Notice and Notice Failure in Intellectual Property Law at BU, keynote

Boston University School of Law
 
Welcome and introduction: Dean Maureen O’Roarke
New clinic w/MIT—representing MIT students who need legal/IP
help.  Searching for an exec. director now—encourages
applications.
 
Stacey Dogan: Meurer & James Besson’s book on patents: pointed
out that patent lacked clear boundaries as real property has; making true
owners costly/impossible to identify. 
This conference focuses on notice issues across IP topics. 
 
Michael Meurer – Bargaining Failure and Failure to Bargain
Tom Brady was a victim of notice failure, according to the
judge who overturned the suspension imposed by the NFL for Deflategate. 
 
Wants to distinguish between bargaining failure and failure
to bargain ex ante.  In law &
economics we think a lot about why people who have a dispute fail to do the
efficient thing, which is stay out of the courtroom.  Should we reform IP law to encourage early
bargaining? 
 
Betamax example: ex ante patent cross-license; developed
Betamax machine; then ex post copyright litigation. Why not resolve the
copyright dispute ex ante?  Sony could
have made commercial skipping difficult; omitted recording feature.  Macrovision could have been introduced early
on; introduced later.  Not suggesting
this would have maximized joint value, but just that there was no opportunity
for bargaining early on. Maybe they could have avoided a standards war between
VHS and Betamax; hastened pre-recorded movie market for sale or rental.  Hollywood was cooperating with videodisc
manufacturers at the time to make titles available.
 
Sony knew where to find Hollywood just as they knew where to
find Matshusita or Philips.  Why didn’t
they go bargain with © owners as with patent owners?  Network effects favor early and rapid growth
of market share.  Plaintiff side free
rider problem might diminish threat of © lawsuit.  It will take those guys a while to get their
act together.  Reason for © owners to
wait and have someone else shoulder the burden of providing the “public good”
of new law favorable to © owners. Defendant-side free rider problem too—Sony would
rather wait for Matshusita etc. 
 
Antecommons problem for Hollywood: several different parties
could veto sale of Betamax; could recognize that Sony wouldn’t want to bargain
one by one.  Did execs believe Betamax
would work, be accepted by consumers, and create a significant infringement
problem? Early bargains are rare b/c © owners see lots of starry-eyed
entrepreneurs who think they have the next big thing.
 
What changes in the law could have nudged parties toward
early bargaining?  [I’m still not clear
on why we would want to do that, especially if ‘we’ are happy with the outcome
of Sony, which did after all provide
a public good.  There are positive
externalities as well as costs to litigation.] Antitrust safe harbor for joint
litigation and settlement negotiation on either side?  Adjust remedies to reward early
bargaining?  Private ordering: ASCAP for
video.
 
Descriptively: what causes IP litigation? Bargaining
failure; also failure to bargain ex ante. 
Bargaining failure results from three asymmetries: asymmetric stakes (most
important factor in patents: pharma and generics—pure bargaining failure; not
much failure to bargain, because notice is super clear and early bargaining is
easy—under Hatch-Waxman); asymmetric information (law & econ people think
this is where most of the action is in terms of causes of litigation: asymmetric
knowledge of info relevant to validity, value, design-around cost); asymmetric process
(credible threat to impose big costs on defendant).
 
Failure to bargain ex ante: hidden patents, design patents,
trade dress. Do the parties find each other? 
Search by IP users—but there’s a numbers problem/strangers out
there.  IP owners may hide or publicize
their rights; neither side necessarily has good info and either side could invest
in search and possibly match.  Old-style
Lemelson submarine patents are still possible in the design patent
context.  In utility patents: can change
language as a patent is pending.  Trade
dress: we don’t require registration to get TM rights.  Secondary meaning requirement is some limit
(for product design)—the law is imposing an obligation on rights owners to
publicize their product with the associated trade dress.  Rounded edges of smartphone would require
secondary meaning—but not with design patent. TM pushes to the bargaining table
by letting people know the counterpart exists, but not design patent.  Patents & design patents have numbers
problems.  In patent lawsuits, about ¼ time,
parties in dispute aren’t really in the same industry—strangers. Compare
nuisance: your neighbors are the ones who will sue, not strangers.  Numbers and low quality compound the other
issues; discourages search intensity.
 
IP owners sometimes have incentives to publicize rights: If
I want to be bought out by Cisco or Johnson & Johnson.  Other patent owners have no technology as
such, only a veto right. They want to use that veto right for post-investment
decisions by IP users: the holdup problem. 
The related tactics lead them to hide their rights.
 
Preference for ex post bargaining: Sony, Disney, and
Universal could have found each other. 
Failure to bargain wasn’t a failure to match. 
 
If we understand the causes of IP litigation: standard
models say that if the size of the stakes increase relative to litigation cost,
you get more bargaining failure. If you instead think of failure to bargain,
the reverse would be true. My incentive to search goes up if the stakes of
litigation go up.  Possible to look to
see what kind of litigation we actually have.
 
Number of IP rights: as number of patents goes up, shouldn’t
impact number of lawsuits per patent (bargaining failure) but increases failure
to bargain.
 
Chose this topic b/c frustrated with tone of patent reform
debate.  Litigation explosion was not
about trolls; explosion predates significant troll activity.  Trolls are bad b/c raise tax caused by patent
law/litigation. But even without them there’d be too much patent litigation.  Bottom feeder trolls are mostly cases of
bargaining failure. Chem/pharma: no explosion, not much failure to
bargain.  Other industries probably both
bargaining failure and failure to bargain. 
So we should think about core patent form, not just procedural reform.
 
Normatively: need to convince you there’s a benefit to early
bargaining; need incentives to bargain in good faith; incentive to publicize IP
rights and ownership; incentive to search for IP rights and their owners.
Compare what private parties do to what some social planner would do—do private
decisionmakers fully internalize the gains & costs a social planner would
recognize? Where there’s a divergence, may need intervention to encourage
increased search/early bargaining.
 
Early bargaining: avoids holdup costs, especially w/r/t/
standard-setting organizations. Want to encourage intermediaries and
aggregators to work with IP owners on © and TM. 
There’s no benefit from early bargaining to the IP owner who only wants
to exclude.  W/a bargain, also, each side
only captures some of the benefit of the match—a double moral hazard that
decreases the incentive to invest in search.
 
User: too much or too little search?  Too much search through private pursuit of
stronger bargaining position.  Too little
search is more common: innovator doesn’t appropriate full social value from
joint creation (double moral hazard). So we need public investment to make
search easier; transparency to make search easier; fewer IP rights—each IP
right generates notice externalities: burden of greater future search costs on
others.
 
Policy levers: make injunctions contingent; aggregator
liability can be affected by law of indirect infringement/safe harbors;
declaratory judgment
 
Keynote response, Honorable William G. Young, U.S. District
Court, District of Massachusetts
Almost impossible to overstate importance of notice &
study of notice.  In the wake of Twombly/Iqbal, problems of notice are
vitally important.
 
Bargaining in good faith is good, but it is not a good.  He would consider antitrust more of a problem
in this area. If you think you can get safe harbors, Congress will be the
entity to do that after Actavis.  Maybe we ought to take more account of
innocent infringement. Academics have the right and duty to express views about
what the law should be.  However, must
also keep in mind that jurors and judges rely on the parties to give them the
facts.
 
Calibrating remedies to bargaining/penalizing those who
reject early bargains—opposed to that as a policy matter. Cost and delay are
the real problems of adjudication today—including mediation, and TTAB, and PTAB,
and all our other ways to resolve disputes. 
Don’t build in anything to make it worse, like a bargaining component.  Requiring bargains also is destructive of
personal/property rights: if he doesn’t have to bargain, he can choose not to
do so. 
 
Need nuanced view of litigation—not as ultimately leading to
trials, appeals.  In 38 years as a judge,
we have utterly deconstructed the role of the trial judge and turned his role into
an administrator of dispute resolution. The institutional judiciary is not much
interested in trials. 

Bargaining is good, but bargaining is itself not evidence of good faith.
Bargaining to what end?
 
1/3 of pending cases are subject to multidistrict litigation
orders, like a roach motel.  Cases go in
but none come out.  The system
overemphasizes settling.  If you’re never
going to get actual legal review, bargaining takes on a whole different context
and economic power tends to predominate.
 
Mark Lemley: Meurer seems to be of the view that it’s better
to seek permission than forgiveness, but the adage is the reverse for a
reason.  Suppose we had in fact had ex
ante bargaining with © and Sony: we would never have had a VCR with a record
button. The evidence comes from subsequent contexts with ex ante bargaining
w/Hollywood for new digital music/video services. They all fail. The only ones
that succeed launch first and resolve disputes after.  His preferred framework seems to presuppose
both a legitimate number and scope of rights, and that’s not the world we live
in for either © or patent.  To say “bargain”
puts the cart before the horse; efficient ex ante bargaining requires reasonable
number and scope. In second-best world we might not be best off encouraging
bargaining ex ante.
 
Meurer: fair points. 
I was being an economist and assuming that rational people would bargain.
But optimistic that people if they do meet early will often find ways to create
value.  Despite what Valenti said,
Hollywood was already seeing the viability of getting titles onto videodisc;
might have found it mutually beneficial to speed the tech. But we might not
have gotten the record button initially; somehow that would come along.  (RT: Through someone acting and then waiting
to be sued, I take it?)  Consumers would
want to make copies of their wedding videos.  
 
Oren Bracha:  One kind
of notice failure is whether something is w/in patent entitlement; another kind
is whether there is an IP right or whether there’s an owner.  Betamax is about notice failure about the
law. Not a matching problem. Other examples are about both legal entitlement
and more factual details.  Another
positive externality that we lose if we push people to bargain is that a court
of law tells us what the law is!  W/o Sony we wouldn’t have a record button,
and we also wouldn’t have Sony v.
Universal
’s rule.
 
Meurer: Yes, I acknowledge there are tradeoffs, and law is a
public good. It’s underprovided b/c it’s a public good; yes, I am advocating further
discouraging some of that. Maybe it wouldn’t have been so bad, given that Euro.
jurisdictions were also litigating the issue. 
Euro. courts found that the Betamax was infringing, so be mindful of
that.  In the American arena particularly,
we should have less litigation/earlier bargaining.  (And deprive the world of the American
example?)
 
Notice means many different things in the law.  Failure to bargain/bargaining failure as
distinct varieties.
 
Wendy Gordon: many property rights have conditions.  Why not have a condition that the right be
exercised in a socially beneficial way, which might include a bargaining
requirement if we so decided?
 
Judge Young: true, he was trying to characterize what he
understands as our system.
 
Bob Bone: Having a bit of trouble distinguishing bargaining
failure and failure to bargain. Understands the matching problem—but once I
find a match, there are reasons I might have not to bargain with a party, or
not to reach an agreement when we’re at the table, and he’s not sure there are
differences between them.  Trolls are a
special problem; we handle it as a targeted issue. Then, it’s not clear that it’s
more efficient to tinker to create search incentives ex ante versus allowing ex
post rights assertion. If it’s more efficient to have ex ante search, that will
be so contingent on context he’s not sure we can say general things about it.
 
Meurer: He’s working on the generalities issue.  When I’m sued, I know I’ve matched.  Bargaining failure thus involves no matching
problem.  But matching is a pervasive
problem in patent law, predating the appearance of trolls.

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