VILlANoVA Public law and legal Theory working Paper series U One For All: The Problem of Uniformity Cost in Intellectual Property law Michael w. carroll Villanova University School of Law Public law and legal theory Working Paper 2005-17 can be downloaded without charge from the Social Science Research Network Electronic Paper Collectionathttp:/ssrn.com/abstract=820308
VILLANOVA Public Law and Legal Theory Working Paper Series One For All: The Problem of Uniformity Cost in Intellectual Property Law by Michael W. Carroll Villanova University School of Law Public Law and Legal Theory Working Paper 2005-17 This paper can be downloaded without charge from the Social Science Research Network Electronic Paper Collection at http://ssrn.com/abstract=820308
Vol # THE PROBLEM OF UNIFORMITY COST ONE FOR ALL: THE PROBLEM OF UNIFORMITY COST IN INTELLECTUAL PROPERTY LAW MICHAEL W CARROLL . INTRODUCTION IL. THE PROBLEM OF UNIFORMITY COST B. The Problem of Uniformity Cost 5678 A Standard Economic Justification for Intellectual Property Rights. .6 1. The Problem 2. Uniformity Cost Typology 3. Qualifying the Problem II. UNIFORMITY AND ITS LIMITS IN U.S. INTELLECTUAL PROPERTY LAW 15 A. Uniformity and Institutional Options for Reducing Its Costs.. 15 B. The Constitutional Framework C. Patent law 1. Uniform Entitlements 2. Tailored Entitlements D Copyright Law 1. Uniform Entitlements 2. Tailored Entitlements 39 E Sui Generis Rights F Su 45 IV OPTIONS AND STANDARDS AS TOOLS TO REDUCE UNIFORMITY COSTS 45 A Real Options 45 I Patent 2. Copyright Opti B. Standards in Intellectual Property Entitlements 1. Patent 2. Copyright Associate Professor of Law, Villanova University School of Law. I am grateful to Dan Burk, Brett Frischmann, and Mark Lemley for helpful comments and to the participants in the Third Annual Intellectual Property Scholars'Conference held at Boalt Hall and at the Penn-Wharton-Temple Colloquium who commented on a prior version of this Article. William Freiberg and Edward Topolewski provided superb research assistance. all errors remain mine
Vol. ##] THE PROBLEM OF UNIFORMITY COST 1 ONE FOR ALL: THE PROBLEM OF UNIFORMITY COST IN INTELLECTUAL PROPERTY LAW MICHAEL W. CARROLL* I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 II. THE PROBLEM OF UNIFORMITY COST . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 A. Standard Economic Justification for Intellectual Property Rights . . 6 B. The Problem of Uniformity Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1. The Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2. Uniformity Cost Typology . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3. Qualifying the Problem. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 III. UNIFORMITY AND ITS LIMITS IN U.S. INTELLECTUAL PROPERTY LAW 15 A. Uniformity and Institutional Options for Reducing Its Costs. . . . . 15 B. The Constitutional Framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 C. Patent Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 1. Uniform Entitlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 2. Tailored Entitlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 D. Copyright Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 1. Uniform Entitlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 2. Tailored Entitlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 E. Sui Generis Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 F. Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 IV. OPTIONS AND STANDARDS AS TOOLS TO REDUCE UNIFORMITY COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 A. Real Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 1. Patent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 2. Copyright . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 3. Scope Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 B. Standards in Intellectual Property Entitlements . . . . . . . . . . . . . . . 55 1. Patent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 2. Copyright . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 * Associate Professor of Law, Villanova University School of Law. I am grateful to Dan Burk, Brett Frischmann, and Mark Lemley for helpful comments and to the participants in the Third Annual Intellectual Property Scholars= Conference held at Boalt Hall and at the Penn-Wharton-Temple Colloquium who commented on a prior version of this Article. William Freiberg and Edward Topolewski provided superb research assistance. All errors remain mine
Vol ## THE PROBLEM OF UNIFORMITY COST V CONCLUSION 62 . INTRODUCTION The law grants patents to inventors and copyrights to authors to encourage investments in technological and cultural innovation. While addressing an appropriability problem faced by innovators, these intellectual property rights create a different problem by supplying rightsholders with powerful weapons against end-users, direct competitors and follow-on innovators who seek to bring socially beneficial innovations to market. To promote progress, intellectual property law must strike a stifling the efforts of follow-on innovators or the liberties of end-users y balance, providing sufficient incentives for innovation without undi In the law, balance usually calls for context-sensitivity. However intellectual property law protects the owner of each patented invention c copyrighted work of authorship with a largely uniform set of exclusive rights. Historically, this uniformity may have been justified in light of the relative homogeneity of market conditions obtaining with respect to protected subject matter, such as books or mechanical inventions Technological progress since the founding has led to considerable growth in the range of inventions and expressive works to which patent and copyright law apply, respectively. In the modern context, it is clear that innovators' needs for intellectual property protection vary substantially across industries and among types of innovation. Applying a socially costly, uniform solution to problems of differing magnitudes means that There are exceptions and qualifications to the claim that patent and copyright owners enjoy uniform rights, respectively. Nonetheless, as the discussion in Section Ill infra demonstrates, in the main the law does not differentiate the scope or duration of rights granted on the basis of subject matter, level of investment, or any other metric. For purposes of this Article, discussion of"intellectual property"is limited to patent and copyright law. Trademark, trade secret, rights of publicity and other rights in information present related but different features that require separate analysis beyond the scope of this article See, e.g., Dan L. Burk Mark A. Lemley, Is Patent Law Technology Specific,, 17 BERKELEY TECH. LJ. 1155, 1159(2002)[hereinafter Burk Lemley, Technology- Specific?("The useful arts envisioned by the Framers were mechanical inventions useful in a primarily agrarian economy. ) Copyright regulated the publishing business See The Copyright Act of 1790 extended protection only to "maps, charts, and books Copyright Act of 1790, I Stat. 124; see also infra notes XX and accompanying text (charting expansion of copyrightable subject matter) e,e.g. Dan L. Burk Mark A Lemley, Policy Levers in Patent Law, 89 VAL REV 1575, 1581(2003)[hereinafter Burk Lemley, Policy Levers]("[T]he cost of R&D varies widely from industry to industry and from innovation to innovation.
Vol. ##] THE PROBLEM OF UNIFORMITY COST 2 V. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 I. INTRODUCTION The law grants patents to inventors and copyrights to authors to encourage investments in technological and cultural innovation. While addressing an appropriability problem faced by innovators, these intellectual property rights create a different problem by supplying rightsholders with powerful weapons against end-users, direct competitors and follow-on innovators who seek to bring socially beneficial innovations to market. To promote progress, intellectual property law must strike a balance, providing sufficient incentives for innovation without unduly stifling the efforts of follow-on innovators or the liberties of end-users. In the law, balance usually calls for context-sensitivity. However, intellectual property law protects the owner of each patented invention or copyrighted work of authorship with a largely uniform set of exclusive rights.1 Historically, this uniformity may have been justified in light of the relative homogeneity of market conditions obtaining with respect to protected subject matter, such as books or mechanical inventions. Technological progress since the founding has led to considerable growth in the range of inventions and expressive works to which patent and copyright law apply, respectively.2 In the modern context, it is clear that innovators’ needs for intellectual property protection vary substantially across industries and among types of innovation.3 Applying a socially costly, uniform solution to problems of differing magnitudes means that 1 There are exceptions and qualifications to the claim that patent and copyright owners enjoy uniform rights, respectively. Nonetheless, as the discussion in Section III infra demonstrates, in the main the law does not differentiate the scope or duration of rights granted on the basis of subject matter, level of investment, or any other metric. For purposes of this Article, discussion of “intellectual property” is limited to patent and copyright law. Trademark, trade secret, rights of publicity and other rights in information present related but different features that require separate analysis beyond the scope of this Article. 2 See, e.g., Dan L. Burk & Mark A. Lemley, Is Patent Law Technology Specific?, 17 BERKELEY TECH. L.J. 1155, 1159 (2002) [hereinafter Burk & Lemley, TechnologySpecific?] (AThe >useful arts= envisioned by the Framers were mechanical inventions useful in a primarily agrarian economy.@). Copyright regulated the publishing business. See The Copyright Act of 1790 extended protection only to Amaps, charts, and books@ Copyright Act of 1790, 1 Stat. 124; see also infra notes XX and accompanying text (charting expansion of copyrightable subject matter). 3 See, e.g. Dan L. Burk & Mark A. Lemley, Policy Levers in Patent Law, 89 VA. L. REV. 1575, 1581 (2003) [hereinafter Burk & Lemley, Policy Levers] (A[T]he cost of R&D varies widely from industry to industry and from innovation to innovation.@)
Vol ## THE PROBLEM OF UNIFORMITY COST the law necessarily imposes uniformity costs by underprotecting those who invest in certain costly innovations and overprotecting those with low innovation costs or access to alternative appropriability mechanisms egal scholars recently have begun analyzing the problem of uniformity cost in patent law. Professor Glynn Lunney, Jr. argues that iformity cost is the key to understanding the economic structure of patent law and that recent doctrinal changes affecting the scope of patents demonstrate the point. Further raising the prominence of the problem Professors Dan Burk and Mark Lemley argue in a series of articles and in a forthcoming book that uniformity costs are particularly high in relation to patent laws application to software and biotechnology and that these costs can be reduced by differential application of the Patent Act.' Building on this prior work, this Article includes copyright law within its scope and argues more generally that the problem of uniformity cost is the central problem for intellectual property policymaking. This uniformity-cost perspective is dynamic, accepting that exclusive rights must promise some potential power over price to induce innovation but that different innovator different kinds of promises from the law. From the uniformity-cost perspective, if intellectual property rights were the only policy tool available to promote innovation, perfectly tailored rights that promise innovators only the expected value required to induce socially desirable innovation would be heoretically optimal Intellectual property law falls short of this ideal for a host of reasons including uncertainty about innovation, information asymmetries between policymakers and innovators, administrative costs of tailoring and the political economy of intellectual property policymaking. While substantial, these obstacles do not disable all potential context-sensitivity See generally Glynn S. Lunney, Jr, Patent Law, the Federal Circuit, and the Supreme Court: A Quiet Revolution, 11 SUP. CT. ECON. REV. I(2004)[hereinafter Lunney, Quiet Revolution (discussing uniformity costs). Professor Lunney's colleague Professor Christopher Cotropia has further extended this line of analysis. See Christopher Cotropia, After- Arising" Technologies and Tailoring Patent Scope, 61 N.Y.U. ANN. SURV. AM L (forthcoming 2005): Christopher Cotropia, Patent Claim Interpretation and Information Costs, 9 LEWIS CLARK L REV. 57(2005); Chrisopher Cotropia, " Arising Under"Jurisdiction and Uniformity in Patent Law, 9 MICH TELECOMM. TECH L REV 53 (2003), reprinted at 36 INTELL. PROP. L REV. 209(2004) See DAN L. BURK MARK A LEMLEY, TAILORING INNOVATION LAW(forthcoming 2005); Dan L. Burk Mark A Lemley, Biotechnology's Uncertainty Principle, 54 CASE w.RES L REV. 691(2004): Burk Lemley, Policy Levers, supra note XX; Burk Lemley, Technology-Specific?, supra note XX 6 See infra notes XX and accompanying text(qualifying claim concerning optimality general and optimality of tailored rights in particular)
Vol. ##] THE PROBLEM OF UNIFORMITY COST 3 the law necessarily imposes uniformity costs by underprotecting those who invest in certain costly innovations and overprotecting those with low innovation costs or access to alternative appropriability mechanisms. Legal scholars recently have begun analyzing the problem of uniformity cost in patent law. Professor Glynn Lunney, Jr. argues that uniformity cost is the key to understanding the economic structure of patent law and that recent doctrinal changes affecting the scope of patents demonstrate the point.4 Further raising the prominence of the problem, Professors Dan Burk and Mark Lemley argue in a series of articles and in a forthcoming book that uniformity costs are particularly high in relation to patent law’s application to software and biotechnology and that these costs can be reduced by differential application of the Patent Act.5 Building on this prior work, this Article includes copyright law within its scope and argues more generally that the problem of uniformity cost is the central problem for intellectual property policymaking. This uniformity-cost perspective is dynamic, accepting that exclusive rights must promise some potential power over price to induce innovation but also recognizing that different innovators require different kinds of promises from the law. From the uniformity-cost perspective, if intellectual property rights were the only policy tool available to promote innovation, perfectly tailored rights that promise innovators only the expected value required to induce socially desirable innovation would be theoretically optimal.6 Intellectual property law falls short of this ideal for a host of reasons including uncertainty about innovation, information asymmetries between policymakers and innovators, administrative costs of tailoring, and the political economy of intellectual property policymaking. While substantial, these obstacles do not disable all potential context-sensitivity 4 See generally Glynn S. Lunney, Jr., Patent Law, the Federal Circuit, and the Supreme Court: A Quiet Revolution, 11 SUP. CT. ECON. REV. 1 (2004) [hereinafter Lunney, Quiet Revolution] (discussing uniformity costs). Professor Lunney’s colleague Professor Christopher Cotropia has further extended this line of analysis. See Christopher Cotropia, “After-Arising” Technologies and Tailoring Patent Scope, 61 N.Y.U. ANN. SURV. AM. L. ___ (forthcoming 2005); Christopher Cotropia, Patent Claim Interpretation and Information Costs, 9 LEWIS & CLARK L. REV. 57 (2005); Chrisopher Cotropia, "Arising Under" Jurisdiction and Uniformity in Patent Law, 9 MICH. TELECOMM. TECH. L. REV. 253 (2003), reprinted at 36 INTELL. PROP. L. REV. 209 (2004). 5 See DAN L. BURK & MARK A. LEMLEY, TAILORING INNOVATION LAW (forthcoming 2005); Dan L. Burk & Mark A. Lemley, Biotechnology’s Uncertainty Principle, 54 CASE W. RES. L. REV. 691 (2004); Burk & Lemley, Policy Levers, supra note XX; Burk & Lemley, Technology- Specific?, supra note XX. 6 See infra notes XX and accompanying text (qualifying claim concerning optimality in general and optimality of tailored rights in particular)
Vol # THE PROBLEM OF UNIFORMITY COST in intellectual property law. As uniformity costs rise with the growing economic importance of, and variation among, information-centric industries, policymakers should strive harder to maximize context- sensitivity in intellectual property law This Article analyzes current U.S. patent and copyright law from the uniformity-cost perspective and identifies three features that function or should function, to reduce uniformity cost: (1)real options that regulate who acquires, and who keeps, intellectual property rights; (2) flexible standards that define rights to promote context-sensitive application of the law; and(3)legislative or judicial measures that explicitly vary the subject matter,scope, or duration of intellectual property rights. After identifying these this article focuses analysis on the economic function of real options and flexible standards in patent and copyright law. I take up analysis of tailoring intellectual property rights in a separate paper. By making uniformity cost the focus of economic analysis of intellectual property law and by analyzing the features of entitlement design that can be deployed to reduce uniformity cost, this Article supplies a general framework for analyzing the economic stakes in a range of policy debates in contemporary intellectual property law. Moreover, this Article argues for legal realism in the analysis of the formally unifor rights that patent law and copyright law grant and shows that the law is less uniform in practice than some analysts assume This Article unfolds as follows. Section II introduces the uniformity-cost perspective by showing how granting differently-situated innovators a uniform set of rights leads to overprotection in some cases and underprotection in others. Section Ill offers a working definition of uniformity" for purposes of this discussion and through that lens provides a snapshot of current U.S. intellectual property law as specified by constitutional, international, and statutory sources. This Section demonstrates that rights in patent and copyright law generally are uniform but have been tailored for a number of purposes. Section IV demonstrates that in addition to explicitly tailored rights, real options and legal standards are features of current law designed to reduce uniformity This analysis suggests that future research should focus on use these features to reduce uniformity cost. Section V concludes 7 See Michael W. Carroll, Tailoring Intellectual Property Rights(draft April 2005)(on file with author)
Vol. ##] THE PROBLEM OF UNIFORMITY COST 4 in intellectual property law. As uniformity costs rise with the growing economic importance of, and variation among, information-centric industries, policymakers should strive harder to maximize contextsensitivity in intellectual property law. This Article analyzes current U.S. patent and copyright law from the uniformity-cost perspective and identifies three features that function, or should function, to reduce uniformity cost: (1) real options that regulate who acquires, and who keeps, intellectual property rights; (2) flexible standards that define rights to promote context-sensitive application of the law; and (3) legislative or judicial measures that explicitly vary the subject matter, scope, or duration of intellectual property rights. After identifying these, this Article focuses analysis on the economic function of real options and flexible standards in patent and copyright law. I take up analysis of tailoring intellectual property rights in a separate paper.7 By making uniformity cost the focus of economic analysis of intellectual property law and by analyzing the features of entitlement design that can be deployed to reduce uniformity cost, this Article supplies a general framework for analyzing the economic stakes in a range of policy debates in contemporary intellectual property law. Moreover, this Article argues for legal realism in the analysis of the formally uniform rights that patent law and copyright law grant and shows that the law is far less uniform in practice than some analysts assume. This Article unfolds as follows. Section II introduces the uniformity-cost perspective by showing how granting differently-situated innovators a uniform set of rights leads to overprotection in some cases and underprotection in others. Section III offers a working definition of “uniformity” for purposes of this discussion and through that lens provides a snapshot of current U.S. intellectual property law as specified by constitutional, international, and statutory sources. This Section demonstrates that rights in patent and copyright law generally are uniform but have been tailored for a number of purposes. Section IV demonstrates that in addition to explicitly tailored rights, real options and legal standards are features of current law designed to reduce uniformity cost. This analysis suggests that future research should focus on how to better use these features to reduce uniformity cost. Section V concludes. 7 See Michael W. Carroll, Tailoring Intellectual Property Rights (draft April 2005) (on file with author)