Reinventing Copyright and Patent

• Author: Bell, Abraham

Introduction

Intellectual property systems all over the world are modeled on a one- size-fits-all principle. Under current patent law, for instance, an invention that meets the patentability criteria is entitled to protection of the law for a specified period.1 Big inventions or small inventions, valuable inventions or worthless inventions-all receive the same scope of protection, and the same variety of legal remedies, for the same period of time. Essentially, all inven- tions are equal under the law.

While one size fits all is easy to administer, it generates two kinds of problems for the patent system. First, the equality principle gives all creators access to the same remedies, even when those remedies create perverse in- centives. Scholarly literature has focused on the phenomenon of "patent trolls"-patent holders who have no interest in marketing or manufacturing their inventions but simply wait for apparent breaches of the patent in order to sue.2 While scholars have characterized trolling as a problem of under- productive patents,3 we view it as a problem of incentives. Patents that are enforced by trolls could potentially be valuable to society, but the one-size- fits-all system's excessive litigation rewards incentivize trolls to hoard their patents for opportunistic litigation rather than license them for productive use. Specifically, by providing uniformly large remedies even for very small inventions, the judicial system allows patent trolls to reap more profit through infringement suits than through selling their inventions on the market. This is not intrinsically problematic, but the judicial system is not cost free. Society subsidizes judges, courtrooms, and enforcement measures while litigating parties bear only some of the costs themselves.4 In the case of patent trolls, these societal subsidies encourage parties to conduct their transactions in the courtroom when the optimal forum is actually private market transactions. In many other cases, partly because the costs of litiga- tion are asymmetric and must be paid in part even by prevailing parties, the threat of these litigation costs can force parties into inefficient transactions.5

At the same time, the market does not always succeed in allocating rights efficiently. Owners of intellectual property rights and users-that is, potential consumers of those rights-are not always aware of one another, leading users to infringe and owners to fail to exploit markets optimally. The one-size-fits-all system greatly exacerbates these problems. For some cre- ations, the uniform statutory remedies are too generous. These uniform remedies therefore encourage inefficient use of the legal system in instances where voluntary bargaining would have been superior; in other cases, the remedies deter nonconsensual use that would be optimal.

Second, the one-size-fits-all system exacerbates the monopoly problem created by patents. Patent law grants legal protection in order to incentivize creation.6 Whatever the patent, the law offers a monopoly consisting of a specified set of rights over the invention for a fixed period of time. The monopoly gives the inventor the opportunity to profit handsomely, but it also subjects society to all the costs of monopoly pricing. As documented in the economic literature, these costs include excessively high prices and artifi- cially low production.7 Rewarding inventors with monopoly rights thus nec- essarily comes at a price. Society receives desirable innovation. But society also pays the price of monopolistic inefficiencies. Because the same monop- olistic protection is accorded to all inventions irrespective of their value, so- ciety often pays too high a price for innovation. Many inventors would have produced their innovative products and processes even if the reward were lower. The one-size-fits-all regime thus means that sometimes society over- pays for innovation by absorbing more monopoly losses than are strictly necessary to incentivize production.

In this Article, we propose an alternative design for our patent system. Specifically, we argue that society would be better served by abolishing the extant one-size-fits-all approach to patent protection and adopting in its stead a self-tailored system. In our vision, inventors would be offered a menu of options with varying degrees of protection terms, scopes, and rem- edies. They would then be allowed to tailor the protection to best fit their needs. Importantly, the various options would be subject to differential pric- ing to reflect the cost society stands to incur from the choice of the inventor.

An example can provide a helpful illustration of how our alternative regime would work. Basics Inc. is a medical-device company that produces simple applications whose expected commercial life is four years. Basics Inc. has no use for a patent-protection term of twenty years. Moreover, Basics Inc. has very little marketing capacity and would have a much easier time if potential users were able to search out Basics Inc., rather than Basics Inc. expending efforts to identify potential users. Under our proposed regime, Basics Inc. would be allowed to purchase a protection term of four years. Furthermore, Basics Inc. would have the option voluntarily to give up the possibility of injunctive relief and instead to confine itself to monetary dam- ages if its patent were infringed. In exchange, Basics Inc. would pay a rela- tively low price for the protection it would receive.

Nano Tech Industries, by contrast, is in the business of developing com- plex medical instruments that require considerable expenditures on R&D and whose commercial life is much longer. Accordingly, Nano Tech would likely choose a protection design that closely resembles the current patent regime. Under our system, its wish would be granted. But at a higher price.

A self-tailored patent system would yield several important advantages. First, and most importantly, it would cause patentees to take into account the cost they impose on society through perverse litigation incentives and monopolization. While society should welcome innovation, we need not pay an excessive price to get it. Under our proposal, inventors would be en- trusted with the task of deciding the degree of protection they wish to re- ceive but would be asked to pay for their preference. Voluntary relinquishment of protection, either in terms of time or scope, would result in social net gain by reducing the deadweight loss associated with patent protection. While this effect may be small per patent, in the aggregate soci- ety would benefit from the same level of innovation at a lower social cost.

Second, our self-tailored system would enhance societal welfare by in- creasing beneficial use of existing patents. Excessive protection of patents, together with inefficient use of the judicial system, increases the costs of transactions between patent holders and users, decreases efficient noncon- sensual use of granted patents, and increases the number of inefficient non- uses resulting from strategic holdups by patent owners and other bargaining failures.8 Our system would reduce all of these undesirable effects of the patent system. In particular, our system would reduce artificial incentives for transferring intellectual property rights through litigation and would in- crease the number of voluntary licensed uses of creations.

Third, and relatedly, self-tailored protection would benefit future inno- vators. As several theorists have noted, the patent system involves a temporal trade-off. The more protection given to existing patents, the higher the cost of future innovation that relies on or incorporates current inventions.9 To a large extent, innovation is cumulative. Many inventors must either get li- censes from existing patent holders or design around existing patents in or- der to produce their own inventions. Implementing our proposal would help clear the path for, and lower the cost of, future innovation. We expect our system to yield patents with more limited scope and with shorter expiration dates. Consequently, follow-on innovators would incur lower costs in pro- ducing their inventions.

Finally, our system would reduce the judicial costs associated with adju- dicating patent conflicts. The expected reduction in the total number and scope of patent rights would lower the number of infringement suits and correspondingly limit the amount of resources society must allocate to this end.

Our self-tailored approach does not end with patent law. We also demonstrate that our self-tailored system of protection should be extended to copyrights. Copyright protection is even more multidimensional than patent protection. In the case of copyrights, creators could choose from a menu of varying protection terms and substantive rights. For example, an author could waive her rights to exclusivity in copying and creating deriva- tive works in appropriate cases. Conversely, she might settle for the right to demand attribution of authorship. Along the same dimension, she could cede her right to enforce against noncommercial users or against users who created a single copy of the work but stopped short of distributing it. All of these choices, of course, would be built into the pricing system. More copy- right rights would be more expensive to obtain; fewer rights would be cheaper.

Other scholars have previously discussed uniformity's potential draw- backs, and we compare our proposal to two alternative approaches that may be found in the literature. The first is Professor Burk and Professor Lemley's call to enhance judicial development of patent law through technology-spe- cific interpretation of various microdoctrines.10 We show that our system would result in more efficiency-enhancing outcomes than Burk and Lem- ley's system. Our system is based on ex ante determinations of the value of individual inventions. This self-tailored system...