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Intellectual Property

Hal R. Varian

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Outline

• Types of intellectual property– Trademarks– Trade secrets– Patents– Copyright

• Background + tech issues for each one

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Trademark• Trademark

– Identify a product or service – name, logo, etc.• Incentive to invest and maintain reputation• Legal issue: avoid consumer confusion

– Is there an attempt to confuse or mislead?

– Claim a trademark™ or register a trademark®

• Only applies within a particular line of business • E.g. Apple computer, Apple music, Continental Airlines, Continental

Tires, etc.

– Abandonment or genericide• Use it or lose it• Aspirin is generic in US, not Canada• Requirement to enforce: owners don’t want you to “xerox a copy”,

“photoshop a page”, “google someone”

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Trademark issues• Domain name system

– Cybersquatting: choose domain names that are trademarks: ATT.org, IBM.org. More TLDs.

– ICANN’s Uniform Dispute Resolution Policy

• Use of trademark terms in <meta>– Oppedahl & Larson v. Advanced Concepts– Playboy v Terri Welles

• Use of trademark in keyword adv– Geico v Google: Not infringing to sell keyword “GEICO”

to other advertisers– However, advertisers may not use trademark in

infringing way– Europe sees things differently…

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Trade secrets• Confidential method or process, which confers

economic benefit, is kept secret• Unlimited life but easy to lose, no requirement to

disclose as with patent– Someone else can file a patent on your trade secret and

you can be sued for infringement!

• Discovering trade secrets– Lawful methods (reverse engineering)

• But: anticircumvention legislation for DRM systems

– Unlawful methods• Espionage, theft, etc.

– Anti compete clauses for workers?

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Patents

• Exclusive right to an invention for a limited amount of time in exchange for disclosure– File for patents in particular jurisdiction– Gives you a “license to sue”

• Dimensions of a patent– Length – time of protection– Width – breadth of coverage– Height – standard of novelty

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Patent length

• Tradeoff– Monopoly price for k years– Then competitive price forever

• Social cost to consumers of delaying low price• Profit to producers creates incentive to innovate

– Optimal life of patent trades these two things off• It appears that 20 years isn’t unreasonable• In theory would like different years for different

industries, but this is difficult to implement

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Breadth of patent• Software patents

– Ideas cannot be patented– Mathematical formulas and algorithms cannot be

patented– But devices that use them can be patented– What’s the difference between implementing an

algorithm in hardware software? Hardware is just “frozen software”.

• Business process patents– Reverse auction– Rounding up when making change

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Standard of novelty

• Cannot be “obvious to someone skilled in the art”– But the person skilled in the art may be without a

shred of creativity…– Perception of reduced patent quality in recent

years– Particularly true in “software and process patents”

where record of prior art is minimal• Amazon’s patent on “one click purchase”

– Patent examiners are overworked and underpaid…

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Examples of granted patents

4,022,227: Method of concealing partial baldness

5,443,036: Method of exercising a cat

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Patent explosion

Source: Bronwyn Source: Bronwyn HallHall

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Explanations of 1986 patent explosion

• According to Hall (2004)…– 1982 creation of Court of Appeals for Fed

Circuit courts made patents more likely to be upheld

– 1985 TI sues Japanese semiconductor firms and wins

– 1986 Kodak-Polaroid decision on instant cameras: preliminary injunction to stop production + $1B judgment

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Patent arms race

• If competitor uses yo, you have to patent in order to countersue

• Leads to arms race in patents– Each side needs bargaining chips for

settlements and/or cross licensing– Like cold war missels

• The big danger is the outsider (“patent terrorist”) who has nothing to lose

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Patent thicket

• May need to search thousands of patents– Very difficult to find all the relevant patents– Very easy to infringe

• Holdup problem: search is a sunk cost– Once you do find patent holder, it may try to

extract extortionary terms– Easier just to counterarm yourself with defensive

patents

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Examples of outsiders• Submarine patents

– Deliberately draw out application process • Patent published long after application filed (Lemelson: 18-39 year

delay on machine vision patents)• Then demand license fees

– Now no longer possible due to 18 month publication requirement

• Patent trolls– Acquire portfolio which it never intends to put in production, but

looks for infringers from whom troll demands a license

• Research in Motion (Blackberry) v NTP, Inc. infringement case on wireless email– Perhaps $1 B in settlement + 9% royality

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Copyright

• Motivation for copyright is in US Constitution:– “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”

• Originally 14 year term to American authors + 14 year renewal– US did not sign international copyright treaties until

1891 – temptation to free ride on English literature was too strong

– What made the US sign in 1891? – Examples of developing countries

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Piracy and pcGDP

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Growing complexity• Copyright act of 1909

– More works of authorship such as• Mechanical reproductions, performance rights, print

rights, grand rights, etc.

– Extended term to 28 years + 28 years

• Further extensions– 1962: 47 years, 1978: 67 years, 1998: life of

author + 70 years, 95 years for works for hire. Is that really a “limited time”?

– Furthermore, extensions were applied retroactively!

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Economics of extension

• Value of the extra years is tiny– Only reason to do it was the retroactive

extension!– What was original intent of the authors of

the Constitution?

• Supreme Court decision on Eldred case– “small number” logic

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Other terms and conditions• Fair use – a defense against accusation of

infringement. Issues:1. the purpose and character of the use, including

whether such use is of a commercial nature or is for nonprofit educational purposes;

2. the nature of the copyrighted work;

3. the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

4. the effect of the use upon the potential market for or value of the copyrighted work.

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Other issues• Doctrine of first sale

– Once you buy work, can do with it what you will• Libraries, used books

– Can be set aside by legislation: in US cannot rent CDs, but you can rent DVDs

• Home copying– Sony v Universal Studios, 1984– VCR had substantial non-infringing uses (e.g.,

time shifting)

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Tradeoffs• Allowing some copying…

– Makes work more valuable– But may reduce sales– I.e., increases price, reduces quantity sold– Want to find optimal point…

• Example– Academic journals and photocopying– News stories on the web

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Problems with copyright• No central registry, search costs are

high– Debate on this topic

• Very long lifetime– Counterbalanced by strong fair use?

• Impact of internet– Incidental copies– Thumbnails of photos: Kelly v Ariba Soft

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Google Library project

• Digitize books– Show snippets as a result of searches [next slide]– Opt out by publishers

• Assoc. of American Publishers filed law suit• Issues

– Copying for purpose of allowing people to find works

– Fair use (as with thumbnail images)– Transactions costs (opt out rather than opt in)– Hold up

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