Risk aversion and rights accretion in intellectual property law.

• Author: Gibson, James

ARTICLE CONTENTS INTRODUCTION I. COPYRIGHT'S FEEDBACK LOOP A. Doctrinal Indeterminacy and the Risk-Averse Actor B. Market Circularity C. Copyright's Doctrinal Feedback 1. How It Works 2. Positive Law and Strategic Behavior 3. Affected Markets II. TRADEMARK'S FEEDBACK LOOP A. Trademark Doctrine B. Licensing Motivations C. Persuasion Knowledge 1. Film and Television 2. Merchandising D. Limitations on Trademark's Feedback III. PATENT'S SHORT CIRCUIT IV. NORMATIVE IMPLICATIONS A. Do We Care? B. Reducing Uncertainty 1. Statutory Standards and Regulatory Rules 2. Increased Adjudication C. Reducing Consequences D. Doctrinal Refinements CONCLUSION Agree, for the Law is costly.

--William Camden, 1605 (1)

INTRODUCTION

Intellectual property law is a growth industry. It covers an expanding variety of subject matters, its protection lasts longer than ever, and its entitlements increasingly intrude into realms of conduct once reserved for public use. The blame (or, more rarely, the credit) for this incessant growth usually falls on the agents of positive law--courts and legislatures--and the rent-seeking rights-holders who influence them.

But when it comes to one aspect of this expansion--the increasing breadth of intellectual property rights--much of the responsibility lies not with positive law's usual suspects, but with an organic, inadvertent process that results from the interaction of indeterminate doctrine and risk-averse licensing. Copyright law provides the best example. The copyright doctrines that determine where private entitlement ends and public privilege begins are inherently ambiguous. This means that those who want to make use of copyrighted material cannot make accurate ex ante judgments regarding the need to secure a license from the rights-holder. Yet making the wrong call can be costly because the penalties for infringement typically include supracompensatory damages and injunctive relief. Combine these doctrinal gray areas and severe consequences with the risk aversion that pervades key copyright industries, and the result is a practice of securing copyright licenses even when none is needed. Better safe than sued.

In and of itself this state of affairs is unobjectionable, even laudable, in that the market provides certainty when the law does not. But licensing markets are not only the end result of legal doctrine; they are also instrumental in determining the reach of copyright entitlements. If a rights-holder can show that it routinely issues licenses for a given use, then copyright law views that use as properly falling within the rights-holder's control. Thus, the practice of licensing within gray areas eventually makes those areas less gray, as the licensing itself becomes the proof that the entitlement covers the use. Over time, public privilege recedes, and the reach of copyright expands; this moves the ubiquitous gray areas farther into what used to be virgin territory, which in turn creates more licensing markets, which in turn pushes the gray areas even farther afield, and so on. Lather, rinse, repeat.

This phenomenon, which I call "doctrinal feedback," is unappreciated in the intellectual property literature and unrecognized in the courts. Scholars and judges focus instead on top-down developments in the positive law--federal statutes, Supreme Court opinions, and so forth--never imagining that major transformations in the law could emerge from the bottom up, through practitioners' everyday application of longstanding, uncontroversial principles. For example, everyone agrees that certain copyright doctrines are ambiguous, and this ambiguity can be advantageous because it allows courts to reach equitable results despite substantial variation and complexity in the fact patterns they encounter. (2) Everyone also agrees that licensing practice should play a key role in determining whether a given use falls within copyright's entitlement. Indeed, agreement on this issue unites otherwise disparate camps in copyright scholarship. (3) Finally, everyone agrees that it is usually in a user's best interest to secure a license rather than take even a small risk of an adverse judgment; the simple reality is that finding out whether permission is required usually costs more than getting permission. But because these propositions are so uncontroversial, no one has noticed that their aggregate effect is an expansion in the reach of intellectual property rights--an expansion completely unconnected to lobbying successes and courtroom victories.

To be clear, I am not suggesting that intellectual property's growth is due entirely to seemingly sensible doctrines and prudent behavior on the part of everyone involved. Much of the recent expansion is obviously the result of purposeful policy decisions by courts and legislatures--and in certain areas such positivist decisions provide the entire explanation (e.g., expansions in the subject matter and duration of rights). But doctrinal feedback is its own animal, quietly contributing to the seemingly ceaseless growth of intellectual property without relying on developments in legislation or litigation, on strategic behavior in the marketplace, or on rent-seeking initiatives by moneyed interests. In other words, even if intellectual property owners are guileless or have no interest in gaming the system, and even if statutes and case law are not overly favorable to rights-holders, the combination of ambiguous doctrine and risk-averse licensing will, over time, cause entitlements to grow and public privilege to shrink.

In this Article, I describe how doctrinal feedback works in intellectual property's three core disciplines and then address its normative implications. Part I looks at copyright law, in which feedback's autocatalytic effect is particularly pronounced. It expands on the description given above, explores the sources of the risk aversion that produces so much unneeded licensing, and identifies those copyright uses and industries most likely to experience rights accretion.

Part II covers trademark law, in which doctrinal feedback produces a less pervasive and more attenuated expansion, for two reasons. First, legal ambiguities and risk aversion are responsible for only some of trademark's superfluous licensing markets; others are the result of mutually beneficial promotional arrangements, such as product placement in film and television, which do not consistently feed back into the licensing calculus. Second, trademark law looks to consumer confusion, not licensing markets, when defining the reach of its entitlements, which means that feedback occurs only when consumer perception reflects an acquired familiarity with licensing practices. I use research from the behavioral sciences, however, to show that consumers acquire this familiarity much more readily than trademark law acknowledges.

Part III discusses patent law, in which doctrinal feedback, although present, is muted and produces no systemic expansion of entitlements. The difference is partly doctrinal (patent law does not use licensing information to define the overall reach of its entitlements) and partly purposeful (courts in patent cases are more skeptical of the informational content of licensing markets). Because patent law manages to make use of licensing information without suffering its distortive effects, it holds lessons for how we might address the more pernicious and expansive doctrinal feedback found in copyright and trademark.

I apply those lessons in Part IV, in which I turn to the normative implications of doctrinal feedback. The first question is whether doctrinal feedback is a problem. For those who generally oppose the expansion of intellectual property law, the answer is clearly yes--but I also show that those who favor an expansion should view doctrinal feedback as a poor means to that end. The next question is how one might solve the feedback problem. Reducing the risk aversion that fuels feedback is one obvious tactic, but that approach produces counterintuitive results laden with normative baggage, threatens to substitute a positivist expansion for an accretive one, and creates more problems than it cures. In the end, I suggest a more normatively neutral solution, consisting of subtle refinements in how the positive law scrutinizes licensing information and consumer motivation. This approach allows intellectual property to be market-referential without making it market-reverential.

1. COPYRIGHT'S FEEDBACK LOOP

   Doctrinal feedback in copyright law arises from several uncontroversial premises. First, core doctrines--the idea/expression dichotomy, the substantial similarity test, and the fair use defense--create significant ambiguity regarding the reach of copyright rights. Second, new creative works almost invariably borrow from old creative works, which raises the possibility of infringement on the part of the borrower. Third, the penalties for copyright infringement are severe; monetary awards often vastly exceed what the defendant might have paid for a license, and injunctions are easy to come by. Fourth, the players in key copyright industries tend to be risk-averse, a tendency exacerbated by high upfront investments and the need to satisfy conservative insurers and downstream distributors.

   In combination, these factors cause copyright users to seek licenses even when they have a good fair use claim--i.e., even when proceeding unlicensed would probably result in no liability. This practice of unneeded licensing feeds back into doctrine because of one final uncontroversial premise: the fair use defense looks to the existence vel non of a licensing market when defining the reach of the copyright entitlement. The result is a steady, incremental, and unintended expansion of copyright, caused by nothing more than ambiguous doctrine and prudent behavior on the part of copyright users.

   To be sure, the feedback effect is not ubiquitous. For example, it is of little...