that confusion as to the relationship between plaintiff and defendant can never be actionable. Confusion as to affiliation should be actionable when consumers are likely to believe that the trademark owner stands behind or guarantees the quality of the goods the defendant sells. Even if consumers understand that individual franchisees, rather than the McDonald’s Corporation, actually make their hamburgers, they are likely to expect that McDonald’s stands behind whatever quality that brand represents.

Finally, the fact that confusion as to sponsorship or affiliation should not generally be trademark infringement does not mean that it will never be actionable. Some statements that create confusion as to sponsorship or affiliation will be actionable as a form of false advertising. We address the scope of false advertising in Part IV. Notably, proof of a false advertising claim requires the plaintiff to demonstrate that the misrepresentation is material – that it is likely to affect a product purchasing decision. Indeed, the statute specifies the sorts of misrepresentations that are forbidden. We continue the discussion in Part V, which explores some of the implications of shunting some cases into the false advertising framework, and discusses how to handle some close cases.

Abstract:
In Edwards v. Arthur Andersen, the California Supreme Court reaffirmed the state's strong policy against noncompetition agreements, rejecting the Ninth Circuit's "narrow restraint" exception. We explain what the Court did, why California's policy makes sense, and what the opinion will mean for employers, for the high-tech industry, and for trade secret law.

Abstract:
Michele Boldrin and David Levine offer a strong attack on intellectual property (IP), which they call “intellectual monopoly.” In their view, IP is not necessary to encourage invention or creation. Quite the contrary, they argue that we get innovation from competition, not monopoly. Further, because monopoly imposes well-recognized social costs, we are better off without it if it doesn’t in fact spur new innovation. Boldrin and Levine make a plausible case on their own terms. Nonetheless, I think their terms are misleading. IP rights are rarely if ever “intellectual monopolies.” Most patents, to say nothing of most copyrights, create no economic rents. What this means is that we can’t assume that IP rights generally impose deadweight losses on society. They cause deviation from atomistic, perfect competition, but they don’t cause monopoly pricing. With a small number of exceptions, therefore, they don’t cause the social harms Boldrin and Levine correctly associate with monopoly pricing.