ECONOMIC ANALYSIS OF INTELLECTUAL
PROPERTY LAW
January 30, 2007
ECONOMIC ANALYSIS OF INTELLECTUAL
PROPERTY LAW
Private Goods
Private Bads
Public Bads
Public Goods
ECONOMIC ANALYSIS OF INTELLECTUAL
PROPERTY LAW
Public Goods
Intellectual Property
Patents
Copyright
Trade Marks
Trade Secrets
Other
Public space
Public Auto Insurance
Workers Compensation
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• The following diagrams compare and
contrast demand for private goods with the
demand for public goods with respect to
the properties of
• Exclusivity of the good
• Rivalrous or Non-rivalrous nature of the good
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• Horizontal Summation of Individual Demand Curves –
$
» Private Good - Rivalrous Good
Demand Function For Private Good
Demand Function For Private Good – Agent 2
Demand Function
For Private Good –
Agent 1
Private
Good
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• Horizontal Summation of Individual Demand Curves –
$
» Private Good - Rivalrous Good
Demand Function For Private Good
Supply Function For Private Good
Private
Good
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
a2 = Output of Agent 2
Bilateral Negative Externalities – Example: Cournot Duopoly
Both Producers Produce Private Goods Which Are Perfect Substitutes
Iso-Profit Curve For Agent 2
NASH EQUILIBRIUM
Iso-Profit Curve For Agent 1
PARETO OPTIMAL EQUILIBRIUM
a1 = Output of Agent 1
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• .
Public Goods
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
Y2 = Produced By Agent 2
Bilateral Positive Externalities – Example: Cournot Duopoly
Both Producers Produce Public Goods Which Are Perfect Substitutes
PARETO
OPTIMAL
EQUILIBRIUM
Iso-Profit (Utility) Curve For Agent 1
NASH EQUILIBRIUM
Iso-Profit (Utility) Curve For
Agent 2
Y1 = Produced by Agent 1
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• Vertical Summation of Individual Demand Curves –
$
» Public Good - Non-Rivalrous Good
Marginal Social Value Function For
Public Good
Demand Function For Public Good – Agent 2
Demand Function
For Public Good –
Agent 1
Public
Good
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• Vertical Summation of Individual Demand Curves –
$
» Public Good - Non-Rivalrous Good
Marginal Social Value Function For
Public Good
Supply Function For Public Good
Public
Good
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• Example: Auto Insurance as a “Public
Good”
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
I2 = Insurance Purchased By Insured 2
Bilateral Positive Externalities – Example: The “Insurance” Game
Utility Curve For Insured 1
NASH EQUILIBRIUM
PARETO
OPTIMAL
EQUILIBRIUM
Utility Curve For Insured 2
I1 = Insurance Purchased by Insured 1
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• Countering the “Insurance Game”:
• Many types of insurance coverage are
mandatory
• By law
• By contract
• Some provinces treat the system of “tort
compensation” for motor vehicle accidents as a
“public good” which is to be provided by through
public insurance
• British Columbia
• Manitoba
• Quebec
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• Countering the “Insurance Game”:
• Most provinces treat the system of “tort
compensation” for workplace injuries as a
“public good” which is to be provided by through
a form of public insurance – workers
compensation
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
I2 = Insurance Purchased By Insured 2
The “Insurance” Game – Impact of “credible” mandatory insurance minimums
Utility Curve For Insured 1
NASH EQUILIBRIUM
PARETO
OPTIMAL
EQUILIBRIUM
Utility Curve For Insured 2
I1 = Insurance Purchased by Insured 1
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• .
What Is Intellectual
Property?
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• Intellectual property protection attempts to
reverse the “prisoners dilemna” effect of
under supply of the “unprotected” public
good
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
Y2 = IP Produced By Agent 2
Bilateral Positive Externalities – Example: Cournot Duopoly
Both Producers Produce IP Goods Which Are Perfect Substitutes
PARETO
OPTIMAL
EQUILIBRIUM
Iso-Profit (Utility) Curve For Agent 1
NASH EQUILIBRIUM
Iso-Profit (Utility) Curve For
Agent 2
Y1 = IP Produced by Agent 1
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• Historically, governments sought to supply
public goods such as inventions and
books directly
• Romans – Aquaducts and Highways Built By The
Military
• Middle Ages – Writers, Actors and Singers Paid
directly by sponsors
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• However, economies became too big for
every public good to be supplied directly
by the government
• Laws were passed granting protection and
remedies analogous to private property
rights in land and trespass
• The “objective” is to counteract
underproduction of the “good”
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
Y2 = IP Produced By Agent 2
The “Intellectual Property” Game – Impact of “credible” intellectual property
protection
Iso-Profit Curve For Agent 1
NASH EQUILIBRIUM
PARETO
OPTIMAL
EQUILIBRIUM
Isoprofit Curve For Agent 2
Y1 = IP Produced by Agent 1
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• How do the laws operate?
• Generally, the laws assign an individual or
a corporation “exclusive” rights to make
and ultimately sell the “good”
• What does “exclusivity” mean?
• It “means” monopoly
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• .
Patents
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• The “oldest” IP
• Arose in the early seventeenth (17th)
century
• Parliamentary law – not common law
• Patents grant inventors a temporary
monopoly (twenty (20) years) over their
invention so that they can recover their
initial investment
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• What sort of things get patented?
• New inventions – Edison, Bell, Research
In Motion
• New production processes
•
•
•
•
Computer hardware
Medicines
Genetically modified plants
Not genetically modified animals
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• On Thursday, December
5, 2002, the Supreme
Court of Canada ruled the
Harvard mouse was a
higher life form and could
not be patented under
Canadian patent law.
• Canada stood alone on
this issue, after the
United States and Europe
granted Harvard patents.
•
Harvard College v. Canada
(Commissioner of Patents)
[2002] 4 S.C.R. 45
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• On May 21, 2004, the
Supreme Court of
Canada ruled against
Saskatchewan farmer,
Percy Schmieser.
• It held that U.S.
biotechnology giant,
Monsanto holding a valid
patent on a gene in its
canola seed, may control
the use of the plant.
•
Monsanto Canada Inc. v. Schmeiser,
[2004] 1 S.C.R. 902, 2004 SCC 34
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• .
Trade Marks
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• Arose in the late eighteenth (18th) century
• Both Parliamentary law and common law
apply
• Trade marks grant “permanent” rights to
owners in how they “present” their goods
and is related to “passing-off” and
counterfeiting laws
• Colour or shape of product
• Logos, names, designs
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• Mickey Mouse, like all major Disney characters, is
protected as a trade mark. Like all trade marks it lasts in
perpetuity as long as it continues to be used
commercially by its owner.
• In 1989, Disney sued three daycares in for having
Mickey Mouse and other Disney characters painted on
the walls.
• The characters were removed, and rival Universal
replaced them with Universal cartoon characters.
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• In 1997 The dance group
Aqua released a song
called “Barbie Girl”
• Mattel argued that this
constituted a trade mark
infringement against its
“iconic” toy doll “Barbie”.
Mattel filed a defamation
lawsuit against MCA
Records but lost.
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• In July 2002, Judge
Alex Kozinski (9th
Circuit) ruled that
the song was
protected as a
parody under the
U.S. First
Amendment.
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• On June 2, 2006, the
Supreme Court of
Canada upheld the
right of a restaurant
owner in Montreal to
use the “Barbie”
name when Mattel
filed a complaint
against the restaurant
with the Trademarks
Board.
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• The BARBIE doll was said by Mattel to be
an iconic figure of pop culture.
• However, the restaurants’ market was
sufficiently remote from Mattel’s toy market
to allow it the use of Barbie’s name.
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• .
Copyright
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• Arose in the early eighteenth (18th) century
• In Canada, only Parliamentary law applies
• Copyright grants rights to owners in what
they write, sing, paint, design for the
lifetime of the creator plus a further
fifty(50) years following the death of the
creator
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
•
•
•
•
•
What sort of things get copyright?
New songs – Sarah McLachlin, Nickelback
New books
Art
Other
•
•
•
•
Computer software
Medicinal instructions
The drawings and plans of architects
Lecture notes
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• Walt Disney Company's copyright on
Mickey Mouse, who made his screen
debut in a 1928 cartoon short was due to
expire in 2003.
• Rather than allow Mickey and friends to
enter the public domain, Disney and its
friends told Congress that they wanted an
extension of copyright bill passed.
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• Congress passed and
President Clinton
signed the SONNY
BONO COPYRIGHT
TERM EXTENSION
ACT into law on
October 27, 1998.
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• On January 15, 2003
the U.S. Supreme
Court upheld the
constitutionality of this
law.
• Eldred v. Ashcroft
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• In 1993, CCH Canadian
Limited, Canada Law
Book Inc. and Carswell
Thomson Professional
Publishing sued the Law
Society of Upper Canda,
claiming the Law
Society’s Great Library
not-for-profit photocopy
service infringed their
copyright in legal
publications.
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• On March 4, 2004, the Supreme Court of
Canada unanimously ruled against the
publishers.
• The Court stated
• “Research must be given a large and liberal
interpretation in order to ensure that users’ rights
are not unduly constrained” and “is not limited to
noncommercial or private contexts.”
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• SOCAN sought
permission from the
Copyright Board to
charge Internet Service
Providers (ISP) royalties
for music downloaded in
Canada from the Internet.
• SOCAN proposed the
amount and allocation of
the royalty due to the
members it represented.
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• On June 30, 2004, Binnie J., speaking for the
majority of the Supreme Court held that Internet
Service Providers (“ISP”) are not "users" at all
for purposes of the Copyright Act.
• As long as an ISP does not itself engage in acts
that relate to the content of the communication,
but confines itself to providing a "conduit" for
information communicated by others, then it
attracts no infringement liability.
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• In some cases, where an ISP has been
given notice of infringing content and failed
to respond by "taking it down," it may be
exposed for having "authorized" the
communication, but such cases will turn
on findings of fact.
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• In 2001, Heather
Robertson,
commenced a
$100,000,000.00
class action law suit
on behalf of freelance
authors against
Thomson Corp.,
Information Access
Co. and The Globe
and Mail.
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• On October 3, 2006, the Supreme Court of
Canada ruled that data bases compiled by
newspapers and other publishers cannot
simply reproduce freelance work without
the specific agreement of writers,
photographers and illustrators.
• This ruling only applies to freelancers and
not employees.
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• However, the class action must now proceed to
trial where a major issue will be whether, in
selling their work to the newspaper, freelancers
presumed that their work could end up being
used in any way the newspaper desired.
• A further issue. When does a newspaper cease
to be a newspaper and instead become an
electronic collection of searchable articles?
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• .
Infringement of
Intellectual Property?
ECONOMIC ANALYSIS OF TORT LAW
BILATERAL AGENCY
“SUPER”
Principal
= Parliament
Its “problem” is to maximize
social surplus
INTELLECTUAL
PROPERTY
AGENT 1
AGENT 2
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• In the case of perfect information the rule of
strict liability against agents of externalities is
socially optimal because it internalizes the cost
of the externality to the producer
ECONOMIC ANALYSIS OF
INTELLECTUAL PROPERTY LAW
• STRICT LIABILITY – Asymmetric
$
Information
Strict
Liability Rule
Cost of
Precaution
a1*