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Abstract: Determining the appropriate monetary remedy for patent infringement has always been a complicated and confusing task, for two principal reasons. The first is that the rules courts have developed for estimating patent damages have been, all too often, both complex and contradictory. This observation continues to be true even after the creation of the United States Court of Appeals for the Federal Circuit, which since 1982 has heard all appeals in patent infringement suits. The second reason is that the proper application of even relatively simple rules to real cases can be surprisingly difficult. In recent years, courts have begun to abandon the formalism that once characterized their approach to patent damages in favor of an analysis more solidly grounded in the economics of market structure, but much work remains to be done to set the law of patent damages on a rational footing. Our goal in this article is to provide a comprehensive economic framework for analyzing and estimating patent damages in the form of either lost profits or reasonable royalties. We begin with an overview of the law of patent damages, paying particular attention to the development of legal standards for estimating lost profits and reasonable royalties over the past thirty years. As we show, the courts have been moving by fits and starts toward adopting a general tort-law framework involving the application of cause-in-fact and proximate cause doctrine, though without completely giving up the idea that the law of patent damages should remain materially different from the law of damages as applied to other torts. We then provide a rationale for a general but-for causation standard and demonstrate how this standard might apply to a variety of market arrangements. Finally, we discuss the concept of proximate cause and what it might mean in the context of patent infringement. Although our results are largely supportive of some of the legal standards the Federal Circuit has adopted over the past ten years, we argue that the court has ignored some potent counterarguments, and that these counterarguments must be resolved before one can have any confidence in the standards chosen. In reaching our results, we therefore address, though ultimately reject, arguments that patent owners should systematically recover less than the amount of their but-for loss, in order to encourage efficient infringement or to avoid anticompetitive schemes of preemptive patenting or tying.
Abstract: According to some courts and commentators, the essential facilities doctrine sometimes requires a monopolist to provide access to a facility that the monopolist controls and that is deemed necessary for effective competition. Although sometimes the facility is, literally, a physical facility, in principle the doctrine could apply to other types of property or inputs as well, including intangibles such as intellectual property. And while the U.S. Supreme Court has never expressly recognized the doctrine, even casting doubt in recent years on the doctrine's viability under U.S. law, the European Communities have applied a version of the doctrine in several cases, including most recently against Microsoft. This book chapter, from a forthcoming book titled Antitrust Law and Economics (Keith N. Hylton ed., Edward Elgar Publishing 2008), provides a short overview of the essential facilities doctrine as it has evolved in the relevant caselaw and commentary. The chapter presents the leading arguments for and against the general recognition of an essential facilities doctrine; discusses some of the ongoing controversies over the doctrine's specific contours (for example, the necessity of proving the existence of two vertically-related markets); and highlights the doctrine's potential tension with intellectual property law.
antitrust, essential facilities, abuse of dominant position, Microsoft
Abstract: Suppose that the manufacturer of a component that infringes another's patent sells that component to the manufacturer of a final product; the manufacturer of the final product incorporates the infringing component into the final product and then sells the final product to a wholesaler; the wholesaler sells to a retailer, who sells to a consumer, who takes the product home and uses it. Every party within the chain of distribution is liable for patent infringement, including the consumer, because patent law makes it unlawful not only to manufacture an infringing device, but also to sell or use the device. Trade secret, copyright, and trademark law, on the other hand, impose liability only for certain sales and uses and not others. In this paper, we try to discern whether the patent rule is economically efficient, and if so whether there is any economic logic to the differences between the patent rule and the rules found in trade secret, copyright, and trademark law. We conclude that the efficiency of the patent rule is indeterminate, but that even if the patent rule is efficient there are good reasons for following a different rule in trade secret and copyright law. The trademark rule, by contrast, is somewhat difficult to square with the patent rule. We also speculate on some ways in which the internet may be pushing copyright and trademark law in the direction of the patent rule in certain respects.
Abstract: Commentators on antitrust and patent law over the past decade have advanced the view that "patent holdup" poses a serious threat to innovation and consumer welfare. In recent months, however, a more skeptical literature has emerged to challenge patent holdup on both theoretical and empirical grounds. This article responds to the skeptics' theoretical challenge, by placing patent holdup within the broader class of holdup or holdout behavior as discussed in mainstream law and economics. Defining patent holdup as a type of opportunistic behavior that threatens substantial harms to both static and dynamic efficiency, I argue that both the law of patent remedies and the law of antitrust should play a role (albeit a limited one) in responding to, or enabling private efforts to avoid, patent holdup. As for remedies, I argue, among other things, that consistent with the Supreme Court's decision in eBay Inc. v. MercExchange, L.L.C. courts should award damages in lieu of injunctive relief in a subset of patent infringement cases involving serious risks of holdup-generated harm to either static or dynamic welfare. On the antitrust side, I argue, contrary to the D.C. Circuit's holding in Rambus, Inc. v. FTC, that a patent owner's deceptive conduct that results in the adoption of its patented technology or that enables the patent owner to avoid a RAND licensing commitment can be actionable as a violation of Sherman Act ¿ 2. I also argue that, consistent with the recommendations of many recent observers (including the Antitrust Modernization Commission), joint bargaining between standard setting organization members, on the one hand, and individual members/patent owners, on the other, over the price terms of patent licenses should be evaluated under the rule of reason-though only to the extent that such collective bargaining is reasonably necessary to avoid the threat that holdup poses to dynamic efficiency.
patent holdup, standard setting, reasonable royalties
Abstract: This article provides the first comprehensive analysis of the rules that courts employ to determine who must, may, or may not be a plaintiff in a patent, copyright, or trademark infringement action. Under the patent rules, which date back to the nineteenth century, the patent owner must always be a party to infringement litigation; the exclusive licensee of a patent also may initiate litigation, but only if she joins the owner as a plaintiff; and a nonexclusive licensee lacks standing to participate altogether. As we demonstrate, these simple-sounding rules give rise to some anomalies and are inconsistent, in certain important respects, from the more liberal rules followed in copyright and trademark law. We argue that economic analysis can help to clarify the ways in which infringement threatens (or does not threaten) the interests of the various parties to a transfer agreement (including assignors, assignees, licensors, and exclusive and nonexclusive licensees), and that it provides some plausible reasons for the differences among the rules employed within the three bodies of intellectual property law. More importantly, we argue that, once the relevant interests are better understood, the joinder and intervention provisions of the Federal Rules of Civil Procedure furnish a sufficient framework for determining who should or should not be a party to an infringement action. The need for standing rules that are specific to intellectual property disputes is, in other words, a myth.
Abstract: Economic analysis has long suggested that there are two distinct categories of cases in which the fair use defense, which permits the unauthorized reproduction and other use of copyrighted materials, should apply: first, when the transaction cost of negotiating with the copyright owner for permission to use exceeds the private value of the use to the would-be user; and second, when the individual use is thought to generate some positive externality, such that the net social value of the use exceeds the value to the copyright owner of preventing the use, which in turn may exceed the value of the use to the individual user. Considerable anecdotal evidence, however, suggests that would-be users are often deterred from engaging in conduct that likely would fall within the ambit of fair use, due in part to concerns over incurring attorneys' fees and also to the uncertainty and unpredictability of fair use doctrine itself. This article presents a model of the private costs and benefits faced by would-be users of copyrighted materials in precisely those settings in which economic analysis suggests that the fair use doctrine should apply. The model demonstrates how, under current law, this balance of private costs and benefits may cause some users to forgo legitimate fair uses, particularly when those users are risk-averse. It also suggests that, in cases in which fair use is justified by the presence of positive externalities flowing from the individual user's use, the asymmetry between individual user gain and copyright owner loss may result in systematic copyright overenforcement; put another way, the fair use doctrine suffers from an "appropriability" problem similar to that which is often cited as a justification for copyright protection itself. The article then offers some observations on the likely effectiveness of six different types of fair use reforms.
copyright, fair use
Abstract: The conventional wisdom that antitrust is less tolerant of monopoly than is intellectual property (IP) law is sometimes true, but there is another side of the coin that is less frequently commented upon and that deserves further scrutiny. On occasion, IP law condemns conduct on the part of IP owners - or excuses otherwise infringing activity on the part of IP defendants - expressly for the purpose of promoting competition, even though antitrust law (if it were to apply at all) would not find anticompetitive harm absent a more thorough analysis of whether the antitrust defendant possesses power over a well-defined market. Salient examples include the misuse doctrines in patent and copyright law; some applications of merger and fair use in copyright; and trademark law's functionality doctrine. In this paper, I develop an explanation for this divergence between antitrust and IP. Specifically, I argue that in some limited contexts the expected social costs (including error costs) of ruling for IP defendants are relatively low in comparison with the expected anticompetitive harm from ruling for IP plaintiffs. As a result, it is sometimes welfare-enhancing for IP courts to be less concerned than antitrust courts about the expected costs of "false positives," that is, cases wrongly decided against the party defending the allegedly anticompetitive conduct. Thus, in an appropriate case courts should deploy IP doctrine to prevent harms that would be deemed unduly speculative, or not cognizable at all, in the analogous antitrust context, including (1) harms stemming from the exercise of small-scale, transitory, or localized market power; (2) harms that are individually of little competitive significance, but which in the aggregate threaten a substantial reduction in consumer welfare; (3) threats to dynamic efficiency stemming from the reduction of competition in innovation markets; and (4) potential reductions in expressive output that, for reasons rooted in the First Amendment, may be qualitatively, but not quantitatively, significant. I further contend, however, that such cases probably are more common in the copyright than in the patent law context, and that even in copyright contexts courts should be cautious about casually inferring anticompetitive harm; but that the analysis provides a rationale for a relatively expansive definition of trademark functionality.
Abstract: Memes are hypothetical units of cultural transmission discussed and debated in the writings of Richard Dawkins, Daniel Dennett, and other contemporary scientists and philosophers. This paper uses the meme concept to address several aspects of copyright law. In particular, the paper presents the copyright system as forming part of the environment within which these units of information replicate and evolve. Changes in the copyright system affect not only the quantity of memes that are created and published, but also their diffusion, diversity, and quality, and the ways in which these units compete against one another for human attention spans. These evolutionary changes are unpredictable in their particulars, but it may be possible on occasion to predict some rough trends and to foresee potential tradeoffs along the various dimensions of quantity, quality, diversity, and diffusion.
Copyright, culture, evolution
Abstract: In this article, I argue that some recent developments in copyright law threaten to assist religious groups in using copyright law as a tool for suppressing what they view as heresy; and that this return to the seventeenth-century model of copyright as a tool of censorship is contrary to both sound copyright policy and, more importantly, the constitutional vision of religious pluralism. I begin with a discussion of some problems that can arise with respect to the copyrightability of religious works. Although the Establishment Clause poses no obstacle to the copyright status of these works, there are some interesting copyright issues that arise with respect to works that religious groups view as scriptural or revelatory in character. I argue that the way in which courts in some recent cases have addressed the copyright issues betrays an unwillingness to take seriously minority religious beliefs; and that a thoughtful application of the copyright estoppel and merger doctrines would result in some of these works falling outside the scope of copyright protection. In the latter half of the article, I discuss the courts' responsibility to accommodate the unauthorized use of copyrighted works for the purpose of religious practice. Although religious adherents are probably not entitled to an exemption from copyright liability under current Free Exercise jurisprudence, I argue that courts should be somewhat more willing to accommodate unauthorized uses of religious works under copyright's fair use doctrine. On the other hand, the one provision of the Copyright Act that expressly grants religious users a broad exemption from the copyright owner's public performance right arguably goes too far in permissively accommodating religious practice.
Copyright, fair use, religion, free exercise, establishment
Abstract: A series of United States Supreme Court decisions establishes that the First Amendment provides a qualified right to speak and publish anonymously, or under a pseudonym. But the Court has never clearly defined the scope of this right. As a result, lower courts have been left with little guidance when it comes to dealing both with the Internet-fueled growth of torts and crimes committed by anonymous speakers, and with the increasing number of lawsuits aimed at silencing legitimate anonymous speech. In this Article, we provide both positive and normative foundations for a comprehensive approach to anonymous speech. We first draw upon intellectual property theory, particularly as it relates to trademarks and copyright, to develop a positive analysis of the private and social costs and benefits of anonymous speech. Traditional First Amendment jurisprudence then supplies the missing normative component by providing two crucial presumptions that suggest how to weigh the relevant costs and benefits. The first is the anti-paternalism presumption. This assumes that audiences are capable of responding to anonymous speech in much the same way they respond to generic, nontrademarked products - by recognizing that the product, in this case speech, lacks an important quality indicator and should be evaluated accordingly. In this manner, audiences can minimize the potential social harm of many forms of anonymous speech. The second presumption, which we refer to as "more is better," favors more speech over less, and thus places considerable weight on anonymity as a tool for encouraging otherwise reluctant speakers to come forward - even at the risk of simultaneously encouraging more potentially harmful speech. These twin presumptions form the basis for the detailed guidance we supply for legislatures contemplating regulation of anonymous speech, and for courts seeking to balance the rights of anonymous speakers with other important interests.
anonymous, first amendment, trademarks
Abstract: Courts and commentators have recently begun to confront the issue of whether a product configuration that has been disclosed in a utility patent can serve as protectable trade dress under section 43(a) of the Lanham Act. In the view of some, such configurations necessarily enter the public domain upon expiration of the patent, regardless of whether they would otherwise qualify for trademark protection, because there is a federal right to copy that accrues upon patent expiration. In the view of others, there is no reason to deny trade dress protection as long as the trade dress at issue is sufficiently distinctive and nonfunctional. In this paper, I argue that much of the case law and commentary addressing this issue is based upon the erroneous equation of patents with monopolies, a view that has been long discredited in the economic literature. If the arguments in favor of trade dress protection generally are sound, there is no good reason to create an exception for trade dress that has been disclosed in a utility patent. As long as the trade dress is nonfunctional, in the sense that competitors do not need access to it in order to compete, the prospect of creating perpetual monopolies is nonexistent.
Abstract: Developments in patent law over the past generation, as exemplified by the Patent Board of Appeals and Interferences' recent decision in Ex parte Lundgren, have all but done away with several venerable principles relating to patent eligibility - among them rules that all patentable inventions must pertain to the technological arts, that they may not read on mental steps, and that patentable processes must effect a physical transformation - in favor of an approach that asks only whether an invention has practical utility and is predictable in its effects. As a result, patentable subject matter now includes both the technological and the liberal arts; patent claims may read on steps that are capable of being performed mentally; and patentable processes need not effect any physical transformation of matter or energy external to the human actor. Debate over the wisdom of this expansion of patentable subject matter often focuses on the patentability of computer-related art, but also arises in cases such as Laboratory Corp. of America Holdings v. Metabolite Laboratories, Inc., which involved a diagnostic process. Although the Supreme Court raised hopes, when it decided to grant review in Metabolite, that it would issue a definitive ruling either confirming or rejecting the modern trend, those hopes were dashed this past June when the Court dismissed the writ of certiorari as improvidently granted. This essay questions whether the modern trend with respect to patentable subject matter - neat, orderly, rational, and logical though it may appear to some observers to be, in contrast to the more restrictive, even arbitrary, approach embodied in the technological arts, mental steps, and physical transformation doctrines - is really such a wise development after all. Taking a cue from the (admittedly non-patent related) writings of the Anglo-Irish statesmen and political theorist Edmund Burke, I argue that some aspects of the older approach to patentable subject matter may have embodied an underappreciated wisdom, to the extent the older doctrines prevented patent law from intruding upon both laws of nature and human liberty interests, including freedom of speech and personal autonomy. As times change, the law too must change, and it would be foolish to exclude computer and business-related art from the scope of patentable subject matter altogether; properly reformed and refined, however, the older doctrines still may play a useful role in preventing patent law from unduly extending its reach into every nook and cranny of human endeavor.
Patents, Patentable Subject Matter
Abstract: This essay, to be published in connection with a symposium held at Michigan State University College of Law in April 2005 and titled "W(h)ither the Middleman: The Role and Future of Intermediaries in the Information Age," presents a short overview of some of the legal and economic issues relating to intermediation and disintermediation in the digital era. Intermediaries can be defined as economic agents that help to reduce the cost of buyer-seller transactions, by enabling buyers and sellers to find one another and to sort, classify, and distribute information to one another. Although some observers, as early as the late 1980s, predicted that the digital revolution would lead to the demise of intermediaries ("disintermediation"), others argued instead that intermediaries would still be necessary to perform a variety of services, and that the need for new types of intermediaries would increase. My review of the relevant literature, much of which derives from a now-classic 1995 paper by Sarkar, Butler, and Steinfield, convinces me that the latter view was largely correct. In addition, I discuss some ways in which law might play a useful role in reducing the social costs of acquiring, evaluating, and managing information, or enabling the further reduction of these costs. Using the law of copyright and of false advertising as examples, however, I argue that formulating the optimal legal response, if any, to the transaction cost reduction problem can be quite difficult, given the unpredictability of both technological progress and of market responses to both legal and technological change.
Abstract: The misuse defense in copyright and patent law is something of an anomaly. Under the approach favored by many courts that have considered the defense, misuse is defined as the broadening of one's copyright or patent with anticompetitive effect. When a defendant in a copyright or patent infringement suit succeeds in proving that the plaintiff has misused its copyright or patent, the court typically enters judgment that the copyright or patent is unenforceable until the misuse is purged. There is no necessary requirement that the copyright or patent defendant itself has been a victim of the misuse (the "standing" anomaly); and despite the posited relationship of misuse to competition policy, courts continue to affirm that misuse may exist even when the challenged practice does not amount to a violation of the antitrust laws. As such, misuse can become something of a wild card in copyright and patent litigation. Articulating a distinct role for the doctrine, in relation to both antitrust law and to such copyright doctrines as fair use and merger, has not proven easy. In this essay, I argue for a reformed and narrowed version of the misuse defense in both copyright and patent law. Specifically, I argue that licensing provisions that enable copyright or patent owners to extract concessions from licensees that are likely to cause net social harm to interests such as dynamic efficiency and freedom of speech should be deemed unenforceable under a doctrine of "transactional misuse." Courts should be reluctant to find such misuse absent clear evidence of such net harm; at the same time, however, there may be rare cases in which such harm is present despite the fact that antitrust law would probably not intervene under similar circumstances. Finally, the standard remedy for transactional misuse should be limited to the unenforceability of the offending license provision, a reform that would tend to eliminate the standing anomaly. For "litigation misuse," on the other hand, tentatively defined as the spurious assertion of copyright or patent rights in litigation for the purpose of inducing defendants to avoid accessing public-domain materials not within the scope of the grant, unenforceability of the intellectual property in its entirety may in some instances be an appropriate remedy.
copyright, patents, misuse
Abstract: The questions of whether, when, and where an author has "published" her work of authorship traditionally has given rise to, and continues to give rise to, numerous consequences, including the protectability of the work under U.S. copyright law; the running of various time periods, including a grace period for registering the copyright and the termination of copyright in works made for hire; the applicability of fair use and other exceptions to copyright liability; and the imposition of the duty to deposit two copies of the work with the Library of Congress. Although the 1976 Copyright Act, unlike its predecessors, includes a definition of "publication," controversies continue to arise concerning the meaning of this term in new and different contexts - for example, whether an author's posting of material on the Internet constitutes publication giving rise to all of the various rights and duties attendant thereto. In this article, I propose a redefinition of the term "publication," consistent with the statutory definition, that reconciles some of the conflicting trends in the case law and attempts to resolve some current uncertainties.
copyright, publication, internet
Abstract: Many states confer upon natural persons a “right of publicity” that renders unlawful the unauthorized use of a person’s name or other indicia of identity for purposes of trade. Efforts to reconcile publicity rights with the First Amendment and with principles of copyright preemption, however, have differed radically from one state or circuit to another, as well as within the scholarly community. In this Article, we present a comprehensive framework for integrating both First Amendment and copyright preemption principles into standard publicity analysis. Our framework eliminates much of the incoherence found in contemporary right of publicity case law by adopting a narrow reading of Zacchini v. Scripps-Howard Broadcasting Co. (to date, the only Supreme Court decision addressing the right of publicity), and by looking to principles of conflict preemption to cut through the indeterminacy of conventional preemption analysis under § 301 of the Copyright Act.
More precisely, we argue that First Amendment and copyright preemption analysis tend to converge on two relatively simple principles: first, that publicity claims arising in the context of commercial speech usually should withstand both First Amendment and copyright preemption challenges; and second, that publicity claims arising in the context of noncommercial speech may proceed only when, among other things, the exercise of publicity rights plausibly can be justified as advancing a state interest in protecting personal privacy or individual autonomy, or (possibly) in preventing consumers from erroneously perceiving that the plaintiff endorses a product that she does not, in fact, endorse. Viable publicity claims involving noncommercial speech should be small in number, however; and should the Supreme Court someday opt to eliminate the distinction between commercial and noncommercial speech regulation, or to overrule Zacchini in favor of a more speech-protective standard, the number of viable claims within both classes should shrink further still.
publicity, first amendment, copyright, preemption
Abstract: The Antitrust Modernization Commission's (AMC's) recommendations relating to the IP/antitrust interface reflect what has become the consensus view among mainstream commentators that IP and antitrust are, for the most part, complementary rather than antagonistic bodies of law. In this article, I argue that this consensus view is largely correct, and that the AMC's consensus-based recommendations are both commendable and persuasive. In addition, however, I argue that the consensus view nevertheless fails to capture some remaining tensions that could become acute in certain ongoing disputes lying along the antitrust/IP interface. These areas of potential conflict can be grouped into three broad categories. "Category 1" comprises cases in which IP law does not provide what some market participants believe to be an adequate solution to a free-riding problem that in theory could undermine the participants' incentive to invest in innovation. When such cases arise, courts may have to determine whether self-help efforts on the part of such participants to inhabit IP's "negative space" violate IP or antitrust norms, and if so whether the two sets of norms themselves conflict. Second, and of greater significance to antitrust policy at present, joint efforts on the part of potential IP users to facilitate the adoption and use of a particular technology may give rise to antitrust problems. The report briefly discusses one recurring situation falling within this latter category ("category 2"), relating to SSOs. Third, antitrust enforcers from time to time may perceive IP law as falling far short of attaining the optimal incentives/access tradeoff. In this third category of cases ("category 3"), questions may then arise whether antitrust should come to the rescue by constraining the exercise of unduly broad IPRs. In all three categories of cases, the risk will be present that antitrust intervention may overshoot its mark, thus undermining both the incentive structures embedded within the IP laws and efforts to reform those IP laws, when necessary, from within. Problematically, it remains unclear how antitrust enforcers can weigh the procompetitive benefits of challenged conduct that substitutes for IPRs (in category 1), restricts the exercise of IPRs (category 2), or exploits those IPRs to the maximum degree (category 3), against the potential corresponding harms to the integrity of the IP incentive scheme or to social welfare generally; and yet to describe the costs and benefits as in some sense incommensurable does not make the problem go away.
antitrust, intellectual property, patents, standard setting
Abstract: In this essay, I discuss how separate duties of secrecy may arise under the law of contracts, fiduciary obligations, and trade secret law, and the circumstances under which an employee/inventor may be bound by one, two, or all three duties. I then address the issue of whether, in light of these disparate sources of the duty of secrecy, it is possible for the employee/inventor to find herself obligated not to use or disclose her own trade secretive information in competition with a former employer -- a situation that would be somewhat analogous to the blocking patents phenomenon in patent law, in that neither employee nor employer would be able to make optimal use of the information absent mutual agreement. I discuss a well-known case in which this situation arguably arose, and I suggest various ways either to avoid or resolve the situation in future cases.
Abstract: In this article, we apply economic analysis in an effort to derive the optimal damages rules for use in patent, trade secret, copyright, and trademark disputes. We proceed on the basis of two key assumptions: first, that in order to preserve the intellectual property owner's incentives to create, publish, or maintain quality control, the owner should never be rendered worse off as a result of an infringement; and second, that in order to preserve the property-like character of intellectual property rights, the infringer should never be rendered better off as a result of the infringement. On the basis of these assumptions, we conclude that the general damages rule for use in intellectual property disputes should be that the prevailing plaintiff recovers the greater of either her actual damages or the defendant's profits attributable to the infringement, with the possibility of a damages enhancement as a means of deterring infringements that are difficult to detect. We then discuss three ways in which the rules that actually govern in intellectual property disputes depart from this model--the absence of a restitutionary remedy in patent law; the use of "statutory damages" in copyright law; and the limitation on the recovery of restitutionary damages in trademark law- and consider whether these departures from the model can be viewed as rational adaptations to certain specific features of these bodies of law.
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