Thursday, June 1, 2023

Cotter and Shen on Destruction, Proportionality, and Sustainability

Chung-lun Shen and I have posted a paper on ssrn titled Destruction, Proportionality, and Sustainability: A Law-and-Economics Analysis.  We will be presenting it at the 2023 ATRIP Congress at the University of Tokyo in July.  Here is a link to the paper, and here is the abstract:

 This paper undertakes a law-and-economics analysis of the remedy of destruction (and, subsidiarily, the related remedies of recall and removal) of products that infringe intellectual property (IP) rights. We begin with a brief survey of international, regional, and domestic law and practice, observing that (1) courts generally are believed to be more likely to order the destruction of copyright- and trademark-infringing than of patent-infringing goods, and (2) the frequency with which courts order the destruction of patent-infringing goods varies from one country to another. Our observations lead us to present two principal theses.


The first is that a comparative reluctance to order the destruction of patent-, as opposed to copyright- or trademark-infringing goods, would be consistent with economic considerations. From an economic standpoint, destruction can be viewed as both a complement to injunctive relief, and as a substitute (albeit an imperfect one) for the ongoing monitoring of an infringer's compliance with the terms of an injunction. The social benefits arising from substituting destruction for monitoring, however, are likely to be lower—on average, and perhaps subject to regional variation—for patent-infringing goods than for products that infringe other IP rights. In addition, although observers have long noted that the private and social costs of destruction provide a rationale for withholding that remedy when it would cause disproportionate harm to the defendant or third parties, these costs may be unusually high in patent cases—particularly that subset of cases in which the risk of patent holdup is substantial. In view of these factors, the social costs of ordering the destruction of patent-infringing goods are likely to outweigh the social benefits in a comparatively broader swath of cases.


Our second thesis can be best understood if we first pose a question: given that courts generally have authority to consider proportionality when deciding whether to order the destruction of infringing goods, why are legislatures and courts (other than in the United States, and to some degree other common-law countries) so unwilling to consider proportionality when deciding whether to grant injunctive relief? One obvious reason is that a stay or denial of injunctive relief imposes greater costs on the judiciary, insofar as a court that stays or denies an injunction must be prepared to set the terms of an interim or ongoing royalty; in addition, a stay or denial may introduce additional error costs, to the extent courts impose over- or undercompensatory royalties. We propose, nonetheless, that the factors that sometimes persuade courts to deny requests for destruction should render them at least marginally more receptive than they currently are to staying or denying injunctions, particularly when there is a substantial risk of holdup. In addition, environmental costs may be reduced if, in appropriate cases, courts were more willing to stay injunctions pending the sell-off or design-around of infringing products, rather than requiring their destruction or long-term storage.

Comments welcome.  Thanks also for a shout-out from Professor Larry Solum, on his Legal Theory blog earlier this week!

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