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February 10, 2012
How Should We Enforce Patents?
Rizza Barnes of UC Irvine sent me a pointer to a new paper by Tomlinson and Torrance addressing this question
. Bill Tomlinson is an Associate Professor of Informatics at UCI (and former colleague of mine from MIT days) and Andrew W. Torrance is a professor of law at the University of Kansas School of Law. The paper appears to be a follow-up to their 2009 work, which also used simulation models to compare how different intellectual property regimes would affect the production of new innovation
You can download the full PDF of the article from the SSRN URL above. The simulations they report on this time compared property rules against entitlement rules and found that (contrary to expectations) the liability rules performed better.
Background: An entitlement rule is one that tries to examine situations where two sides' fundamental rights are in inevitable opposition (e.g. the right to perform an activity that is noisy versus the right of neighbors to have a peaceful silence) and determine who is entitled to their activity or condition, imposing limits on the other party. Entitlements are generally protected by property rules in US law. Liability rules, by contrast, only give the opposing parties the ability to seek a civil case (sue) which of course comes with large up-front costs. To oversimplify vastly it's the difference between calling the cops and calling your lawyer when you're looking for help. Wikipedia, as usual, has a much more detailed explanation.
Tomlinson and Torrance argue that US patent law has recently witnessed a shift away from property rules and towards liability rules and that liability rules do better in terms of promoting innovation. This shift stems from the eBay v MercExchange Supreme Court case in 2006. As a result fewer companies are getting completely enjoined from producing products; instead, they're getting hit with financial judgments. Tomlinson and Torrance construct computer simulations and do human experimental trials to see which way of doing things has better outcomes. Though we tend to think that the lawyerly mess around infringement suits and counter-suits and expensive settlements is a bad regime, it seems like it performs better than the alternative, injunctive, method.
It's an interesting idea, suggesting that the 2006 decision would stand up to the "Breyer test" in Golan. It may also support the general trend to settle rather than fight in patent cases - if companies believe that the end of a (long, expensive) trial is going to be a monetary judgment anyway then it makes sense to take a cheaper settlement deal earlier on.
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