A Simple Conveyance Rule for Complex Innovation

Abstract

This article, written for the Eighth Annual Legal Scholarship Symposium celebrating the work of Richard A. Epstein, assesses Epstein’s advocacy of a default rule for patent conveyances. The article first explains how nineteenth-century patent doctrine supports Epstein’s argument for a conveyance default rule, detailing how early courts adopted for patents the same conveyance default rule they applied to real property. In real property, the default rule provides that, barring words of limitation or restrictive covenants, a conveyance transfers the entire estate, i.e. fee simple. Since patents are property rights – early courts often analogized patents to real property – a similar rule was adopted for patent conveyances. This historical case law confirms Epstein’s critique of the recent decision in Quanta Computers v. LG Electronics as unprecedented “formalism,” because the Quanta Court adopted a mandatory rule that all conveyances as such exhaust all property rights in patents. In shifting from a default rule to a mandatory rule, Quanta undermines the rights of patentees to use and dispose of their property.

The article then discusses some potentially costly complications arising from Epstein’s support for rule-of-reason antitrust review of patent conveyances. The virtue of the conveyance default rule, according to Epstein, is that it is a simple matter of administration. These gains in low administration costs, however, may be lost given the inherent complexity in the ex post application of rule-of-reason antitrust standards to innovative commercialization of inventions. The inherent unpredictability and indeterminacy in such contextual assessments threaten the dynamic efficiencies achieved by the patent system. This is especially salient when rule-of-reason standards require unsophisticated courts to predict and to regulate new, innovative commercial practices arising from inventions. This counsels against antitrust review of patent conveyances, even in Epstein’s second-best world of simple rules for complex innovation.

Keywords: 1836 Patent Act, Bloomer v. McQuewan, Joseph Story, Lucas v. South Carolina Coastal Commission, patent exhaustion, Penn Central inquiry, Potter v. Holland, regulatory takings test, Roger Taney, social utility, takings clause, utilitarianism

JEL Classification: D23, H82, K11, K21, L40, O34