The Boundaries of IP at William & Mary

Still behind; first panel to follow later.

Crossing Boundaries

Graeme Dinwoodie, Chicago-Kent College of Law, Developing a Private International Intellectual Property Law: The Death of Territoriality?

Greater interdependence means that territoriality is no longer entitled to the hold it has had over the private international law of IP. Rethinking: territoriality can be disabling or enabling of jurisdiction—see the extraterritoriality cases under the Lanham Act. Choice of law needs more explicit development. Generally, we should be less obsessed with national boundaries. And also we should question the boundary between IP and other forms of civil/commercial litigation transnationally: IP exceptionalism is common, especially with TM law, and Dinwoodie disagrees with this.

Most papers here want to erect certain boundaries, while Dinwoodie wants to tear them down.

The international IP treaties have very little to say about choice of law. National treatment isn’t a choice of law rule.

The typical rule: lex loci protectionis is the rule in IP. (Though we don’t necessarily know what that means.) It’s easy in easy cases where things happen in discrete markets. It’s never been very clear what the scope is: applies to infringement, but what about ownership/authorship? Lex originis for ownership is the emerging US rule, but some Europeans want a different rule.

Serial litigation of national rights. Computer Associates v. Altai: Altai prevails in the US, then gets sued again in France on the same theory, and the Second Circuit refuses to stop it. This is being modified a little: In Boosey & Hawkes, the Second Circuit says district court should have been willing to think about hearing claims under 18 different national laws. This tends to encourage a global settlement; he’s not aware of any trials resulting. Patent and TM haven’t been as consolidated, because of the registration requirements. The EU seemed like it was going to allow crossborder patent claims, but now they seem to have rejected that as well.

What about where infringement occurs? Can you do one step of a process in Canada, where it’s not patented, and the rest in the US where it is and avoid infringement? Recent answer from Federal Circuit: no. A localization principle. But should we have asked why the process wasn’t patented in Canada? That would have allowed us to assess Canada’s interest in the matter. We should also have asked whether this was a Canadian company, or an American company attempting to circumvent the law. Canadian government filed an amicus brief: national jurisdiction was at issue, but the opinion simply treated the issue as one of the definition of “use.”

Three points: (1) In an interconnected world, it’s perfectly possible that national courts will on occasion grant relief that has extraterritorial effects. (2) When we do that, we should use the tools of private international law to figure out how and when. (3) The Federal Circuit was indeed creating a tool of private international law, focusing on the place where the activity was controlled from.

Automatic incantation of territoriality blinds us. The normative claim of a sovereign to be the exclusive prescriber of laws has weakened in an age of interdependence, and the power to exclusively regulate within borders has declined. Increased private ordering, too—ISPs are setting norms.

You can think of extraterritoriality as disabling: if what we’re trying to do affects other jurisdictions, we can’t do it. We’ve never had a very strong version of that. Or we can say that extraterritorial effects enable us to regulate conduct elsewhere. But that’s too easy; US courts can find that anything happens here. So what is the approach of restraint and moderation? Qualitative assessment of effects. WIPO trying to figure out “use” of TM on the internet: tried to put a commercial effect + intent test into place to decide whether a mark used on the internet was used in a particular country.

Brett Frischmann, Loyola University Chicago School of Law, Spillovers Theory and Its Conceptual Boundaries

Starts with Wendy Gordon: “most of IP law is concerned with internalizing positive externalities.” He’d say that most of IP law is concerned with positive externalities, not necessarily internalizing them. Producing information involves producing a nonrivalrous public good with a lot of possible externalities. IP problems can be understood as questions of what types of externalities to leave alone and what types to promote.

His work is about spillovers: is his critique from within economics or without? This frames the question as one of the boundary between economic and noneconomic accounts of IP.

Standard economic story: information is a public good, undersupplied without a property right to make exclusion easier and create incentives to produce. Demand side assumption: the price mechanism best signals what we want. Function of property is to internalize externalities. Bearing the costs and capturing the benefits of one’s activity reduces distortions in resource allocation.

Spillovers argument: society may be better off letting some externalities go.

Externalities don’t necessarily distort resource allocation or behavior: actors won’t change behavior if they’re internalized. Even when they do, it may be preferable to let them flow or encourage unmetered flow. There’s a limit on the supply-side rationale—an incentives argument can always be made, but it lacks empirical support for infinite extension. People will continue to create/innovate at some level no matter what, and marginal changes in rights will not always have the same marginal effects. And the costs of internalization may be high. Moreover, reallocation may affect the behavior of third parties. Unless spillovers are internalized throughout society, which is impossible, the case for internalization in any particular context must account for cascading effects in other markets and in missing markets (including nonmarket systems).

Spillovers have a lot of implications. One question we might ask: do third parties realize costs and benefits with awareness and appreciation, and perhaps a willingness to pay if a market were to form, or are the costs and benefits realized more passively/taken for granted?

He thinks this is firmly rooted in economics, just an approach with fewer simplifying assumptions. One way to look at this: a set of costs that is overlooked in conventional theories. The difficulty: what social costs count? And how do we look at the difficult-to-measure foregone benefits of spillovers? Similar to concerns in ecosystem economics, but not beyond economics.

Mark McKenna, University of Notre Dame Law School, An Alternate Approach to Channeling?

The object of protection: a bunch of doctrines police the boundaries between regimes applying to a single object—functionality IDs features that don’t belong to TM and must be protected, if at all, by patent. Same with useful article doctrine in copyright.

These doctrines reflect an incomplete understanding of how these systems interact. You might be able to use one system to generate the benefits of another. Tylenol, acetaminophen, has been out of patent for 100 years. Nonetheless, it sells at a 50% price premium over generic brands, facing competition from the same product and from other pain relievers. This is a puzzle for IP theory. (Can’t you tell a bounded rationality story about why consumers pay this premium, relying not on the lack of difference between Tylenol and competitors but on the general experience that the national brand is somewhat different from the house brand? I don’t think I buy it, or at least I think that rationality so bounded becomes unpredictable using the standard tools, but I want McKenna’s take.)

If competitors copy the unpatented product faithfully, and produce things of similar quality, then TM doesn’t do much for consumers. If we think that there will be consequential differences between the TM and the generic, then TM matters a lot more. How much supercompetitive price the TM owner can command depends on the market.

Patent system makes decisions about scope and term by asking how much time people need to get an incentive to produce and disseminate the product. But if we ask that without asking how alternative forms of protection, like TM, do, then we’re likely to calibrate the patent incentive wrong. Patent protection increases the effectiveness of branding during the branding period—there aren’t many competitors, which increases the value of the brand and can be leveraged when the patent expires. If patent ignores the effects it has on TM, then we’re likely to make patent rights too big. (I really like this insight.)

Gideon Parchomovsky and Peter Siegelman argue that the intersection is good, because the patentee will price lower-than-monopoly during the patent period to create brand loyalty, and after the patent expires people will continue to pay the slightly-higher price. McKenna disagrees, among other things because that assumes there’s only one, binary TM right. But TM owners can claim lots of kinds of rights—21 TM/trade dress claims made by the owners of Tropicana for one bottle, along with the word Tropicana. Assume the OJ was patented. When it goes off patent, everyone can sell it, but they may not be able to sell it in similar-looking containers. Parchomovsky & Siegelman also think that it’s not problematic for people to continue to pay slightly higher prices, because that’s just a distributional consequence of having prior experience with the brand; no one but a prior user would pay the higher price. But brand preferences come from things other than prior experience: what you grew up around; what your doctor is used to using; what it’s cool to have; etc.

If the overlap is a problem, what to do? Could we create an election doctrine at a product level—you could patent the drug or you could brand it? The person in the best position to make a decision about value is the inventor, and forcing the person with the best information to make the choice is a tool we use in a lot of places in law. That’s interesting but not practicable because of the number of different branding elements; a court would need to be able to decide which branding elements you were disabled from using if you elected patent, and that’s really hard.

General rule: Try to strike the balance in a way that reduces the ability of any one actor to get the same economic benefit more than once.

Pamela Samuelson, Berkeley Law School, Evolving Conceptions of Patent and Copyright Subject Matter

Early letters patent were subject matter agnostic: land, machines, books, music. Patents had greater prestige than the cartel of the Stationers, and they could be broader (e.g., books on X), but patents were time-limited. Mario Biagioli, From Print to Patents: Early patent regimes didn’t distinguish between books and machines; some early scientific instruments like astrolabes were published as parts of books (one could cut out parts to assemble them), so they were protected by printing privileges and some even by copyright in the 1700s.

Early modern American law is the Constitution, which speaks of the respective writings and discoveries of authors and inventors, suggesting a division between the two. Of course books were “manufactures,” but early on excluded from patent as printed matter. Copyright protected “books” at the beginning, not the more abstract “original expression” or “work,” which was a 19^th-century development. Patent and copyright were in some ways quite similar: required registration and compliance with formalities; conferred exclusive rights over commercial use; courts sometimes used similar tests for infringement; and they even had the same duration, though copyright could be renewed. Courts sometimes confused the terms (hey, they still get confused today).

Until the 1850s, that which we now call IP was unsettled and diffuse. Early IP recognized some property rights in “mental labor,” but was in flux as to subject matter, rationale, and scope. Over time, literary and technical mental labor were distinguished: there would be no Hamlet without Shakespeare, but someone would have developed the steam engine without Watt. (Interesting to choose Hamlet, who in fact was without Shakespeare.)

IP scholars today seem to consider copyright and patent “mature” regimes at the highest stage of evolution, enshrined in national treaties, needing only fine-tuning. Occasional efforts to reconceive patent and copyright, most recently Jeanne Fromer’s Claiming IP. Copyright and patent are in ferment because of the digital revolution.

Why care about subject matter? Divergent requirements create potential arbitrage: it’s so easy to get copyright, protection lasts longer, requires no application or disclosure; if we allow people to protect invention with copyright, that has harmful consequences. This is reflected in Baker v. Selden. Davis v. Comitti (1885) hasn’t gotten as much attention, but it’s similar. Davis created a weather forecast barometer; won prizes, but didn’t patent. Someone copied, and Davis sued, claiming that printed matter on the face of the barometer qualified as a “book.” British court articulated a boundary: that was only for patent.

19^th century design protection: Parliament enacted a design law protecting ornamental designs for manufactures, such as ornamental fireplace screens and chairs. Design law was not as onerous as patent—cheap, fast—inventors flocked to it. Needed to refine subject matter: design protection was aimed at beautification, with a focus on form/shape. Patents focus on function. Less concern with overlap between copyright and design right.

Baker and Davis suggest a categorical exclusivity between copyright and TM. But the Supreme Court hasn’t found categorical exclusivity arguments persuasive in recent decades; that argument (that some interface hierarchies had been patented, therefore copyright was inappropriate) in Lotus v. Borland created a 4-4 split; Mazer v. Stein said that a design patent didn’t preclude copyright. The broadest statements from the Court suggest huge overlap—Goldstein v. California says “writings” are any “fruits of intellectual labor” and Diamond v. Diehr says “everything under the sun made by humans” is patentable. But that can’t be right. Traffix (also I think Wal-Mart) suggests the contrary.

There are lots of important things in fuzzy territory, hard to assign to one regiime. Computer programs, programming languages, interfaces, etc.

How to manage boundaries?

Doctrinal chanelling: printed matter exclusion in patent; useful article exclusion in copyright.

Sui generis law, such as semiconductor chip protection and vessel hull design protection, for subject matter in need of some protection against lazy copying but not needing full-dress protection. She still thinks that would have been right for software.

Incorporate subject matter in existing regime through legal fiction then use common law principles to adapt the existing principles: what actually happened with software. Called software “literary works” then changed infringement law—sui generis treatment created within doctrine.

Accept overlap in theory, but recognize that practical considerations will avert clash. What happened with design patent and copyright. Patent adopted a rule that you can’t patent “programs per se”—claims made at higher levels of generality.

Final strategy: develop a set of heuristics to facilitate migration to a more appropriate mode. Interfaces, early on, weren’t considered IP but revealted to customers to enable them to use a computer system. Over time, claimed as trade secrets and worried about reverse engineering, so they used license terms against it and claimed it was copyright infringement. IBM and Computer Associates claimed interfaces were part of a program’s copyrightable structure, sequence and organization. Altai ruled that interface design was constrained by external factors, not within scope of copyright; Sega said reverse engineering was fair use. Now, shift to patent, but maybe that’s not right either.

The conditions that promote innovation in literary/artistic fields are sufficiently different from those that promote innovation in tech to justify different regimes.

Factors to consider in sorting: tilt towards copyright: is it vulnerable to lazy copying? (not sufficient for copyright, otherwise DNA will be copyrightable.) Does it have aesthetic or literary appeal? Is informational content the key source of value? Are there lots of creative possibilities, unconstrained designs? Etc.

If we were starting from a clean slate, we’d want more sui generis regimes, and we’d want more evidence of market failure before acting, wanting just to solve the market failure and not go more broadly.

Lemley: Samuelson in dialogue with McKenna: Samuelson assumes some sort of election is in order; McKenna thinks it’s not possible (because he’s thinking TM, I think). Are we replacing one form of protection with another, or is there overlap at a different level of generality (e.g., patenting a program at a higher level of generality than the code)? Are TM-patent overlaps going to be different than patent-copyright?

McKenna: Yes, he wants to think more about copyright-TM. We’re talking about election in different ways. McKenna thinks election at the product level wouldn’t work, while Samuelson focuses on election at the feature level, with which McKenna is basically fine.

Samuelson: We’re very clear on election when it comes to trade secrets and patents.

Meurer for McKenna: Need a separate discussion for drugs than from everything else. State laws govern substitution of generics; lots of other policies (including FDA regulation of names and use of generic names). Marketing is so different that you need to split drugs out. More generally: Your comments suggested weakening TM, but better policy might be to weaken patent.

McKenna: Yes, focusing on the overlap doesn’t tell us which way to go to reduce overlap—could cut back on either patent or TM.

Sarnoff: How does Samuelson view constitutional questions?

Samuelson: she started out as a strong constitutional advocate of “writing” and “discovery” as limits but softened over time. Congress couldn’t decide to move everything from patent to copyright. She’s fond of Chris Sprigman’s Indirect Enforcement of the IP Clause. Constitutional values are reflected in the language of art. I s. 8 cl. 8 and those should be considered in interpretation, including in channeling decisions.

Sarnoff for Dinwoodie: Judicial competence has a huge role to play—American judges can understand effects, but they might be really bad at interpreting Chinese claims.

Dinwoodie: This goes not so much to a per se rule, but to a standard—can refer questions to other courts or can simply decline jurisdiction. But it should be discretionary. Much as we’d love to think patent lawyers are geniuses, we apply complex foreign laws all the time. Patent judges around the world collaborate and communicate.

Hetcher: For Frischmann: Challenge is to cleanly distinguish normative and descriptive. If you’re making a normative claim for using economics, spillovers are no more intractable than any other huge question the government confronts, like “should we give more money to TARP?” Filesharing is an amazing success for spillovers: extraordinary utility gains from sharing; the music industry claimed (1) it would die without internalization, and (2) it was a gateway crime. Now, we can measure how much filesharing goes on, so we can see the benefit; we can ask whether teen crime has gone up, and how much the music industry has been hurt (labels going down, other music going up). There’s some tractability of measurement here.

Frischmann: Demsetz, as an economist, strongly resists the claim that his thesis is normative. He says he’s just describing when internalization through property rights occurs. But even dropping certain complexities from the analysis because they’re hard to quantify or identify at the micro level is a value judgment. Broader argument: if measurement is intractable, maybe we have the wrong focus—maybe we should look at the types of activities that tend to generate certain benefits or costs. Fair uses, for example, are more likely to have beneficial spillovers; might then raise the burden of proving harm on those who would seek to suppress fair-use-like behavior.

Heymann: How do design patents fit into Samuelson’s scheme?

Samuelson: Interesting history there. Election theory operated early on in design patent/copyright, but Mazer v. Stein killed that. As a practical matter, it’s not a big overlap, because any time there’s an intermixture of functionality and aesthetic elements, that’s not going to qualify for copyright under the useful article doctrine, so there’s not much room for both ornamentality and separability. Firms don’t tend to seek both kinds of protection at once; the copyright industries are copyright industries, while others—like the shoe industry right now—go for design patents.

Heymann for McKenna: You mention in the paper that even post-patent, TMs have a quality control function. Consumers might not trust the statement that the products are identical. Say more?

McKenna: The statement that consumers rely on the TM for quality is overblown, given the scope of modern TM law. But even if it’s true, that actually just reinforces the point that branding can prevent the apocalypse of indistinguishable products without/after patent: maker can capture value through branding. Important question, then: how much forced distinction do we need to allow consumers to get the quality message without allowing the TM owner to capture additional value? (I’m not sure we can separate those out, because different consumers will have different reactions to the same mark/trade dress. But I’m willing to be convinced. Anyway, I think the reason we were pressing Mark on this was that he wanted to say that TM’s strength made it possible to think about decreasing the scope of patents, but then also wanted to say something about the consequences of protecting trade dress v. protecting only trademark in the classic sense, and that part of the argument is harder to connect up to the idea of channeling doctrines.)

Me, for McKenna: I wonder about the TM-false advertising boundary, too. Courts are really confused about what a false association claim is, false advertising or TM—e.g., Midler, the recent Facenda case. Channeling has very clear consequences: competitor standing and materiality.

Mazzone: Think about branding and placebo effects. People will say, regardless of studies, that the branded version works better. (Note that the literature on this is all over the place.) If the placebo effect works, why interfere with it?

McKenna: He’s not necessarily a fan of the placebo effect. If we protect that kind of value, it’s hard to prevent infinite expansion. Anyway, they’re still paying a supercompetitive price. If everyone got to sell the drug and call it Tylenol, that effect would go away.

Conclusion: Where Do We Go From Here?

Wendy J. Gordon, Boston University School of Law

Questions of boundaries between people: how much do we constitute each other? How much do authors create us? We think by making divisions. But our current divisions are dependent on history. McKenna: There are all sorts of ways to combine incentives, durations, scope, subject matter. The hypothetical product-by-product election regime helps us to see the world anew.

Jessica Litman, University of Michigan Law School

Yesterday she heard a whole lot about how the copyright and patent systems were sick. The ecosystems they’re creating aren’t particularly hospitable to inventions and works of authorship. Today, with the exception of McKenna, she heard that the system was working, or at least could work if we expended sufficient mental effort to get our boundaries right. Her conclusion: our systems are deeply ill, and some evolution is necessary to help them continue to promote creativity and competition. While we may define ourselves with respect to each other by what ponds (branches of IP) we’re in, we need to be focusing on the water, and what it is we want to generate with our different regimes, doctrines, etc.

Congratulations to Laura Heymann & the Law Review for running a provocative and entertaining conference.