More Property Rules than Property: Revisiting the Right to Exclude in IP

Abstract

Patent and copyright rely heavily on property rules rather than liability rules: in the event of infringement, courts impose injunctive relief or punitive damages rather than compensatory damages. While this scheme is intended to protect creators’ ex ante incentives to engage in intellectual production, the regime raises many problems for the creation and distribution of new works. In particular, it imposes unjustified costs on unwitting infringers and exacerbates the difficulty of coordinating among multiple parties to pursue projects that implicate several IP rights. Both problems could be ameliorated by strategic deployment of liability rules. The law of tangible property demonstrates how this strategy might work. While we often assume that the law protects tangible property with property rules, closer scrutiny shows that courts and lawmakers use liability rules to deal with unintentional trespasses and to circumvent holdout strategies that implicate real property.

This analysis yields three payoffs. First, it develops the novel and counterintuitive argument that IP uses property rules in many circumstances where property law uses liability rules. This arrangement is backwards because the greater notice failures, inexhaustibility, and need for cumulative production inherent to our IP regimes relative to tangible property counsel in favor of liability rules. Second, it grounds the debate over the use of property rules versus liability rules in IP in tangible property doctrine, where courts and lawmakers have taken the pragmatic approach of structuring entitlements to facilitate economic progress. Finally, it identifies three ways the choice of remedies could serve as a concrete policy lever to address issues in IP: (1) We can correct notice failures by creating a “reasonable search defense” — eliminating property rule protection in cases of accidental infringement — to encourage users to search and owners to publicize their claims; (2) we can defuse holdout strategies by rejecting property rule protection for IP owners who refuse to bargain in good faith; and (3) the state can actively cut through patent thickets and similar anti-commons by utilizing — or threatening to use — its march-in rights and authority to enact compulsory licenses.

Keywords: intellectual property, property, copyright, patent, property rules, liability rules, entitlements, remedies