The Uses of Ip Misuse

• Publication year: 2019

The Uses of IP Misuse

Deepa Varadarajan

THE USES OF IP MISUSE

Deepa Varadarajan^*

Abstract

Roughly seventy-five years ago, the equitable doctrine of misuse emerged as a tool to police intellectual property (IP) owners' overzealous contracting and enforcement behavior. First in patent law and then in copyright, courts developed the misuse doctrine to scrutinize practices that expanded IP rights in socially disadvantageous ways. The misuse doctrine reminded IP owners that their contractual freedom was not absolute, that legislatively calibrated limitations on IP rights were more than mere suggestions, and that certain enforcement tactics could trigger a court's refusal to enforce IP rights.

In recent years, patent misuse doctrine has essentially gone the way of antitrust?narrowing its focus to a thin sliver of anticompetitive harms. Copyright misuse doctrine has, however, stayed faithful to broader IP policy concerns. Courts have, for example, responded to misuse arguments where a copyright owner's licensing or enforcement behavior threatens to deter innovative activity or socially valuable speech.

Similar to their IP counterparts, trade secret owners also engage in problematic licensing and enforcement behavior. This is perhaps unsurprising, given the growing legal and economic importance of trade secrets to firms. Yet what is surprising is that courts have not developed an analogous trade secret misuse doctrine. Instead, courts tend to ignore trade secret owners' problematic practices or evaluate them through the lens of ill-fitting doctrinal substitutes. This Article takes the first close look at the justifications for introducing a trade secret misuse doctrine?and considers how copyright misuse doctrine provides a template for reform.

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Introduction.............................................................................................741

I. Origins and Common Features of Patent and Copyright Misuse Doctrine.............................................................................746

A. Origins of Patent Misuse .......................................................... 747
B. Origins of Copyright Misuse .................................................... 749
C. Common Features of Patent and Copyright Misuse................. 751

II. The Diverging Concerns of Patent and Copyright Misuse ... 753

A. Competition Harms .................................................................. 754

1. Patent Misuse: Moving Toward Antitrust .......................... 755
2. Copyright Misuse: Flexibility and Deviation from Antitrust.............................................................................. 758

B. Deterring Socially Valuable Uses ............................................ 759

1. Critical Speech ................................................................... 761
2. Reverse Engineering ........................................................... 763

C. Channeling Between Patent and Copyright Subject Matter ..... 766
D. Abusive Overclaiming of Copyright Scope ............................... 769
E. Understanding the Divergence of Patent and Copyright Misuse ....................................................................................... 773

III. Considering a Trade Secret Misuse Doctrine.........................775

A. Understanding Trade Secret Law ............................................. 777
B. Copyright Misuse's Concerns Are Relevant to Trade Secret Law ........................................................................................... 779

1. Competition Harms and Antitrust's Limitations ................ 779
2. Restraining Socially Valuable Uses ................................... 781

a. Critical Speech ............................................................ 781
b. Reverse Engineering .................................................... 784

3. Channeling Between Patent and Trade Secret Subject Matter ................................................................................. 785
4. Abusive Overclaiming of Trade Secret Scope .................... 787

C. Justifying and Implementing a Trade Secret Misuse Doctrine . 789

1. Existing Doctrinal Gaps and Beneficial Overlaps ............. 790
2. Implementation Considerations.......................................... 792

a. High Threshold and Burden of Proof.......................... 794
b. Procedural and Remedial Flexibility ........................... 796

Conclusion................................................................................................. 798

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Introduction

Intellectual property (IP) owners have considerable freedom to decide the terms upon which they will share patented technologies, copyrighted works, and trade secret information. In general, the legal system is supportive of such private arrangements and recognizes the efficiency benefits of IP licensing.¹ At the same time, private arrangements regarding IP can impact third parties and the broader public. Indeed, IP laws are explicitly designed to balance owners' interests against the public's.² To this end, owners get enough exclusivity to incentivize the creation and dissemination of new works, but not so much that others are deterred from engaging in critical discourse or building on existing works.³ For this reason, patents and copyrights are term-limited,⁴ and others can engage in certain socially valuable uses of an owner's work without permission, including "experimental uses" of a patented drug,⁵ "fair uses" of a copyrighted work,⁶ and "reverse engineering" of trade secrets.⁷

Given these public-minded limitations on IP owners' rights, the tenets of contractual freedom and IP policy can conflict when owners impose restrictive licensing conditions.⁸ For example, suppose a patent owner requires a licensee to pay royalties past the patent term, or a copyright owner prevents a licensee from engaging in critical speech, or a trade secret owner restrains a licensee from

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reverse engineering software. Licensing terms aside, IP owners may also exaggerate the scope of their rights and threaten meritless litigation, deterring others from engaging in lawful innovative activity.⁹ From the IP owner's perspective, such practices may make strategic sense. But when should the rest of us worry that an IP owner has gone too far, so to speak, engaging in acts that, in the aggregate, can inflict societal harms related to competition, innovation, or public discourse?

The misuse doctrine emerged to address such worries about "overreaching" by IP owners. First in patent law and then in copyright, courts developed the equitable doctrine of misuse to scrutinize owners' practices that threatened to expand the scope of IP rights in anticompetitive or other problematic ways.¹⁰ Misuse arguments are usually raised as an infringement defense, even though the defendant asserting it need not herself be the victim of the offensive practice.¹¹ And the penalty for misuse is potent: the misusing owner cannot enforce the patent or copyright against anyone until the offending practice stops and "the consequences of the misuse . . . have been dissipated."¹²

While copyright and patent misuse doctrines share these features, they have nonetheless forged different paths. In recent decades, patent misuse doctrine has moved closer to antitrust principles, placing competition concerns at the forefront and embracing a "rule of reason" analysis.¹³ As a result, patent misuse doctrine has become increasingly irrelevant outside a narrow sliver of cases where a patent owner with market power engages in licensing practices with demonstrable anticompetitive effects.¹⁴ By contrast, copyright misuse has eschewed antitrust law's strictures to consider broader IP policy concerns. To this end, courts have invoked copyright misuse to scrutinize licensing and enforcement practices that threaten not just competition, but also innovation and speech. Misuse doctrine is a relatively under-examined aspect of intellectual

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property law.¹⁵ But some commentators have pointed to the different trajectories of patent and copyright misuse as suggestive of a "schizophrenic" or "chaotic" doctrine.¹⁶

This Article develops a typology of concerns underlying copyright misuse and explains why a nimble misuse doctrine is potentially more important for copyright than patent. Courts and claimants have invoked copyright misuse not only to address competitive harms, but also copyright owners' acts that: (i) preemptively restrain fair uses, like socially valuable speech and reverse engineering; (ii) upset the subject matter boundary between patent and copyright by sneaking functional works through the "back-door" of copyright protection; and (iii) overclaim or misrepresent the legitimate scope of copyright, particularly to unsophisticated audiences.¹⁷ This Article suggests that important differences between copyright and patent law?in terms of their subject matter, structure, and audience?help explain the divergence of copyright and patent misuse doctrines.¹⁸

This Article then turns to trade secret law, a subset of IP that covers a vast array of information firms try to keep secret, including formulas, mechanical processes, business strategies, and aspects of software. Like other IP regimes, trade secret law grants owners limited exclusivity to help stimulate investments in innovation.¹⁹ And like their IP counterparts, trade secret owners engage in

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licensing and enforcement practices that threaten to expand their limited rights in problematic ways.²⁰ Trade secret law shares structural characteristics with copyright law that make these acts of expansion more likely. Notably, copyright and trade secret owners do not have to satisfy ex ante application, disclosure, or claiming requirements?as patentees do.²¹ As a result, trade secret boundaries are highly uncertain, making it easier for trade secret owners to misrepresent the scope of their rights...