Monday, June 24, 2019

Ard on Property Rules and Liability Rules

B.J. Ard has published a paper titled More Property Rules Than Property?  The Right to Exclude in Patent and Copyright, 68 Emory L.J. 685 (2019).  Here is a link to the paper, and here is the abstract:
Patent and copyright rely more consistently on property rules than property law itself. While IP law is intended to enhance intellectual production, the property-rule remedies of injunctive relief and punitive damages sometimes conflict with this goal. In particular, these remedies may dampen innovation by imposing unjustified costs on unwitting infringers and allowing opportunists to hold up projects that implicate several parties’ rights. Both problems could be ameliorated by strategic deployment of liability rules, and the law of tangible property demonstrates how this strategy might work. While we might assume that the law protects tangible property with property rules, closer scrutiny shows that courts and lawmakers use liability rules to deal with unintentional trespasses and to circumvent holdout problems involving real property.
This analysis yields three payoffs. First, it develops the novel and counterintuitive argument that IP deploys property rules in many circumstances where property law would use liability rules. This arrangement is backwards because the greater notice failures, inexhaustibility, and importance of building on others’ work inherent to intellectual production counsel in favor of liability rules. Second, it grounds the theoretical debate over the use of property rules versus liability rules in IP in real property doctrine, where courts and lawmakers have taken the pragmatic approach of structuring entitlements to facilitate economic progress. Finally, it identifies ways the choice of remedies could serve as a concrete policy lever to address issues in IP: (1) IP law could correct notice failures by creating a “reasonable search defense”—eliminating property-rule protection in cases of accidental infringement—to encourage users to search and owners to publicize their claims; (2) courts could defuse holdout strategies by denying property-rule protection to IP owners who refused to bargain in good faith; and (3) the state could pursue important policy objectives by employing—or threatening to employ—its authority to enact compulsory licenses.
It's an interesting paper, and worth a read--though I have some reservations about the thesis that IP law (in the U.S., post-eBay) needs to move any further that it already has in the direction of a liability-rule type of system.  Professor Ard's argument that IP law should adopt a "reasonable search" defense is interesting, though; and while I'm not sure I'm on board with that 100%, I do agree that courts should consider the difficulty of clearing the relevant IP in advance, in evaluating whether to grant or deny injunctive relief, because holdup is more likely to occur when such clearance is difficult.

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