Intellectual Property Hal R Varian SIMS Outline Types

Intellectual Property Hal R. Varian SIMS

Outline • Types of intellectual property – Trademarks – Trade secrets – Patents – Copyright • Background + tech issues for each one SIMS

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” SIMS

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… SIMS

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? SIMS

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 SIMS

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 SIMS

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 SIMS

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… SIMS

Examples of granted patents 4, 022, 227: Method of concealing partial baldness 5, 443, 036: Method of exercising a cat SIMS

Patent explosion SIMS Source: Bronwyn Hall

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 + $1 B judgment [Vonage] SIMS

Patent arms race • If competitor sues you, you want patents in order to countersue • Leads to arms race in patents – Each side needs bargaining chips for settlements and/or cross licensing – Like cold war missiles • The big danger is the outsider (“nuclear terrorist”) who has nothing to lose SIMS

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 SIMS

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% royalty SIMS

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 SIMS

Piracy and per capita GDP SIMS

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! SIMS

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 SIMS

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. SIMS

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) SIMS

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 SIMS

Problems with copyright • No central registry, search costs are high – Orphan works problem • Very long lifetime – Counterbalanced by strong fair use? • Impact of internet – Incidental copies – Thumbnails of photos: Kelly v Ariba Soft – Google v Perfect 10 SIMS

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 wrt licensing SIMS

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