Private Law and Intellectual Property conference at Harvard

Opening Remarks: Henry Smith—exploring the connections
between private law and IP.
 
Session 1: Entitlement Design
Moderator: Rebecca L. Tushnet
Speakers and Papers/Commentators:
Tun-Jen Chiang, “The Paradox of IP”: A paper looking for a
theory.  Why do we have an IP system as opposed
to a prize system?  His understanding has
always been that IP systems harness private information and that gov’ts in a
prize system wouldn’t be able to value the underlying value of the right
properly, most commonly b/c judges lack adequate information to do so or judges
are too easily politicized in awarding cash prizes, while IP rights determine
value of underlying thing automatically through market calibration.  If that’s the reason we have an IP system,
then one thing in tension with that is that judges in fact calibrate the value
of the work/invention in multiple doctrinal contexts, most particularly when
they determine the scope of IP rights. 
Idea/expression dichotomy: Nichols/Learned Hand abstraction test.  How to apply? Judges have a feel for what’s
about right in scope, and work backwards to find that if a certain level of
abstraction gives too much, that’s the wrong level.
 
Patents essentially have the same problem and resolution:
patent scope doctrines of claim construction—a big mess, open-ended, which ends
up being used in a way that construes claims according to what judges feel is
about right.  But what’s about
right?  We don’t have a better answer
than intuitive judgments about the economic value of the right at stake.
 
That account makes the reason for an IP system rather than a
prize system more puzzling.  Intuitive
differences: IP system, we don’t have to get to the bottom dollar, we just take
a stab at it.  Both prize and IP systems
can be imperfect.  If you note that
judges calibrate at the edges all the time through doctrines of claim
construction or tweaking remedies or fair use, then it opens up the question of
whether they should do more. Claim construction: why be bound by whatever the
patentee writes, instead of reaching good outcomes within the parameters of the
system/incentives?  Claim construction
could be judges figuring out what the claimed invention ought to be and then
construing it by bending it the doctrine to reach that outcome.
 
Injunctions: why have a rule presuming injunctive relief
when infringement is found?  There are at
least a few cases where injunctions would overcompensate through holdup.  If you think judges are ok at tailoring, then
they should be able to deny injunctions in those situations. Much of the
traditional structure of IP is only explicable if you subscribe to the founding
premise that the IP system is designed not to have judges calibrate b/c they’re
bad at it, so we need second-order rules that say there is a thing called the
work or the invention, determined in value according to market forces.  In that view, the idea that judges should
just grant injunctions instead of ongoing royalties and that judges should
construe claims linguistically make sense to avoid fine-grained inquiry. But
judges seem to be doing all sorts of calibration under the hood, and by and large
they seem ok at it.  Fundamental dilemma.
 
Commentator: Gideon Parchomovsky: (1) IP paradox (existence
or not); (2) proper role of courts in IP space; (3) implications—should we be
worried? 
 
Chiang is right on a certain view of IP.  Basic dilemma: we are fine with courts
defining the asset in IP, where intangible assets w/unclear boundaries are at
issue.  Idea/expression, invention scope.
But many of us feel uncomfortable when courts decide how much money in dollars
should be awarded.  But defining the
scope of the asset of course indirectly determines value.  And that’s fine.  Is there a paradox?

There is a paradox only if one believes that courts shouldn’t have any say about the rewards for authors
and inventors.  A lot of people do seem
to subscribe to this view.  Either this
view is wrong or they didn’t think it through. 
Law is always prior to the market; even Coase says that.  Courts should define the asset, and only
after that can market transactions take place. 
This isn’t an IP paradox but a much more general paradox.  With Blackacre too, we need courts to
determine what interferences are reasonable or not.  Drones: is that trespass or not?  My rights are influenced by zoning laws.  Value of stock is also determined by law.
 
If you believe scope determinations are inevitable, the
question becomes much more difficult. How much leeway do we want to give
courts?  Legal Realists.  The determinations that are inevitable lie
within the competence realm of courts. 
Claim construction as an example. 
As long as judicial decisions are reasonably predictable, that
works.  Judges are better at scope than
evaluating assets overall.
 
Does it matter? 
Matters for pricing function. 
W/in a certain range, there’s enough determinacy to function.  Insurance cos. have a very hard time
calculating the value of patents; it’s not just scope but novelty, obviousness,
survival through litigation.  We also
need to worry about adequate incentives to create.  Chiang leaves room for optimism—there are
still incentives to produce.
 
Oskar Liivak, “Private Law and the Future of Patents”: Problem
of excessive system costs. The costs of engaging with the system is too much to
produce gains.  Odd if we’re trying to
provide a reward for inventors.  Dickens,
1850: A Poor Man’s Take of a Patent; shows up in Steinbeck’s East of Eden as
well.  Private law is attractive:
property, contract, and tort—accepted and stable; low administrative costs;
cheap to operate—something that patent is not (accepted and stable).  Generally speaking, people abide by their
duties, but litigation is on the margins. 
Patents: everything is in the shadow of litigation. 
 
Are patents private law? 
No: empirically. They’re just not accepted and stable like these other
institutions of property, contract, and tort. Does the public feel an
obligation to obey? No.  Could patent be
private law?
 
Patent theory is incompatible with becoming private
law.  Sichelman said the same thing about
remedies.  His solution is to rid us of
private law concepts to become consistent. 
Worried that we won’t get efficiencies w/o private law, so suggests
getting rid of dominant patent theory and build something compatible with
private law.
 
What makes private law special?  Purpose: enable socially beneficial activity;
allow coordination of activity.  Structure: duties to avoid harming
others.  System of rules.  Criteria for efficient operation: we can
comprehend our duties (H. Smith on information costs and modularity); we feel
an obligation to obey.  HLA Hart’s
discussion of the internal viewpoint on an institution; less worry about
litigation and more about what one ought to do. Systems become cheap to operate
under those conditions.
 
Dominant patent theory: purpose, promote progress in useful
arts. Structure: provide incentives to induce activity. Patents are a reward to
patentees subsidized by those that infringe. 
Once you set up the world this way we’re in trouble from a private law
perspective. 
 
Duties: pay patentee whenever infringing; no real sense of
harm to patentee.  Criteria for smooth
operation: can we comprehend when to pay? No. Do we feel an obligation to pay?
No. Only obliged by litigation (risk).
 
What to do? Think about getting away from incentives. Private
law does incentivize through property, but it’s generally not by telling people
to produce/telling us it’s there for ensuring property owners they’ll make
money. Get away from the idea of subsidy. 
Ask what we want to have in the world: what interactions, coordination
behavior?  Once we think that way—what could
third parties do to harm a business model—we start moving towards something
better.  Don’t do things to harm people
trying to supply their tech to other users. 
We could comprehend what to avoid (people who are
commercializing/transferring tech) and what causes harm (copying).  Could even tell a story about what’s wrong
with a complete defense for independent inventions.  Could feel an obligation—a regular business
interaction, not just misappropriation. 
 
Purpose of judiciary: What do judges think they’re
doing?  Learned Hand: We don’t see how
our decisions ultimately affect the end result, levels of innovation. No
internal viewpoint, just reward system that no one has a good feel for.  Missing essential characteristics to make it
easy/efficient to operate.  Not
necessarily morality but acceptance of what harms to avoid; if the tech
community could understand it, so could judges.
 
Commentator: Adam Mossoff: Failure of fit between a lot of
the way we theorize the patent system as a public regulatory system that
pursues economic goals by subsidizing innovation versus what we see in
operation, a private law type structure. 
Two points: 19th century; empirical claims.
 
Shifting to a focus on market transactions as a proposal: in
talking to people who work in the innovation industries, this is their
perspective, but also doctrinally on to something, b/c many courts
conceptualized patents in the 19th c. this way, which led to patent
licensing market.  Common to hear in
American/British system discussion of monopolies; this is true in the same
sense that American political system came from Britain: came from it, but also
broke from it.  So too w/patents.  British patent system was economic regulatory
system, first to file; not viewed as property rights in England. A patent was a
personal monopoly privilege; couldn’t be transferred.  James Watt was an academic researcher, but he
had to find a business person to work with when he got a patent; he couldn’t
just sell it.
 
US broke w/that approach; first to invent, but more
importantly recognized patent as property, bringing a normative structure to
thinking about patent. History has a lot of policy dispute; you can find judges
who say otherwise in the 19th c., but the majority rule is courts
citing to property doctrines in patent cases. They did this when they dealt
w/commercialization in the marketplace: they say “we are not like England.”  This wasn’t a matter of remedies (not
primarily); about the ability to frame conceptually w/ability to use normative
principles—the right to use, the right to dispose of the right. A private
ordering presumption.  Adopted common law
concepts of assignments and licensing. 
As a result, economic historians say, there’s an explosion in economic
activity involving patents.  Apple
licenses its patents actively.
 
Too much myopic focus on litigation; we do this b/c we are
lawyers, most of us w/litigation backgrounds rather than transactional;
litigation is also public, not behind the scenes.  But there’s a huge amount of transaction/licensing.  Talking about breakdown of patent system w/o
considering existing market transactions is armchair empiricism; benefits to
patent owners exist under the current system. 
Patents contribute $6 trillion to the US economy through transactions,
licensing.  That’s the denominator
against which to measure the costs.  Get
into empirical side.  Lots of empirical
work: patents double your chances of getting startup funding.
 
Molly S. Van Houweling, “Disciplining the Dead Hand of
Copyright: Durational Limits on Remote Control Property”: Connections b/t
tangible property law and copyrights. 
Blackacre and Black Beauty. 
Controversial endeavor: Lemley argues against propertization of IP;
Mossof argues for.  Peter Menell has
expressed skepticism; Liivak has said that it too often corresponds w/patent
absolutism.  Michael Carrier: property
has lots of limits, edge cases, complications as compared to the monolithic
version often presented as “property” when it comes to IP; we can learn from
property’s limits.
 
Conventional wisdom differentiates Blackacre and Black
Beauty in time b/c tangible property rights can be infinite while constitution
requires IP rights to be limited.  Why
might that be?  The special nature of ©
as a prohibition of conduct remote from the persons or tangibles of the party
having the right. May be infringed a thousand miles from the owner w/o his
awareness, ever. This right couldn’t be recognized or endured for more than a
limited time: from White-Smith v. Apollo. 
Remote control property over time makes us particularly nervous.
 
Why?  Special notice
problems.  Don’t have notice helpers as
we do w/traditional tangibles—owner on the land; fence in front of the owner;
limits don’t have to do w/boundary crossings but w/use limits, more confusing
than conventional non-remote control property rights. Interferes w/ basic
intuitions about what we can do as owners of tangible things.  Problems can get worse over time as we lose
track of the owner/the way they wanted to limit use.
 
Special obsolescence problems. Non-possessory rights are
especially likely to become out of date. 
Difficulty of finding absent owner to renegotiate. Non-possessory rights
can be fragmented and overlapping.
 
And yet: expanding duration of copyright makes it
not-so-limited.  Perpetual copyright on
the installment plan; some copyright enthusiasts want it to be infinite—unfair disadvantage
v. other property owners.  What skeptics
and enthusiasts share is idea that there is a fundamental difference between
permanent property rights and “limited times.” But problems of remote control
property plague tangible property as well, and therefore we see duration limits
in the tangible realm.  Rule against
perpetuities; ex ante durational limits for servitudes and future interests;
periodic recording requirements for servitudes and future interests; ex post
termination/modification of servitudes and future interests; adverse
possession; statutes of limitations.  Note
the ones that operate on nonpossessory interests like servitudes and future
interests especially.  Prohibition remote
from the persons or tangibles of the party having the right, as in
White-Smith.  Recognition in tangible
property that this can become problematic—Md. legislature notes change of conditions
in restricted tract or neighborhood surrounding it—the usefulness of many
reversionary interests vanishes.  Not
practical to obtain releases b/c owners are numerous and scattered—similar to orphan
works and other duration problems.  “Dead
hand”—owners do exist, but they are unfindable/too many—they might as well be
dead.
 
So some states have ex ante duration limits on restrictive
future interests: 30 years in Md. 
Another solution is periodic recording requirements for nonpossessory
interests in order to make them trackable/provide adequate notice. Cal.
approach.  Ex post termination of
obsolete restrictions—Mass. approach, must provide substantial benefit to a
person claiming rights of enforcement at the time rights are asserted.  Obsolescence can also lead to remedial
adjustment—remedy is damages and not injunction.
 
Bringing this home to ©: think about how we might use some
of those tools from tangible property to address the problems in © with
increasing duration/obsolescence/changed conditions.  Google Book Search: a © that seemed valuable
initially now just threatens to lock up works that could be put to beneficial
uses.  Paul Heald’s
work showing the power of © to keep books out of print
, likely against the
wishes of the authors themselves. 
Reinforces other suggestions such as recording requirements (Sprigman
etc.) and scope adjustments (fair use over time) and remedial adjustments
(Copyright Office orphan works proposals). 
© is problematic private law, but a lot of the heartland of private law
is also problematic—servitudes. 
Copyright reform in the private law tradition.
 
Commentator: Julie Cohen: Private law skeptic.  Framework bleeds through, intentionally or
not.  VH’s project is to find firm
analogical footing for temporal limits on ©, and is persuaded that time
is/could be relevant lever for tailoring. But not sure analogy proves very much
about how relation b/t © and time should work. Some of the rules VH examines,
including Rule Against Perpetuities—it’s pretty clear that the real property
system worries about dead hand control, but not clear how that cuts. Both in
original formulation and various modern formulations, rule is supposed to
provide balance by allowing 2 generations of control but not much more. That’s
exactly why Congress lengthened the term—the same accommodation.
 
Servitudes: problem is more fundamental/revealing limits of
private law project.  Remote control of
chattels embodying © works and uses. But servitudes aren’t nearly as disfavored
as the paper presents them. They aren’t just vehicles for remote control by
atomistic isolated owners; they’re powerful, flexible vehicles for communal
ordering—create residential neighborhoods, commercial development (anchor
tenants), and for exactly those reasons the thrust of the Restatement is
greater liberalization for CCRs, noncompete covenants for shopping centers; get
increasingly favorable treatment over time. Offer tools for ordering that cut
across atomism of traditional real property: collective benefits, collective
externalities. So why is the paper taking an atomistic view of servitudes?  Is it the private law methodology/toolkit
inherently atomistic, emphasizing clear boundaries and transactions rather than
communal ordering. That atomistic orientation is particularly problematic for
understanding servitudes and for understanding IP.
 
IP is the subject of pervasive intermediation:
intermediaries manage all the fractional and cumulative uses; also the
production of tangibles & intangibles related to IP involves lots of
intermediaries—publishers, movie studios, tech employers—they are production
intermediaries. Layers of intermediation embedded in systems of IP production
and dissemination. From an institutional POV that means that legal institutions
need to be able to manage problems of access for cumulative/fractional use and
they need to constrain the intermediaries in some way.
 
Time could be important in designing such institutions,
particularly for orphan works.  Even so
worries about remote control/dead hand don’t get us far into the institutional
design questions.  Study IP directly w/o
a filter needing analogies. 
 
RT: The theme I extracted from these three: Anything that
can’t go on forever, won’t.
Liivak says; For the most part these institutions are
self-enforcing. The stake-holders participating in these institutions know
their rights and duties and they largely abide by them.
[How do we know that? Counterexamples. Property: mortgages.
Contract: consumer contracts. Do you know if your cable provider is complying
with its contract with you?  Tort:
medical mistakes that cause harm)
 
Van Houweling: consider servitudes—they don’t work as well
as other parts of property law, but we don’t reject them.  Question raised is whether it’s worth the
candle in patent law. Our current system fars fall short of dealing
w/pathologies in the way servitude law has evolved, by requiring proper notice
for example as well as durational limits.
 
Henry Smith: Is this all about the difficulty of asset
definition?  Calibration: trespass is a
first cut, nuisance is a refinement. 
All-nuisance, all-use all the time world would be pretty difficult (but
is the world we have in IP?).  Maybe the
reason it seems like a paradox is that we aren’t clear on what the resource is
in the first place.  Servitudes: we have
remote control, but also incomplete separation too. We don’t allow many
servitudes on personal property, but at least we know what the property
is.  More like water law—can’t go as far
in defining.
 
Chiang: In every area of property we have a problem of asset
definition—always has implications for value. We don’t have a well-theorized
second-order rule or methodology to do asset definition, whereas in tangible
property law we might not have a complete,
gapless, ambiguity free rule, but it’s more tethered to first-order intuitions
about the underlying asset value. Trespass isn’t defined by the worth of the
property, though nuisance has more of that flavor, but still less than © or
patent.  To the extent that asset
definition falls back on first order intuitions that’s about asset value, that’s
a circular definition.
 
Van Houweling: yes, we’re all getting at a problem of asset
definition.  Chiang’s paper prompted
recognition of tangible property cases w/ such problems—mistaken boundary
claims, Manilo v. Gorski; no injunction to make encroaching building be torn
down, but calculate damages instead. Upsets the idea that there’s a paradox b/t
clear rules and private ordering v. judges having to do valuation on occasion.
Q is whether it’s rare or endemic in a way that makes it a paradox.
 
Ted Sichelman: I try to show that if we adhere to a private
law framework we don’t promote innovation optimally.  Multicomponent products, independent
inventions—we care differently about notice costs, clear boundaries.  If we try to move from regulatory system
(theory and goal) to private property focus we’ll have a mismatch.  Other situations, private property works
quite well; just b/c you have a regulatory goal doesn’t mean you can’t use
private property and private law to promote that goal. Don’t think it’s all or
nothing.  Wanting everything to look neat
and tidy = mismatch.
 
Liivak: we might well agree on doctrinal details.  Worry that framing affects analysis.  Independent invention might be a good test—if
a private law view has the flexibility you’re interested in, maybe I can
convince you.
 
David Kappos: You’re looking for a system to help people
understand patent boundaries better. ECJ & German courts have been working
on this in standard-essential patents, setting forth a rubric requiring the
patentee to make a clear offer of a reasonable royalty license.  The erstwhile licensee must respond clearly;
if there’s not agreement, the potential licensee is required to post a bond and
there’s a resolution path.  Does that
shine a light to further clarify property rights?
 
Liivak: sounds very interesting.  Maybe it was implied, but I think there’s an
important distinction b/t ex ante and ex post licensing—when you have tech you
haven’t independently invented, I’m all for such negotiations. If it’s instead
allowing or preferring ex post licensing where the patentee looks around at the
world to find payors, I’m less sympathetic—don’t see social benefits.  Any distinction b/t ex ante and ex post,
putting thumb on scale for real tech transfer, would be good.

Rachel Sachs: In terms of needing a reason to get rid of the dominant theory in
patent law—why do we want this to look more like private law? Is there a
fundamental flaw in the theory?  Is it
just expense? Can private law do it better for some reason?  Is there an overlapping consensus, and is it
clearly cheaper to do that under private law? 
Maybe we don’t feel obligation to IP b/c it makes lawbreakers of us all,
but if IP is an essential human right, that might matter.
 
Liivak: I start out talking about system costs, but we need
more reason than that.  Before we get to
tailoring, we have the bigger Q: how much innovation do we need compared to
other activities; dominant theory is premised on knowing a certain number that’s
unknowable v. shoe stores or Thai restaurants. We don’t need to know if we go
to the private law model and set up a neutral platform for those who
innovate.  (If the rest of the economy is
efficient.)  Rather than IP
exceptionalism where we distort markets, think of it as neutral platform and
don’t try to maximize innovation v. other things.
 
If you take reward theory seriously, your first go round has
to be ok with trolls. They’re just collecting the promised rewards, including
from independent inventors.  That theory
has come up short on the ground.
 
Van Houweling: linked to Cohen’s point: why look at system
costs adjustment and why not challenge the system if we’re not getting the
benefits of community from real property servitudes.  Likewise, remote control rights do assist in
coordination/long term planning v. author only owns rights in manuscript. Doesn’t
prove system is worth its costs; what we certainly shouldn’t have is the
pathological system without any of the
tools used to moderate the problems.
 
Brett Frischmann: For Chiang: Demand manifestation in systems
driving allocation of resources—ex ante investment decisions are the core of
patent; we can tolerate some ex post errors if ex ante is driving most
decisions.  For Liivak: duty to obey in
private law—empirically needs verification. 
Dave Hoffman on how different generations approach contract differently;
if the premise is wrong, that pulls the rug out from the project.  If you’re going to do private v. public law
or the hybrids, you have to do comparative institutional analysis.  Why do you want the alternative model you
advocate?  Just saying the end is “innovation”—what
does that mean?  What the normative
objective is and the means.
 
Chiang: Literature on patents v. prizes begins w/ the valuation
issue—not the whole story but the first cut. 
As for systematic point, yes but I’m not sure it provides an answer in
that both patents and prizes are about systematic overall incentives rather
than individual fine tailoring.  Doesn’t
matter if courts get it wrong in one particular prize or patent as long as
there’s no systematic error.
 
Jonathan Barnett: You’ll never find a Delaware or NY or English
judge deciding what the damages are unilaterally; typically they’re what the
parties said in the contract, or expectations with a market benchmark.  If we take that back to patent, it seems like
something similar is happening there. Hard to get a market benchmark for claim
construction, but for damages, we want to look at how the market is valuing
that right b/c a patent is simply a way to allocate intellectual resources into
IP modules, so damages try to replicate the transaction that would have
occurred—either through reasonable royalty or injunction. With contract, judges
choose specific performance when there is no benchmark and they want the
parties to negotiate/reveal value through that exercise. 
 
What happens when you go to monetary damages in patent—your market
benchmark becomes less accurate b/c there isn’t a rich market any more for
those patent assets.  That’s why
injunctions are valuable.
 
Chiang: that’s one side. One wrinkle: it only works in
contract b/c you have a second order methodology for asset definition that
doesn’t depend on valuation.  We think it’s
improper for the court to say the plaintiff made a huge contribution so I will
construe the contract in a way that expands defendant’s obligations to the
plaintiff.
 
Liivak: for Frischmann: trying to focus on tech transfer—that’s
the basic definition of innovation. Wants to build that theory around
micro-transactions. 
 
Patrick Goold: Idea that private law is cheaper—we had the
same debate in 1980s torts about private litigation or regulation. The idea was
that regulation would be cheaper b/c litigation was so expensive—Sugarman said “do
away with tort system.”  Main critique is
that when self-enforcement does break down, litigation costs were massive.  Would amplify that in patent where the costs
are already great.
 
Greg Vetter: How open would Liivak be to technological
tailoring/less uniformity if the resource at issue will never work very well as
a property right.  E.g., software only
for ©, not patentable.
 
Oren Bracha: Theme in the papers: “property is a neutral
platform”—for Bracha that’s like saying the earth is flat.  Property is not neutral; it is a high-stakes
system for allocating resources, power, and power backed with the coercive
power of the state behind it.  Requires
substantive justification, which might be different across us—natural rights,
efficiency, something else. You can’t just take a characteristic of property
and call it neutral.
 
Michael Meurer: For Liivak: put some discussion of citation
practice by scientists in this paper. Seems we have a private legal system
there that works reasonably well; scholars rely on scientists citing people
they should cite; the comparison has been drawn.
 
Van Houweling: property isn’t a neutral platform and it can’t
just be wound up and left to run; property system intervenes to correct
pathologies.
 
Liivak: He’s not saying property is neutral, just better
than what we have, and he should be more careful about his distinctions.

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