IT and Public Policy – Sept. 30, 2004
An Introduction to
IP Law and Economics
Stephen M. Maurer
Goldman School of Public Policy
1
Two Frontiers
Hardware
Software
2
Two Frontiers
Hardware
Software
3
Two Frontiers
Work Both Sides of the Problem
Open Source
Data Warehousing
Computer Security
Incentives are Powerful!
Hortatory Solutions & Laws
4
Two Sets of Tools
Legal Tradition
Local (Nuts-and-Bolts) Optimization
Is-Ism
Economics Tradition
Global (Big Picture) Optimization
Precision
5
Two Themes
The Second Copy is Cheap!
Jargon: “Non-Rival”
I Care What You Buy.
6
MP = 0
Intellectual Property (“IP”)
Other R&D Institutions
Applications . . .
Database Policy
(Private-Public Partnerships)
(Academic Entrepreneurs)
7
A Right To Exclude
Some History
Legal
Late Medieval Origins
Statute of Monopolies (1524)
Patent & Trademark Office
Fashions in IP Law
Many Types
Patents, Copyright, SCPA, etc.
Many Proposals
Databases
8
Defendant
Wins
No.
Subject Matter?
Legal
Yes.
Defendant
Wins
No.
Liability
(Infringement)
Yes.
Defendant
Wins
No.
Defenses &
Exemptions
Yes.
Defendant
Wins
No.
Relief
Yes!
Plaintiff
Wins
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Subject Matter
Legal
Patents:
No.
* Products, Compounds,
Machines, Processes . . .
** Life, Business Methods, Software?
* Novelty
Subject Matter?
Yes.
Copyright:
* Expression, Not Ideas
* Writings, Plays, Movies, Digital Audio . . .
** Software?
* Creativity
Other Statutes - The Public Domain
10
Liability
Basic Concepts
Breadth
Duration
Legal
No.
Liability
(Infringement)
Yes.
Patents
Doctrine of Equivalents
20 Years
Copyright
Non-Literal Similarity
Life + 70 Years
11
Defenses & Exemptions
Patents
Legal
No.
Reduction to Practice,
Misuse, First Sale Rule,
Research, Duty of Candor,
Estoppel & Laches.
Defenses &
Exemptions
Yes.
Copyright
Independent Invention, First Sale,
Fair Use, Misuse (?), Estoppel & Laches
12
Relief
Legal
No.
Patents & Copyright
Relief
Yes.
Damages
Preliminary Injunctions
Permanent Injunctions
Exemplary & Statutory Damages
13
Trade Secrets
A Different Philosophy . . .
Legal
Subject Matter
Commercially Valuable Secrets
Liability
Secrecy, Improper Means, Duration
Relief
Damages, “Headstart” Injunctions
14
Economics
A Choice of Methods
Dominant Solution!!!
What Are We Trying to Accomplish?
What Are the Benefits/Drawbacks?
15
Economics
What Are We Trying to Accomplish?
1. “Nobody Can Be Made Better Off
Without Making Someone Else Worse
Off.”
2. Maximize Net Social Value
(v-c) > 0
3. Old Economy Prescription:
P = MC
16
Economics
What Are We Trying to Accomplish?
1. Ex Post Efficiency – “Deadweight Loss”
2. Ex Ante Efficiency – “Innovation”
3. Eliciting Privately Held Information
4. Agency Problems – Sponsors
5. Agency Problems – Researchers
17
Economics
18
“Markets are Efficient”
Economics
Price
Demand
Quantity
19
“Monopoly”
Economics
π
20
“Monopoly”
π
Economics
S
21
“Intellectual Property”
Economics
Public Goods:
Non-Rival (MC = 0)
Excludable
Why P = MC Won’t Work
What IP Does
22
“Intellectual Property”
Economics
Is IP a Monopoly?
P > MC
Doing Without
Ex Ante vs. Ex Post
Mitigating Deadweight Loss
Digital Rights Management
23
Limits of IP
Economics
Copyright History
Is IP Necessary?
Databases
Source Code
Music
Too Much IP?
Databases, DMCA, Software Patents. . .
24
Economics
25
π
Economics
Incentive = Π·V
26
Economics
What Incentive is Optimal?
Innovation vs. DWL
Intergenerational Issues
Races
Duplication
Waste
High Risk Research
27
Economics
Cumulative Innovation
Do We Need A Strong Commons?
The Licensing Argument
Software Patents
28
Economics
29
Economics
Information About (v-c)
is Dispersed.
Two Types of Information
Technical Feasibility – Java
Value to Consumers – The Internet
Limits on Information Sharing
30
Economics
31
Economics
What If Researchers . . .
* Lie About (V – C)?
* Go to the Beach?
32
Economics
33
Economics
What If The Sponsor Doesn’t Pay?
* Patent Litigation?
34
Evidence
Are Patents Important?
Pathologies
Patent Thickets
The Anticommons
Trolls
35
History
Examples
Prizes
Contract Research
Grants
Buy-Outs
Hybrids
CRADAs
Bayh-Dole
36
Prizes
1. Ex Post Efficiency
No Deadweight Loss!!
2. Ex Ante Efficiency – “Innovation”
You Must Know “v”!!
3. Eliciting Privately Held Information
Directed Prizes (DARPA, X-Prize)
Blue Sky Prizes (Google)
37
Prizes
4. Agency Problems – Sponsors
Types of Prizes
Commitment Strategies
5. Agency Problems – Researchers
38
1. Ex Post Efficiency
No Deadweight Loss!!
Contracts
2. Ex Ante Efficiency – “Innovation”
You Must Know “(v-c)”!!
Packet Switching
Competitive bidding & second-price
auctions.
3. Eliciting Privately Held Information
39
Contracts
4. Agency Problems – Sponsors
5. Agency Problems – Researchers
40
1. Ex Post Efficiency
No Deadweight Loss!!
Grants
2. Ex Ante Efficiency – “Innovation”
You Know “c” Before, “v” Afterward!!
3. Eliciting Privately Held Information
41
Grants
4. Agency Problems – Sponsors
5. Agency Problems – Researchers
An Imperfect Solution . . .
42
Databases
History
U.S.
Feist & Congress
Europe (1996)
U.S. Politics
IP as a Hidden Tax
Users vs. Sellers
43
Policy
Databases
The Paradox: Why Do We Have a Database
Industry at All?
The Issue: DWL vs. More innovation
The Evidence:
Who’s Been Injured?
What New Databases Would We Get?
The European Experiment
44
Germany
25
Databases
20
15
10
5
0
1994 1996 1998 2000
France
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
U.K.
12
6
10
5
8
4
6
3
4
2
2
1
0
1994 1996 1998 2000
US
1994 1996 1998 2000
0
1994
1996
1998
2000
Databases
Advice to Congress
Options
Property Rules
Liability Rules
Misappropriation
The INS Case
Current Law
Prove It!
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