Forfeiting IP

• Published date: 01 March 2022
• Author: Deepa Varadarajan
• Date: 01 March 2022
• DOI: http://doi.org/10.1111/ablj.12201

American Business Law Journal

Volume 59, Issue 1, 175–226, Spring 2022

Forfeiting IP

Deepa Varadarajan*

Can IP rights be lost? That is, once IP rights are acquired, what—if anything—

must owners do to keep those rights or risk forfeiting them. The answer varies

widely across the IP landscape and has important consequences for follow-on

innovation, competition, and the public domain. This article takes the first close

look at forfeiture mechanisms throughout the five major IP regimes—utility patent,

trade secret, copyright, design patent, and trademark. I demonstrate how IP forfei-

ture mechanisms (e.g., maintenance fees, monitoring obligations, and use require-

ments) have weakened or narrowed over time. Building on prior scholarship, I

also delineate the important functions that IP forfeiture mechanisms serve. By

forcing IP owners to decide if the cost and effort of maintaining IP rights are

worthwhile, forfeiture mechanisms help eliminate low-value IP rights and enlarge

the public domain, benefiting follow-on innovators and society at large. In addi-

tion, forfeiture mechanisms serve an important notice or signaling role by forcing

owners to engage in acts that inform second comers about the existence and scope

of IP rights. These functions are particularly important when it comes to func-

tional or useful subject matter (e.g., innovations that make a product work). Given

forfeiture’s role and its problematic narrowing across the IP landscape, I suggest

the need for reform—particularly in design patent and copyright law, two areas

that increasingly cover functional subject matter but lack any forfeiture

mechanism.

*Assistant Professor of Legal Studies, Department of Risk Management and Insurance,

J. Mack Robinson College of Business, Georgia State University; Secondary Appointment,

Georgia State University College of Law. For helpful comments and conversations, I thank

Samuel Ernst, Dave Fagundes, William Gallagher, Charles Tait Graves, Camilla Hrdy, David

Levine, Aaron Perzanowski, Elizabeth Pollman, Elizabeth Rowe, Sharon Sandeen, Mike

Schuster, Shirin Sinnar, Robert Thomas, and participants at the 2021 Stanford Grey Fellows

Forum, 2021 Association of Law, Property & Society Conference, 2021 Academy of Legal

Studies in Business Conference, 2020 Trade Secret Scholars Workshop, and 2020 Law &

Society Conference. I also thank Brooke Wilner for valuable research assistance. All errors

are my own.

©2022 The Authors

American Business Law Journal ©2022 Academy of Legal Studies in Business.

175

I. INTRODUCTION

Intellectual property (IP) owners who act (or fail to act) in certain ways

can forfeit their rights. For example, if a utility patent owner stops pay-

ing maintenance fees to the U.S. Patent and Trademark Office (PTO), or

if a trade secret owner stops guarding the confidentiality of a trade

secret, the IP right ends. Forfeiture mechanisms serve important pur-

poses, including forcing an IP owner to figure out whether the ongoing

cost of maintaining an IP right is worthwhile.

1

In this way, forfeiture

mechanisms can help weed out IP rights with low private (and social)

value, thereby advancing the overall objective of the IP system: to

recognize only rights likely to generate net social benefits.

2

In general, the recognition of IP rights involves a trade-off between

social benefits and social costs. On the one hand, IP rights, such as pat-

ents and copyrights, are beneficial for society because they encourage

inventors and creators to produce socially valuable innovations and crea-

tive works.

3

On the other hand, IP rights impose social costs, including

higher prices for consumers and greater hurdles for follow-on innovators

who must pay licensing fees or engage in expensive design-around

efforts to avoid existing IP rights.

4

Indeed, the COVID-19 pandemic has

brought IP’s cost–benefit tradeoff into stark relief, as debates rage over

balancing incentives for treatment development with access to patented

1

Scholars have used the term “costly screen”to describe a “requirement that an applicant

expend some amount of money or undertake some costly activity to obtain, maintain, or

enforce a given legal right.”Christopher Buccafusco, Mark A. Lemley & Jonathan

S. Masur, Intelligent Design,68D

UKE L.J. 75, 92 (2018). See also David Fagundes & Jonathan

S. Masur, Costly Intellectual Property,65V

AND.L.REV. 677 (2012); Jonathan S. Masur, Costly

Screens and Patent Examination, 2 J. LEGAL ANALYSIS, 687 (2010).

2

Buccafusco, Lemley & Masur, supra note 1, at 87.

3

See, e.g., Jeanne C. Fromer & Mark A. Lemley, The Audience in Intellectual Property Infringe-

ment, 112 MICH.L.REV. 1251, 1256 (2014) (“The major forms of IP … look different, but

they do have at least one objective in common: they are generally concerned with the

instrumental goal of providing individuals with an incentive to create something intangible

that might otherwise be easily appropriated.”).

4

See, e.g., 1 PETER S. MENELL ET AL., INTELLECTUAL PROPERTY IN THE NEW TECHNOLOGICAL AGE:

2021 22 (2021) (“[S]ociety at large can be harmed by intellectual property protection to the

extent that it unnecessarily raises the cost of acquiring a product … and limits others from

making further advances.”).

176 Vol. 59 / American Business Law Journal

technologies.

5

Because IP rights impose social costs, every IP regime

includes certain constraints on owners—to balance the incentives for cur-

rent creators against the costs imposed on consumers and the subsequent

round of creators.

6

Concern with social costs is particularly acute when it comes to IP rights

over “functional”subject matter—“things that make a product work at all,

or work better, or with fewer defects, or more cheaply.”

7

Society certainly

benefits from having functional innovations, such as a more effective drug,

a better-designed battery, or a more efficient process for manufacturing

medical devices. And society benefits from IP regimes that encourage these

innovations. But there are more limited pathways for creating and design-

ing around functional innovations—for example, there are only so many

ways to safely and effectively treat COVID-19—compared to the more plen-

tiful options for creating and designing around expressive works, such as

novels and songs.

8

As a result, when IP laws protect the useful or functional

features of products, this protection can generate significant market power

that translates to higher costs for consumers and subsequent innovators.

Consequently, scholars have warned that IP laws must be especially “care-

ful”when it comes to granting exclusive rights to functional inventions.

9

5

See, e.g., Selam Gebrekidan & Matt Apuzzo, Rich Countries Signed Away a Chance to Vaccinate

the World, N.Y. TIMES (Mar. 21, 2021), https://www.nytimes.com/2021/03/21/world/vaccine-

patents-us-eu.html; Miriam Berger, WHO Head Pushes for Waiver of Some Intellectual Property

Rights for Coronavirus Vaccines, in Bid to Broaden Access,W

ASH.POST (Mar. 5, 2021), https://

www.washingtonpost.com/world/2021/03/05/tedros-who-covid-vaccines-rights/; Achal

Prabhala et al., Want Vaccines Fast? Suspend Intellectual Property Rights, N.Y. TIMES (Dec.

7, 2020), https://www.nytimes.com/2020/12/07/opinion/covid-vaccines-patents.html.

6

See, e.g., Mark A. Lemley, The Economics of Improvement in Intellectual Property Law,75TEX.

L. REV. 989, 991 (1997).

7

Christopher Buccafusco & Mark A. Lemley, Functionality Screens, 103 VA.L.REV. 1293,

1304–05 (2017).

8

See Buccafusco, Lemley & Masur, supra note 1, at 83–84 (“Scientists and engineers have

only discovered so many ways of safely and effectively treating high blood pressure or

designing anti-lock brakes… . By contrast, taste is less limiting than utility. You may really

want the new Taylor Swift album,but it has alternatives …”).

9

Id. There is a robust IP literature on “functionality”and doctrines that try to channel func-

tional subject matter toward utility patent law and away from other types of IP. For a sam-

pling of this literature, see, e.g., id.; Buccafusco & Lemley, supra note 7, at 1304; Mark

P. McKenna & Christopher Jon Sprigman, What’s In, and What’s Out: How IP’s Boundary

Rules Shape Innovation,30H

ARV.J.L.&TECH. 491, 492 (2017); Viva R. Moffat, The Copy-

right/Patent Boundary,48U.R

ICH.L.REV. 611, 615 (2014); Pamela Samuelson, Strategies for

2022 / Forfeiting IP 177