An Introduction to An Introduction to Intellectual Property & Intellectual Property &

EconomicsEconomics

Class Notes: January 15, 2004Class Notes: January 15, 2004

Law 507 | Intellectual Property | Spring Law 507 | Intellectual Property | Spring 20042004

Professor WagnerProfessor Wagner

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Today’s AgendaToday’s Agenda

1. An Overview of Intellectual Property

2. The Basic Economics of Intellectual Property

3. Intellectual Property & the Information Economy

4. Thoughts on Economic Analysis of IP

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An Overview of Intellectual PropertyAn Overview of Intellectual Property

1.1. CopyrightsCopyrights Works of authorship - literary and artistic

expression

2.2. PatentsPatents Inventions - innovative ideas embodied in

goods or services

3.3. Trademarks / Trade DressTrademarks / Trade Dress Protects advertising or marketing effortso Why would we want to stimulate this?

4.4. Trade Secrets (or unfair competition)Trade Secrets (or unfair competition) Protect against ‘unfair’ appropriation of

commercial informationo Why would you want to do this?

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An Overview of Intellectual PropertyAn Overview of Intellectual Property

CopyrightCopyright PatentPatent TrademarkTrademark

WorksWorks Literary & artistic Literary & artistic worksworks

Process, machine, Process, machine, composition of mattercomposition of matter

Distinctive ‘marks’ or Distinctive ‘marks’ or appearanceappearance

StandardStandard Originality, authorship, Originality, authorship, fixationfixation

Novelty, Novelty, Nonobviousness, Nonobviousness,

UtilityUtility

Distinctiveness, Distinctiveness, secondary meaningsecondary meaning

AcquisitioAcquisitionn

Automatic; Automatic; registration for registration for

remediesremediesApplication processApplication process Registration + use at Registration + use at

Federal levelFederal level

LawLaw17 U.S.C. et seq;17 U.S.C. et seq;

exclusively federalexclusively federal

35 U.S.C. et seq; 35 U.S.C. et seq; exclusively federal;exclusively federal;

Appeals to Fed CirAppeals to Fed Cir

15 U.S.C. et seq; 15 U.S.C. et seq; plusplus state lawsstate laws

TermTerm Life of author + 70 Life of author + 70 yearsyears

20 years from 20 years from application for patentapplication for patent

Perpetual, subject to Perpetual, subject to abandonmentabandonment

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The Economic Basis of IPThe Economic Basis of IP

U.S. Constitution, article I, § 8, cl. 8:U.S. Constitution, article I, § 8, cl. 8:[to] promote the Progress of Science and useful Arts by securing for limited Times to Authors and Inventors the exclusive right to their respective Writings and Discoveries.

Ours is a Utilitarian approach: granting Ours is a Utilitarian approach: granting rights as a means to achieve social rights as a means to achieve social benefits.benefits.

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First Question: Why Economics?First Question: Why Economics?

IP rights: rights in intangible goodsIP rights: rights in intangible goods

How are these rights justified?How are these rights justified?

• Natural Rights / Lockean RightsNatural Rights / Lockean Rights• Labor-mixing justification

• Personhood TheoryPersonhood Theory• Ownership / use of property as the basis of

one’s person

• Utilitarian TheoryUtilitarian Theory• IP rights as a means to promote overall

welfare

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The Utilitarian / Economic Basis of IP The Utilitarian / Economic Basis of IP RightsRights

Why do we need IP rights?Why do we need IP rights?• Innovation/expression are public goods

o Non-rivalo Non-extinguishable

• Absent protection, will be underproduced (why?)

o Do you agree? Does it depend upon the type of intellectual good?

o Does this suggest that ‘more is better’? That more protection = more goods? Always?

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The Economic Basis of IPThe Economic Basis of IP

But why give rights in information, But why give rights in information, invention, or expression?invention, or expression?• IP is intended to solve a public goods problem

INS v APINS v AP, 248 U.S. 215 (1918) redux:, 248 U.S. 215 (1918) redux:[ Note: technological change interferes with

established proprietary rights ]

Protection of “hot news” as quasi-property (why?)

Hot news as a public good:1. Non-rival2. Non-extinguishable

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The Economic Basis of IPThe Economic Basis of IP

INS v APINS v AP, 248 U.S. 215, 248 U.S. 215• What are the benefits of granting a property

right in hot news?• What are the costs?• What is the “net”? (Benefits - costs = Net)

o What else would you want to know?

• What are the boundaries of the right established by the majority?

o Can you read the early paper and call the West Coast to discuss the news?

o Can you read the early paper and follow-up on the story?

• Consider institutions: is the judiciary the best institution (or an adequate one) to conduct this analysis?

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Intellectual Property and the Information Intellectual Property and the Information EconomyEconomy

Barlow: Barlow: The Economy of IdeasThe Economy of Ideas, Wired, Mar. , Wired, Mar. 19941994• Why is the shift from tangible ‘containers’ to

intangible ones critical to Barlow? (What changes, exactly?)

• Does the justification/need for IP rights increase or decrease with:

o Lower costs of distribution and communicationo Increasing velocity of information diffusion

• How does Barlow suggest artists/inventors get paid? (Hint, think about his experience?)

o Will it work systematically, or only under certain conditions?

o In Barlow’s regime, who is vulnerable?

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Intellectual Property and the Information Intellectual Property and the Information EconomyEconomy

Barlow: Barlow: The Economy of IdeasThe Economy of Ideas, Wired, , Wired, Mar. 1994Mar. 1994

• What does Barlow suggest will (and should) replace intellectual property law?

o Encryption: law? Or something else?o Anything ironic about this?

• Is he right: are IP laws a “sinking ship” in the Internet context?

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Economic Analysis of Intellectual Economic Analysis of Intellectual PropertyProperty

The Economic mechanism:The Economic mechanism:• IP rights => rights to exclude others• Allows price to be set above marginal cost

o Note that marginal cost of information = 0

• Returns allow recovery of investments, incentives

Economic costs:Economic costs:• Deadweight loss (reduced production)• Less diffusion of information• Races and rent-seeking

Note that IP rights are not often Note that IP rights are not often “monopolies”“monopolies”• In some circumstances, perhaps

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Economic Analysis of Intellectual Economic Analysis of Intellectual PropertyProperty

The Basic Economic Challenge: Balancing The Basic Economic Challenge: Balancing Benefits vs CostsBenefits vs Costs

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Copyright ICopyright ICopyright BasicsCopyright Basics

Requirements for CopyrightabilityRequirements for Copyrightability