Removing Property from Intellectual Property and (Intended?) Pernicious Impacts on Innovation and Competition
Professor F. Scott Kieff, Washington University (St. Louis), December 2007
Property rule treatment of intellectual property (IP) is said to cause "excessive" transaction costs, thickets, anticommons, hold-ups, hold-outs, and trolls, unduly taxing and retarding innovation, competition, and economic growth. The popular response has been to offer a slight shift towards some limited use of weaker liability rule treatment, usually portrayed as "just enough" to facilitate transactions in those special cases where the bargaining problems are at their worst and where escape hatches are most needed. This paper shows how over just the past few years, the US patent system has been hugely re-shaped from a system having several major, and helpful, liability-rule-pressure-release-valves, into a system that is almost devoid of significant property rule characteristics. The paper then explores some harmful effects of this shift, focusing on the ways liability rule treatment can seriously impede the beneficial deal-making mechanisms that facilitate innovation and competition. The basic intuition behind this bad effect of liability rules is that they seriously frustrate the ability for a start-up or other market-challenging patentee to attract and hold the constructive attention of a potential contracting party while preserving the option to terminate the negotiations in favor of striking a deal with a different party.