The accession insight and patent infringement remedies.

• Author: Lee, Peter

What is the appropriate allocation of rights and obligations when one party, without authorization, substantially improves the property of another? According to the doctrine of accession, a good faith improver may take title to such improved property, subject to compensating the original owner for the value of the source materials. While shifting title to a converter seems like a remarkable remedy, this outcome merely underscores the equitable nature of accession, which aims for fair allocation of property rights and compensation between two parties who both have plausible claims to an improved asset.

This Article draws upon accession--a physical property doctrine with roots in Roman civil law--to enhance patent law's treatment of technological improvement. While patents and property exhibit significant differences, this Article argues that accession--with some modification--can provide valuable guidance for allocating rights and obligations when an infringer substantially improves on another party's patented technology. Drawing on the Supreme Court's decision in eBay v. MercExchange, it proposes that courts apply accession in equitable determinations to deny injunctive relief and compel "substantially improving" infringers to compensate patentees through ongoing royalties. Accession would thus shift meaningful ownership of enhanced technologies to improvers based in part on their substantial contributions to those technologies. Such liability-rule protection would ameliorate holdup in "blocking patents" scenarios, provide a viable alternative to the rarely used reverse doctrine of equivalents, and encourage the dissemination of improved technologies. While this proposal seems radical, this Article shows that elements of the "accession insight" already appear in eBay and its progeny. The Article concludes by exploring the theoretical implications of accession for the intersection of patents and property.

TABLE OF CONTENTS INTRODUCTION I. PATENT LAW'S TREATMENT OF TECHNOLOGICAL IMPROVEMENT A. The Framework in Theory B. The Framework in Practice II. PATENTS AS PROPERTY A. Exclusive Rights over Productive Resources B. eBay v. MercExchange III. ACCESSION A. Accession Generally B. Accession and Intellectual Property IV. APPLYING ACCESSION DOCTRINE TO PATENT INFRINGEMENT REMEDIES A. The Proposal 1. Mental State 2. Integrating the Accession Insight within the eBay Analysis 3. Facilitating Appropriate Compensation 4. Illustrative Examples B. Consistency with Recent Jurisprudence V. ADVANTAGES, OBJECTIONS, AND RESPONSES A. Advantages 1. Encouraging Technological Improvement 2. Promoting Private Ordering 3. Realizing the Promise of Prospect Theory 4. Advancing Fairness B. Objections and Responses 1. Disrupting Settled Expectations 2. Identifying Substantial Improvements and Calculating an Ongoing Royalty 3. Increasing Incentives to Infringe for Improvers 4. Decreasing Incentives to Invent for Pioneers VI. THEORETICAL IMPLICATIONS A. Adapting the Principles of the Reverse Doctrine of Equivalents B. Patents as Property Revisited CONCLUSION INTRODUCTION

George Wetherbee probably thought he had a pretty good deal. Relying on a seemingly valid license, he chopped down $25 worth of trees on land owned by another party and used the lumber to make barrel hoops valued at about $700. (1) Unfortunately, Wetherbee's license was faulty, and the true owners of the trees sued for return of the hoops derived from their wood. (2) At trial, Wetherbee argued to keep the hoops, testifying that he had acted in good faith while significantly enhancing the value of the underlying lumber. The trial court excluded this testimony and entered judgment for the plaintiffs. However, the Supreme Court of Michigan reversed on appeal. (3) Invoking the doctrine of accession, the court observed, "[I]f a thing is changed into a different species, as by making wine out of another's grapes ... the product belongs to the new operator, who is only to make satisfaction to the former proprietor for the material converted." (4) Applying accession, the court held that if Wetherbee had acted in good faith and substantially transformed the underlying wood, title to the hoops would transfer to Wetherbee as long as he compensated the original owners for the value of the source materials. (5)

While George Wetherbee's story is real, now consider the hypothetical story of his fictitious great-great-granddaughter, Dr. Georgiana Wetherbee. Dr. Wetherbee is an engineer who invents and patents a revolutionary new battery. After Dr. Wetherbee has invested in personnel and equipment to start large-scale production of her battery, a firm sues her for patent infringement. It turns out that Dr. Wetherbee's patented invention literally infringes the broad, "genus" claims of a prior patent covering an older battery design. Given the existence of a "blocking patent," (6) Dr. Wetherbee and the firm attempt to negotiate a license to allow Dr. Wetherbee to manufacture the improved battery. However, high transaction costs, distrust between the parties, and the firm's desire to extract as much surplus as possible derail negotiations. The firm presses on with its infringement suit, threatening to obtain and enforce an injunction against Dr. Wetherbee unless she pays an exorbitantly high licensing fee. In the meantime, the improved battery sits in limbo, and the prospects for commercializing it grow dim.

Although these two examples are distinguishable on many grounds, they nevertheless revolve around a central question: What is the appropriate allocation of rights and obligations when one party, without authorization, substantially improves the property of another? In the physical property realm, (7) this question informs a curious line of cases involving individuals who improve other people's chattels and parties who build houses on other people's land. (8) In the patent sphere, this question is critical to technological improvement, particularly to instances in which a substantial technological advance infringes an existing patent. While these situations are quite distinct, this Article argues that physical property doctrine provides insightful guidance for enhancing patent law's treatment of technological improvement.

Patent law has a complicated relationship with property. While numerous authorities have long recognized conceptual similarities between patents and physical property, (9) scholars have consistently questioned this comparison. (10) An important Supreme Court case dealing with patent infringement remedies has further complicated the landscape. In eBay Inc. v. MercExchange, L.L.C., the Supreme Court first affirmed a conception of patents as property and then clarified that "the creation of a [property] right is distinct from the provision of remedies for violations of that right." (11) Thus, the Court implicitly acknowledged that protecting a property right did not necessarily require a property rule, which is characterized by injunctive relief. (12) In so doing, the Court rejected a per se rule favoring injunctions and established a multifactor, equitable framework for determining the appropriateness of injunctive relief following a finding of patent infringement. (13) As a corollary, the Court opened the door to protecting patents with a liability rule, which is characterized in this context by allowing continued infringement contingent on the defendant paying ongoing royalties to the patentee.

This Article builds on eBay to show how traditional property principles can illuminate a more fruitful approach to technological improvement in patent law. This Article fully acknowledges that the analogy between patents and physical property is not perfect. Rather than reject it wholesale, however, this Article explores a specific context in which the analogy is surprisingly helpful. (14) In particular, it argues that the traditional doctrine of accession provides valuable insight for determining remedies when a new technology substantially improves on but infringes an existing patent. Working within the eBay framework, this Article proposes that courts apply accession principles--with some modification (15)--to deny injunctive relief in cases in which an infringing product substantially improves on a patented invention. Rather, courts should compel the infringer to compensate the patentee through ongoing royalties. Drawing on concepts from physical property law, this Article argues that when a substantially improved technology infringes a patent, courts should protect that patent with a liability rule rather than a property rule.

In offering this proposal, this Article draws on (and, in some cases, challenges) previous scholarly applications of accession to intellectual property, (16) including the application of accession to inform patent infringement remedies. (17) While commentators emphasize the technical difficulties of protecting patents with liability rules, this Article finds new support for the desirability and feasibility of applying the "accession insight" in recent case law addressing patent injunctions and damages. Furthermore, it draws on theoretical and empirical work to show that liability-rule regimes may be highly conducive to private ordering between patentees and potential infringers, thus mitigating a significant objection to such modes of patent protection.

While accession takes many forms, this Article focuses on doctrines governing "mistaken improvement" of someone else's personal property. (18) Similar to Wetherbee, if A unknowingly trespasses on B's land, chops down B's trees, and fashions the resulting wood into an exquisite chair, the doctrine of accession grants title to that chair to A, subject to A's compensation of B for the raw materials. Of course, shifting title to a party who converts personal property represents an extraordinary remedy. However, this outcome merely underscores the equitable nature of accession, (19) which aims...