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Intellectual Property
University of Pennsylvania School of Law
Yoo, Christopher S.

Ø Locke: Natural Rights
§ Anything you put your labor into is your property
·         Limited by what you can make productive use of & has to be enough left over for everyone else
§ In IP: Patent and copyright
·         Patent: you get complete control of ideas
·         Copyright: you get control of own expression – other people have to write their own book!
·         Problem: protection not based on how much work you put in
Ø Radin/ Hegel: Personhood Theory
§ People confirm their identity by being in a group and define their identity by separating themselves from the group – separate themselves by owning property
·         So your property is a part of you
§ In IP: Moral rights in copyright
·         Problem: not extensive moral rights; people get protection even if not invested in the work; rights should be inalienable if really fit this theory
Ø Utilitarian/ Economic Theory
§ Goal is maximizing welfare – productive efficiency and allocative efficiency
·         Goods should be priced at cost it takes to make the next copy to ensure that everyone who values it more gets it
§ In IP: provide incentives for investment
·         Patent/ Copyright: Market doesn’t provide sufficient incentive b/c IP are public goods
¨       Public goods: non-depletable assets – consumption does not reduce supply available for others
Ø Nonexcludable – can’t restrict to people who have paid
¨       Access-incentive tradeoff: If decrease price à give more people access à increase welfare. 
Ø But also if decrease price à decrease incentive to produce à decrease welfare
Ø So have to limit access some (increase price) in order to have sufficient incentive to produce
¨       Free-riding: Hard to separate those that have paid for goods from those who haven’t
Ø IP’s solution – make things excludable
¨       Hold-out problems: if divide up property too much, becomes worth less unless you have many/ all the pieces – others can take advantage of this and charge way more than each piece worth – might make it not worthwhile to invest at all
Ø E.g. need national cell-phone market, Disney buying all the land nearby so others can’t free-ride
·         Trademark:
¨       Reduce consumer confusion
¨       Provide incentive to invest in better products
¨       Prevent free-riding and dilution
§ Arrow’s Information Paradox:
·         A has info, wants to sell to B
·         B won’t buy unless knows what it is
·         But if A reveals (discloses TS, gives idea for derivative ©, licensing patents), loses value
·         Solution: give IP protection
¨       For TS: B doesn’t want to sign confidentiality agreement, b/c then if independently discovered it, wouldn’t be able to use
·         Solution: give IP protection to follow-on innovation
§ If IP protection is too strong: patent races – if 2nd person also got protection, no reason for race
Ø Public Choice Theory/ Positive Political Theory
§ Public officials/ agencies want to maximize their self interest
§ For agencies, this means having the biggest agency/ most influence possible (budget, # of employees…)
§ PTO wants expansive vision of own jurisdiction – means broader patent scope, but also not to get reversed by Federal Circuit
·         Patent officers want to grant more patents – get paid more if grant more
·         Also influenced by: outside pressures from industry/ interest groups, promotion or advancement to next political position, position for next job
§ Structural analysis
·         Concentrated interests often trump diffuse interests b/c of transaction costs – collective action problems
·         Details of gov’t processes – rural interests over-represented in Senate
§ For patents:
·         Fed Circ: wants strong patents, clear rules, no reversals
·         PTO: discretion, maximization of revenue, turf
Ø Economic Foundations of Fair Use
·         Fair use as a compulsory license with price of $0 that minimizes transaction costs to maximize welfare
§ Basic Economics
·         Maximization of wealth/ social welfare – biggest pie, no matter how divided
·         Increase social welfare by increasing production whenever benefits of increasing production (measured by willingness to pay) exceed costs
¨       When costs =benefits, you stop producing more
·         If market works correctly, “invisible hand” maximizes welfare
¨       But market fails! Externalities, transaction costs
§ Transaction costs
·         Coase: given no transaction costs, most efficient result will be reached regardless of legal rule
·         If there are transaction costs, assign entitlement to minimize transaction costs
·         Sources of transaction costs
¨       “Pure friction” – communication, search costs
¨       Collective action problems – holdouts, free riding
¨       Vague rules
Ø Enforcement costs are part of transaction costs – people have to sue to find out whether they would win or not!
·         Solution:
¨       If transaction costs preclude valuable bargains à impose a liability rule (government decides how much it’s worth)
¨       Compulsory license: liability rule with price of zero
Ø If worth of use to licenser is small, transaction costs would prevent them from buying license
Ø So by letting them use it for free, not harming the author, but increasing benefit to society
Ø Future: licensing getting easier/ cheaper à fewer things will be fair use!
§ Danger of too much protection
·         Can protect things that people have a right to know or should be able to know (history, etc)
§ Danger of too little protection
·         No incentive to produce
§ Interaction with 1A
·         Fair use (& idea-expression dichotomy) are safety valves to protect 1A values
·         People can say what they want – just can’t use other people’s expression
§ Alternatives to Fair Use
·         Copyright collectives
¨       CCC (Copyright Clearance Center), BMI, ASCAP
¨       Pooling together small property rights to make it worth it for people to pay to license
·         Indirect appropriability
¨       Charge for a measurable proxy – e.g. lighthouses getting $$ from port fees
¨       Or charging more for subscriptions to libraries – but have to keep individuals from reselling
·         Internet
Ø Network Economic Effects
§ Arise when value is determined not by the product’s characteristics, but by the number of other people using the same product
·         E.g. fax machines – not useful to the first person, because can’t send faxes to anyone else
·         When other people buy these products, increases the value to everyone else
·         Direct network externalities
§ Can lead to adverse consequences
·         Can delay adoption of technology until market is tipped (VHS v. Betamax, BlueRay v. HD DVD)
·         Path-dependent – random events can make big, arbitrary differences
·         Can “lock in” obsolete technology (no one wants to change to objectively better technology b/c everyone else has the first thing)
§ Implications
·         Justification for boilerplate: if we all use the same boilerplate language, we all know what it means
¨       Why GPL doesn’t allow changes
·         Explanation for Delaware’s primacy in corporate law – better to have all companies governed by the same law, no matter what it is
·         Basis for the antitrust case against Microsoft – they will say that whatever operating system got the headstart would win because no one can knock it loose – even though an obsolete technology
·         Key role in arguments over Internet governance
·         Support for denying IP to interfaces (software, hardware, etc) – e.g. IBM would change plugs on the back of their computers so all of a sudden all the peripherals wouldn’t fit
·         Justification for genericide – least compelling example!
§ Limitations of theory
·         Not just tipping and lock in
¨       Two offsetting externalities: increase value of new network; reduce value of old network
·         Market failures only arise in concentrated markets
·         Private ordering can solve
¨       Introductory pricing – “side payment” from new customers to old customers
¨       Strategic partnerships with key customers – can pass the tipping point with just one customer!
·         Product differentiation and rapid market growth can mitigate impact
§ Not a lot of proof of it having a big effect
·         E.g. people say Beta was better (smaller, etc) – but couldn’t record a whole football game!
·         And QWERTY keyboard has beat other keyboards in every typing speed competition….
Ø Elements
§ Appropriate subject matter: something valuable and reasonably secret
§ Reasonable precautions to prevent disclosure: to show that it was secret
§ Misappropriation: actually taken from the secret holder – improper means or breach of confidentiality
Ø Theories
§ Originally: fairness/ business morality – punish and prevent wrongful behavior
§ Recently: social welfare/economic efficiency – protecting against theft encourages investment in info
·         Emphasizes fairness over social welfare – even if publicly available elsewhere, can’t steal it
¨       Not a normal property right – not good against the world
¨       Locke: owner of TS expended effort to get it; you have to expend own effort if want it
Ø Notes
§ Trade-off with patent: can’t hav

e.g. FDA – but gov’t has to pay (takings)
Ø Summary
§ Must have taken information wrongfully – if found it innocently, even if TS – not liable
§ Improper means (doesn’t have to be illegal) or breach of confidential relationship
§ Not misappropriation to reverse engineer or independently discover
§ Disagreement about if someone is liable for using info they knew was obtained through misappropriation
·         Restatement says Y, CA Ct of A says no
Ø General Rules
§ Restatement (First) of Torts §757
·         If disclose or use another’s TS, liable if
¨       Discovered through improper means
¨       Disclosure or use is breach of confidence
¨       Learned TS from 3rd person w/ notice that 3rd person obtained through improper means
¨       Learned TS w/ notice of fact that it was a secret and was being disclosed by mistake
§ Uniform Trade Secrets Act §1(2)
·         Acquisition of TS by improper means
·         OR disclosure of TS w/out express or implied consent by someone who
¨       Used improper means
¨       Knew or had reason to know that TS was acquired by improper means
¨       Knew or had reason to know TS was acquired by accident or mistake
Ø Improper Means
§ Something wrongful – doesn’t have to be illegal. What is improper determined by reasonableness
§ Rules
·         Restatement (First) of Torts §757, Cmt f
¨       Non-exclusive list of what might be improper means
Ø Taking by physical force or trespass
Ø Other activities that are not themselves tortuous
§ Fraudulent misrepresentations, wiretapping, eavesdropping, or other espionage
Ø Means below generally accepted standards of commercial morality and reasonable conduct
·         Uniform Trade Secrets Act §1(1)
¨       Theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means
·         Restatement (Third) of Unfair Competition §43
¨       Theft, fraud, unauthorized interception of communications, inducement of or knowing participation in a breach of confidence
¨       Other means either wrongful in themselves or wrongful under the circs of the case
§ EI DuPont de Nemours v. Rolfe Christopher (5th Circ, 1970) (p. 62)
·         Facts: RC took aerial photos of E’s plant being constructed. No roof – revealed process for producing methanol; no trespass (no tortious means)
·         Holding: Improper means doesn’t require trespass, illegal conduct, or breach of confidentiality
¨       Standard for what is improper & what’s not is reasonableness – CBA and industry standards
¨       What is reasonable changes – now would need roof b/c of widespread availability of satellite photos
·         Result: There was misappropriation, even though no trespass
§ Pioneer Hi-Bred Int’l v. Holden Foundation Seeds (8th Circ, 1994) (p. 66)
·         Facts: P couldn’t show misappropriation, but used genetics to show that highly unlikely H’s seeds developed independently b/c so close genetically
·         Holding: P showed misappropriation through inference – like res ipsa loquitor
·         Result: P’s TS was misappropriated by H.
Ø Confidential Relationship
§ TS was property obtained, but improperly used or disclosed
·         Confidentiality contracts are generally enforceable
·         Can also arise without express agreement – can be problematic (Dravo)
§ Rules
·         Restatement (Third) of Unfair Competition §41
¨       Express promise of confidentiality
¨       Disclosure under circumstances that justify conclusion that
Ø Person knew or had reason to know that the disclosure was intended to be in confidence and
Disclosing party was reasonable in inferring that the person consented to obligation of