INTRODUCTION I. INFORMATION COSTS AND STRICT LIABILITY II. UNJUST ENRICHMENT AND STRICT LIABILITY III. THE EMERGENCE OF NEGLIGENCE-BASED PROPERTY RULES A. Protection of Bona Fide Purchasers B. Reasonable Encroachers C. Nuisance Law IV. BROADER IMPLICATIONS FOR INTELLECTUAL PROPERTY RIGHTS CONCLUSION INTRODUCTION
Property theorists typically conceptualize property as a strict liability regime. Blackstone characterized property as "that sole and despotic dominion which one man claims and exercises over the external things of the world, in total exclusion of the right of any other individual in the universe." (1) In more modern terms, property represents what Henry Smith has called an "exclusion strategy": property law delegates decisions about resource use to an owner, who "is responsible for deciding on and monitoring specific activities with respect to the resource." (2) Any interference with the owner's property right in itself gives rise to a legal claim by the owner. The usurper's excuses for the interference are irrelevant and do not serve as defenses.
Tort law, by contrast, combines principles of strict liability with those of negligence. When a firm engages in blasting," (3) and increasingly when a firm manufactures or sells potentially dangerous products, (4) it may be liable for losses caused by its actions regardless of fault. In other instances, however, negligence remains an essential element of a tort claim. If I carelessly drive my car into your car and break your leg while distracted by a cell phone conversation, I am a tortfeasor liable for your loss. However, if I drive the same car into you and cause the same injury while swerving to avoid three children running to retrieve a ball, I am not a tortfeasor. (5) Negligence rules reflect the ultimate "governance strategy"--a more finely grained analysis of the appropriate behavior of the parties toward one another. (6)
Although some respected academic literature suggests that strict liability should replace negligence as the foundation for tort liability, (7) strict liability's proponents have not carried the day. (8) Negligence still has its strong supporters within the academic community. (9) For economically oriented tort theorists, the primary advantage of negligence liability is that negligence, unlike strict liability, takes into account a victim's ability to avoid injury by taking precautions. (10) For corrective justice theorists, a victim has no claim to compensation against the person who caused his injury unless that person took actions that were wrongful against him. (11)
The negligence principles that continue to underlie personal injury law also apply to claims for physical damage to property interests* Indeed, United States v. Carroll Towing Co., the vehicle through which Judge Learned Hand articulated his famous negligence standard, (12) involved claims for property damage. (13) However, negligence principles are curiously absent from discussion of other claims for infringement of, or encroachment on, property interests. In particular, the prevailing property lore holds that a resource user must bear liability when the user invades the boundaries of a property right--whether mistakenly or not. Negligence is irrelevant. Thus, if I trespass on your land, your right to recover does not depend on whether I exercised reasonable care to ensure that I remained on my own land. (14) If I sell a product that infringes on your patent, you have an infringement claim regardless of the care I took to ensure that my product did not infringe on any patents. (15)
The apparent absence of negligence principles from much of property law merits discussion because most claims for interference with property rights have the same structure as tort claims. Generally speaking, the holder of a right seeks relief from a stranger who has allegedly interfered with that right. Trespass and nuisance are obvious property law examples, but quiet title claims, as well as copyright and patent infringement claims are also akin to tort claims, because the "owner" seeks relief from wrongdoers with whom the owner has no contractual relationship.
The prevailing conception of property is one of clear boundaries, easily and inexpensively ascertainable by owners and potential users. Within that conception, a strict liability regime (16) makes considerable sense: it delegates control over resource use to owners, reducing the need for courts and potential resource users to educate themselves about the value of competing resources. (17) At the same time, strict liability imposes no hardship on encroachers or infringers. An encroacher or infringer only uses a neighbor's rights because he (unlike the paradigmatic torffeasor) derives economic benefit from those rights. The gains from use of the owner's rights provide a fund from which the encroacher can compensate the owner for his losses. If property boundaries were always clear, however, both strict liability and negligence reregimes would generate identical outcomes. If a potential resource user could costlessly determine which rights he needed and who owned those rights, the user would act negligently--if not intentionally--whenever he encroached on an owner's rights. (18)
But in fact, it is often costly to determine the title to--and the scope of--property rights. When a potential user makes reasonable, but ultimately unsuccessful, efforts to ascertain property boundaries, a strict liability regime requires the user to compensate the owner for any losses. This compensation must occur even when the user does not derive benefits that correspond to the owner's loss. For instance, if I pay market value for a property interest with the mistaken belief that the seller had good title, requiring me to return the property (or its value) to the true owner leaves me with a substantial out-of-pocket loss. In addition, in the all-too-frequent case in which the seller has died or become insolvent, I must bear the entirety of that loss.
This Article argues that, in cases where ascertaining the scope of boundaries is costly, property law should, and sometimes does, make use of negligence principles. Current doctrine does not directly incorporate the law of negligence into property law. Instead, property law has developed surrogates for negligence-based liability rules. These surrogate rules protect the interests of a usurper who took reasonable care before investing in a property interest he did not own--the same interests a negligence rule would protect. Thus, although explicit discussions of negligence rarely find their way into property law opinions, issues of fault do play a significant role in property cases and perhaps should play a bigger, more explicit role in the future.
INFORMATION COSTS AND STRICT LIABILITY
Property law and tort law approach similar problems from different angles. Both deal with claims by the holder of a right--such as life, bodily integrity, land, or intellectual property--against someone who has interfered with that right. Property law, however, focuses primarily on the right holder, and assumes that the entire world has a duty to respect the holder's right. As a result, the right holder's claim should prevail regardless of the nature of the interferer's action. Tort law, by contrast, focuses on whether the interferer's action violated a duty to the right holder. If the interferer owed no duty, or if his action did not violate such a duty, the right holder must bear the loss the interference caused. (19)
The property law approach relies on markets to allocate resources efficiently. By entrusting all rights in a resource to a single owner with power to coordinate potentially conflicting uses, property law concentrates in that owner the need to become completely informed about the range of uses to which the resource might be put and the values associated with those uses. (20) Potential users need know only the value they attach to the resource and can bid accordingly. (21) Courts need not concern themselves with relative values because they can rely on owners to allocate the resource efficiently. (22) As a result, the property law approach, characterized by what Merrill and Smith call "exclusion rules," reduces the information costs associated with promoting efficient use of resources. (23) Without strict liability, however, some potential users of a resource could bypass the market by engaging in legally privileged use of the resource. (24) The potential for market bypass in a world without strict liability would make owner coordination less effective and would introduce the need for courts to determine which uses should be privileged. This, in turn, would reduce the information cost advantages of market allocation.
Exclusion rules do not generate the same information cost advantages when, as in the typical tort case, owner coordination of resource use is not feasible. In a tort case, the resource at stake may be the tort victim's life, bodily integrity, reputation, or property. Each potential tort victim faces risk from a vast array of potential tortfeasors. Few of these risks will ultimately result in significant harm. Because of the large number of risks and the reduced expected harm associated with each risk, a potential tort victim will not find it worthwhile to assemble information about each risk or engage in market transactions regarding these risks. (25) To take an obvious example, a potential tort victim worried about being hit by a car cannot feasibly negotiate in advance with every potential driver regarding the terms of compensation in the event of a crash. (26) Thus, a principal advantage of exclusion rules disappears because owner coordination is not feasible. (27)
In some circumstances, the tortfeasor, rather than the victim, may be in a position to coordinate resource use. For instance, the blaster or the manufacturer of widgets may be best able to research and evaluate the potential harm its activities...