Hilty on Enforcement of IP Rights

Reto Hilty, the Director of the Max Planck Institute for Innovation and Competition, has posted a new paper on ssrn titled The Role of Enforcement in Delineating the Scope of IP Rights.  Here is a link to the paper, and here is the abstract:

According to an unbroken paradigm innovation and creation accrue from strong IP protection – the more the better. Increasing doubts from academic research are continuously ignored. Under-protection is the great concern. Over-exclusivity, however, is not a minor relevance. Lacking competitive pressure due to legally over-protected market positions eliminate incentives to invest as well. Hence, not a maximum, but the right degree of IP protection is required.

The current IP system tends to over-exclusivity; never in history was the level of protection reduced with a view to legitimate interests of third parties. As long as enforcement measures were of limited vigour, such overshooting tendencies of IP protection had little impact. With increased attention on enforcement measures, however, the over-protective legal design becomes visible. Such concerns, however, did not yet reach the policy makers, notably not on the EU level.

The lack of a balance IP policy in the EU is mirrored by the Directive 48/2004. By limiting the focus on the right, it mistakes that enforcement without limits risks not fostering, but impairing innovation and creation. The current evaluation of the Directive 48/2004 does not give cause for hope that such imbalances would be eliminated. Improvement opportunities, however, exist. Member States first of all should be obliged to establish remedies against dysfunctional enforcement; notably the denial of injunctive relief must become a common procedural instrument. Beyond that, over-exclusivity should be eliminated by dismantling certain property mechanism and replacing them through liability tools (such as extended grounds to claim for compulsory licensing).

Dr. Hilty argues, among other things, that the Directive should be amended (1) to require that member states of the EU make injunctive relief discretionary, perhaps along the lines set out in the U.S. eBay decision; and (2) to require member states to better provide for the redress of wrongful enforcement ("an obviously arbitrary law suit without reasonable likelihood of an actual infringement of an IP right and without legitimate interests of the right holder in prohibiting certain business activities of a third party").  I agree that such steps would be welcome, particularly the former, in order to make the availability of injunctive relief better align with the economic rationale for choosing injunctions (property rules) or damages (liability rules) in a given case.  Relying, as at present, on competition law's abuse of dominant position doctrine, or the civil law's abuse of right doctrine, to avoid what is otherwise mandatory injunctive relief in countries such as Germany is at most a second-best solution, in part because the conditions under which these doctrines would preclude injunctions are unlikely to coincide with all of the situations in which injunctive relief is socially suboptimal.

 This is a very interesting paper, and I hope it will find a wide audience.