Sunday, May 17, 2009
Posted by D. Daniel Sokol
ABSTRACT: Antitrust and intellectual property law are both concerned with improving economic welfare by facilitating competition and investment in innovation. At various times both antitrust and IP law have wandered off this course and have become more driven by special interests. Today, antitrust and IP are on very different roads to reform. Antitrust began its Errand into the Wilderness in the late 1970s with a series of Supreme Court decisions that linked the plaintiff’s right to recover damages or obtain an injunction to the competition-furthering goals of antitrust policy. In the process antitrust moved from a regime in which harm was more or less presumed to one that requires strict proof. Today, patent law has begun its own reform journey, but it is in a much earlier stage. The outlook for copyright law is much bleaker.
The main component in these reform journeys has been the development of a concept of harm that is related to the underlying goal of legal policy. In its 1977 Brunswick decision the Supreme Court largely ignored the language of an expansive antitrust damages provision that gives private plaintiffs treble damages for every injury caused by an antitrust violation. Rather, the Court said, the type of harm must be sufficiently related to the underlying goals of the antitrust laws, which is to make markets more competitive. We propose a concept of “IP injury” that does something similar by limiting IP remedies to situations in which the IP holder has suffered actual harm that is sufficiently linked to the underlying purpose of the IP laws, which is to incentivize innovation. After all, an infringement that benefits the infringer and does no cognizable harm to the IP right holder or anyone else is a pure Pareto improvement – something that can be said of very few involuntary transactions. The trick for legal policy is to determine when the IP holder has not suffered any cognizable harm. This analysis requires a re-examination of IP externalities, or spillovers, where IP should follow the antitrust lead in permitting the market to correct for them, intervening only where it can be shown that the inability to recover for an external benefit has a material impact on ex ante incentives to innovate. As in the case of antitrust, reformation of IP’s theory of harm will very likely have to come from the judiciary and not from Congress.