**Theories of IP** William Fisher 2017.11.10


Roots: Personhood theory of "real" property

Human needs served by private property rights

1. Peace of Mind

e.g., Charles Fried

2. Privacy

e.g., Jeremy Waldron

3. Autonomy

e.g., Abraham Lincoln

4. Self-realization as a social being

e.g., Carol Rose

5. Self-realization as an individual

e.g., Hegel, Kant, Justin Hughes, Rob Merges

6. Security and leisure

e.g., Jeremy Waldron, George Fitzhugh

7. Responsibility

e.g., T.H. Green, J.S. Mill

8. Identity

e.g., Margaret Jane Radin

9. Citizenship

e.g., Hannah Arendt, Classical Republicanism

10. Self-expression

e.g., T.H. Green, Gary Larson

Personhood theory of IP

Intellectual products are manifestations or extensions of the personalities of their creators

the artist defines herself in and through her art

extensive empirical support for the claim that many authors, artists, and perhaps inventors feel this way gathered by Jeannie Fromer (2010 & 2011)
e.g., Anne Lamott: “I understood immediately the thrill of seeing oneself in print. It provides some sort of primalverification: you are in print; therefore you exist.”

artists consequently are entitled to considerable continuing control over their products

because injuries to those products injures the creator's self, or
because control over products is part of general project of creating and maintaining an identity

Appreciation of creators' personhood interests provides support for "moral rights"

right of attribution

right of integrity

right of disclosure

right of withdrawal

right against excessive criticism

droit de suite

Modern Modifications

all persons must be enabled and encouraged to express themselves artistically

recognize increasing dependence of creativity upon re-use of extant intellectual products


Should an artist who invests herself in a work of visual art be able to prevent imitations?

no; the copy would be a product of the copyist's mind -- Hegel
yes; Hughes

May an author alienate her right to control the copying of her work?

deciding when and how to speak is an inalienable aspect of one's personality -- Kant
expressions of mental aptitudes are external to the author and therefore alienable -- Hegel

Should a celebrity's persona be protected against commercial exploitation by others?

yes; it's a repository of selfhood
no; it owes as much to the media and the audience as to the celebrity -- Madow

Possible Applications


Cast doubt on IP terms that extend beyond (or are shorter than) the life of the author


Cast doubt on defensibility of work-for-hire doctrine and pre-employment invention assignment agreements

opportunities for "exit"

Need to protect artists more against their own folly or ignorance?

Pro-artist interpretation of long-term licenses?

Expanded interpretation of fair use for transformative works

Does equality of opportunity require an adjustment of moral rights?

preservation of right of attribution
Dastar is backwards
but diminished protection for right of integrity and right of withdrawal


Heightened nonobviousness requirement?


tension concerning trademark protection for personal names

Trade Secrets

Justification for (qualified) trade secret doctrine?


Right of Publicity


Differential Pricing

PD is bad when it impedes creative modifications of intellectual products

Appropriate legal responses

narrow definition of "derivative works"
Lee, not Mirage
curtailment of the right of integrity
not right of attribution
Dastar is wrongly decided
generous interpretation of fair-use doctrine for transformative works
but cf. Kapczynski and cites
compulsory differential pricing, in favor of creative uses
novel interpretation of 115 (far from its original purpose)







Amartya Sen

"Equality of What?" (1982)
Quality of Life (1993)
Development as Freedom (1999)

Martha Nussbaum

Women and Human Development (2000)
Frontiers of Justice (2006)
"Constitutions and Capabilities: 'Perception' Against Lofty Formalism," 121 Harv. L. Rev. 4 (2006)

Political Theory

Commonwealth men

See Bailyn, Ideological Origins of the American Revolution (1967)


Economic and Philosophic Manuscripts of 1844

Alexis de Tocqueville

Democracy in America (1835/1840)

Hannah Arendt

On Revolution (1963)


Edward Deci & Richard Ryan

The Empirical Exploration of Intrinsic Motivational Processes, in 13 Advances in Experimental Social Psychology 39 (Leonard Berkowitz ed., 1980)
"Intrinsic Motivation and Self-Determination in Human Behavior" (1985)
"A Motivational Approach to Self-Integration in Personality," 38 Persp. on Motivation 237 (1990)
"Self-Determination Theory and the Facilitation of Intrinsic Motivation, Social Development, and Well-Being," 55 Am. Psychol. 68 (2000)
"The 'What' and 'Why' of Goal Pursuits: Human Needs and the Self-Determination of Behavior," 11 Psychol. Inquiry 227 (2000)
"Living Well: A Self-Determination Theory Perspective on Eudaimonia," 9 Journal of Happiness Studies 139-170 (2008)

Martin Seligman

"Positive Psychotherapy" (2006)

Christopher Utman

"Performance Effects of Motivational State" (1990)

Barry Schwartz

"Self-Determination: The Tyranny of Freedom" (2000)
The Paradox of Choice (2004)


Richard Easterlin

Bruno Frey

Daniel Kahneman

Alan Krueger

Alois Stutzer


Keith Aoki

Bound by Law
"Pastures of Peonage" (2012)

Yochai Benkler

The Wealth of Networks (2006), chapters 5, 10

Oren Bracha

"Beyond Efficiency" (with Talha Syed, 2014)

Julie Cohen

Configuring the Networked Self (2012)

William Fisher

"Reconstructing Fair Use" (1988), pp. 1744-94
"Theories of Intellectual Property" (2001)
Promises to Keep (2004), Chapter 1
"Global Justice in Health Care" (2006)
"The Implications for Law of User Innovation" (2010)
Infection (forthcoming), Part III

Neil Netanel

Copyright's Paradox (2008)

Madhavi Sunder

"IP3" (2006)
From Goods to a Good Life (2012)

Talha Syed

"Global Justice in Health Care" (2006)
"Beyond Efficiency" (with Oren Bracha, 2014)


Human Nature

There exists such a thing as human nature, which is mysterious and complex but nevertheless stable and discoverable

People's nature causes them to flourish more under some conditions than others

Social and political institutions should be organized to facilitate that flourishing

Good Life

Conditions necessary for the full realization of personhood

(1) Life

“Being able to live to the end of a human life of normal length; not dying prematurely, or before one’s life is so reduced as to be not worth living.”

(2) Health

“Being able to have good health, including reproductive health; to be adequately nourished; to have adequate shelter.”

(3) Autonomy

George Kateb
"One's dignity resides in being, to some important degree, a person of one's own creating, making, choosing, rather than being merely a creature or a socially manufactured, conditioned,manipulated, thing: half-animal and half mechanical and therefore wholly socialized."
J.S. Mill
"The human faculties of perception, judgment, discriminative feeling, mental activity, and even moral preference, are exercised only in making a choice. He who does anything because it is the custom, makes no choice. He gains no practice either in discerning or in desiring what is best. The mental and moral, like the muscular powers, are improved only by being used."
John Rawls
Ronald Dworkin
1986 essay
Yochai Benkler
The Wealth of Networks
Atul Gawande
Being Mortal, Chpt. 5: "A Better Life"
Key variable is subjective feeling of self-determination, not objective number of options
Self-determination of this sort is adaptive
correlated with better problem solving, job performance, and education

(4) Engagement

participation in shaping an important dimension of one's environment
(a) meaningful work
"Meaningful work requires skill and concentration, presents the laborer with challenges and problems he can overcome only through the exercise of initiative and creativity, and is part of a larger project he considers socially valuable and must take into account in making his decisions"
behavioral economics
above a modest level, happiness is not significantly correlated with income or wealth
sudden change (positive or negative) produces a temporary shift in happiness, but it soon dissipates
relative income (with reference to peer group) is correlated with happiness, but not absolute income
Easterlin 1999
Clark & Oswald 1996
Ferrer-i-Carbonell 2005
by contrast, happiness is strongly (inversely) correlated with unemployment
lending support to contention that flourishing is correlated with meaningful work
Safety net in Argentina
2001 economic crisis
see Tcherneva 2012
First governmental response
Plan Jefes
guarantee of public employment for heads of households
unexpectedly, most of the participants proved to be female heads of households
public opposition grew, because the program appeared to be compelling women with children to be entering the workforce
Second governmental response
Plan Familias
income support policy for poor women only
Women beneficiaries overwhelmingly lamented the change
preferred public employment to cash payment that equalled their salaries
many volunteered to continue working at old jobs without pay
(b) civic engagement
classical republican tradition
celebrated "civic virtue"
active participation in politics
altruistic, deliberative, genuinely committed to the welfare of the polity as a whole, not to the advancement of self-interest or factional interest
Frank Michelman
Cass Sunstein
(c) semiotic engagement
John Fiske
Michael Madow
Jack Balkin

(5) Self-expression

Projecting oneself into or onto the world is key to personhood
art (broadly defined)
incorporate contemporary version of personhood theory of IP
Kant, Hegel, Green, Radin, Lessig

(6) Competence

We feel better, and we do better, when we have the sense that we are capable of performing the tasks we address.
Deci & Ryan
amount of time spent in school is positively correlated with overall life satisfaction
even when schooling is compulsory, not chosen
Oreopoulos 2003
although it's unclear whether education is directly or indirectly connected to happiness
Helliwell 2004

(7) Connection

Helliwell, J. F., Putnam, R. D. (2005). "The social context of well-being," Philosophical Transactions of the Royal Society of London
"Our new evidence confirms that social capital is strongly linked to subjective well-being through many independent channels and in several different forms. Marriage and family, ties to  friends and neighbours, workplace ties, civic engagement (both individually and collectively), trustworthiness and trust: all appear independently and robustly related to happiness and life satisfaction, both directly and through their impact on health."
philosophy: "affiliation"
psychology: "relatedness"
Deci & Ryan
political theory: communitarianism
economics: persistent correlation of "sociability" with happiness
Helliwell, J. F., Putnam, R. D. (2005). The social context of well-being. Philosophical Transactions of the Royal Society of London
"Our new evidence confirms that social capital is strongly linked to subjective well-being through many independent channels and in several different forms. Marriage and family, ties to  friends and neighbours, workplace ties, civic engagement (both individually and collectively), trustworthiness and trust: all appear independently and robustly related to happiness and life satisfaction, both directly and through their impact on health."
friendship networks
bonds with children
Franz v. United States (DCCir 1983), paragraph 40
carpooling neutralizes unpleasantness of commuting
general life-satisfaction measures are strongly correlated with marriage -- and inversely correlated with divorce
Stutzer & Frey (2006)
Becchetti et al. (2008)
but life satisfaction associated with marriage arguably exhibits adaptation

(8) Privacy

zone for experimentation and intimacy

Distributive Justice

Currently, access to these conditions is both limited and systematically unequal

Our ambition should be to expand and (to some degree) equalize access

Variants of egalitarian criteria
"universal basic capabilities"
Harry Frankfurt
"democratic equality"
Elizabeth Anderson
Reinforced by behavioral economics
absence of correlation of happiness or life satisfaction above a moderate level of income or wealth argues for redistribution of wealth and opportunity



The more multifarious the life-styles and ideas on public display in a society, the more each of its members must decide for herself what to think and how to act, thereby developing her own "mental and moral faculties" and rendering the culture as a whole even more "rich, diversified, and animating."


The more complex and "resonant" the "shared language" of a culture -- the richer it is in the raw materials of representation, metaphor, and allusion -- the more opportunities for creativity and subtlety in communication and thought it affords the members of the culture.


universally available


John Fiske, Michael Madow, Jack Balkin


Copyright Reform

(1) Education

we should modify aspects of copyright law that impede educational activities
e.g., more generous exceptions for distance learning
for educators, exceptions to rights of distribution and public performance
for students, exceptions to right of reproduction
e.g., create exceptions to anti-circumvention rules for teaching, studying, scholarship
e.g., differential pricing in the context of software is good

(2) The Idea/Fact/Expression Distinction

no protection for things essential to deliberation and civic engagement
e.g., use by GBH of excerpts of speeches by Martin Luther King

(3) Fair Use

adjust incentive/loss ratios associated with potential entitlements to reflect impact on:
(a) culture
diversity and richness of the artistic environment
contrast advocacy of “more art” by Adler
(b) opportunities for access to the good life
in particular, opportunities for engagement in creative activities
increase opportunities for commentary and criticism
e.g., parody
increase opportunities for creative reuse of copyrighted works
construe "transformative" as "creative"
decrease privileges for consumptive uses
most broadly, construe the 4 statutory factors in section 107 in light of the normative beacon of the good life and good society

(4) Moral rights

weaker protections for right of integrity
strengthened rights of attribution
e.g., British rules on fair dealing
e.g., reconsider Dastar

(5) Libraries

no public lending rights, at least if patrons would bear cost
if lending rights are merely a mechanism to shift costs to governments, not so bad
opt-out rule for digital libraries
e.g., Google Print Library Project
Bracha 2007

(6) Formalities

appropriate preconditions for copyright protection
registration systems to facilitate location of owners
(qualified) privileges for nonpermissive use of "orphan works"
cf. treatment of restored copyrights

(7) Compulsory Licensing

increased reliance on liability rules, rather than property rules, particularly with respect to violations of 17 USC 106(2)
reduce impediments to free flow of information
increase diversity of works available to the public
cf. 17 USC 115
lower rates for socially beneficial activities
e.g., PBS

(8) Differential Pricing

may increase incentives for innovation, while reducing social costs
depends on the shape of the demand curves
equalize access to entertainment and informational products
e.g., Kirtsaeng (2013)
e.g., region coding of DVDs and Blu-ray discs
PD is bad if it increases the “granularity” of social life
PD is bad if it corrodes the spirit of altruistic sharing
Benkler; von Hippel
PD is bad if it fosters invasions of privacy
possibly manage through restrictions on gathering and using data

(9) Supplementary Government Funding

see, e.g., European cinema, discussed in Welfare Theory

(10) Alternative Compensation System for Recorded Entertainment

see Welfare Theory
among other benefits, increase consumers' access to diverse arrays of recordings
traditional outlets (e.g., radio) are becoming less diverse
Hannah Karp, WSJ, 16/01/2014

(11) Traditional Knowledge

conflicting aspirations:
In favor of more legal protection
TCEs are one way a community defines and sustains itself
resist global cultural homogenization
Distributive Justice
temper inequality of wealth and resources
In favor of less legal protection
Semiotic Democracy
encourage creative refashioning of culture
increase cultural choices; freedom to select among them

Trademark Reform

(1) Increase opportunities for creative use of trademarks

expanded opportunities for trademark parody
expressive genericity
Rochelle Dreyfuss

(2) Tighter restrictions on advertising

particularly those that capitalize on and reinforce the sources of distortion to which consumers are already subject

Patent Reform

Developing Drugs for Developing Countries

modify patent law and other incentive systems to increase the development and distribution of drugs that prevent or address contagious diseases in developing countries


(1) Paternalism


Feinberg, "Legal Paternalism," 1 Ca. J. Phil. 105 (1971)
Gerald Dworkin, "Paternalism," in Morality and the Law (1971)
J. Kleinig, Paternalism (1984)

Mitigated by

demonstration that people exhibit "bounded rationality" when seeking to maximize utility
Kahneman, Kruger, Schkade, Schwartz & Stone, "The Day Reconstrution Method" (2004)
Kahneman & Krueger 2006
Becchetti et al. (2008)
we engage too much in activities that do not bring us happiness or satisfaction
spend money on large houses far from work, which necessitate commuting and to which we adapt quickly
we engage too little in activities that do bring us happiness or satisfaction
The non-coercive character of the proposed reforms
cf. Thaler & Sunstein, Nudge (2009)

(2) Hazards of Government




Partial Response

Alter the types of organization to which we confer this power

capitalize on the deterioration of the public/private distinction
institutions that have increasing control over our lives
suppliers of information services
e.g., Google and Facebook with respect to privacy


Incentive Theory



Jeremy Bentham, Introduction to the Principles of Morals and Legislation (1789)
J.S. Mill, Principles of Political Economy (1848)
Criterion: "greatest happiness of the greatest number"

Economic Analysis of Law

an approach to legal scholarship that became increasingly influential starting in 1980
for explication of the approach and an associated bibliography, see the map on Economic Analysis

Public-Goods "Problem"

Conditions that define a public good


Examples of public goods

navigational aids
national defense
reproducible art

The problem: underproduction

Original creator will not be able to recover costs of creation
Anticipating this effect, creation will not occur in the first instance
Mill (1848)
Pigou (1924)
Arrow (1962)

Circumstances that exacerbate the problem

a. High costs of creation
b. High uncertainty
Risk aversion may discourage potential innovators
for detailed assessment of this variable, see Horowitz (2012)
c. Low marginal cost of production
d. Ease of reverse engineering
e. Positive externalities from the public good
"infrastructure" or "generativity" functions
Jonathan Zittrain, The Future of the Internet (2008)
Brett Frischmann, Infrastructure (2012)

Circumstances that mitigate the problem

a. Lead time protects first mover
e.g., trade books
Breyer (1970)
Breyer in retrospect (2011)
e.g., aerospace
Reverse engineering and manufacturing is very expensive
e.g., fashion?
this was once true; less so now
e.g., innovative formations or plays in US football
b. Custom or extralegal norms protect first mover
e.g., trade books
Breyer (1970)
Meredith McGill, American Literature and the Culture of Reprinting, 1834-1853 (2003)
e.g., comedy
Oliar & Sprigman
c. Opportunities for increasing excludability through self-help
e.g., soft drinks; chocolate; software
e.g., sound recordings and audiovisual works on CDs and DVDs
e.g., Databases
e.g., Lexis/Westlaw
d. Opportunities for appropriation of the benefits of innovation through complementary capabilities
Marketing skills
Manufacturing skills
e. Opportunities for speculation in markets in materials related to discoveries
Edison and bamboo
f. Nonpecuniary motivations for production
e.g. Tushnet, “Economies of Desire” (2009)
e.g., Kwall, *The Soul of Creativity* (2010)
Norms of science
Rai (1999)
Golden (2001)
Intellectual Challenge
Stern (2004): biochemists accept 25% wage decrease from firms in return for opportunity to do more academic research
Sauermann (2008): taste for academic research correlated with innovative output
Harlan/McKenna in Bleistein
sound recordings may serve as ads for performances
e.g., tecnobrega in Brazil
Collaborative voluntary creation
Benkler, "Coase's Penguin" (2002)
Benkler, "Sharing Nicely" (2004)
g. Philanthropy
traditional source of funding for musical composition
F.M. Scherer, Innovation Lottery
Public radio in USA

Possible Solutions

Solution #1: Government Provides the Good

Space Research
Agricultural Research
Department of Agriculture
Medical Research
National Institutes of Health
National Defense
Navigational Aids
Compare Coase (1974) with
Van Zandt (1973) and Shavell (1996)

Solution #2: Government Selects and Subsidizes Private Innovators

National Institutes of Health (NIH)
National Endowment for the Arts
European cinema
In most countries in Europe, government agencies contribute funding for film productions
most of the monies are distributed by national agencies
modest amounts distributed by regional agencies
sources of the funds
general tax revenues
tax on television stations or television advertising
especially important in France
tax on box-office receipts
pattern of distribution
offset biases of the private market
favor SMEs, unconventional projects, first and second films
military procurement contracts
Variation: Auction off the right to provide a particular innovation

Solution #3: Government Issues Prizes to Successful Private Producers

see Waltersheid (1994)
Macfie (1863; 1875)
Polanvyi (1944)
Kremer (1998; 2000)
Calandrillo (1998)
Shavell & Ypersele (2001)
Netanel (2003)
Fisher (2004)
Existing Examples
Huang (2003)
Atomic Energy
Reisenfeld (1958)
Audio Home Recording Act (1992)
All Digital Audio Recording Devices (DARDs) must contain SCMS
Compulsory Royalty on DARDs (2% of wholesale) and Media (3% of wholesale)
1/3 to Musical Works Fund
2/3 to Sound Recordings Fund
Safe harbor for sale of DARDs and noncommercial use of DARDs
see Fisher (2004), chpt. 3
NASA Centennial Challenges
General Description
“NASA Centennial Challenges were initiated in 2005 to directly engage the public in the process of advanced technology development. The program offers incentive prizes to generate revolutionary solutions to problems of interest to NASA and the nation. The program seeks innovations from diverse and non-traditional sources. Competitors are not supported by government funding and awards are only made to successful teams when the challenges are met.”
“In keeping with the spirit of the Wright Brothers and other American innovators, the Centennial Challenge prizes are offered to independent inventors including small businesses, student groups and individuals. These independent inventors are sought to generate innovative solutions for technical problems of interest to NASA and the nation and to provide them with the opportunity to stimulate or create new business ventures.”
“The President’s budget request includes $4 million per year for Centennial Challenges prizes to allow further growth in the scope and range of prize competitions and even greater opportunities for the citizen-inventor to participate in NASA’s research and development.”
Example: “NASA is offering $1.1 million in prize money in Phase 2 of the 3D-Printed Habitat Challenge for new ways to build houses where future space explorers can live and work. The three-part competition asks citizen inventors to use readily available and recyclable materials for the raw material to print habitats.”
Teams can sign up for the competition until January 1, 2017
Proposed Examples
In patent context
see Shavell/Ypersele (2001)
Awarded to all inventors who meet creativity requirements and who apply
Inventors have no right to exclude competitors and thus no monopoly power
Financial incentives derive from revenues distributed ex post by government on basis of sales data and surveys
Objective: pay inventors the full “social surplus” of the invention
requires including in the prizes estimates of the social value of follow-on innovations
Revenue raised from income taxation
Limited duration?
In copyright context
see Netanel (2003)
see Fisher (2004), chpt. 6
Authors and artists are permitted to choose between copyright system and reward system
Inventors are permitted to choose between patent system and reward system
Patent Purchase Program
Government offers to purchase patents
Possible techniques for determining offer prices:
fair market value on date of purchase
Patent Buy-out system: Government holds auctions on patented inventions, then offers to buy out (most) patentees at the highest plus a markup (to reflect gap between private and social value)
Kremer (1998)
Which patents?
patents in industries characterized by cumulative innovation or patent thickets?
patents in industries the government wishes to promote?
patents in industries where social costs of monopoly pricing are especially high?
e.g., life-saving drugs
Patent Expropriation Program
28 USC 1498(a)
"Whenever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same, the owner's remedy shall be by action against the United States in the United States Court of Federal Claims for the recovery of his reasonable and entire compensation for such use and manufacture."
Dominant Theory: Form of Eminent Domain; 5th amendment thus requires "just compensation"
in effect, "inverse condemnation"
Subordinate Theory: Prospective Implied Easement (since 1910); statutory interpretation requires "just compensation"
cf. Bayh-Dole Act reserves to federal government a nonexclusive, nontransferrable right to practice the patent arising out of federally funded research anywhere in the world
No injunctive relief
No recovery for contributory infringement or inducement
a few older (pre-1940) cases awarded lost profits
modern cases create strong presumption that only remedy is reasonable royalty
for criticism, see Cahoy (2002)
Additional statutory authority might be necessary to empower the federal government to authorize third parties to make and sell embodiments of patents
An Alternative Compensation System for Recorded Media
1. Money should be collected from businesses that capitalize upon consumers' demand for digital movies, but currently pay no fees
Internet Service Providers
Manufacturers of consumer electronic equipment
Media-related software applications
2. The funds collected in this manner should then be distributed to creators
The formula used to determine shares would vary by country
strong commitment to principle of consumer sovereignty
suspicion of governmental involvement in the arts
points toward criterion: funds distributed in proportion to popularity
i.e., copyright owners receive shares proportional to the frequency with which their works are watched or listened to
multiple criteria would likely be combined in different proportions
relative popularity
cultural fund
see Philippe Aigrain
3. Thereafter, online distribution of movies and recorded music should be legalized
1. Governmental
Funds collected through levies on ISPs, manufacturers of media-related consumer electronic products, etc.
Funds distributed by national government agency
modification and enlargement of the public funding mechanisms already in place in Europe
2. Private
Alter rules of secondary copyright liability to put pressure on ISPs, manufacturers to participate in the construction of a nongovernmental system
immunize them from antitrust liability for negotiating such a system collectively
Funds collected and distributed by the resultant nonprofit organization
Mechanics (USA version)
1. Registration
Copyright owner registers unencrypted recording with Copyright Office
Owner provides data concerning duration and incorporated works
Copyright Office supplies creator with copy containing unique digital signature
Small registration fee
Opposition procedure
2. Size of the fund
Possible Criteria
1. Provide creators social surplus
Distort larger system of incentives
Expensive & politically unpalatable
Psychic benefits of creativity mean that full social value is not necessary to sustain creativity at current levels
2. Fairness
3. Make creators whole
4. Preserve Flourishing Entertainment Culture
3. Taxation
Income Tax
Low administrative costs
Limited distortionary effects
If incidence of the tax matches incidence of benefits
Consumption of entertainment products roughly correlated with income
But cf. Pew data
Income tax is mildly progressive
Politically unpopular
Any increase in the income tax is unpopular
Fear, especially in developing countries, that the money would be diverted to other programs
"My tax dollars are paying for smut, misogyny, etc.?"
"I don't listen to music or watch movies. Why should I have to pay for them?"
Tax burden
2004 data
87 million households pay taxes
Each American household currently spends aprx. $470 per year on recorded entertainment
Plus aprx. 200 hours per person per year watching or listening to advertisements
Annual tax during first year of operation: average of $27 per household
Annual tax if the system fully displaces existing business models (using "worst-case" assumptions): average of $254 per household
Tax on Devices and Services
More politically acceptable
More "voluntary"
Largely limited to consumers of digital entertainment
Greater cross subsidies and associated distortions
Tax rate: 11.8% in 2004
Most visible form: tax on broadband access of $5.36 per month ($64.33 per year)
Tax rate if the system fully displaces existing business models (using "worst-case" assumptions): $16.84 per household per month ($202 per year) in taxes on Internet access and all devices and services
Higher rates on devices than on ISP access?
Ramsey pricing?
Original problem: What pricing scheme by a multiproduct monopolist would maximize social welfare subject to a profit constraint?
Answer: markup on MC of each product should be inversely proportional to price elasticity of demand for that product
Adapted: tax rates on devices and services should be inversely proportional to elasticity of demand for each
Danger: may have perverse distributional effects
E.g., high tax rates on things consumers see as necessities (broadband access)
E.g., low taxes on things consumers see as dispensable (DVRs?)
4. Measuring Value
Goal: Estimate relative total value of each entertainment product to consumers
Provide appropriate signals to creators
Fairness: equity theory of distributive justice
Minimize hazards of governmental determination of merits of works
Count Consumption
Consumers will gravitate toward what they like, what gives them pleasure
Loosely resembles a market system
In effect, "paying" for the entertainment with their time
Cost to them is opportunity cost
Noninteractive webcasters report playlists and numbers of subscribers
Interactive webcasters report number of streams
DVD Burning
Sales data on DVDs
Surveys to determine frequency of copying
Sources of Distortion
1. Consumers download media but then watch only portions
AT&T data for music
2. Differences in frequency of playback
less serious than with music
3. Ballot-Stuffing
Possible Solutions
Usage Sampling
Large numbers of sampled households, selected at random
Responsibility of Copyright Office: certify software systems
Most plausible mechanism: SourceForge
Distribution Mechanism: Plug-in for P2P, streaming, and CD/DVD copying programs
Automatic reporting, by registration numbers, of all songs and films played from beginning to end
Aggregation of data
Privacy assurances
Limit: Only count consumptions using devices connected to -- or capable of reporting to -- the Internet
Percentage of such devices will steadily expand
Measure Duration
Longer works are worth more to consumers than shorter ones
Reflected in the fact that they pay more of their time; larger opportunity cost
Present system takes such considerations into account roughly
Short films
Will reliance on this factor prompt creators to lengthen works?
Opposing factors:
Cost of producing longer version
Consumers resent poorly edited, overly drawn our works
Voting (Blur/Banff/Eckersley)
Benefits: measure intensity of enjoyment
Difficulties of inducing people to vote
Risk of ballot-stuffing
Reinforce cult of appearance
Diversion to political causes (Volohk)
Distortion of signals to creators
External estimates of relative value
So long as one can make reference to a parallel or recent market system, can use consumer spending patterns as a guide
E.g., aggregate value of music vs. film
Fact that classical recordings are commonly slightly more expensive than other genres
Universal's recent price reductions
European prices
Relative spending on types of performances
Opera, jazz, rock
Risks of pursuing this approach
Heighten danger of governmental discretion
Only possible to do on the basis of categories of works, not individual recordings
Determining the appropriate boxes and then arguing over proper classification of individual recordings would be costly
Forfeit one of the advantages of consumption-based system: avoid overvaluing preferences of the wealthy
5. Payment
Money initially allocated among categories in proportion to estimated injuries
Reallocation in response to changing injuries, costs, and entertainment culture
Payments to individual copyright owners
Baseline: one consumption, one payment
Adjusted for duration
Rough proxy for value to consumers
Treatment of Derivate Works
Option #1: Revenue stream divided among contributors
Option #2: no effort to separate and compensate for contributions to composite works
give creators choice over ND or D
6. Reform Copyright Law
Reproduction of a musical composition, sound recording, or motion picture for noncommercial purposes (i.e., consumption, not resale)
Preparation of a derivative work of a sound recording or motion picture registered pursuant to the new scheme, provided that the derivative work is also so registered in a timely fashion
Distribution of a sound recording (including a musical composition embodied therein) or motion picture via the Internet
Public performance of a sound recording (including a musical composition embodied therein) via a digital audio transmission
Public performance of a motion picture via a digital video transmission
Digital Rights Management?
1. Could one register a recording subject to partial copy protection?
No, in the interest of semiotic democracy
2. Could one register an unencrypted version of a recording but also distribute to the public encrypted versions of the same recording?
Yes, in part to reduce resistance to adoption of the scheme and to increase usage of it
3. Create an exception to DMCA 1201 for audio and video recordings?
No, let the system prove its merits in competition with the self-help strategy
For consumers
Large cost savings
they would pay less under this system than under the current combination of business models
Unlimited access to recorded media
The set of cultural products available to them would be larger and more diverse
reason: the diminished power of intermediaries would enable a larger and more diverse set of artists to reach consumers directly and thus earn sufficient revenue to cover costs
Increased opportunities for creative reuse of cultural products
semiotic democracy
For creators
Opportunities to distribute works directly to consumers
reduced dependence on major intermediaries
Increased income
For suppliers of devices and services
Increased taxes offset by increased demand
For public
Decreased litigation
Decreased law-breaking
avoid prolonged, culturally corrosive "war on piracy" closely analogous to the current "war on drugs"
Result: distortions in consumer behavior, deadweight losses, and unfairness
Vary substantially with the method of taxation
Mitigate with Ramsey pricing (Benkler)
Moral rights concerns:
Classic moral rights
Rights of Integrity
Rights of Attribution
Increased opportunities for creative reuse of digital copies threaten both
Possible responses:
a. Give artists the option to retain or relinquish rights of integrity
perhaps use financial incentives to increase their willingness to give up these rights
higher payout rate
b. Recognize that, with respect to cultural products distributed in multiple copies, rights of integrity are obsolete
by contrast, rights of attribution should enjoy increased protection
cf. Tushnet
Discretionary Governmental Power
Potential for inefficiency or corruption
cf. some collecting societies
Risk that officials would abuse their authority
lobbyists would seek to shape the distribution formula
Leakage across national boundaries
the more broadly this system were adopted, the less serious would be this concern

Solution #4: Legal Reinforcement of Self-help Strategies

Restrictions on Reverse Engineering
Boat-hull protection laws
Semiconductor Chip Protection Act of 1984
Trade Secret Law
Anti-Circumvention Rules
DMCA 1201
Technology Mandates
CBDTPA (proposal)
Consumer Broadband and Digital Television Promotion Act
Forbid the sale or transportation in interstate commerce of any "digital media device" (defined broadly) that did not contain "standard security technologies" prescribed by the Federal Communications Commission.
Standards formulated either by a consortium of "representatives of digital media device manufacturers, consumer groups, and copyright owners" or, if they fail, by the Commission itself
Standards would prevent the machines in which they were embedded from reproducing and distributing copyrighted recordings - but would permit users to make "personal copies" of broadcast programming "for lawful use in the home" and would also "take into account the limitations on the exclusive rights of copyright owners, including the fair use doctrine."
FCC Broadcast Flag Rules

Solution #5: Government protects producers against competition

Toll Roads in 19th century
cf. Charles River Bridge case
Intellectual Property

Social Advantages and Disadvantages of each solution

(How) Does IP provide incentives?



Industries vary widely in the extent to which firms rely on patents to appropriate the benefits of innovation
Mechanical engineering
When firms rely on patents, their reasons vary
Prevent copying by competitors
Especially in industries where products embody only a few innovations
Prevent patenting and commercialization by competitors
Especially in industries where products embody many innovations
Reliance on patents appears to be increasing
May be related to overall increase in “patent strength,” nationally and globally, since the 1980s
Countries vary in the degree to which their industries rely on patents
Firms in Europe are similar to firms in US
Arundel (2001)
Firms in Japan rely more heavily on patents than firms in the US
Cohen (2002)
In all industries, the value of some innovations is increased through patenting

Net Impact on Welfare


1. Increase rate of innovation
2. Channel innovation toward fields where it has large potential social value
Contrast the pattern of innovation that would result from exclusive reliance on intrinsic motivations
Pigou: “ The patent laws aim, in effect, at bringing marginal private net product and marginal social net product more closely together. By offering the prospect of reward for certain types of invention they do not, indeed, appreciably stimulate inventive activity, which is for the most part, spontaneous, but they do direct it into channels of general usefulness.”
3. Decrease investment in or reliance upon more wasteful mechanisms of appropriation
E.g., trade secrecy
4. Foster socially beneficial industry structures
e.g., reap advantages (in some industries) of increased innovation by small enterprises


1. Decrease consumer access to the fruits of innovation
2. Decrease complementarity benefits of knowledge spillovers
3. Impede cumulative innovation
4. Induce wasteful R&D
Arguably, patent races can draw inefficiently large numbers of firms into research on particular problems
Efforts to “invent around” patents are (at least partially) socially wasteful
5. Welfare loss associated with misalignment between social value and aggregate consumer willingness to pay for goods and services
6. Administrative costs

Guidelines for law reform:

a. Adjust IP doctrine to maximize its benefits to social welfare and minimize the costs
b. Supplement or replace IP system (selectively) with superior mechanisms for stimulating innovation

Selected Applications of Incentive Theory

IP = "Necessary Evil"

Principle: IP protection should not extend to innovations that would be produced in optimal numbers without them
(contested) illustrations
copyright protection for advertisements
cf. Justice Harlan in Bleistein
copyright protection for scholarly articles
copyright or design protection for innovations in fashion
Examples of Copying
Variety of Legal Regimes
Minimal copyright, trademark, or design patent protection
25 years of protection for registered designs; 3 years for unregistered
France & Italy
Strong protection for both registered and unregistered designs
When should designers donate IP?
patent protection for business methods
patent protection for taxation mitigation strategies
until 2011, US granted patens on such techniques
e.g., Methods and investment instruments for performing tax-deferred real estate exchanges
2011, America Invents Act largely eliminate them, but only prospectively
the right of publicity for celebrities
Michael Madow (1993)
Justification for Novelty and Nonobviousness Requirements in Patent Law
No need to incur social costs of patent in order to provide society the benefit of the invention
Justification for Utility Requirement
only extend patent protection to socially useful inventions
inventor may be in a better position than patent examiner to assess social value of an invention
if the invention is truly lacking in social value, granting a patent will do no harm, because no one will seek access to it
retroactive extensions of terms make no sense
Economists’ amicus brief in Eldred

Scope of Protection: Incentive/Loss Ratio

Principle: when adjusting IP law, grant creators entitlements with high ratios and deny them entitlements with low ratios
e.g., right to prevent reproduction of excerpts in critical reviews
small benefit to authors
large social welfare losses
e.g., right to prevent parodies
Medium benefit to some authors
large social welfare losses
parodists will not be able to recoup from the public at large sufficient revenue to persuade authors to grant licenses
e.g., long copyright terms are bad, because the incentive effect of rights long into the future is very weak
Breyer in Eldred
Optimal Levels of Protection
patent slides
copyright slides
Kaplow, "Patent/Antitrust Intersection" (1984)
Fisher, "Reconstructing Fair Use" (1988), Part IV


presumptive argument for tailoring IP rights to particular kinds of innovations
e.g., criticism of uniform duration of patents and copyrights
better to adjust term to keep profits close to development costs
increased administrative and litigation costs
increased hazard of "industry capture"
Mark Lemley & Dan Burk, "Policy Levers" (2003)

Compulsory Licenses

Bounded Rationality and IP

Product Differentiation

Yoo (2004)
Abramowitz (2011)

Differential Pricing

For millennia, goods were exchanged primarily through individualized and usually face-to-face transactions.
Prices, the outcome of haggling, varied widely
emergence of commodities markets reduced differential pricing
local, then national, then international
goods become standardized
prices stabilize
reinforced by law: doctrines that cast doubt on the validity of contracts for prices much higher or lower than the market price
firms with market power and ability to prevent arbitrage charge different consumers different prices for standardized goods or services
Transportation industry
16th-century Danish Sound Tolls
canals in China, England, and France
railroads in England and the United States during 19th c.
see Andrew Odlyzko
Price Discrimination defined
charging different consumers different prices for access to the same good or service
charging different consumers different prices for different versions of a good or service when the variation cannot be explained by differences in the costs of the versions
1. market power
Klein 2011
2. restrictions on arbitrage
3. heterogeneity among buyers
4. ability to differentiate those buyers
1st degree
charge each buyer what he or she is able and willing to spend for a good or service
US Private colleges
high tuitions; need-specific financial aid
"clickstream"-based differential pricing
2nd degree
the seller does not know how much different potential buyers are able and willing to pay, but induces them to reveal their resources or preferences
volume discounts
business-class airline tickets
Alderighi 2011
engine sizes
Thomassen 2010
laser printers of different speeds
IBM Laser Printer E (1990)
temporal PD
weekend vs. weekday green fees
contrast "peak-load pricing" as an alternative explanation for differential pricing
Limehouse 2011
Edelman 2011
Termes 2011
comparison websites
sellers charge lower prices to users of such sites than to nonusers
Moraga 2011
3rd degree
seller separates buyers into classes corresponding roughly to their ability and willingness to pay
student discounts
senior discounts
customer classes in electrical utility pricing
see Eckel 2011
Swiss rental housing market
higher prices for non Swiss in Zurich and Geneva
Baranzini 2011
geographic PD
"zone" pricing of gasoline
Barrionuevo, Wall St. J. (3/20/2000)
borderline case: partly 3rd degree, partly second degree
depends on the mobility of customers, likelihood of responding to price differences by traveling further
retail grocery trade in Australia
Examples of DP for Informational Goods
domestic geographic PD impeded by first-sale doctrine
international geographic PD
Cabolis et al. (2005)
hardcover vs. paperback
combine versioning and intertemporal PD
Clerides (2002)
windowing system
region coding
Blu-Ray "Regional Playback Control"
this system gives studios the option of whether to "lock" their DVDs -- or to release them region-free
list of films in each category available on Blu-Ray Region Code Database List
but multi-region players, though uncommon, are available
international geographic PD
see CBS v. Scorpio (ED Pa. 1983)
domestic 3rd-degree PD among payers
factors that make PD possible
large variations among marginal evaluations by different groups of patients
variations in bargaining power among payers
power of government as a payer to insist upon a lower price
market power enjoyed by holders of patents on branded drugs
legal and practical impediments to arbitrage
see Berndt 2010
huge impact: 2% of US GDP
international geographic PD
AIDS drugs
developed countries: 12% of doses; 82% of revenues
developing countries: 88% of doses; 18% of revenues
National Academy of Sciences, pp. 108-109
persistence of PD in EU
academic discounts
Medical devices: single-use restrictions
"bridge lines"
Decorated Products
Givenchy, Inc. v. Drug Emporium, Inc., 38 F.3d 477 (9th Cir. 1994)
patented canning machines and cans
Xerox machines and paper
"Pay what you like"
e.g., Yoga to the People
e.g., RadioHead
see Isaac 2010
welfare theory is indeterminate as applied to PD in general
types of PD
welfare effects vary with markets
rough guideline: welfare is enhanced iff PD results in increase in output, which is more likely to occur where:
(a) the market with a higher reservation price is larger
(b) the difference between the profit margins in the two markets is large
e.g., inter-market income dispersion
(c) the demand curves are concave
Varian (1997); He & Sun (2006)
but cf. Pro-CD
complication #1:
dynamic effects of increased monopoly profits from PD may offset welfare losses
complication #2:
redistribution of wealth through PD may increase general welfare
depends upon (a) general principle of diminishing marginal utility of wealth; and (b) random distribution of utility curves
cf. traffic fines in Finland
2004 police issued a fine of $216,900 to Jussi Salonoja, for exceeding 25 mph speed limit in downtown Helsinki
complication #3:
strong positive network externalities in the "weak" market my cause PD to promote welfare even when total output does not increase
Adachi (2003)
educational discounts for software may promote welfare
PD that makes vaccines available cheaply in developing countries will have strong positive externalities
complication #4:
whether permitting seller to engage in PD (of a particular sort) will promote welfare depends on how she will behave if prevented
Reduction of costs associated with cruder 2nd-degree PD
Rosen and Rosenfield (1997)
complication #5:
welfare effects of PD must take into account "psychic externalities"
cf. Michelman on "demoralization costs"
Popular Attitudes
evidence from anecdotes, surveys, and experiments
feelings are very strong; consumers frequently have intense reactions; but point in different directions
no simple answer; perception varies a great deal by context
unpopularity of "charging what the market will bear": "gouging"
e.g., Coke temperature strategy (1999)
e.g., rental cars in wake of 9/11
Al Franken
e.g., survey of buyers and sellers of bulk electricity
Dickson & Kalapurakal (1994)
unpopularity of "versioning"
Deliberately reducing the quality of a good in order to make it available cheaply to poorer customers without undermining the demand by the more wealthy for a full-featured version is commonly denounced, in Emile Dupuit’s words – as “cruel and mean.”
e.g., laser printers
consumers like transparency, dislike hidden pricing strategies
e.g., reactions to Amazon.com "dynamic pricing" for Men in Black
consumers like choices
suggests acceptability of "versioning"
consumers accept 3rd-degree PD if they think the categories are fair
e.g., senior discounts
framing matters
Kahneman et al 286
"discount" or "surcharge"
e.g., college tuitions
Coke's attempt: price varies with the utility of the product
Doug Ivester: "In a final summer championship game when people meet in a stadium to enjoy themselves, the utility of a chilled Coca-Cola is very high. So it is fair it should be more expensive. The machine will simply make this process automatic."
reference transactions
exacerbate indeterminacy
but determinate in particular instances
e.g., Mortimer on US vs. EU options for PD of movies
e.g., Philip Leslie on PD in Broadway Theatre
increased profits 5%, with neglible effects on consumer welfare
Hornbeck (2005) on AIDS drugs in developing countries
see also Outterson 2004
conversely, discrimination as between US and Canada may be less efficient
answer will depend on whether dynamic benefits of higher profits are sufficient to offset other disadvantages

Patents and Antitrust

Problem: How to resolve clashes between:
Patent Principle: Patentee is permitted and encouraged to exercise market power
Antitrust principle: Competition is socially beneficial; exercises of market power are pernicious
Reverse-Payment Settlement Agreements
Standard Essential Patents
Standard Development Organizations
Potential Advantages of SDOs to Participants (some socially beneficial; some pernicious)
1. increases value of the products produced by all firms in the market
Sources of increased value
1. network externalities
e.g., AM radio
e.g., interoperability of mobile phone systems radically expands direct network effects associated with each system
adherents to a standard can share benefits of indirect network effects
standardization of VCR format enables all manufacturers to share indirect network effects of increased production of movies
2. increase in functionality: safety and reliability
pool knowledge concerning (and control over) attractive features
3. economies of scale in manufacture of components can reduce production costs for all participants
Benefits are maximized by anticipatory standard setting
agree on a common technology prior to the introduction of any products
contrast Betamax v. VHS
Magnitude of increased value
EU Commission Staff estimates that 1% increase in number of standards used in a country correlates with ~1% increase in GDP
2. Potential IP licensing revenue
e.g., 4G LTE standard
Qualcomm owns ~12.5% of SEPs for 4G LTE standard; receives in licensing revenue ~3.2% of price of every 4G LTE phone sold in the world
source: Trefis, "Nokia" (2013)
Nokia owns an even larger share
the more closely the standard aligns with a firm's IP, the higher the revenues
from a social-welfare standpoint, this is neutral
transfer payment; no impact on aggregate welfare
3. Increase Barriers to Entry
block competition from a new technology
e.g., manufacturers of steel electrical conduits combine to form a standard forbidding use of plastic conduits
e.g., noodles
4. Opportunities for Rent Seeking
each participating firms wants disproportionate share of the social benefit of the standard
problematic from standpoint of social welfare
a. waste of resources resulting from struggle over shares
b. potential sacrifice of safety and efficiency benefits of the standard
Law Governing SDOs
SDOs are permitted
exception to antitrust prohibitions
1. They must have a legitimate objective
General guideline: If suppression of competition is the only plausible rationale for the standard, AT violation
Allied Tube & Conduit Corp. v. Indian Head, Inc. (US Supreme Court, 1988)
However, if there are type #1 benefits, then standard setting is not an AT violation
2. They must abide abide by procedural requirements designed to reduce abuse
ANSI Requirements
Balance/Lack of Dominance
Public Notice
Consideration of Views
Consensus Voting
Appeals Process
Written Procedures
IP Policy
both US and EU treat these policies as contracts: binding on SDO members
Broadcom v. Qualcomm (CA3 2007)
3. Ability of Participating Firms to Use their IP rights is curtailed
Duty to Disclose
Each firm must reveal patents -- or pending applications -- that might be necessary to implement the standard
failure to do so may render patents unenforceable against SDO members
e.g., In re Dell (1996)
Stambler v. Diebold (CAFC 1989)
Mitsubishi v. Wang (CA3 1997)
Duty to License
Option #1: Announce in advance refusal to abide by constraints
Option #2: Commit to Licensing on Particular Terms. The terms vary widely. The most common are:
a. Royalty-free licensing
b. FRAND Licensing
license terms would not be considered anticompetitive if imposed by a dominant firm in a market without a standard
"unfair" license terms include:
to get the attractive license, licensee must license an unattractive product or process
free grantbacks
license agrees to grant to licensor licensee's patents for free
mandatory exclusivity
licensee agrees not to license from licensor's competitors
agreement not to challenge patents
Motorola Mobility (EC April 2014)
general guidelines
license fee should approximate the amount that patentee could have collected in the absence of a standard
license fees not so high as to render the industry uncompetitive
applied more strictly in EU than US
Microsoft v. Motorola (W.D. Wash. 2013)
reasonable rates determined through application of Georgia-Pacific factors
modified by:
a. sensitivity to public benefits of standards through increased production and price competition
b. need to avoid royalty stacking
each licensor enters into licensing negotiations as if it were bilateral
net result: higher aggregate licenses than would emerge if all patents were held by a single entity
in extreme cases, higher aggregate license fee than licensee can afford
c. principle that the license fee should be commensurate with the value the technology in question contributes to the standard and to the product
Motorola asked for $4B p.a.
at trial, Motorola reduced demand to $400M
Court concludes that RAND licensing would require Microsoft to pay Motorola $1.8M p.a.
Motorola’s refusal to license on such terms and effort to secure an injunction (in Germany) held to be a breach of contract
Microsoft can enforce as 3rd party beneficiary
Microsoft recovers in damages $15M (for relocating EU distribution center to Netherlands and for atty fess and costs)
Affirmed by CA9 (2015)
same terms offered to all firms in the industry and to all potential entrants
OK to vary terms with credit-worthiness, volume
Limits on injunctive relief
Motorola (Google) v. Apple
July 2013, FTC Order accepts settlement
Google will not seek injunctions
anywhere in the world
for 10 years
for use of SEPs related to any standard set by any SSO
against potential licensees who commit to specified licensing framework
good-faith negotiation for 6 months
arbitration by AAA, JAMS, or WIPO
April 2014, EC accepts settlement
If patentee has committed to FRAND licensing of a SEP and a manufacturer has committed to enter into a license on reasonable terms, patentee may not seek an injunction against use of the patented technology
Motorola Mobility holds patents on technologies essential to GPRS standard (part of GSM)
Apple had agreed to take a license and to abide by determination of reasonable license fees by a German court
Samsung v. Apple
In 2011, Samsung initiated lawsuit against Apple, seeking injunctions in several EU countries for violation of Samsung's SEPs related to 3G UMTS standard
December 2012, EC informs Samsung that it considers the initiative an abuse of dominant position
October 2013, Samsung proposes settlement
April 2014, EC accepts -- and renders binding under EU antitrust rules -- Samsung's commitments to:
not seek injunctions
in EEA
for 5 years
for use of SEPs related to mobile-device standards
against potential licensees who commit to a specified licensing framework
12-month good-faith negotiation period
if negotiations fair, FRAND terms will be determined by a court or mutually agreed arbitrator (with ICC)
No consensus yet on whether patentee may seek an injunction in the absence of such a commitment
Mechanisms for Interpretation
Judicial Opinions
Orders by Competition Authorities
Acceptance of Settlements by Competition Authorities
Public Statements by Officials
Growing use of "voluntary" commitments to define "FRAND"
e.g., FRAND "Clarification" Letters by Apple, Microsoft, Google, February 7-8, 2012
FRAND Coverage
FRAND Obligations
Legal Source of Obligation
Implied license
Patent Misuse
Equitable Estoppel
Abuse of Dominant Position (EU)
Duty of Good Faith (EU)
Treaty of Rome
unfair competition and antitrust
Patent Pledges
Commitments, made outside the context of SDOs, to use (or refrain from using) patents in particular ways
Enforcement theories
Contract + third-party-beneficiary doctrine
Promissory Estoppel
Antitrust violation (FTC)
Market reliance theory (Contreras 2015)
Patent Pools
Patent thickets may be mitigated by patent pools for complementary patents
Bittlingmayer (1988)
Gilbert/Shapiro (1997)
Shapiro (2001)
offsetting danger that pools may facilitate anticompetitive behavior, particularly with respect to substitute patents
Kaplow (1984)
Barton (1996)
Carlson (1999)
possible sorting mechanism: requirement of independent licensing option would corrode (bad) substitute pools, without adversely affecting (good) complementary pools
Lerner/Tirole (2002)
cf. Lerner/Tirole/Strojwas (2003)

Pharmaceutical Products

Signaling Theory

IP Rights (especially patents) may generate both private and social value if they facilitate efficient communication of information to potential investors

(a) concerning the knowledge already held by the patentee

Patent *application* contains crisp, publicly available, reliable summary of the firm’s knowledge
Reliable because of the penalties for submitting false information to the PTO
Patent *grant* provides modest confirmation of the applicant’s representations

(b) concerning the qualifications of the firm’s managers

(c) concerning the innovative character of the firm

Rate of patenting may be treated as a proxy for innovativeness, R&D expenditures, orproductivity of those expenditures

Net result may be to increase (a) firms’ incentives to engage in research and/or (b) the efficiency of the capital markets as a whole

Offsetting factors

Firms’ incentive to send misleadingly optimistic signals may reduce the social benefits

Implication: we should adjust doctrines to discourage such behavior
e.g., fraud; inequitable conduct

Costs of seeking patents and running the patent system

Empirical Evidence

Some evidence that firms do indeed patent for signaling purposes in start-up phase -- and that investors respond to those signals

But for the most part investors seem to rely more on other indicators of firms’ promise

Source-Identification Theory

Economic functions of trademarks

1. reduce consumer search costs

2. encourage businesses to invest in and maintain quality

Economic hazards of trademarks

confer market power on the owners of scarce or powerful marks

as a result, cause an increase in prices and a reduction of consumer welfare

Guideline: doctrines of trademark law should be shaped so as (a) to protect and reinforce TMs’ economic functions and (b) to avoid or mitigate their hazards

e.g., disfavor descriptive marks

e.g., no protection for generic marks

e.g., skepticism concerning doctrine of dilution


1. cultural account of trademarks shows this theory of their functions to be simplistic

e.g., prestige value of marks often exceeds value as a signal of quality

2. recognition of the preference shaping power of trademarks and advertising casts doubt on premise of the economic theory: exogenously determined preferences

3. other techniques or institutions might perform the economically beneficial roles of trademarks as well (or better) with fewer side effects

cf. Coase and Merges on the potential of contracts and private institutions to provide superior substitutes for government regulation


Labor-Desert Theory

Classic form: Locke

Each person has a natural right to the fruits of his or her (intellectual) labor

Root: Locke, Second Treatise, Chpt. 5

generative vignette
labor upon land held in common
largely mooted by tacit agreement to use of money as medium of exchange
duty of charity
obligation to let others share one's property in times of great need, so long as one's own survival is not impaired
The state has an obligation to enforce those rights
duty of the state to "determine," "settle," and respect natural property rights

Presumptively strong application to IP

public domain provides a plausible analogue to Locke's "commons"
labor is ordinarily the largest input
provisos offer ways to balance creators's rights with users' interests
spoilage proviso seems irrelevant
but sufficiency and charity provisos are suggestive


unclear whether Lockean theory properly applies to intellectual labor (Shiffrin)
formal rationales:
1. necessary to effectuate right to means of subsistence
2. religious obligation to subdue the earth and cultivate it for benefit of life
3. intuitions regarding self-ownership
4. moral value of work
5. intuitions regarding proportionality
6. imagery of beneficial transformation
wild to domestic
raw to cultivated
chaotic to ordered
unproductive to productive
relevance to IP:
1 & 2 seem irrelevant
4 & 5 seem relevant
3 & 6 seem unclear
Ambiguity in the meanings of key concepts
time and effort
something you'd rather avoid
something that creates social value
Gordon; Hughes
premium for creativity
"the commons"
Possible interpretations include:
cultural heritage
scientific knowledge
known and unowned
only undeveloped goods
scope and application of the "provisos"
strong vs. weak versions
Nozick, Gordon, Waldron
strong: laborer must leave enough in the commons to enable others to engage in appropriation in the same way
weak: laborer must not leave others net worse off
removal of ideas from "the commons"
Hughes, Shiffrin, Yen
addiction to intellectual products
Damstedt 2003
normative foundations:
waste is inherently wrong, not just insofar as it results in harm to other people
sufficiency proviso, properly interpreted, only preserves other people’s access to the commons, defined as undeveloped nature; whereas spoilage proviso can preserve access to developed intangible goods — i.e., follow-on innovation
“I define Lockean waste in the following way: Waste occurs where a unit of a product of labor is not put to any use. … produced. The combination of nonconversion [i.e., refusal to sell] and nonuse constitutes a violation of the waste prohibition.”
Major implication: supports recognition of a generous fair-use privilege in all fields of IP law
“The result of the laborer’s decision not to set the price at zero in order to effectuate total market substitution, reasonable though it may be, creates a fair use right. All those persons who value the good above zero but below the laborer’s price can justifiably copy the good without reimbursing the laborer, although these low-value users must make the copy at their own cost, not the cost of the laborer. Just as the laborer’s actions in producing the good create a moral, natural-law-based property right in the good, the laborer’s pricing actions may create a moral, natural-law-based fair use right in others.”
Doctrinal reforms:
“[T]he current U.S. fair use right is more limited than the Lockean right. One example considered in this Note is that strong government support for anticircumvention measures may violate Lockean principles if the ability to police the waste prohibition is not protected.”
“An even larger difference is that there is no coherent *patent* fair use right in the United States, although such a right would be demanded under a Lockean regime.”
effort to derive answers from Locke is unpromising
answers require reflection on meaning of "fairness" in contemporary environment

Modified form: equity theory

Each person deserves a share of the fruits of a collective project proportionate to the magnitude of his or her contribution to the venture

the theory of distributive justice to which most people (Westerners?) subscribe

Possible Implications


copyright in poetry
Throsby data on Australian poets
rights to factual works?
e.g., Hodgson (England 2011)
"hot news"
residue of misappropriation doctrine
labor involved arguably supports copyright claims
tempered, however, by some versions of sufficiency proviso
limit copyrights to reflect contributions of materials from the public domain?
e.g., Disney animated versions of folk tales
Shiffrin 2006
Chander & Sunder 2004
fair compensation of contributors to composite works?
possible zones of doctrinal reform
contracts + work-for-hire doctrine in copyright
treatment of pre-employment patent assignment agreements
rights for creators of "traditional knowledge"
division of financial benefits of appropriation art among appropriators and appropriated
Merges, "Locke for the Masses"


potential justification for nonobviousness doctrine
premium on creative labor
sufficiency proviso (Nozick)
defense and interpretation of utility requirement
tied to different conceptions of labor
"shop right" or independent-invention defense?
Nozick's reading of Lockean proviso
Meurer and Vermont
possible justification for prizes, liability rules, and compulsory licenses
because desert arguably generates rights to compensation, not necessarily ownership
but see Merges

Right of Publicity

claims to rights of publicity undermined by roles played in generating fame by:
contributions to celebrity status by the public

Differential Pricing

Does a natural IP right encompass right to maximize income by discriminating among buyers/users?
analysis from here on depends upon theories of equality
see Dabu 2005

Unfair Competition


Lying is presumptively immoral

Sissela Bok derives this presumption from a combination of:
the social benefits of general adherence to the principle of veracity
egalitarianism, which renders immoral free-riding on others’ adherence to that principle

can provide the foundation for liability for some forms of passing off and for consumer confusion


The crop analogy

Wrong to reap where one has not sown

Debate among philosophers concerning the circumstances under which free riding is morally permissible

HLA Hart
(as summarized by Kenneally): “when a group of people restrict their activities according to a set of rules, including legal rules, any person who benefits from their compliance with those rules owes it to them to comply with the same rules, regardless of whether he or she consented to the rules.”
if “a mutually beneficial and just scheme of social cooperation” imposes some costs on its intended beneficiaries, some of whom are tempted to obtain the benefits without bearing the costs, the “person who has accepted the benefits of the scheme is bound by a duty of fair play to do his part and not to take advantage of the free benefit by not cooperating.”
repudiates this “principle of fairness,” emphasizing absence of ex ante agreement
Kenneally’s proposed solution
“When the benefit-recipient has a decisive reason to obtain the benefit even at a cost to herself, independent of the opportunity to obtain the benefit by free-riding, and the benefit-provider seeks compensation for his or her own investment in making the benefit available, free-riding is impermissible.”
example: “a mariner who must navigate at night has decisive reason to support the construction and maintenance of lighthouses while the land-bound might not.”
“But if the benefit-recipient’s reasons for obtaining the benefit are largely based on the benefit-provider’s own actions and the recipient has done nothing to encourage the provider’s expectation of contribution, free-riding is unobjectionable.”
Possible applications
Organizations parasitic on professional sporting events
concessionaires outside stadium
Restaurants near stadium
Live (long distance) viewing of the events
Real-time reporting of the events


Legal Realist proposals for commercial law