Intellectual Property
Chapter 1: Theories/Overview
A. Philosophical Perspectives
· The Natural Rights Perspective: Locke
o Lockean labor theory: if you remove something from the commons and invest labor in it, you earn the right to exclude others (i.e. prop. rights)
§ consequentialist: assumes work is unpleasant; benefit is the prop. rights
§ value = contribution to society
§ proviso: leave as much/as good as another can make use of (works with ideas, not apples)
§ individualistic à not concerned with social welfare
§ a moral theory: the Natural rights of man
o Deserttheory: if you put effort into something, you should get a reward for it
§ value = profits; if you didn’t invent it someone else would have
§ non-consequentialist: doesn’t matter how much work you put in or if someone else needed it more
o Prob.:
§ does not explain the scope of IP à rights not granted on basis of labor expended
§ results in patent rushing: over-investment to create first
· The Personhood Perspective: Radin/Hegel
o Personhood theory: to achieve proper self-devel., an individual needs some control over resources in the external enviro. à prop. value is tied up in personhood
§ you control it b/c it has become a part of you, and taking it away from you will cause you personal loss (whether society would benefit from another party’s modifications is not considered; you control it bc it’s part of you)
§ protects IP rights to protect the integrity of the creator
§ differential div. of rights based on changes in value over time (as personal value of prop. changes)
§ applies best to Copyrights
§ moral rights: strict adherence to personhood theory
o Prob.: doesn’t explain scope of IP à IP regime doesn’t calibrate value based on personality
· The Utilitarian/Economic Incentive Perspective
o protection of IP promotes creativity/invention; incentivizes investments
o consequential + concerned with the greatest good for the most people
o for most goods, market provides ample incentive
§ market value = supply + demand; how much ppl. benefit and how much it costs
§ B > C for econ. analysis to support creation
§ behavior is best basis for worth (what was paid/what it was sold for)
§ Principle of diminished market returns: benefit of addt’l cars/apples/etc. decreases as you receive more, cost of production goes down as you create more à meet in the middle
· how much to create: look at benefit, how much it costs to make more.
· how to allocate: price mechanism mediates bt most efficient price (marginal cost where price = cost) and a cost that will create incentive for creator while still allowing for max. public good. IP rights allow creators to charge above marginal cost à profit
o IP as a Public Good
§ markets function poorly to provide incentives for public goods (lighthouse) bc of
· non-rivalry: consumption does not reduce supply avail. for others
· nonexcludability: can’t restrict pub. goods to the ppl. who pay for them
o leads to free riding, tragedy of commons
§ Leads to pricing problem:
· competition causes price = marginal cost (0 in extreme cases)
· marginal cost pricing maximizes static efficiency BUT submaximizes dynamic efficiency (doesn’t cover fixed costs)
§ Exclusivity allow pricing above marginal cost
· But any price that covers fixed costs is suboptimal in terms of static efficiency
· access-incentives tradeoff: if price = cost = 0, there is no incentive to produce; in order to create incentives àprice > 0 àsome for whom benefit > cost are excluded
· Other Theories:
o Prevention of consumer confusion (trademark)
§ does not protect innovation or creativity
§ originally just identified the source of the goods; now seen as conveying info. good
§ must protect IP in order for public to benefit from info.
o Incentive to invest
§ brands can convey info. about goods; IP prevents free riding, promotes optimal investment
§ also prevents dilution (blurring, tarnishment)
· Overview of Intellectual Property
o Trade Secret
o Patent
o Copyright
o Trademark/Trade Dress
· Federal v. State regs:
o Fed. regs are optimal for purposes of uniformity
o state regs are optimal where local pops. have diff. needs
Trade Secret
Patent
Copyright
Trademark
Federal or State
state
federal
federal
federal/state
Subject of Protection
any confidential info.
new, non-obvious, useful inventions
original expression
distinctive marks
Infringement
theft or misappropriation
similarity
copying
confusion/dilution
3rd. Party Rights
indep. creation (IC), reverse eng. by customer
none
IC, fair use, compulsory licenses
truthful revelation, fair use
Duration
until known
20 years
life + 70/95 years
perpetual unless abandoned
Registration
none
compulsory
optimal
optimal
IP Solves Info. Paradox
o Must calibrate follow-on rights for optimal benefit
§ Strong IP rights can facilitate strong innovation by overcoming Arrow’s Information Paradox. Must disclose something before deals are done.
§ But downside to signing CA, if she later discovers on her own, then it looks like she stole it. E.g., movie companies refuse submissions and return unopened
o IP Solution: give IP protection to follow-on innovation. Then, if A2 discloses, don’t need a CA b/c you already have enforceable rights against the world.
o If best practice is to use both together – will incentivize to structure a deal and create better innovation. [Not in copyright.]
IP protection can be too strong
o Patent race problem and destroyed value problem in winner-take-all system. Race forces each side to ramp up, creating waste
o Pinatta problem can cause overinvestment in getting it and underinvestment in deploying it.
§ Gold-rush prospectors. First person who files claim in office. Incentivizes finding all land before developing any.
IP protection can be too weak
o Holdout problem: Whole land only worth a lot if could get it all. All would try to cut deal and take a small piece to extract more than your share
Uniform Trade Secrets Act § 1 (1985)
§ “Trade secret” means information, incl. a formula, pattern, compilation, program, device, method, technique, or process, that:
· derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by PROPER MEANS by, other persons who can obtain economic value from its disclosure or use, AND
· is the subj. of efforts that are reasonable under the circumstances to maintain its secrecy
o under UTSA, if info. is available in the public domain and is readily ascertainable, there’s no TS to protect so taking it isn’t a problem
o in tension w/ results in Rohm, Franke
o R3rd of Unfair Competition § 39 (1994)
§ a trade secret is any information that can be used in the operation of a business or other enterprise and that is sufficiently valuable and secret to afford an actual or potential economic advantage over others..
B. Subject Matter
· “Secret”
o Metallurgical Industries v. Fourtek (5th Cir. 1986): contract to make furnace for carbine reclamation, improvements made, co. went bankrupt and former employee formed Fourtek utilizing improvements. Ct. found TS.
§ secret: limited disclosure evidenced by precautions to keep it secret + evidence that it wasn’t actually widely known
· ok to disclose for business purposes, profit
· precautions are probative the info. isn’t actually widely known
· expert testimony also used to show info. was not widely known
· abs. secrecy not req.: can disclose to subcontractors, employees who need to know, customers if nec., as long as disclosure is connected with economic gain/business
§ subject matter: info must be commercially valuable; NO element of novelty required.
· expert testimony used
· fact that D wanted to misappropriate info. is evidence of its commercial value
o See Roam & Haas, Franke v. Wiltscheck below: obscure publication or expired patent don’t necessarily mean TS isn’t secret (liability hinges on misappropriation)
· Reasonable Precautions: C/B
o Evidentiary significance of precautions
§ shows the secret provides a bus. adv.
§ shows the secret is not gen. known
§ incr. likelihood secret was misapprop.
· requires more than an intention to keep secret BUT
· does not require every feasible protection measure (C/B analysis)
§ Cost/benefit analysis about how much is required
§ Question for the jury
§ Tradeoff with patent protection