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FTC Proposal for Regulating IP Will Harm Consumers

Written by: Richard A. Epstein (left),
F. Scott Kieff (center) & Daniel Spulber (right)
Posted: August 11, 2011 @ 3:37 pm
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In its recent report entitled “The Evolving IP Marketplace,” the Federal Trade Commission (FTC) advances a far-reaching regulatory approach (Proposal) whose likely effect would be to distort the operation of the intellectual property (IP) marketplace in ways that will hamper the innovation and commercialization of new technologies. The gist of the FTC Proposal is to rely on highly non-standard and misguided definitions of economic terms of art such as “ex ante” and “hold-up,” while urging new inefficient rules for calculating damages for patent infringement.

To be sure, the FTC Proposal does not seek to confer upon the agency any direct power to set the price of licenses. But if implemented, the FTC Proposal would achieve that end through a long process that runs as follows. At the first step, the FTC Rules all suggest that the currently observed prices in licensing arrangements are too high, and should instead be set in accordance with the FTC’s own untested—but evidently unwise approach to “reasonable royalties” and “incremental damages,” which are nowhere observed in the extensive practice within the industry. So long as such new approaches are made available to potential licensees as of right, they will have a strong incentive to abandon the voluntary market in order to obtain the benefit of such judicial pricing rules that are systematically more favorable to their interests.

Stripped of the technicalities, the FTC Proposal would so reduce the costs of infringement by downstream users that the rate of infringement would unduly increase, as potential infringers find it in their interest to abandon the voluntary market in favor of a more attractive system of judicial pricing. As the number of nonmarket transactions increases, the courts will play an ever larger role in deciding the terms on which the patents of one party may be used by another party. The adverse effects of this new trend will do more than reduce the incentives for innovation; it will upset the current set of well-functioning private coordination activities in the IP marketplace that are needed to accomplish the commercialization of new technologies. Such a trend would seriously undermine capital formation, job growth, competition, and the consumer welfare the FTC seeks to promote.

In a newly released paper titled The FTC’s Proposal for Regulating IP through SSOs Would Replace Private Coordination with Government Hold-Up we examine how these consequences play out in the context of standard-setting organizations (SSOs), whose activities are key to bringing standardized technologies to market. If the FTC’s proposed definitions of “reasonable royalties” and “incremental damages” become the rules for calculating damages in patent infringement cases, the stage will be set to allow the FTC and private actors to attack, after the fact, all standard pricing methods through some combination of antitrust litigation or direct regulation on the ground that such time-honored royalty arrangements involve the use of monopoly power by patent licensors.

We conclude that the FTC has not identified sufficient evidence to raise serious doubt about the current efficiencies of the IP marketplace. The default assumption should be that that the consensus SSO IP licensing policies and practices are well-tuned to ensure balanced incentives to all necessary participants in the chain of innovation and commercialization, both to make necessary investments, and to participate in the standardization process.

Indeed, the available empirical evidence suggests that these existing rules and practices work well. If sound empirical evidence of a problem requiring legal intervention did emerge, then responses should be far more carefully targeted than the approaches in the FTC Report. They also should be far more attentive, through careful dynamic analysis, to the risks of unintended consequences such as creating perverse incentives for infringement, against licensing, and against the investment essential for later rounds of innovation.

The FTC advances no evidence for the alleged problems of patents and SSOs and fails to address the considerable evidence that markets and SSOs function effectively. The interests of consumers are well represented by SSOs and competition among technology implementers who at the end of the day must make goods and services that people wish to purchase. Government interference with SSOs and innovation will only harm the interests of consumers.

In consequence, the FTC’s Proposal, if adopted, could well encourage potential licensees to adopt the very holdout strategies the FTC purports to address and that well-organized SSOs routinely counteract today. Simply put, the FTC’s proposal for regulating IP by limiting the freedom of SSOs to set their own terms would replace private coordination with government hold-up. The FTC should instead abandon its preliminary recommendations and support the current set of licensing tools that have fueled effective innovation and dissemination in the IP marketplace. FTC forbearance from its unwise Proposal will improve bargaining incentives, reduce administrative costs, and remove unnecessary elements of legal uncertainty in the IP system, thereby allowing effective marketplace transactions to advance consumer welfare.

About the Authors

Richard A. Epstein is the James Parker Hall Distinguished Service Professor Emeritus of Law and Senior Lecturer at the University of Chicago Law School.

F. Scott Kieff is a professor at GW Law School and a senior fellow at Stanford University's Hoover Institution, where he directs the Project on Commercializing Innovation.

Daniel Spulber is the Elinor Hobbs Distinguished Professor of International Business and Professor of Management Strategy at the Kellogg School of Management, Northwestern University.


56 comments
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  1. The FTC, as an agency, has an innate bias against the constitutional directive for “exclusive” right.

    This fact alone sets the tone for anything published from the agency.

  2. Anon-

    Well said! The FTC seems to have a bias against patents and are allergic to exclusive rights despite what the statute clearly says and provides.

    I wish they would go after the scams, unauthorized practice of law and outsourcing in violation of US laws rather than declare war on the patent grant itself. Scams, unauthorized practice of law and illegal outsourcing are all far bigger matters for the industry and directly relate to trade / commerce.

    -Gene

  3. Gene,

    Who is responsible for assuring that a Wikileaks equivalent has not and/or is not happening at the U.S. Patent Office? Is it the FTC ?

    For example:
    Are other countries or companies, systematically doing mass downloads of our “confidential” submissions at the USPTO?
    Is technology in place to prevent mass copying or downloading of complete file directories/sub-directories?
    Are download records kept of each employee/contractor/access-port activity?
    Are unusual quantities of downloads/copying being detected and flagged for investigation?
    Are telecommuting security standards sufficient?

    If the U.S. moves to the proposed first-to-file system with the gutted grace period, there are even greater competitive implications for Wikileaks type events at the USPTO.

  4. “Such a trend would seriously undermine capital formation, job growth, competition, and the consumer welfare the FTC seeks to promote”.
    this statement is as baseless as those of the FTC, while i believe that the threat of” abandon(ning) the voluntary market in favor of a more attractive system of judicial pricing” would at least help to get rid of these trolls which are not known to increase ” capital formation, job growth, competition, and the consumer welfare” .
    The dude

  5. Perhaps the IP community could somehow sit down and set up a set of voluntary parameters for each broad category of subject matter: software, biotech, business methods, etc., so that the courts and others would at least have a starting point to calculate damages. Right now, it is a black box. Absence of any any on the part of the IP Bar, the FTC and other agencies will attempt to step in where they clearly don’t belong. A copyright-like statutory damages statute would not work in patents, where the techonologies and the businesses that rely on them are so different. Regulatory agencies hate a vaccum. As long as the IP community allows a vaccum to exist, and the consequential problems facing the courts and patent owners trying to calculate damages, the FTC and other agencies will feel the need to step in. Surely, there is a group of knowledgeable IP valuation gurus out there that can put together a framework that hopefully, some courts and litigators might pick up.

  6. “Absence of any any on the part” should be “Absence of any action on the part…”

  7. Back in the 1970′s the Department of Justice AntiTrust Divisions was viscerally antipatent. The went to bar associations giving speeches about what they considered to be illegal licensing terms, called by many “the nine no-no’s.” The Carter administration had a Domestic Policy Review of folks in the IP field that came out with a report that threw cold water on the 9 no-no’s and the DOJ backed down. Another outgrowth of that DPR was the creation of the Federal Circuit..

    The DPR also addressed the common foreign requirement of “working” and its concomitant requirement of compulsory licenses for unworked inventions. It decried them.

    Somebody needs to dig up a copy of the DPR report and send it to the FTC for required reading.

  8. “I wish they would go after the scams, unauthorized practice of law and outsourcing in violation of US laws rather than declare war on the patent grant itself.”

    Gene,

    Here, here! The FTC is becoming a bigger, more overly “self-righteous” and more annoying menace than even the Antitrust Division of DOJ. Frankly, those pompous busybodies in the FTC need to “get a life’ and focus on more important problems that involve trade in interstate commerce.

  9. What is the current status of the revised horizontal merger guidelines that the FTC and DOJ issued about a year ago, as reported on this blog? The gist of it was that the impact on innovation needed to be considered in antitrust analysis. That struck me as the key to harmonizing IP and AT law. Since the goal of IP is to promote innovation (progress in the Useful Arts), AT can provide a check against IP abuse that thwarts innovation. For example, refusal to license IP on reasonable terms to one who has patented and wishes to practice an improvement upon that IP.

  10. ” refusal to license IP on reasonable terms to one who has patented and wishes to practice an improvement upon that IP.”

    Ron, sounds to me like you don’t understand what “exclude” means.

    And, even if your compulsory licensing scheme were to be adopted, who gets to judge what “reasonable” is?

    On second thought, maybe you have a point: I have a travel trailer that I think would look good on the land in your back yard. I think it is reasonable for me to pay you $10 a month so I can park it there.

  11. I understand that patent rights are necessarily exclusive, and most of the time that works just fine toward achieving the overarching goal of promoting progress. But sometimes it backfires, and there needs to be a practical legal basis for handling those exceptional cases. As to who gets to decide, it would be the judicial system. A judge would probably decide against your trailer in my backyard, but if I owned the entire commercial district in the middle of town and had one dilapidated, abandoned building that you wanted to develop, which would improve the area and benefit the community as a whole, but I refused to cooperate at any price because I didn’t want you bringing me any competition, the judge might see it differently.

  12. “Somebody needs to dig up a copy of the DPR report and send it to the FTC for required reading.”

    I believe you’re referring to Final Report of the Advisory Committee on Industrial Innovation. It’s hard to find a print copy, so the Stanford University Hoover Institution’s Project on Commercializing Innovation (which I work for) has a complete copy of that report on its website as part of the online materials for the patent law textbook and treatise that F. Scott Kieff co-authors: http://innovation.hoover.org/ppl/view.aspx?chapter=1

    The full report is quite large (223MB), so the individual subcommittee reports are also available. Although the report was scanned from the print version it has been OCR’d to enable searching. The report on Regulation of Industry Structure and Competition is the primary report for antitrust issues, particularly:

    Issue 6: Antitrust Policies can Inhibit Innovation
    and
    Issue 7: American Market is But a Component of the World Market – and Must be so Perceived by Antitrust Authorities

    I agree that many of the antitrust and patent law issues that are debated today were thoroughly analyzed by the authors of that Report. It was started under Carter and finished under Reagan, and included input and comments from representatives of small business, labor, and public interest groups (including environmental groups), so it’s a very well-rounded report. Many of its recommendations (such as the creation of the Federal Circuit) have been implemented with considerable success. It’s a shame we keep fighting the same battles when we already have a solid roadmap that is largely still applicable today.

  13. But sometimes it backfires, and there needs to be a practical legal basis for handling those exceptional cases

    Dangerous, undefined and value laden terms
    - backfires (backfires for whom? the patent owner who has every night to do absolutely nothing with his invention?),
    - practical (practical for whom? the party who wants something they by law cannot have?),
    - exceptional (exceptional by what standards? certainly not the patent law standards).

  14. The backfiring would be that the patent system promoting progress when this happens. So, the whom would be society. Also, your claim that the patent owner “has every night to do absolutely nothing with his invention” has somewhat vague wording. The patent owner has every right to do absolutely nothing with their invention, but in such a case, they shouldn’t be given anything more than a reasonable royalty when someone else decides to do something with their invention. Giving the patentee the right to stop all usage of an invention is pointless. Nobody wants that. The only reason anyone would claim to want that is so they can’t get an UNreasonable royalty through extortionate techniques, or maybe to keep a more profitable business from being displaced by the advantages usage of the invention would bring. Neither of these behaviors should be tolerated.

  15. The backfiring would be that the patent system ISN’T promoting progress when this happens.

  16. The reason we get lousy policy like what the FTC is proposing, and the patent reform bill currently before Congress, is that a few bad actors exploiting the current system are causing us to lose the PR war with the public. Neither doggedly defending the current system because that’s just how it works, nor calling for its complete abolishment, will solve the problem.

  17. This country has many odd and seemingly diametrically opposed belief structures.

    Take for instance, free speech. We will (and have) fought to the death to give ourselves and our enemies the right to say things we do not like or agree with.

    So too, there is a dichotomy with patent rights.

    The patent right is a right to exclude. PERIOD. It is not a right to exclude unless

    …unless someone else thinks that the item excluded really should be in play, in use, for whatever reason. Cloaking “the reason” in the name of “society” is especially dangerous, because to dare go against that “reason” is dare to be called unAmerican or unpatriotic. And while I would never, NEVER burn my flag as a sign of speech, I will fight to the death to protect your right to burn that very same flag as a sign of your speech.

    The only people advocating to Shanghai your right to do what you what with your property are those who do not undertand what “exclusive” means. Rather than Kowtowing or saying “well, you really should share,” I say NO, “exclusive” means exclusive. You don’t like that? then invent something or someway around it. That after all is also one of the tenets of the Patent System. Something locked out of reach invigorates the creative juices. That is why Plato said, “Necessity is the mother of all inventions.

    I will not bend to the PR battle. I will not give up one inch in any type of Chamberlainesque Peace in Our Time. And I most definitely will not buy into any type of forced royalty which debases the entire meaning of “exclusive.”

    The answer to “lousy policy” is not to accept a modified, slightly less lousy policy. The answer is to preserve the essence of the right.

    So Bobby and Ron, I will fight to the death for you to have the right to say the things you have said, just as I would fight to the death to prevent those very same things from destroying what a Patent Right is.

  18. Stan,

    While we both know that it will not be a big seller, I need the formulation of the Necessity Nectar drink from your lab soon.

    Thanks for your continued hard work.

  19. “The patent right is a right to exclude. PERIOD. It is not a right to exclude unless”
    Except that the patent system is opt-in for Congress, just as the copyright system is. In certain areas of copyright, we have opted for compulsory licensing, where the copyright gives “a right to exclude unless.” There is no reason that we couldn’t apply similar standards to patents, as “the exclusive right” has the same meaning applying to both copyright and patents in the constitution.

    “Cloaking “the reason” in the name of “society” is especially dangerous, because to dare go against that “reason” is dare to be called unAmerican or unpatriotic”
    The reason is SUPPOSED to be for society.

    “And I most definitely will not buy into any type of forced royalty which debases the entire meaning of “exclusive.””
    Your insistence on a strict interpretation of exclusive belies that you’ve lost sight of the goals of the patent system, and it’s in conflict with the way certain parts of copyright law works with “exclusive” rights.

  20. BD-

    Excellent and Empirical analysis in message #16, even if some are incapable of or unwilling to understand much what you are saying there. I also tend to agree with the authors, EG and Gene about the FTC trying to *fix* something that was never broken, much like what Congress is trying to do with their badly mis-guided attempts at *patent reform* that is supposed to “streamline” the US patent system while also reserving the right to take away the USPTO’s funding whenever Congress finds it convenient for them. How pathetically short-sighted of them, when they are dealing in Billions and Trillions these days, and they still want to take away the filing and search fees that I paid to the USPTO? Sounds a bit like theft to me, but then again they are our *lawmakers* so I guess they can just make theft legal in their particular case.

    The Necessity Nectar formulation is coming along nicely, with just a few things needed to help improve the bouquet a bit to make it more palatable. I will be sending the formula in three separate parts so that we can retain out Trade Secret rights, as if patent reform passes as currently contemplated, a patent medicine approach will probably become nearly useless. So how is That for the greater good? Just write each of the 3 parts down on paper and delete each of the 3 parts permanently from your computers.

    Cheers,
    Stan~

  21. Bobby,

    Re your cloaking rebuttal: How is that understanding of yours concerning Quid Pro Quo coming along?

    Until you recognize the fatal flaw in your lgoic, that there is more than just “society” and the government involved in the patent right, until you recognize that actual inventors are involved, your comments are relatively worthless.

    I say relatively (and not completely) because you actually make a good point here (at the risk of confusing patent and copyright law, which have some critical differences – independent creation under copyright law for example), on the compulsory licensing aspect. I will have to review that aspect to see if there are any other critical distinctions that can be made.

  22. Again, quid pro quo is not that complex. And I havent denied that inventor’s are involved despite your repeated, deliberate misinterpretation of my words. I’ve just said that our concern with inventors in regards to the patent system would be focused only on getting the most innovation we can out of them at the least social cost. That may entail being generous towards inventors if doing so fosters more innovation, but it’s important to not lose focus of the purpose of the system, and to understand cases where the right choice is to not be so generous.

    I recognize that there are lots of differences between copyright and patent law, and I’m not aware of any comprehensive system of compulsory licensing in regards to patents. However, it’s quite clear that “exclusive” in the progress clause has been interpreted as “only excluding those that don’t pay compulsory licenses” in certain instances, so that option is clearly on the table. If it happens to be the best option for a certain set of conditions, it ought to be utilized.

  23. I’ve just said that our concern with inventors in regards to the patent system would be focused only on getting the most innovation we can out of them at the least social cost

    Hardly the comparison that is required, and points out that my characterization is indeed on point – Quid Pro Quo inherently has an equality – not a stiff-the-inventor tenor.

    You also need to understand that the consitutional directive is not, nor ever has been understood to be a case by case, single invention by single invention power. Further, you must understand that any single invention’s evaluation cannot be done apriori, if at all – if but for the single reason that a single invention may be the catalyst for a design around invention that itself has a fundamental breakthrough and ripple effect. There simply is no way to make the value judgement needed to fit your dogma, nor do you (or can you) provide a legitimate source of just who would be making such a “case” value call.

    As I posted above – dangerous, undefined and value laden terms.

    .

  24. As I am looking into the copyright compulsory license history, this tidbit is very interesting…:

    In 1909, Congress created the first compulsory license to allow anyone to make a mechanical reproduction (known today as a phonorecord) of a musical composition (1) without the consent of the copyright owner provided that the person adhered to the provisions of the license. The impetus for this decision was the emergence of the player piano and the ambiguity surrounding the extent of the copyright owner’s right to control the making of a copy of its work on a piano roll. The latter question was settled in part in 1908 when the Supreme Court held in White-Smith Publishing Co. v. Apollo Co. (2) that perforated piano rolls were not “copies” under the copyright statute in force at that time, but rather parts of devices which performed the work.”

    …the “mechanical” license as structured under the 1909 Copyright Act was infrequently used until the era of tape piracy in the late 1960s. When tape piracy was flourishing, the “pirates” inundated the Copyright Office with notices of intention, many of which contained hundreds of song titles. The music publishers refused to accept such notices and any proffered royalty payments since they did not believe that reproduction and duplication of an existing sound recording fell within the scope of the compulsory license. After this flood of filings passed, the use of the license appears to have again became almost non-existent; up to this day, very few notices of intention are filed with the Copyright Office.

    from “http://www.copyright.gov/docs/regstat031104.html”

    Bobby, clearly the allusion to cumpolsory license in the Copyright domain does not have a parallel in the patent domain. There are just no matching fundamental basis for doing so.

  25. If the inventor were to feel they would be stiffed by the terms of the patent system at a certain time, they could simply opt to not seek a patent, and they’d get a perfectly equal deal: nothing for nothing. There’s probably a good argument for grandfathering existing patents against limitations of new terms, but that needs to be a two way street, in which they will not receive benefits from new terms. For example, when the US changed from 17 years after issuance to 20 years after application, and existing patents prior to a certain date received whichever protection was longer, many patentees received a benefit from a change of rules, but did not suffer if the change of rules would be harmful. This is clearly not a two way street. We can either opt to grandfather or not grandfather existing patents.

    For a compulsory licensing scheme, trying to evaluate case by case would be difficult without established guidelines. The first concern would be under what conditions compulsory licensing would be used. Within that, the next criteria would be establishing what constitutes a ‘reasonable royalty.’ An upper limit of either a set price per unit or percentage of unit price may be helpful as a general rule, and consideration for the role the patented portion plays in the whole final product, the availability and viability of alternatives held by other parties, and other factors such as the need for interoperability could be taken into play. Determining these things may be difficult, but they are going to be much easier to determine than whether or not something is obvious or not, and that’s a consideration already made on a case by case basis.

  26. Ought to be utlized? How generous of you Bobby! You seem to have glossed over the *greater good* scenario by trying to compare Copyright law to Patent law? You are trying to compare Apples to Oranges, but guess what? They are Not the same. So I suppose next you would just avoid having to deal with MY patent rights by just making all or most patents a thing of the past? Be careful what you wish for, as there is a serious movement afoot to do away with software patents entirely, which just recently happened in New Zealand, and will probably happen in Australia in the very near future.

    The world Does Not revolve around Bobby and whatever he wants, but rather what has been proven over about 235 years to be the best way to stimulate innovation. The current patent system was first tried in Vienna about 400 years ago, and then England mostly adopted it, but the Americans altered the concept quite a bit, and Americans have benefited very greatly after that. Can you deny that Bobby? Why would I spend about 1000 hours and thousands of buckaleros to develop superior types of wind turbines if I have no possibilty of acquiring a US patent to try to re-coop some of my investment? The odds are already very steep, and then I am supposed to listen to a beserker that just wants to steal the handle off of the pump of innovation? (“The pump don’t because the vandals took the handle”) Bob Dylan, circa 1968 or thereabouts.

  27. Where an improvement upon existing patented technology is involved, circumvention, while it may require significant innovation, rarely leads to forward progress. For example, given the high level of commercial activity in alternative energy, it is unlikely that any wind turbine improvement will not infringe some existing wind energy patent. I know inventors who are working on both wind and hydro turbine technology. It is a very active field.

  28. Hello Ron-

    Not according to my patent agent, Dr. David Kiewit, who checked my patent search very carefully. http://www.patent-faq.com/ He has a success rate of more then 90% for getting patents allowed, and fortunately I had some very expert assistance while prparing the drawings. The same basic concept will be emminently usable in Ocean Currents or even large rivers as the application is currently written. I think I personally looked at about 4000 patents while developing about 10 different approaches over the last few years or so. I just hope that I was not too late in filing my formal patent application about 3 weeks ago.

    Cheers,
    Stan~

  29. Stan, My point was not whether your invention is patentable, but whether you may need a license from one or more existing patent holders in order to practice your invention.

  30. Hi Ron-

    Apparently Not, as it seems to actually be *New and Novel* according to a very experienced patent agent. The closest things we could find were rotors that did the A function, which is of questionaable value, and none of the prior art seemed to even suggest the B factor, which I found to be very remiss of them. There were some airplane propellor patents in the mid to late thirties that sorta hinted at it, but nothing that creative claims language will not be able to get around pretty effortlessly. Dr. Dave examined the relevant claims very carefully, and came up with some very generous claims for me that will most likely be uncontested, short of ex-parte re-examination or others that would like to poke a stick into the spokes of my particular wheel.

    BTW- Non-publication requested, as I don’t care to have knock-offs coming in from China or India about 2 years before my US patent finally issues. I think that would be called *prior art* in some circles.

    Stan~

  31. Stan,

    Ron is not talking about the ability of you to obtain a patent, but rather, even to practice your very own patent (fully valid) that is an improvement on other technology, that other technology may still be under patent and you may need to obtain permission (license) from that someone else for the thing for which the improvement patent improves upon.

    This highlights the fact that a patent is not a positive right, but a negative right. You actually do not have a right to practice your invention, as you do a right to exclude others from practicing your invention.

    And yes, this is another crtitical difference between copyrights and patents.

  32. If the prior art includes a valid patent A, and someone invents and patents an improvement upon it B, then they still need a licence from A to practice A+B, even though A+B is new and novel. Stan’s particular invention may not have this problem, but it can and does occur. If A refuses to license to B, then society is deprived of A+B.

  33. Hi BD-
    While I appreciate your and Ron’s concerns in my situation, there is actually very little existing art to try to claim around. If none of our claims interfere with each other, I believe I should not have to seek a license with other patent holders. The Deering patent circa 1994 uses hydraulic and electrical circuits to actively do what I am trying to do using just the power of the wind, and we avoided their very complex rate of change sorta whatever by doing things completely differently. The Shim patent is even More clueless, as he does nothing useful with coning besides dumping a small amount of potentially damaging wind energy, and very slowly at that. Besides that, his patent is painfully cartoonish, which is really neither here nor there I suppose, but it calls their qualifications into question just a bit to my way of thinking.

    Regards,
    Stan~

    Ron- I saw your A plus B remark, and you are right about that. In my case there is no real A invention at all, let alone the B aspect that is the real improvement in my mind.

  34. And it gets worse. If A controls a given market, all they need to do is continue making and patenting small changes to A (C, D, E, etc). So when patent A expires, C is still valid, and so forth. At that point, A+B can be practiced without a license, but the market now requires A+C at a minimum. So A+B+C is still blocked, and thus society can be deprived of B indefinitely.

  35. Ron-
    Worse for whom? If I can claim legimate title to the B portion, won’t the C,D and E inventors need to talk to me about licensing what I am claiming? The first Deering patent expires this year, and their later patent makes only incremental improvements. Near as I can figure, my patent Might issue circa 2014, unless they can find blocking prior art during the examination. If others can develop C+D+E iterations, more power to them. The public will have benefited thereby, and shame on me for not inventing C,D,and E before someone else did. It helps a bit to be somewhat fatalistic if you try to play the innovation game. Sorta like gambling in a way, which never really appealed to me at all, but I am a total sucker for thinking I might actually win the invention lottery some day.

    Stan

  36. If none of our claims interfere with each other

    Yes, in that case Stan you do not have the condition that Ron is discussing.

    HOWEVER, Ron is still making a critical value-laden error.

    . If A refuses to license to B, then society is deprived of A+B.

    But society is not deprived, because being able to practice A+B is not part of the Quid Pro Quo – patents are a negative right and there was no right to practice to begin with.
    This thought also ignores the fact that society is not deprived in that in time A+B belongs to everyone and immediately everyone has been made aware of A+B and can use this information to design around (if they too are inventive).

    but the market now requires

    Requires? As in requires by law? Or are you thinking more of market forces and standardization? I would posit that you are trying to have both sides of a coin in that your additional inventions are impliedly “minor” and that they are neither obvious (which prevents a patent) or noncritical (which would prevent “the market” from simply doing without A+C+etc. Once again, the answer to this false dilemma is that a patent right is not a positive right to do anything. The nature of the right is only to exclude and that is why a forced compulsory licensing scheme cannot be compared to copyright.

    Plus, you do realize that the option of not having the invention is always there, do you not? (this would be the corrolary to Bobby’s “two way street” analogy)

    Do you realize that your situation of “it gets worse” is merely robbing the later inventors (C+etc) of their impact and you are making a value judgment between those inventions and the B invention?

  37. Please pardon the thread crossover – see the Drafting a License Agreement, A Patentee Perspective thread.

    The “proper” royalty base does not exist because that is a market driven point of negotiation.

    That is another reason why compulsory licensing is a dangerous concept. The reality of the market is that there will not always be a license drafted, there will not always be a meetign of the minds. It is up to the participants to agree to agree and the power to walk away from any deal is a critical component of the free market system. By forcing an agreement, the government has become a Nanny-state intruder into the freedom to contract that is getting the short shrift.

    This is not to say that a State’s police powers cannot intervene – but it is to say that the type of intervention is necessarily a Federal power and any such intervention – by the appropriate branch of the government (the legislature) will need to meet a strict scrutiny analysis – which entails that no other mechanism is available, and as this country has had such a mechanism for hundreds of years, any compulsory licensing law would have (and properly should have) an extremely uphill battle.

  38. [...] A. Epstein, F. Scott Kieff, Daniel Spulber. IP Watchdog, 11. August 2011. [...]

  39. In some ways the negative patent right, the right to exclude others, is analogous to negative feedback in an engineering system. It needs to be negative to insure system stability. Positive feedback loops can cause a chain reaction leading to a destructive meltdown or explosion. But sometimes negative feedback can result in a system deadlock, and there needs to be an external force to give it a little kick to get it moving again. Deadlocks tend to favor the status quo (market incumbents, defacto industry standards, etc.). In order for innovation and progress to be served, sometimes a little creative destruction (antitrust) is just what is needed.

  40. BD,
    A copyright (at least in current incarnations) is not a positive right. It is purely a negative right as well. That fact has led to many legal jungles when a work contains another work, like WKRP in Cincinnati, which had negotiated for short term use of the songs in the show, which made releasing DVDs with the original music not a plausible option. However, copyright allows for independent authoring, and truly independent authoring of the same work is very rare anyway. That means that an independently working author has virtually no chance of coming up with the same book, while an independently working inventor has a fair chance of inventing the same idea, especially with ideas that are just beyond what is considered non-obvious by the patent office.

    Your accusation of a Nanny state intruder is quite amusing, because compulsory licensing is actually less enforcement of restrictions by the government. People are still free to contract, it’s just that the licensor isn’t given as much leverage over the licensee.

  41. A copyright (at least in current incarnations) is not a positive right. It is purely a negative right as well.

    This is incorrect. Was the Holliday Inn too expensive to stay in last night?

    actually less enforcement of restrictions by the government.

    Yes, if you view the property of a patent right as a “governmental restriction”, but most people do not twist the language to make black mean white as you are attmepting here. Let’s start withthe foundation that a patent is valid and is a valid right. This brings the patent outside of your dogmatic charge that the patent itself is a government restriction. You are falling prey to your erronous logic of thinking a Free Market is an Unregulated Market. It is not. And you are going to have to do a better job at explaining how the compulsory licensing still maintains the rights of both parties to walk away from a deal. It is really hard to see how you are applying the word “compulsory.”

  42. In some ways the negative patent right, the right to exclude others, is analogous to negative feedback in an engineering system

    And in some ways it is not. As in the essence of the property right itself.

    Now Ron, if you are leading to a <i.different discussion on property (i.e. an eminent domain taking), that too we can discuss, but that is a decidely different flavor than the compulsory licensing (there are different strict scrutiny analysis at play).

  43. Yes, a property right that allows you to build a fence on the property line – and nothing else. All analogies break down if pushed too far.

  44. “This is incorrect. Was the Holliday Inn too expensive to stay in last night?”
    So, what positive rights does copyright convey? I hope you aren’t depending on independent authorship to back it up, since it’s practically nonexistent in practice, and a copyright isn’t even necessary for such an exception to happen.

    “Yes, if you view the property of a patent right as a “governmental restriction”, but most people do not twist the language to make black mean white as you are attmepting here. Let’s start withthe foundation that a patent is valid and is a valid right. This brings the patent outside of your dogmatic charge that the patent itself is a government restriction.”
    It is a restriction. Freedom is the norm. Patents are the exception to that norm, and they require governmental bodies not just to enforce them, but to even decide whether or not they should be granted.

    You are falling prey to your erronous logic of thinking a Free Market is an Unregulated Market. It is not. ”
    It is in certain contexts, and you are being inconsistent. If patents aren’t a regulation, then you can have patents in a unregulated market. The proper argument for you to make is to claim that a free market isn’t inherently perfect, and that we need exceptions. However, there are certain political circles that are very resistant to such ideas, and exceptions generally have to bear the burden of evidence for their justification.

    “And you are going to have to do a better job at explaining how the compulsory licensing still maintains the rights of both parties to walk away from a deal. It is really hard to see how you are applying the word “compulsory.””
    The wording is somewhat strange. It is compulsory in context to a fully exclusive patent, but it’s probably more appropriate to see it not as taking something away from the patentee, but not giving so much to them in the first place. It’s an exception to an exception, and is in the direction of the competitive norm.

  45. Hi Ron and BD-

    A very stimulting discussion if nothing else. It might be useful to ignore some comments, as they seem to be more confusing of the facts than is practically useful. The *property line* would seem to be the claims to any particular invention, and nothing more or less. Some here might not even Get the idea of claims, let alone expounding for dozens or hundreds of pages about how clueless they are as regards patent rights. I repeat again, when I suggest that you are wasting your time trying to educate those that will nearly always refuse to learn.

    Your choice of course, but I hate to see your calber of knowledge being wasted on a hopeless case. They dislike or Hate patents, for reasons only they can know, which ipso facto paints a whacko perception upon their comments here of all places. Accusing BD of sending conflicting messages is totally ludicrous, and seems to indicate that the sender is skating on very thin ice. (By way of analogy, which was very ncely done Ron) Negative feedback prevents things from running away, but a Check and Correct function is also needed.

    Best regards,
    Stan~

  46. Bobby,

    So, what positive rights does copyright convey?

    How about, the positive rights to copy, to distribute…

    For additional positive rights, I suggest you actually do some research into the law – you will be amazed at what it actually says.

    The rest of your dogma is merely retreading positions already thrashed. I will let you open your eyes to search for them (watch out for the walls).

  47. BD,
    You do not need copyright to copy or distribute a work. Works with expired copyright, or works that were never copyrighted are copied and distributed all of the time. If the work in question is a derivative of another copyrighted work, you don’t have the right to copy and distribute it without permission from the copyright holder, so as I’ve already explained, holding the copyright to a work doesn’t mean that you actually can copy and distribute it. Those were the positive rights you claimed, and yet holding a copyright doesn’t mean you have them. Copyright doesn’t give you the right to do anything you couldn’t do without copyright. What it gives you is the right to exclude others from doing those things without your permission.

  48. Bobby,

    If you do not have the copyright in a movie, you do not have the right to distribute the movie. You seem to think that there is some innate (now here’s a particular parallel to the patent right) right to distribute whatever you want to distribute…

    When you are forced to mangle the meaning of words, as you do here, you are merely showing the consusion effects from all of the walls you keep running into.

  49. “If you do not have the copyright in a movie, you do not have the right to distribute the movie.”
    I do not have the copyright to the film “Nosferatu” and neither does The Internet Archive, but both of us can legally distribute it (in the US, anyway).

  50. Bobby,

    You continue to be wrong. Once an item passes to the public domain (with a caveat on the current foreign works case), the copyright is passed to everyone.

    It is only this that gives you that legal positive right.

    BAM – that was another wall.

  51. No, the copyright ceases to exist, and thus the work is not copyrighted anymore. Works of the US government are never copyrighted, and yet publishers are allowed to copy and distribute the 9/11 Commission. Information (and compilations of information that don’t have any originality) is not subject to copyright, and yet the contents of phonebooks are published and can be republished.

  52. You do have a point here, but not the one you think.

    Certain things are not copyrightable. Facts being one of them.

    I had assumed that you were discussing only those things that the law actually applied to. I forgot that you do not know the law and I realize that I will need to vigorously check my assumptions that I am talking to someone with a baseleine knowledge level.

  53. You haven’t been discussing what the law applies the whole time, because copyright law only allows you to stop others from copying and distributing a work, and it doesn’t allow you to distribute a derivative work. Again, the example of Nosferatu points this out quite clearly. When it was made, the Stoker estate ordered all copies of it to be destroyed because it was a derivative of the novel Dracula (thankfully, they failed in that manner). The copyright holder was NOT allowed to distribute the film even though they held the copyright, and still do in much of Europe. If copyright conveyed a positive right to distribute, this would not have happened.

    Your notion that the copyright is transferred to the public is laughable, especially with incongruent elements in the copyright laws of different nations (where certain publics would have had the copyright transferred to them, but other would not have) as well as works the law could have applied to but did not (such as magazines that were eligible for copyright but decided not to seek it). The truth is that people are allowed to copy and distribute whatever they have the capability of copying and distributing, absent copyright, private contracts, or some other specific reasons that prevent them from doing so. The need for a specific positive right to distribute is contrary to the notion of free speech upon which modern democracies are built. Copyright as a positive right only existed in repressive regimes focused upon censorship, and has thankfully been absent from at least most of the world for centuries.

    Your tired old technique of slathering on insults in hopes of saving face won’t possibly work in this case, as you’ve stated a handful of facts that are provably incorrect.

  54. I don’t hate patents. I’m a registered patent agent, an inventor with multiple patents issued, a successful job-creating entreprenueur, and have both had to defend my inventions from infringement and myself from allegations of infringement. So I have experienced IP from all angles. I am not a lawyer, so I must defer to those with greater expertise on the fine points of the law. But on the broad issues where IP law and business intersect, I believe I have a useful perspective to offer, which is neither fully for nor against current patent law. However, as one who fully supports the US Constitution, I am categorically pro-patent in terms of fundamental principles.

  55. Ron-

    I most decidedly was Not referring to you with my comment but a few others. Congratulations on winning the patent lottery. Please forgive me if I get some of the nuances of patent law wrong from time to time, as I have had no formal training, which is why I attend here… to learn from others,

    Regards,
    Stan~

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