A Purchaser of a Product v. an Owner of a Stolen Intellectual Property: The Revival of the Accession Rule

Abstract

The present article deals with the question: Which is the appropriate rule for deciding a dispute between the buyer of a product and an owner of intellectual property whose right has been integrated in the product by a producer, without her agreement. A legal suit against the producer is impractical since he is insolvent or impossible to locate without excessive cost while the question of product ownership and the other rights of both parties has to be decided. The present article examines three possible solution rules: A rule based on intellectual property law, which favors, in principle, the intellectual property owner, a rule based on good-faith purchase laws or the market overt rule, which allows for property transfer to the buyer assuming he meets, among others, the good-faith requirement, and, finally, a rule based on accession law, wherein the newly created asset will be transferred to the ownership of the owner of the majority share of the new product (based on the value of chattel, rights and work invested in creating the new asset). Accordingly, the majority owner compensates the minority owner with the equivalent of the chattel, rights and work invested by the latter in the product. The present analysis comprises two main elements: An analysis of the effect of alternative legal rules on welfare in the relevant intellectual property and product markets, and an analysis within the framework of economic analysis of torts, viewing the situation described herein as a "legal accident."

Our main thesis is that an accession rule is preferable, both for directing behavior and for achieving legal objectives in the area of insurance and risk distribution, both out of efficiency considerations and out of welfare distribution considerations. We argue that among other things, the suggested rule: (1) Effectively distinguishes between situations where performing title examination by the consumer is efficient and situations where it is not; (2) involves relatively low costs in terms of reduced product demand; (3) is easily applicable; (4) ensures a higher degree of market certainty; and (5) does not involve high legal costs. Furthermore, the suggested rule compensates the intellectual property owner for all her losses, but not beyond, and compensates the consumer almost for all his losses, while creating an efficient and just mechanism of insurance and risk distribution compared to the alternative rules.

Keywords: Intellectual Property, Patent, Copyright, Good-faith Purchase Laws, Market Overt Rule, Accession Rule

JEL Classification: K11, K13, D18