**Theories of IP** William Fisher 2021.01.16
  Personality
    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
      Difficulties
        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
      Copyright
        Cast doubt on IP terms that extend beyond (or are shorter than) the life of the author
          Shiffrin
        Cast doubt on defensibility of work-for-hire doctrine and pre-employment invention assignment agreements
          opportunities for "exit"
            Merges
        Need to protect artists more against their own folly or ignorance?
          Pro-artist interpretation of long-term licenses?
            Merges
        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
      Patent
        Heightened nonobviousness requirement?
      Trademark
        tension concerning trademark protection for personal names
      Trade Secrets
        Justification for (qualified) trade secret doctrine?
          Paine
      Right of Publicity
        Haemmerli
      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)
    Bibliography
  Culture
    Sources
      Philosophy
        Aristotle
          Politics
        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)
        Marx
          Economic and Philosophic Manuscripts of 1844
        Alexis de Tocqueville
          Democracy in America (1835/1840)
        Hannah Arendt
          On Revolution (1963)
      Psychology
        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)
      Economics
        Richard Easterlin
        Bruno Frey
        Daniel Kahneman
        Alan Krueger
        Alois Stutzer
      Law
        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)
    Foundations
      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.”
            Nussbaum
        (2) Health
          “Being able to have good health, including reproductive health; to be adequately nourished; to have adequate shelter.”
            Nussbaum
        (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"
          Nuances
            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
            Marx
              "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
            history
              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
            Tocqueville
            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.
          psychology
            Deci & Ryan
            Seligman
          economics
            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"
            Nussbaum
          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."
            Examples
              extraversion
              friendship networks
              bonds with children
                Franz v. United States (DCCir 1983), paragraph 40
              sexuality
              carpooling neutralizes unpleasantness of commuting
            exceptions
              teenagers
              marriage
                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
            Waldron
      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"
              Nussbaum/Sen
            "sufficientism"
              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
      Culture
        Diversity
          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."
            Mill
        Art
          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.
            Dworkin
        Education
          universally available
          empowering
        Democracy
          political
            Netanel
          semiotic
            John Fiske, Michael Madow, Jack Balkin
    Implications
      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
          Opportunities
            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
          Risks
            PD is bad if it increases the “granularity” of social life
              Gordon
            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
              Community
                TCEs are one way a community defines and sustains itself
              Diversity
                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
              Autonomy
                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
    Concerns
      (1) Paternalism
        Sources
          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
            Sources
              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
              socializing
              education
          The non-coercive character of the proposed reforms
            cf. Thaler & Sunstein, Nudge (2009)
      (2) Hazards of Government
        Bureaucracy
        Rent-seeking
        Corruption
      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
            employers
            suppliers of information services
              e.g., Google and Facebook with respect to privacy
    Bibliography
  Welfare
    Incentive Theory
      Roots
        Utilitarianism
          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"
            prospective
            collective
        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
          Nonrivalrous
          Nonexcludable
        Examples of public goods
          navigational aids
          national defense
          roads
          inventions
          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
            Secrecy
              e.g., soft drinks; chocolate; software
            Encryption
              e.g., sound recordings and audiovisual works on CDs and DVDs
            Contracts
              e.g., Databases
              e.g., Lexis/Westlaw
          d. Opportunities for appropriation of the benefits of innovation through complementary capabilities
            Marketing skills
            Manufacturing skills
            Service
          e. Opportunities for speculation in markets in materials related to discoveries
            Hirshleifer
            Edison and bamboo
          f. Nonpecuniary motivations for production
            Passion
              e.g. Tushnet, “Economies of Desire” (2009)
              e.g., Kwall, *The Soul of Creativity* (2010)
            Prestige/fame
            Tenure
            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
            Advertising
              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
            NASA
          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 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
          Tax Credits for R&D
            e.g., USA, Canada, UK, France
          military procurement contracts
          Variation: Auction off the right to provide a particular innovation
        Solution #3: Government Issues Prizes to Successful Private Producers
          Proponents
            Madison
              see Waltersheid (1994)
            Macfie (1863; 1875)
            Polanvyi (1944)
            Kremer (1998; 2000)
            Calandrillo (1998)
            Shavell & Ypersele (2001)
            Netanel (2003)
            Fisher (2004)
          Existing Examples
            USSR
            PRC
              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
            Mandatory
              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
            Optional
              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?
                all?
                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."
              Theory
                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
              Practice
                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
              Principles
                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
                    computers
                    smartphones
                    tablets
                  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
                    USA
                      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
                    Europe
                      multiple criteria would likely be combined in different proportions
                        relative popularity
                        voting
                        cultural fund
                      see Philippe Aigrain
                3. Thereafter, online distribution of movies and recorded music should be legalized
              Variants
                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
                    Advantages
                      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
                    Disadvantages
                      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
                    Advantage
                      More politically
acceptable
                        More "voluntary"
                        Largely limited to
consumers of digital
entertainment
                    Disadvantage
                      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
                    Variations
                      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
                  How?
                    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
                      Streaming
                        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
                      Downloading
                        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
                            Software
                              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
                      Hazards
                        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
                        Line-drawing
                          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
                  Permit:
                    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
              Advantages
                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"
              Disadvantages
                Cross-subsidies
                  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
                  Rent-seeking
                    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?
        Copyright
        Patent
          Theory
          Evidence
            Industries vary widely in the extent to which firms rely on patents to appropriate the benefits of innovation
              Pharmaceuticals
              Biotechnology
              Chemical
              Semiconductors
              Mechanical engineering
              Electronics
            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
            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
            Reliance on patents appears to be increasing
              May be related to overall increase in “patent strength,” nationally and globally, since the 1980s
      Net Impact on Welfare
        Positive
          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
        Negative
          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
                USA
                  Minimal copyright, trademark, or design patent protection
                Europe
                  EU
                    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
              Posner
          Justification for Utility Requirement
            only extend patent protection to socially useful inventions
            Criticism
              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
                Shavell
          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
            patents
            copyright
          Sources
            Kaplow, "Patent/Antitrust Intersection" (1984)
            Fisher, "Reconstructing Fair Use" (1988), Part IV
        Disaggregation
          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
                Kaplow
          counterarguments
            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
          Background
            History
              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
              Exceptions
                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
            Theory
              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
              Requirements
                1. market power
                  Klein 2011
                2. restrictions on arbitrage
                3. heterogeneity among buyers
                4. ability to differentiate those buyers
            Types
              1st degree
                charge each buyer what he or she
is able and willing to spend for a
good or service
                Examples
                  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
                Examples
                  volume discounts
                  "versioning"
                    business-class
airline tickets
                      Alderighi 2011
                    engine sizes
                      Thomassen 2010
                    laser printers of
different speeds
                      IBM Laser Printer E (1990)
                  temporal PD
                    Golf
                      weekend vs. weekday green fees
                      contrast "peak-load pricing" as an alternative explanation for differential pricing
                        Limehouse 2011
                  Groupon
                    Edelman 2011
                    Termes 2011
                  comparison websites
                    sellers charge lower prices to users of such sites than to nonusers
                    Moraga 2011
                  bundling
              3rd degree
                seller separates buyers into classes
corresponding roughly to their ability
and willingness to pay
                Examples
                  student discounts
                  senior discounts
                  customer classes in electrical utility pricing
                    residential
                    industrial
                    commercial
                    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
            Books
              domestic geographic PD impeded by first-sale doctrine
                Bobbs-Merrill
              international geographic PD
                Cabolis et al. (2005)
                Kirtsaeng
              hardcover vs. paperback
                combine versioning
and intertemporal PD
                  Clerides (2002)
            Movies
              windowing system
              region coding
                DVDs
                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
            Music
              international geographic PD
                see CBS v. Scorpio (ED Pa. 1983)
            Drugs
              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
                vaccines
                  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
            Software
              academic discounts
                AutoCAD
            Medical devices: single-use restrictions
            Fashion
              "bridge lines"
            Decorated Products
              watches
              perfume
                Givenchy, Inc. v. Drug Emporium, Inc., 38 F.3d 477 (9th Cir. 1994)
            Machines/supplies
              patented canning machines and cans
              Xerox machines and paper
            "Pay what you like"
              e.g., Yoga to the People
              e.g., RadioHead, In Rainbows (2007)
                “Pay what you want”
              e.g., NPR
              see Isaac 2010
          The Roles of IP Law
            Potential source of market power
            Rules that affect the set of techniques IP holders might employ to differentiate buyers
              derivative works
                art on tiles
                  Mirage Editions
                  Lee
              public lending rights
                may one charge
libraries more than
ordinary purchasers?
                in EU, yes; in most of the world, no
              contracts/preemption
                Pro-CD v. Zeidenberg
              patent misuse/antitrust
                patent misuse doctrine
as applied to licenses
                  see Kaplow 1982
                tying arrangements
            Rules that affect the ability of IP holders to restrict arbitrage
              first-sale doctrine
                doctrine permits arbitrage which
corrodes price discrimination
                US copyright doctrine: section 109 privileges sales of copies iff:
                  (a) the copy was lawfully produced
with authorization of the copyright owner;
                  (b) that particular copy was transferred
under the copyright owner's authority;
                  (c) the defendant qualifies as the
lawful owner of that copy; and
                    often contested in the context of software: sellers try to structure relations with buyers to grant them only "licenses" to copies of the programs
                    Microsoft v. Harmony Computers,
846 F.Supp. 208 (EDNY 1994)
                    Adobe v. One Stop Micro,
84 F. Supp. 2d 1086 (ND Cal. 2000)
                      defendant purchased "educational copies" of plaintiff's software on the open market, removed education stickers, reshrunk the wrapper, and resold
                      Held: first-sale doctrine does not
apply if defendant received only a
"license to use the software"
                    Autodesk (CA9 2010)
                      expands the ability of software sellers through labeling to prevent buyers from becoming owners of their copies
                      "We hold today that a software user is a licensee rather than an owner of a copy where the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user's ability to transfer the software; and (3) imposes notable use restrictions"
                        Applied: "Autodesk retained title to the software and imposed significant transfer restrictions: it stated that the license is nontransferable, the software could not be transferred or leased without Autodesk's written consent, and the software could not be transferred outside the Western Hemisphere. The SLA also imposed use restrictions against the use of the software outside the Western Hemisphere and against modifying, translating, or reverse-engineering the software, removing any proprietary marks from the software or documentation, or defeating any copy protection device. Furthermore, the SLA provided for termination of the license upon the licensee's unauthorized copying or failure to comply with other license restrictions. Thus, because Autodesk reserved title to Release 14 copies and imposed significant transfer and use restrictions, we conclude that its customers are licensees of their copies of Release 14 rather than owners.
                  (d) defendant thereupon simply
distributed that particular copy
              exhaustion
                copyright
                  "Round-trip" parallel importation
                    Quality King (1998)
                      copyright owner may not prevent importation of products embodying copyright -- if those products are produced domestically
                      602(a) is limited by 109(a)
                    Congress considers overturning
the result in DMCA, but declines
to do so
                  "One-way" parallel importation
                    Omega v. Costco (2010)
                      In 2008, CA9 holds that Quality King only applies to cases where "the claims involve domestically made copies of U.S.-copyrighted works"
                        copyright owner may prevent resales in the US of products produced abroad
                        unless the copyright owner has already authorized their sale in the US
                      affirmed by an equally divided Supreme Court (December 2010)
                    followed in Microsoft v. Big Boy (SDFla. 2008)
                    Kirtsaeng (2013)
                      CA2 2011: 2/1 panel decision; follow Omega
                      Supreme Court reverses: copyright owners may not block one-way parallel importation
                    draft of TPPA, Section 4.2 (February 2011)
                      Each Party shall provide to authors, performers, and producers of phonograms the right to authorize or prohibit the importation into that Party’s territory of copies of the work, performance, or phonogram made without authorization, or made outside that Party’s territory with the authorization of the author, performer, or producer of the phonogram
                      With respect to copies of works and phonograms that have been placed on the market by the relevant right holder, the obligations described in Article [4.2] apply only to books, journals, sheet music, sound recordings, computer programs, and audio and visual works (i.e., categories of products in which the value of the copyrighted material represents substantially all of the value of the product). Notwithstanding the foregoing, each Party may provide the protection described in Article [4.2] to a broader range of goods.
                trademark
                  "Grey-market goods" defined:
                    Bordeau (CAFC 2006): products produced by or with the consent of the US TM holder, but not authorized for sale in US
                  USA system
                    Importation is lawful if US and foreign TM holders have common interest or control (parent, subsidiary, or same) and goods bearing the TM are the same
                      Kmart (US 1988) upholds Customs Service regulations, construing 526, that refuse to ban the importation of foreign-made goods in cases of common control
                      Variations
                        Foreign firm (FF) makes and sells goods in France; sets up US subsidiary F-US); FF has foreign TM; F-US has US TM on identical mark; T buys goods abroad and imports to US: OK
                        US firm U sets up foreign subsidiary (U-France) to manufacture goods; U-France ships goods to US for sale here; U-France also sells goods in France; T buys goods in France and sells in US: OK
                        US firm U sets up a plant in France to manufacture goods; plant ships goods to US for sale here; also sells goods in France; T buys goods in France and sells in US: OK
                    Importation is unlawful if the two firms, though affiliated, lack common interest or control
                      Classic example: F-France sells to US firm U right to register Mark and to sell FF’s goods in US; T buys goods in France and imports to US. Not OK
                      Variation: US Firm authorizes foreign Firm F to sell goods bearing the mark abroad, requires F to agree not to sell in US; T buys goods in France and sells in US. Not OK
                        Until 1988, Customs Service permitted importation under these conditions,
                        But SCt in K Mart struck this interpretation down
                    Importation is unlawful even if the US and foreign TM owners have common interest or control if US and foreign goods bearing identical marks differ materially in substance
                      Theory: generates consumer confusion because consumers will not know which set of characteristics to associate with the product
                      Under 1526, material difference standard applies only to goods manufactured abroad – K Mart
                      Under 1337, material difference standard applies both to goods manufactured in US and sold overseas, and to goods manufactured overseas (Bordeau)
                      Not necessary that D’s product be inferior, just different
                      wide range of views concerning how big the difference must be
                        Martin Herend Imports (CA5 1997) -- slight difference sufficient
                        Bordeau Bros. (CAFC 2006) GLK 996: Low threshold; only necessary that consumers would consider the features significant when deciding whether to buy
                          Different lighting systems, safety features, wagon hitches, instruction manuals on US and European tractors easily fit the bill
                        Nestle, 982 F.2d 639: different amounts of ingredients in chocolate
                        Original Appalachian, 816 F.2d 68 (CA2 1987): Cabbage Patch dolls sold in Spain have “adoption papers” in Spanish
                        Kia: differences in warranties sufficient
                      Procedure: Kia Motors (2009):
                        “Therefore, courts have adopted a simpler, two-part test to determine if likelihood of confusion exists in a gray market goods context: (1) were the goods not intended to be sold in the United States; and (2) are they materially different from the goods typically sold in the United States? Once a plaintiff establishes a material difference, the burden shifts to the accused infringer to establish by a preponderance of evidence that the difference is not the kind that consumers, on average, would likely consider in purchasing a product.
                      P loses the benefit of the doctrine if it sells some goods within US with the same characteristics of the goods whose importation it’s challenging
                        Bordeau Bros. (CAFC 2006)
                  Systems used by regional TM regimes
                patent
                  Traditional Rules: broad scope for exhaustion
                    Domestic
                      Principle: authorized sale of a patented
product to consumers carries with it
right to use and resell that product
                      Cases
                        Adams v. Burke (US 1873)
                          patent on improved coffin lids
                          patentee limits geographic area in which assignee may sell coffins
                          held: No permissible limits on use of lawfully purchased products
                        General Talking Pictures (US 1938)
                          patentee of amplifiers used in projectors granted license to ATC, but only to make and sell projectors to homes, not theatres
                          held: patentee could prevail in infringement suit against D, who had notice of the restriction but bought amplifiers for use in theatres
                        Univis (US 1942)
                          price-fixing scheme -- in which patentee on bifocals sought to set prices charged by (a) manufacturer, (b) wholesalers, and (c) retailers -- held unlawful
                          General principle: “[T]he authorized sale of an article which is capable of use only in practicing the patent is a relinquishment of the patent monopoly with respect to the article sold. . . . Sale of a lens blank by the patentee or by his licensee is thus in itself both a complete transfer of ownership of the blank, which is within the protection of the patent law, and a license to practice the final stage of the patent procedure.”
                            “The reward [Univis] was demanded and received is for the article and the invention which it embodies . . . . He has thus parted with his right to assert the patent monopoly with respect to it and is no longer free to control the price at which it may be sold either in its unfinished or finished form.”
                            "double-dipping" rationale
                    International
                  1986-2008: Contraction
                    Domestic
                      exhaustion can be overridden by
contract or notice
                        Mallinkrodt (CAFC 1992)
                          "single use" notice on medical device
                          held: patentee has infringement claim against firm that refurbishes the devices in violation of the notice
                          Univis distinguished on the ground that this restriction did not violate antitrust laws or other public policies
                        R Braun Med. (CAFC 1997)
                          conditional sales do not result in exhaustion of patentee's right to control uses of the product
                    International
                      Jazz Photo (CAFC 2002)
                        appears to adopt national exhaustion & reject international exhaustion
                        but ruling may be limited to products used and repaired prior to reimportation
                      Fuji Photo (CAFC 2005)
                        more clearly reject international exhaustion principle
                        rationale: foreign sales cannot be "authorized" under a U.S. patent
                          because that would imply extraterritorial application of U.S. patents
                  2008-present: Expansion
                    Quanta
                      Facts
                        LGE held both product patents on chips and process patents on making them
                        LGE granted Intel a license to make chips -- with a restriction:
                          purchasers of chips may not combine them with non-Intel parts
                        Quanta bought chips from Intel and combined with non-Intel parts
                      CAFC:
                        Exhaustion not applicable to process patents
                        Conditional sales; no exhaustion
                      Holding
                        Exhaustion is applicable to process patents
                        An authorized sale of a patented item terminates all patent rights to that item
                        use restrictions therefore invalid against purchasers
                      Issues left open:
                        application to sales overseas?
                        contract remedies still available?
                          potential limitations:
                            privity problems
                            preemption
                            more limited remedies
                          potential advantages:
                            fine tune using "public policy" limitations
                        can downstream behavior by purchasers retroactively render initial sales "unauthorized"?
                          see Hungar memo
                        may patentee restrict licensee's freedom to sell products embodying product or process patents (as opposed to restricting post-sale uses)?
                          answer appears yes
                          can expect many restrictive licenses in the future to take this form
                    Aftermath of Quanta
                      Broadcom v. Qualcomm (filed 2008)
                        Qualcomm licenses chipset makers -- with a restriction:
                          chipsets may only be incorporated into handsets by handset manufacturers who pay Qualcomm a royalty
                        Broadcom asserts patent misuse; exhaustion
                        settled -- as part of comprehensive settlement -- in 2009
                      Transcore (CAFC 2009)
                        unconditional covenant not to sue is the functional equivalent of unconditional license
                        surprisingly expansive interpretation of "estoppel" doctrine to enlarge the set of patents covered by a prior settlement/covenant
                          unclear whether this will affect treatment of the two forms of permission in bankruptcy
                      Static Control (EDKy 2009)
                        Quanta impliedly overruled Mallinckrodt
                        single-use restrictions no longer enforceable
                      LGE v. Hitachi (NDCa 2009)
                        unconditional foreign sale of a product licensed under a United States patent exhausts the patent holder's rights
                        repudiate Jazz Photo as inconsistent with logic of Quanta
                        Issues left open:
                          May the resultant impediment to geographic price discrimination be avoided through restrictions on the licensee's right to sell?
                          May the impediment be avoided by dividing patent holding companies geographically?
                    Lexmark
                      CAFC 2016
                        sale in US accompanied by an otherwise valid contractual restriction on resale does not result in exhaustion
                        both initial buyer and downstream buyers with notice who violate the restriction engage in patent infringement
                        No international exhaustion in the absence of a license to import
                      SCOTUS 2017
                        Both domestic and international exhaustion
              encryption circumvention
                History
                  Encryption Examples
                    CSS for DVDs
                    SDMI for Music
                    RealNetworks "Copy" Switch
                  IITF "White Paper"
                    Congress refuses to adopt the recommendation
                  1996 WIPO Copyright Treaty
                    "Contracting parties shall provide adequate legal protection and effective legal remedies against the circumvention of effective technological measures that are used by authors in connection with the exercise of their rights under this Treaty or the Berne Convention and that restricts acts, in respect of their works, which are not authorized by the authors concerned or permitted by law."
                  WIPO Perfomances and Phonograms Treaty (1996/2002), art. 18
                Statutes
                  In USA, DMCA
                    17 USC 1201
                      "Access controls"
                        1201(a)(1)(A): "No person shall circumvent a technological measure that effectively controls access" to a copyrighted work.
                        1201(a)(2): "No person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, service, device, component, or part thereof, that:"
                          "(A) is primarily designed or produced for the purpose of circumventing a technological measure that effectively controls access to a work protected under this title" or
                          "(B) has only limited commercially significant purpose or use other than to circumvent a technological measure that effectively controls access to a work protected under this title; or"
                            Cf. Sony standard for
contributory infringement
                          "(C) is marketed by that person or another acting in concert with that person with that person's knowledge for use in circumventing a technological measure that effectively controls access to a work protected under this title"
                            Cf. Grokster theory
of inducement
                      "Copy controls"
                        No prohibition on circumvention
                        1201(b)(1) No person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, service, device, component, or part thereof, that:"
                          "(A) is primarily designed or produced for the purpose of circumventing protection afforded by a technological measure that effectively protects a right of a copyright owner under this title in a work or a portion thereof;"
                          "(B) has only limited commercially significant purpose or use other than to circumvent protection afforded by a technological measure that effectively protects a right of a copyright owner under this title in a work or a portion thereof; or"
                          "(C) is marketed by that person or another acting in concert with that person with that person's knowledge for use in circumventing protection afforded by a technological measure that effectively protects a right of a copyright owner under this title in a work or a portion thereof"
                      Definitions
                        "Circumvent"
                          to "circumvent a technological measure" means to descramble a scrambled work, to decrypt an encrypted work, or otherwise to avoid, bypass, remove, deactivate, or impair a technological measure, without the authority of the copyright owner
                        "Effectively controls"
                          a technological measure "effectively controls access to a work" if the measure, in the ordinary course of its operation, requires the application of information, or a process or a treatment, with the authority of the copyright owner, to gain access to the work
                      Exceptions
                        Libraries may circumvent in order to decide whether to buy
                        Police may circumvent to conduct an investigation
                        1201(f): Reverse Engineering for Interoperability
                          (1) Notwithstanding the provisions of subsection (a)(1)(A), a person who has lawfully obtained the right to use a copy of a computer program may circumvent a technological measure that effectively controls access to a particular portion of that program for the sole purpose of identifying and analyzing those elements of the program that are necessary to achieve interoperability of an independently created computer program with other programs, and that have not previously been readily available to the person engaging in the circumvention, to the extent any such acts of identification and analysis do not constitute infringement under this title
                          (4) For purposes of this subsection, the term "interoperability" means the ability of computer programs to exchange information, and of such programs mutually to use the information which has been exchanged
                        1201(g) Encryption research
                          (A) the term "encryption research" means activities necessary to identify and analyze flaws and vulnerabilities of encryption technologies applied to copyrighted works, if these activities are conducted to advance the state of knowledge in the field of encryption technology or to assist in the development of encryption products;
                        1201(h) Protecting Minors from Pornography
                          "In applying subsection (a) to a component or part, the court may consider the necessity for its intended and actual incorporation in a technology, product, service, or device, which ... has the sole purpose to prevent the access of minors to material on the Internet."
                        Special Exemptions created by Copyright Office -- applicable only to circumvention of access controls
                          Statutory basis: 1201(a)(1)(B-E)
                            B
                              (B) The prohibition contained in subparagraph (A) shall not apply to persons who are users of a copyrighted work which is in a particular class of works, if such persons are, or are likely to be in the succeeding 3-year period, adversely affected by virtue of such prohibition in their ability to make noninfringing uses of that particular class of works under this title, as determined under subparagraph (C).
                            C
                              (C) During the 2-year period described in subparagraph (A), and during each succeeding 3-year period, the Librarian of Congress, upon the recommendation of the Register of Copyrights, who shall consult with the Assistant Secretary for Communications and Information of the Department of Commerce and report and comment on his or her views in making such recommendation, shall make the determination in a rulemaking proceeding on the record for purposes of subparagraph (B) of whether persons who are users of a copyrighted work are, or are likely to be in the succeeding 3-year period, adversely affected by the prohibition under subparagraph (A) in their ability to make noninfringing uses under this title of a particular class of copyrighted works. In conducting such rulemaking, the Librarian shall examine -
▪ (i) the availability for use of copyrighted works;
▪ (ii) the availability for use of works for nonprofit archival, preservation, and educational purposes;
▪ (iii) the impact that the prohibition on the circumvention of technological measures applied to copyrighted works has on criticism, comment, news reporting, teaching, scholarship, or research;
▪ (iv) the effect of circumvention of technological measures on the market for or value of copyrighted works; and
▪ (v) such other factors as the Librarian considers appropriate.
                            D
                              (D) The Librarian shall publish any class of copyrighted works for which the Librarian has determined, pursuant to the rulemaking conducted under subparagraph (C), that noninfringing uses by persons who are users of a copyrighted work are, or are likely to be, adversely affected, and the prohibition contained in subparagraph (A) shall not apply to such users with respect to such class of works for the ensuing 3-year period.
                          2006 Ruling
                            1. Audiovisual works included in the educational library of a college or university’s film or media studies department, when circumvention is accomplished for the purpose of making compilations of portions of those works for educational use in the classroom by media studies or film professors.
                            2. Computer programs and video games distributed in formats that have become obsolete and that require the original media or hardware as a condition of access, when circumvention is accomplished for the purpose of preservation or archival reproduction of published digital works by a library or archive. A format shall be considered obsolete if the machine or system necessary to render perceptible a work stored in that format is no longer manufactured or is no longer reasonably available in the commercial marketplace.
                            3. Computer programs protected by dongles that prevent access due to malfunction or damage and which are obsolete. A dongle shall be considered obsolete if it is no longer manufactured or if a replacement or repair is no longer reasonably available in the commercial marketplace
                            4. Literary works distributed in ebook format when all existing ebook editions of the work (including digital text editions made available by authorized entities) contain access controls that prevent the enabling either of the book’s read-aloud function or of screen readers that render the text into a specialized format.
                            5. Computer programs in the form of firmware that enable wireless telephone handsets to connect to a wireless telephone communication network, when circumvention is accomplished for the sole purpose of lawfully connecting to a wireless telephone communication network.
                            6. Sound recordings, and audiovisual works associated with those sound recordings, distributed in compact disc format and protected by technological protection measures that control access to lawfully purchased works and create or exploit security flaws or vulnerabilities that compromise the security of personal computers, when circumvention is accomplished solely for the purpose of good faith testing, investigating, or correcting such security flaws or vulnerabilities.
                          2010 Ruling
                            The Librarian of Congress has announced the classes of works subject to the exemption from the prohibition against circumvention of technological measures that control access to copyrighted works. Persons making noninfringing uses of the following six classes of works will not be subject to the prohibition against circumventing access controls (17 U.S.C. § 1201(a)(1)) until the conclusion of the next rulemaking.
                            Educational uses of movies
                              (1) Motion pictures on DVDs that are lawfully made and acquired and that are protected by the Content Scrambling System when circumvention is accomplished solely in order to accomplish the incorporation of short portions of motion pictures into new works for the purpose of criticism or comment, and where the person engaging in circumvention believes and has reasonable grounds for believing that circumvention is necessary to fulfill the purpose of the use in the following instances:
(i) Educational uses by college and university professors and by college and university film and media studies students;
(ii) Documentary filmmaking;
(iii) Noncommercial videos.
                            Cell phone apps
                              (2) Computer programs that enable wireless telephone handsets to execute software applications, where circumvention is accomplished for the sole purpose of enabling interoperability of such applications, when they have been lawfully obtained, with computer programs on the telephone handset.
                            Cell phone network access
                              (3) Computer programs, in the form of firmware or software, that enable used wireless telephone handsets to connect to a wireless telecommunications network, when circumvention is initiated by the owner of the copy of the computer program solely in order to connect to a wireless telecommunications network and access to the network is authorized by the operator of the network.
                            Security testing of video games
                              (4) Video games accessible on personal computers and protected by technological protection measures that control access to lawfully obtained works, when circumvention is accomplished solely for the purpose of good faith testing for, investigating, or correcting security flaws or vulnerabilities, if:
(i) The information derived from the security testing is used primarily to promote the security of the owner or operator of a computer, computer system, or computer network; and
(ii) The information derived from the security testing is used or maintained in a manner that does not facilitate copyright infringement or a violation of applicable law.
                            Obsolete dongles
                              (5) Computer programs protected by dongles that prevent access due to malfunction or damage and which are obsolete. A dongle shall be considered obsolete if it is no longer manufactured or if a replacement or repair is no longer reasonably available in the commercial marketplace; and
                            Handicap access to ebooks
                              (6) Literary works distributed in ebook format when all existing ebook editions of the work (including digital text editions made available by authorized entities) contain access controls that prevent the enabling either of the book’s read-aloud function or of screen readers that render the text into a specialized format.
                    17 USC 1202
                      No person shall, without the authority of the copyright owner or the law --
(1) intentionally remove or alter any copyright management information,
(2) distribute or import for distribution copyright management information knowing that the copyright management information has been removed or altered without authority of the copyright owner or the law, or
(3) distribute, import for distribution, or publicly perform works, copies of works, or phonorecords, knowing that copyright management information has been removed or altered without authority of the copyright owner or the law, knowing, or ... having reasonable grounds to know, that it will induce, enable, facilitate, or conceal an infringement of any right under this title.
                    Remedies
                      Civil (1203)
                        Equitable
                        Damages
                          Actual Damages
                            "The court shall award to the complaining party the actual damages suffered by the party as a result of the violation, and any profits of the violator that are attributable to the violation and are not taken into account in computing the actual damages, if the complaining party elects such damages at any time before final judgment is entered."
                          Statutory Damages
                            "(A) At any time before final judgment is entered, a complaining party may elect to recover an award of statutory damages for each violation of section 1201 in the sum of not less than $200 or more than $2,500 per act of circumvention, device, product, component, offer, or performance of service, as the court considers just.
(B) At any time before final judgment is entered, a complaining party may elect to recover an award of statutory damages for each violation of section 1202 in the sum of not less than $2,500 or more than $25,000."
                      Criminal (1204)
                        "(a) In general. Any person who violates section 1201 or 1202 willfully and for purposes of commercial advantage or private financial gain--
(1) shall be fined not more than $500,000 or imprisoned for not more than 5 years, or both, for the first offense; and
(2) shall be fined not more than $ 1,000,000 or imprisoned for not more than 10 years, or both, for any subsequent offense."
                  In Europe, EU Copyright Directive (2001), articles 6, 8
                    member states must provide penalties for circumvention of effective TPMs, as well as for trafficking in circumvention devices and services
                    Mandatory "public policy" exceptions
                    Optional "private copying" exceptions
                    slow and uneven implementation
                    e.g., France (2006):
                      schedule of penalties
                        EUR 750 fine for circumventing DRM
                        EUR 3750 fine for creating a means to circumvent DRM
                        EUR 30,000 fine and 6 months in prison for publishing a means to circumvent DRM
                        EUR 300,000 fine and 3 years in prison for publishing software "obviously intended" to provide the public unauthorized access to copyrighted works
                      reduced penalties for file-sharing
                        7/27/2006: Constitutional Council
declares unconstitutional impairment
of the property rights of copyright owners
                      mandatory interoperability
                        administrative agency will adopt rules forcing Apple to:
                          1. modify AAC code to allow its files to be played on other players
                          2. modify ipods sold in France to enable them to play DRMd files from other suppliers (e.g., VirginMega)
                        7/27/2006: Constitutional Council requires indemnification of Apple
                Judicial Enforcement
                  Streambox (WD WA 2000)
                    Held: Streambox "VCR," that avoids copy-protection switch in RealNetworks system, violates 1201(b)
                    Sony defense not available under DMCA
                  Corley
                  Felten
                    Felten strips prototype SDMI watermarks out of music without degrading quality; plans to publish results
                    RIAA suggests publication "could subject you and your research team to actions under the DMCA"
                    Felten seeks declaratory judgment that a DMCA action would violate 1st amendment
                    RIAA retreats
                    Case dismissed as moot
                  Elcomsoft (2002)
                    Adobe eBook Reader contains copy-protection system
                    2001 Elcomsoft distributes software, designed by Dimitri Sklyarov, that defeats the system
                    Both Sklyarov and Elcomsoft are prosecuted
                    Charges against Sklyarov dropped in return for cooperation
                    Elcomsoft acquitted because of inadequate proof of criminal intent
                  IMS (SDNY 2004)
                  Lexmark, 387 F.3d 522 (CA6 2004)
                    Facts
                      Lexmark uses a TPM to prevent unauthorized printer cartridges from communicating with its printers
                      Static Controls manufacturer a chip that, when installed in unauthorized cartridges, bypassed the TPM
                    Holding
                      Because the TPM did not prevent reading or copying the computer program at issue, the TPM did not constitute an "access control," and therefore the DMCA was inapplicable
                  Chamberlain, 381 F.3d 1178 (CAFC 2004)
                    Facts
                      Chamberlain used a "rolling code" to control access to the software that operated its remote garage door opener
                      Skylink's generic garage-door opener imitated the rolling code
                    Holding
                      To establish a violation of the DMCA, it must be shown that the TPM being circumvented bears some "reasonable relationship to the protections that the Copyright Act otherwise affords."
                      Because the purchasers of Champerlain's opener were entitled to access the code that operated the opener, this requirement was not satisfied
                  STK, 421 F.3d 1307 (CAFC 2005)
                    Holding
                      Reiterate "reasonable relationship" requirement of Chamberlain
                  Blizzard, 422 F.3d 630 (CA8 2005)
                    Facts
                      The CDs containing Blizzard's video games also contained software that enabled purchasers to gain access to a network, operated by Blizzard, on which they could interact with other players
                      Defendant reversed engineered the software in order to enable purchasers of CDs to gain access to defendant's alternative network
                      the circumvention system also enabled the possessors of pirated games to gain access to the alternative network
                    Holding
                      "To successfully prove the interoperability defense under § 1201(f), Appellants must show:
                        (1) they lawfully obtained the right to use a copy of a computer program;
                        (2) the information gathered as a result of the reverse engineering was not previously readily available to the person engaging in the circumvention;
                        (3) the sole purpose of the reverse engineering was to identify and analyze those elements of the program that were necessary to achieve interoperability of an independently created computer program with other programs; and
                        (4) the alleged circumvention did not constitute infringement.
                      Because the circumvention in this instance enabled "unauthorized copies of the Blizzard games [to be] freely played on bnetd.org servers," requirement (4) was not satisfied
                  RealNetworks, 641 F. Supp. 2d 913 (N.D. Cal. 2009)
          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
              Meurer
            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)
              applications:
                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)
                Varian
            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)
                    e.g., sellers of hand sterilizer in coronavirus pandemic
                  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
                    "sneaky"
                  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
                      Spiekerman
                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
        Pharmaceutical Products
        Patent Pools
          In technologically dense industries, patent thickets may impede both innovation and competition
          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)
        Injunctions
          Arguments for limiting injunctions
            a) The patent at issue is socially pernicious
              e.g., business-method patents
            b) The patentee is socially pernicious
              e.g., NPE
            c) voluntary licenses provoked by an injunction will be excessive, from a social-welfare standpoint, because of:
              1. Holdup power of the patentee
              2. Royalty stacking
    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
      Criticisms
        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
    Bibliography
  Fairness
    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
          provisos
            sufficiency
            spoilage
              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
        Difficulties
          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
            "labor"
              time and effort
              something you'd rather avoid
                Hughes
              something that creates social value
                Gordon; Hughes
              premium for creativity
                Becker
            proportionality
              Nozick
              Merges
            "the commons"
              Possible interpretations include:
                facts
                language
                cultural heritage
                scientific knowledge
                ideas
                  known and unowned
                  known
                  reachable
                  possible
                only undeveloped goods
                  Damstedt
            scope and application of the "provisos"
              sufficiency
                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
                  Gordon
                  Shiffrin
              spoilage
                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.”
              charity
                Gordon
                Merges
          Solutions?
            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
          copyright in poetry
            Throsby data on Australian poets
          rights to factual works?
            examples
              maps
              databases
              histories
              autobiographies
                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"
        Patent
          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
              Becker
              but see Merges
        Right of Publicity
          claims to rights of publicity undermined by roles played in generating fame by:
            luck
            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
      Deceit
        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
      Free-riding
        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.”
          Rawls
            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.”
          Nozick
            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
              gambling
              Live (long distance) viewing of the events
              Real-time reporting of the events
      Custom
        Legal Realist proposals for commercial law
    Bibliography