Legal knowledge as an intellectual property management resource

American Business Law Journal

Volumn 47, Issue 4, 2010, Pages 687-726

  Orozco, David ^a  

^a FLORIDA STATE UNIVERSITY   (United States)

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EID: 78649365797     PISSN: 00027766     EISSN: 17441714     Source Type: Journal    
DOI: 10.1111/j.1744-1714.2010.01107.x     Document Type: Article

References (151)

1. Constance E. Bagley, Winning Legally-How to use the Law to Create Value, Marshal Resources, and Manage Risk 8 (2005).
2. Kevin g. Rivette & David Kline, Rembrandts in the Attic 58 (2000).
3. See Constance E. Bagley, Winning Legally: The Value of Legal Astuteness, 33 Acad. Mgmt. Rev. 378, (discussing the requirements for members of a top management team to attain the capability of legal astuteness)., 379-83 (2008)
4. Rivette & Kline, supra note 2, at 107-13.
5. See Jay Barney, Firm Resources and Sustained Competitive Advantage, 17 J. Mgmt. 99, (discussing how resources need to be valuable, rare, inimitable, and nonsubstitutable to provide sustainable competitive advantage for firms).105-12 (1991)
6. See Jeanne M. Wilson et al., Group Learning, 32 Acad. Mgmt. Rev. 1041, (discussing the attributes of group learning and how it expands the set of decision-making options).1044-52 (2007)
7. See Robert P. Merges, A New Dynamism in the Public Domain, 71 U. Chi. L. Rev. 183, (discussing patent preemption investments and strategic disclosures in collaboration with partners)186-93 (2004)
8. see also Gary P. Pisano & David J. Teece, How to Capture Value from Innovation: Shaping Intellectual Property and Industry Architecture, Cal. Mgmt. Rev., Fall 2007, at 278 (demonstrating that firms intentionally alter the intellectual property rights landscape for strategic advantage).
9. See Rivette & Kline, supra note 2, at 109-10.
10. See David Orozco, Rational Design Rights Ignorance, 46 Am. Bus. L.J. 573, 603-04 (2009); Gideon Parchomovsky & Peter Siegelman, Towards an Integrated Theory of Intellectual Property, 88 Va. L. Rev. 1455, 1460-61 (2002).
11. Ross D. Petty, The Strategic Use of Legal Margins: How to Introduce an Extension of Someone Else's Brand, in Legal Strategies-How Corporations Use Law to Improve Performance 317 (Antoine Masson & Mary J. Shariff eds., 2010) (discussing a strategy of legally benefiting from existing brand associations).
12. To clarify, in a rare instance one person with training in both law and management may be in a unique position to generate legal knowledge outside of a group context. This may be achieved via specialized training in both fields. Some educational programs, for example, offer combined degrees in law and management. This person, however, would likely have to coordinate their legal knowledge at some point with others, and this would trigger the learning process described in this article.
13. Jerome Gilson & Anne Gilson LaLonde, The Zombie Trademark: A Windfall and a Pitfall, 98 Trademark Rep. 1280, 1280 (2008).
14. For a discussion of trademarks and brand equity from a financial perspective, see Alexander A. Krasnikov et al., Evaluating the Financial Impact of Brand Equity through Trademarks: A Framework and Empirical Evidence, 73 J. Marketing 154 (2009).
15. Gilson & Lalonde, supra note 15, at 1287.
16. David S. Ruder, Strategies for Investing in Intellectual Property: Intangible Valuations, Real Returns 98 (2008) (discussing how Procter and Gamble dropped White Cloud to focus on its Charmin brand). Ironically, Procter and Gamble must now compete with its own customer (Wal-Mart) which uses White Cloud as its private label. See Timothy J. Lockhart, Did You Know ... There Are "Zombie" Brands?, INTA Bull., Aug. 1, 2008, at 1.
17. Ruder, supra note 19, at 98.
18. See Christophe Roquilly, From Legal Monitoring to Legal Core Competency: How to Integrate the Legal Dimension into Strategic Management, in Legal Strategies-How Corporations Use Law to Improve Performance, supra note 12, at 7 (discussing that law has been viewed as exogenous, or outside the ability of managerial control)
19. Lynn M. LoPucki & Walter O. Weyrauch, A Theory of Legal Strategy, in Legal Strategies-How Corporations Use Law to Improve Performance, supra note 12, at 44 (discussing how legal strategy is absent from the realm of legal theory).
20. See David P. Baron, Integrated Strategy: Market and Nonmarket Components, Cal. Mgmt. Rev., Winter 1995, at 48
21. see also David Orozco & James G. Conley, Friends of the Court: Using Amicus Briefs to Identify Corporate Advocacy Positions in Supreme Court Patent Litigation, U. Ill. J.L. Tech. & Pol'y (forthcoming 2011) (discussing how companies of varying attributes file amicus briefs as a way to shape the patent law landscape).
22. See generally Richard A. Posner, Economic Analysis of Law (7th ed. 2007)
23. Steven Shavell, Foundations of Economic Analysis of Law (2004).
24. See, e.g., John R. Sutton et al., Legalization of the Workplace, 99 Am. J. Soc. (discussing how firms create legal compliance procedures in reaction to uncertainty in the legal environment).944 (1994)
25. See, e.g., Sally Riggs Fuller et al., Legal Readings: Employee Interpretation and Mobilization of Law, 25 Acad. Mgmt. Rev. 200 (2000).
26. Robert C. Bird, Pathways of Legal Strategy, 14 Stan. J.L. Bus. & Fin. 1 (2008).
27. For a seminal work in the field, see Stewart Macaulay, Non-Contractual Relations in Business: A Preliminary Study, 28 Am. Soc. Rev. 55 (1963)
28. see also Ranjay Gulati, Does Familiarity Breed Trust? The Implications of Repeated Ties on Contractual Choice in Alliances, 38 Acad. Mgmt. Rev. 85, (discussing how relationships and trust minimize the need for reliance on detailed contracts as governance structures in alliances).93 (1995)
29. Macauley, supra note 33, at 63.
30. George J. Siedel, Using the Law for Competitive Advantage 136 (2002).
31. Legal Strategies-How Corporations Use Law to Improve Performance, supra note 12.
32. Roquilly, supra note 24, at 7.
33. Bagley, supra note 4, at 378.
34. Robert C. Bird, Law, Strategy and Competitive Advantage (Jan. 13, 2009), available at.
35. Bird, supra note 32.
36. Nicholas Argyres & Kyle J. Mayer, Contract Design as a Firm Capability: An Integration of Learning and Transaction Cost Perspectives, 32 Acad. Mgmt. Rev. (discussing legal, managerial, and engineering knowledge that becomes embedded into contract terms).1060 (2007)
37. Sharon F. Matusik & Charles W.L. Hill, The Utilization of Contingent Work, Knowledge Creation, and Competitive Advantage, 23 Acad. Mgmt. Rev. 680, 685 (1998).
38. See generally Donald Cardwell, The Norton History of Technology (1995).
39. Matusik & Hill, supra note 42, at 685.
40. Argyres & Mayer, supra note 41, at 1067-68.
41. Rivette & Kline, supra note 2, at 58.
42. Ikujiro Nonaka & Hirotaka Takeuchi, The Knowledge-Creating Company-How Japanese Companies Create the Dynamics of Information (1994).
43. See, e.g., Thomas H. Davenport & Laurence Prusak, Working Knowledge-How Organizations Manage What They Know (1998).
44. Nonaka & Takeuchi, supra note 49, at 11.
45. Matusik & Hill, supra note 42, at 683.
46. Michael Polanyi, The Tacit Dimension 4 (1966).
47. See Nonaka & Takeuchi, supra note 49, at 59.
48. Julie L. Davis & Suzanne Harrison, Edison in the Boardroom-How Leading Companies Realize Value from their Intellectual Assets (quoting Karl Eric Sveiby, Professor of Knowledge Management at the Hanken Business School in Helsinki, Finland and author of numerous books on managing tacit knowledge).115 (2001)
49. Nonaka & Takeuchi, supra note 49, at 62-64.
50. Davis & Harrison, supra note 55, at 116.
51. See Dennis A. Gioia & Peter P. Poole, Scripts in Organizational Behavior, 9 Acad. Mgmt. Rev. 449, 451 (1984).
52. C.K. Prahalad & Richard A. Bettis, The Dominant Logic: A New Linkage Between Diversity and Performance, 7 Strat. Mgmt. J. 485, 489 (1986)
53. Mental models allow individuals to efficiently categorize events, assess their consequences, and consider appropriate actions. Id.
54. See Nonaka & Takeuchi, supra note 49, at 85.
55. Bruce Kogut & Udo Zander, Knowledge of the Firm, Combinative Capabilities, and the Replication of Technology, 3 Org. Sci. 383, 389 (1992).
56. Bagley, supra note 4, at 382.
57. Bagley, supra note 1, at 5.
58. Roquilly, supra note 24, at 7.
59. David S. Ruder, New Strategies for Owners of Discontinued Brands, 3 Nw. J. Intell. Prop. 61, 68-69 (2004).
60. Gilson & LaLonde, supra note 15, at 1286.
61. The constrained mental model as it relates to managers and attorneys is frequently observed in industry. For example, in the context of trademarks, scholars have noted a wide gulf separating the activities of trademark attorneys and marketing managers. This occurs in spite of their shared common interests toward securing the firm's brands. See, e.g., Krasnikov et al., supra note 16, at 164.
62. See Ronald M. Dworkin, The Model of Rules, 35 U. Chi. L. Rev. 14, 18 (1967) (discussing the command theory of the law and the work of John Austin, The Province of Jurisprudence Determined (1882))
63. see also Bagley, supra note 1, at 4 (discussing how managers often view the law as "an arcane set of rules designed to impede, not facilitate, value creation")
64. Ross D. Petty, The What and Why of Marketing Law, 36 Am. Bus. L.J. 239, 249-50 (1999).
65. H.L.A. Hart, The Concept of Law 27-28 (1961). Hart famously elaborates on this point:?[T]here are important classes of law where this analogy with orders backed by threats altogether fails, since they perform a quite different social function. Legal rules defining the ways in which valid contracts or wills or marriages are made do not require persons to act in certain ways whether they wish or not. Such laws do not impose duties or obligations. Instead they provide individuals with facilities for realizing their wishes, by conferring legal powers upon them to create, by certain specified procedures and subject to certain conditions, structures of rights and duties within the coercive framework of the law. The power thus conferred on individuals to mould their legal relations with others by contracts, wills, marriages, &c., is one of the great contributions of law to social life; and it is a feature of law obscured by representing all law as a matter of orders backed by threats.
66. From my perspective, the craft of teaching business law in large measure involves training managers to appreciate this rich and powerful dimension peculiar to the legal environment.
67. Robert L. Nelson & Laura Beth Nielsen, Cops, Counsel, and Entrepreneurs: Constructing the Role of Inside Counsel in Large Corporations, 34 Law & Soc'y Rev. 457 (2000).
68. Hugh Gunz & Sally Gunz, Hired Professional to Hired Gun: An Identity Theory Approach to Understanding the Ethical Behaviour of Professionals in Non-Professional Organizations, 60 Hum. Rel. 851 (2007).
69. see also Hugh P. Gunz & Sally P. Gunz, Client Capture and the Professional Service Firm, 45 Am. Bus. L.J. 685, 695, n.38 (2008).
70. This applies to in-house counsel as well. Nelson and Nielsen speak of in-house counsel treating and referring to managers as "clients." Nelson & Nielsen, supra note 79, at 463.
71. Douglas E. Rosenthal, Lawyer and Client: Who's in Charge? 13 (1977).
72. See George J. Siedel & Helena Haapio, Using Proactive Law for Competitive Advantage, 47 Am. Bus. L.J. 641, (citing Soile Pohjonen, Proactive Law in the Field of Law, in A Proactive Approach 53, 54 (2006)). Rosenthalsupra note 90, at 18.659 (2010)
73. Nonaka & Takeuchi, supra note 49, at 64.
74. Atocha Aliseda, Abductive Reasoning-Logical Investigations into Discovery and Explanations 28 (2006).
75. See Nonaka & Takeuchi, supra note 49, at 66-67.
76. Davis & Harrison, supra note 55, at 96, 149-51.
77. Bagley, supra note 4, at 379-83.
78. Robert C. Wolcott & Michael J. Lippitz, The Four Models of Corporate Entrepreneurship, 49 MIT Sloan Mgmt. Rev. 75, 77 (2007).
79. see also Bagley, supra note 4, at 378 (discussing how legal astuteness requires the involvement of a top management team).
80. The Google Culture, Google, Inc., (last visited May 30, 2010). The Web site explains:?Though Google has grown a lot since it opened in 1998, we still maintain a small company feel. At lunchtime, almost everyone eats in the office café, sitting at whatever table has an opening and enjoying conversations with Googlers from different teams. Our commitment to innovation depends on everyone being comfortable sharing ideas and opinions. Id.
81. BJ Lutz, Inside Google's Chicago Office, NBC Chicago, (last visited May 30, 2010).
82. See Eric Talley, Turning Servile Opportunities to Gold: A Strategic Analysis of the Corporate Opportunities Doctrine, 108 Yale L.J. 277, 279 (1998).
83. Large companies engage in corporate venture capital by investing in emerging companies to gain access to innovations or acquire the firms at a later stage. See generally Henry W. Chesbrough, Making Sense of Corporate Venture Capital, Harv. Bus. Rev., Mar. 2002, at 4.
84. See Terence Woolf, Note, The Venture Capitalist's Corporate Opportunity Problem, 2001 Colum. Bus. L. Rev. 473, 491-92 (2001) (discussing how a venture capital firm typically makes a capital investment in a company in exchange for ownership and control rights obtained by board representation).
85. Leonard Q. Slap, Don't Get Caught by the Corporate Opportunity Trap, Venture Cap. J., Aug. 1, 2004.
86. The Delaware Courts, however, generally hold these actions as a violation of directors' fiduciary duties. See Guth v. Loft, Inc., 5 A.2d 503, 511 (Del. Ch. 1939). The court stated:?[I]f there is presented to a corporate officer or director a business opportunity which the corporation is financially able to undertake, is, from its nature, in the line of the corporation's business and is of practical advantage to it, is one in which the corporation has an interest or a reasonable expectancy, and, by embracing the opportunity, the self-interest of the officer or director will be brought into conflict with that of his corporation, the law will not permit him to seize the opportunity for himself. Id.
87. Telephone interview with Leonard Q. Slap, Partner, Edwards, Angell, Palmer & Dodge, in Boston, Mass. (Jan. 11, 2010). The target portfolio company was a cellular phone company that received investments from several firms. Id.
88. J. Robert Brown Jr. & Sandeep Gopalan, Opting Only In: Contractarians, Waiver of Liability Provisions, and the Race to the Bottom, 42 Ind. L. Rev. 285, 294 (2009). This practice was invalidated by Delaware courts but then permitted by the Delaware legislature. Id. at 298-302.
89. Allegiance Telecomm, Inc., Securities Registration Statement (Form S-1), at 14 (May 22, 1998), available at.
90. See Michael J. Powell, Professional Innovation: Corporate Lawyers and Private Lawmaking, 18 Law & Soc. Inquiry 423, (discussing how the legal innovation surrounding the poison pill was diffused and modified by its pioneers and others among the corporate law bar).439-46 (1993)
91. See Matusik & Hill, supra note 42, at 687 (discussing that contracting work to third parties may open up the risk of knowledge dissipation).
92. Barney, supra note 6, at 105-12.
93. See supra Part I.B.1 (discussing how socialization results in learning within an attorney-manager team).
94. See Ronald J. Gilson, Value Creation by Business Lawyers: Legal Skills and Asset Pricing, 94 Yale L.J. 239, (discussing how attorneys engage in transaction cost engineering when they reduce the transaction costs necessary to achieve accurate pricing under a capital asset pricing theory).254-56 (1984)
95. David J. Teece et al., Dynamic Capabilities and Strategic Management, 18 Strat. Mgmt. J. 509, 517 (1997)
96. The authors explain further:?Indeed, what is distinctive about firms is that they are domains for organizing activity in a nonmarket-like fashion. Accordingly, as we discuss what is distinctive about firms, we stress competences/capabilities which are ways of organizing and getting things done which cannot be accomplished merely by using the price system to coordinate activity. ... If the ability to assemble competences using markets is what is meant by the firm as a nexus of contracts, then we unequivocally state that the firm about which we theorize cannot be usefully modeled as a nexus of contracts. By 'contract' we are referring to a transaction undergirded by a legal agreement, or some other arrangement which clearly spells out rights, rewards, and responsibilities. Id.
97. Gilson, supra note 129, at 253-54.
98. Posner, supra note 26, at 115. Cf. Shmuel I. Bechter, Asymmetric Information in Consumer Contracts: The Challenge That is Yet to be Met, 45 Am. Bus. L.J. 723, 731-32 (2008) (discussing how standardized contracts are usually not read by consumers and are therefore not likely to maximize their utility).
99. This is a descriptive statement based on what firms do, as opposed to a normative statement about what they should do.
100. Paul Klemperer, Markets with Consumer Switching Costs, 102 Q.J. Econ. 375, 375-76 (1987).
101. Parchmovsky & Siegelman, supra note 11, at 1473-81.
102. Id. at 1489-93 (discussing several case studies where managers counterintuitively lowered prices and offered incentives for co-branding during the patent exclusivity periods to build brand loyalty after the patent expiration date).
103. Matusik & Hill, supra note 42, at 693-94 (discussing that firm's need to motivate permanent employees to learn from contract-based employees and embed the contract workers in a cross-functional team to stimulate knowledge sharing).
104. Merges, supra note 8, at 193 (discussing how IBM has embraced the Linux open-source operating system to strengthen other core and complementary business activities). SeeGary Pisano, Profiting From Innovation and the Intellectual Property Revolution, 35 Res. Pol. 1122, 1129 (2006) (discussing how IBM has embraced open source to strengthen its position in the hardware and services market).
105. Merges, supra note 8, at 192-93 (discussing how IBM contributes to open source to reduce Microsoft's dominance in the markets where IBM competes).
106. Id. at 192 (mentioning that IBM invests heavily in improving, applying, and disseminating open source projects).
107. Id. at 192, 196 (stating that IBM's open-source intellectual property strategy is related to its core business strategy and that these activities differ from a simple defensive publication strategy due to its more systematic and sophisticated character).
108. Davis & Harrison, supra note 55, at 21.
109. Id. at 32 (discussing how Gillette created a patent thicket for its razor).
110. Bird, supra note 32, at 16.
111. See Norman D. Bishara, Covenants not to Compete in a Knowledge Economy: Balancing Innovation from Employee Mobility Against Legal Protection for Human Capital Investment, 27 Berk. J. Emp. & Lab. L. 287, 298 (2006) (discussing a rationale for covenants not to compete based on restricting knowledge spillovers).
112. Thomas Catan, Google Microsoft Spar on Antitrust, Wall St. J., Mar. 1, 2010, at A1.
113. Ruder, supra note 70, at 72-76.
114. Richard R. Nelson & Sydney G. Winter, An Evolutionary Theory of Economic Change (1982). Kogut & Zander, supra note 64, at 384.
115. See Teece et al., supra note 131, at 516 (discussing trade secrets as one example).
116. Nelson & Winter, supra note 155, at 99.
117. Kogut & Zander, supra note 64, at 389; Teece et al., supra note 131, at 520.
118. Kogut & Zander, supra note 64, at 389-90.
119. Roquilly, supra note 24, at 23.
120. See Teece et al., supra note 131, at 516-18 (defining core competences as distinctive activities that define a firm's fundamental business and comprise processes and unique asset positions).
121. Nelson & Winter, supra note 155, at 112.
122. Pamela Hawkins Williams et al., A Profile of Dolby Laboratories: An Effective Model for Leveraging Intellectual Property, 2 Nw. J. Tech. & Intell. Prop. 81, 83 (2003).
123. Id. at 85. As the patent owner, Dolby had the right to target any party in the value chain that made use of its patented technology.
124. Robert C. Megantz, Technology Management-Developing and Implementing Effective Licensing Programs 125 (2002).
125. See Parchomovky & Siegelman, supra note 11, at 1474-81 (discussing how companies can increase revenues by lowering the price of a product during the patent exclusivity period and investing in the trademark to increase brand loyalty and customer switching costs).
126. Williams et al., supra note 166, at 88-92.
127. Matthew K. Finkelstein & Colleen Lagan, 'Not For You'; Only for Ticketmaster: Do Ticketmaster's Exclusive Agreements With Concert Venues Violate Federal Antitrust Law?, 10 St. John's J. Legal Comment 403, 405-06 (1995).
128. Linda Himelstein & Ronald Grover, Will Ticketmaster Get Scalped?, Bus. Wk., June 26, 1995, available at.
129. A natural monopoly is a market that can be supplied at lowest cost by a single firm. See generally William W. Sharkey, The Theory of Natural Monopoly (1982).
130. E.g., Campos v. Ticketmaster, Corp., 140 F.3d, 1166 (8th Cir. 1998) (dismissing the claims against Ticketmaster because the plaintiff fans who purchased tickets were not direct purchasers).
131. Himelstein & Grover, supra note 175, at 145.
132. Jim DeRogatis, Brokering the Biggest Deal of Them All, Chi. Sun Times, Sept. 14, 2003, available at.
133. Orozco, supra note 11, at 603-04.
134. See id. at 601-03 (discussing that firms need to master intellectual property doctrine and coordinate this knowledge across functional units to integrate intellectual property rights and overcome the trap of rational design rights ignorance).
135. See David Orozco & James Conley, Shape of Things to Come, Wall St. J., May 12, 2008, at R6.
136. See Orozco, supra note 11, at 601-03 (discussing how the various functional departments in a firm behave rationally from their own individual perspectives. In the process, however, they collectively forfeit an integrated intellectual property strategy related to product design and trade dress).
137. See Lauren B. Edelman et al., The Endogeneity of Legal Regulation: Grievance Procedures as Rational Myth, 105 Am. J. Soc. 406 (discussing how companies construct the meaning of law when, for example, they rationalize compliance strategies that are meant to reflect the regulatory environment)., 407 (1999)
138. Borrowing from institutional literature, the public laws may be analogized as "the rules of the game" whereas the privately created laws may be analogized as "the play of the game."SeeBirgitte Andersen & Sue Konzelmann, In Search of a Useful Theory of the Productive Potential of Intellectual Property Rights, 37 Res. Pol'y 12, 15-16 (2008).
139. See Edelman et al., supra note 188, at 407.
140. Id. at 407 (stating that the laws regulating corporations are prone to greater social construction because corporate advocacy groups will strive to inject ambiguity into the meaning of the law as it is defined by the lawmaking authorities).
141. For an example of legitimization, in the case of the corporate opportunity doctrine discussed in Part I.D, the Delaware legislature sanctioned the practice of waivers by amending the Delaware General Corporation Law (DGCL) in 2000 to protect fiduciaries faced with conflicting corporate opportunities. The DGCL provides that every corporation created under this chapter shall have power to:?Renounce, in its certificate of incorporation or by action of its board of directors, any interest or expectancy of the corporation in, or in being offered an opportunity to participate, in specified business opportunities or specified classes or categories of business opportunities that are presented to the corporation or one of its officers, directors or stockholders.Del. Code. Ann. tit. 8, 122(17) (2009).
142. Cf. Baron, supra note 25.
143. See generally Richard J. Gilbert & David M.G. Newbery, Preemptive Patenting and the Persistence of Monopoly, 72 Am. Econ. Rev. 514, (noting the potential for the persistence of a monopoly through preemptive activity even if the possibility for entry by rivals exists in the market).524-25 (1982)
144. See Christine S. Paine, Brand Name Drug Manufacturers Risk Antitrust Violations By Slowing Generic Production Through Patent Layering, 33 Seton Hall L. Rev. 479, 497-506 (2003).
145. See Thomas F. Cotter, Refining the "Presumptive Illegality" Approach to Settlements of Patent Disputes Involving Reverse Payments, 87 Minn. L. Rev. 1789, 1797-800 (2003).
146. See generally R. Edward Freeman & Daniel R. Gilbert, Corporate Strategy and the Search for Ethics (1988) (discussing the role of stakeholders in strategic decisions).
147. See D.B. Resnick, A Pluralistic Account of Intellectual Property, 46 J. Bus. Ethics (discussing the importance of viewing intellectual property from a pluralistic perspective and other ethical perspectives).319 (2003)
148. Gunz & Gunz, supra note 86, at 874.
149. see also John C. Coffee Jr., The Attorney as Gatekeeper: an Agenda for the SEC, 103 Colum. L. Rev. 1293, (describing the possibility that attorneys may be captured by a powerful client).1305-06 (2003)
150. See Gunz & Gunz, supra note 86, at 876.
151. See Michael L. Tushman, Special Boundary Roles in the Innovation Process, 22 Admin. Sci. Q. 587, 591 (1977).