Property as platform: Coordinating standards for technological innovation

Journal of Competition Law and Economics

Volumn 9, Issue 4, 2013, Pages 1057-1089

  Smith, Henry E ^a  

^a HARVARD LAW SCHOOL   (United States)

Author keywords

[No Author keywords available]

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EID: 84888860368     PISSN: 17446414     EISSN: 17446422     Source Type: Journal    
DOI: 10.1093/joclec/nht032     Document Type: Article

References (123)

1. FED. TRADE COMM'N, THE EVOLVING IP MARKETPLACE: ALIGNING PATENT NOTICE AND REMEDIES WITH COMPETITION (Mar. 2011)
2. Mark A. Lemley, Intellectual Property Rights and Standard-Setting Organizations, 90 CALIF. L. REV. 1889 (2002)
3. Richard A. Epstein, F. Scott Kieff & Daniel F. Spulber, The FTC, IP, and SSOs: Government Hold-Up Replacing Private Coordination, 8 J. COMPETITION L. & ECON. 1 (2012).
4. Henry E. Smith, Property as the Law of Things, 125 HARV. L. REV. 1691 (2012).
5. CARLISS Y. BALDWIN & KIM B. CLARK, DESIGN RULES: THE POWER OF MODULARITY (MIT Press 1st ed. 2000)
6. MANAGING IN THE MODULAR AGE: ARCHITECTURES, NETWORKS, AND ORGANIZATIONS (Raghu Garud, Arun Kumaraswamy & Richard N. Langlois eds.,Wiley 2003)
7. Richard N. Langlois, Modularity in Technology and Organization, 49 J. ECON. BEHAV. & ORG. 19 (2002)
8. Ron Sanchez & Joseph T. Mahoney, Modularity, Flexibility, and Knowledge Management in Product and Organization Design, 17 STRATEGICMGMT. J. 63 (1996).
9. THOMAS W. MERRILL & HENRY E. SMITH, PROPERTY: PRINCIPLES AND POLICIES 646-806 (Foundation Press 2d ed. 2012).
10. Henry E. Smith, Exclusion Versus Governance: Two Strategies for Delineating Property Rights, 31 J. LEGAL STUD. S453 (2002).
11. Ronald H. Coase, The Problem of Social Cost, 3 J.L. & ECON. 1, 7 (1960).
12. Brian Angelo Lee & Henry E. Smith, The Nature of Coasean Property, 59 INT'L REV. ECON. 145 (2012)
13. Henry E. Smith & Thomas W. Merrill, Making Coasean Property More Coasean, 54 J.L. & ECON. S77 (2011).
14. HERBERT A. SIMON, THE SCIENCES OF THE ARTIFICIAL 210 (MIT Press 2d ed. 1981)
15. SANJEEV ARORA & BOAZ BARAK, COMPUTATIONAL COMPLEXITY: A MODERN APPROACH (Cambridge Univ. Press 2009).
16. Hohfeld famously attempted to reformulate in rem rights as a collection of in personam rights. Wesley N. Hohfeld, Fundamental Legal Conceptions as Applied in Judicial Reasoning, 26 YALE L.J. 710, 718-33 (1917)
17. Thomas W. Merrill & Henry E. Smith, The Property/Contract Interface, 101 COLUM. L. REV. 773, 780-89 (2001)
18. Albert Kocourek, Rights in Rem, 68 U. PA. L. REV. 322, 335 (1920).
19. Thomas W. Merrill & Henry E. Smith, Optimal Standardization in the Law of Property: The Numerus Clausus Principle, 110 YALE L.J. 1 (2000).
20. AMERICAN LAW OF PROPERTY § 3.78 (A. James Casner ed., Little Brown 1952)
21. RICHARD R. POWELL, POWELL ON REAL PROPERTY § 56.05 (Michael Allan Wolf ed., Matthew Bender 2013).
22. Daniel B. Kelly, Strategic Spillovers, 11 COLUM. L.REV. 1641 (2011).
23. Michael Heller, The Tragedy of the Anticommons: Property in the Transition from Marx to Markets, 111 HARV. L. REV. 621, 675 n.246 (1998) (discussing points made by William Miller about how tragedy depends on ability to convert common property into private property, which can be sold).
24. Henry E. Smith, Semicommon Property Rights and Scattering in the Open Fields, 29 J. LEGAL STUD. 131, 131-32, 138-42 (2000).
25. Brett M. Frischmann, Evaluating the Demsetzian Trend in Copyright Law, 3 REV. L. & ECON. 649, 651 (2007)
26. Robert A. Heverly, The Information Semicommons, 18 BERKELEY TECH. L.J. 1127 (2003)
27. Lydia Pallas Loren, Building a Reliable Semicommons of Creative Works: Enforcement of Creative Commons Licenses and Limited Abandonment of Copyright, 14 GEO. MASON L. REV. 271 (2007)
28. Peter K. Yu, Intellectual Property and the Information Ecosystem, 2005 MICH. ST. L. REV. 1, 11-12
29. Ellen P. Goodman, Spectrum Rights in the Telecosm to Come, 41 SAN DIEGO L. REV. 269, 379-403 (2004)
30. Henry E. Smith, Governing the Tele-Semicommons, 22 YALE J. ON REG. 289 (2005). Like tangible property rights, IP rights are not absolute. Michael A. Carrier, Cabining Intellectual Property through a Property Paradigm, 54 DUKE L.J. 1 (2004).
31. ELINOR OSTROM, GOVERNING THE COMMONS: THE EVOLUTION OF INSTITUTIONS FOR COLLECTIVE ACTION (Cambridge Univ. Press 1990)
32. GARY D. LIBECAP, CONTRACTING FOR PROPERTY RIGHTS (Cambridge Univ. Press 1989).
33. LEWIS M. SIMES & ALLAN F. SMITH, THE LAW OF FUTURE INTERESTS (West 2d ed. 1956).
34. The Law uses a combination of rules of thumb and contractarianism in policing this behavior. Asking courts to implement a wealth maximization standard directly probably exceeds their capacities.
35. GEORGE T. BOGERT, TRUSTS 1 (West 6th ed. 1987)
36. AUSTIN WAKEMAN SCOTT, THE LAW OF TRUSTS §§ 2.3-2.6, at 40-48 (Little Brown 1939)
37. RESTATEMENT (SECOND) OF TRUSTS § 2 (1959) (trust is "a fiduciary relationship with respect to property, subjecting the person by whom the title to the property is held to equitable duties to deal with the property for the benefit of another person, which arises as a result of a manifestation of an intention to create it")
38. Melanie B. Leslie, Trusting Trustees: Fiduciary Duties and the Limits of Default Rules, 94 GEO. L.J. 67 (2005)
39. Paul B. Miller, Justifying Fiduciary Remedies, 63 UNIV. TORONTO L.J. 570 (2013).
40. ADOLF A. BERLE & GARDINER C. MEANS, THE MODERN CORPORATION AND PRIVATE PROPERTY (MacMillan 1933).
41. FRANK H. EASTERBROOK & DANIEL R. FISCHEL, THE ECONOMIC STRUCTURE OF CORPORATE LAW 171-73 (Harvard Univ. Press 1991)
42. Michael C. Jensen & William H. Meckling, Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, 3 J. FIN. ECON. 305, 311 (1976).
43. DANIEL F. SPULBER, THE THEORY OF THE FIRM: MICROECONOMICS WITH ENDOGENOUS ENTREPRENEURS, FIRMS, MARKETS, AND ORGANIZATIONS (Cambridge Univ. Press 2009)
44. Daniel F. Spulber, Discovering the Role of the Firm: The Separation Criterion and Corporate Law, 6 BERKELEY BUS. L.J. 298 (2009).
45. Anthony M. Honoré, Ownership, in OXFORD ESSAYS IN JURISPRUDENCE 107, 112-28 (A.G. Guest ed., Oxford Univ. Press 1961) (analyzing ownership in a "mature legal system" into eleven elements).
46. Larissa Katz, Governing Through Owners: How and Why Formal Private Property Rights Enhance State Power, 160 U. PA. L. REV. 2029 (2012)
47. Christopher Essert, The Office of Ownership, 63 U. TORONTO L.J. 418 (2013)
48. H.L.A. HART, ESSAYS ON BENTHAM: JURISPRUDENCE AND POLITICALTHEORY 208 (Oxford Univ. Press 1982) (seeing in the work of Jeremy Bentham a notion of the "'office' of owner of the property").
49. Henry E. Smith, Emergent Property, in PHILOSOPHICAL FOUNDATIONS OF PROPERTY LAW 320 (James Penner & Henry E. Smith eds., Oxford Univ. Press forthcoming 2014).
50. For the definition in the Uniform Commercial Code, see U.C.C. § 3-104(a) (2005).
51. BENITO ARRUÑADA, INSTITUTIONAL FOUNDATIONS OF IMPERSONAL EXCHANGE: THEORY AND POLICY OF CONTRACTUAL REGISTRIES 117 (Univ. of Chicago Press 2012).
52. Armen A. Alchian & Harold Demsetz, Production, Information Costs, and Economic Organization, 62 AM. ECON. REV. 777, 781-83 (1972)
53. Yoram Barzel, The Entrepreneur's Reward for Self-Policing, 25 ECON. INQUIRY 103 (1987)
54. Oliver Hart, An Economist's Perspective on the Theory of the Firm, in ORGANIZATION THEORY 154, 160 (Oliver E. Williamson ed., Oxford Univ. Press 1995).
55. OliverWilliamson, Corporate Governance, 93 YALE L.J. 1197, 1210 (1984).
56. Eugene F. Fama & Michael C. Jensen, Agency Problems and Residual Claims, 26 J.L. & ECON. 327 (1983).
57. Margaret M. Blair & Lynn A. Stout, A Team Production Theory of Corporate Law, 85 VA. L. REV. 248 (1999)
58. Margaret M. Blair & Lynn A. Stout, Corporate Accountability: Director Accountability and the Mediating Role of the Corporate Board, 79WASH. U.L.Q. 403 (2001)
59. Mark E. Van Der Weide, Against Fiduciary Duties to Corporate Stakeholders, 21 DEL. J. CORP. L. 27 (1996)
60. JOSEPH F. JOHNSTON, NO MAN CAN SERVE TWO MASTERS: SHAREHOLDERS VERSUS STAKEHOLDERS IN THE GOVERNANCE OF COMPANIES (Social Affairs Unit 1998)
61. Jonathan R. Macey, Fiduciary Duties as Residual Claims: Obligations to Nonshareholder Constituencies from a Theory of the Firm Perspective, 84 CORNELL L. REV. 1266 (1999).
62. ROBERT CHARLES CLARK, CORPORATE LAW 20 (Little Brown 1986)
63. Jonathan R. Macey, An Economic Analysis of the Various Rationales for Making Shareholders the Exclusive Beneficiaries of Corporate Fiduciary Duties, 21 STETSON L. REV. 23, 33 (1991) (arguing that the "too many masters" argument is overstated because of complex share structures whose holders can have conflicting interests).
64. Yun-chien Chang & Henry E. Smith, An Economic Analysis of Civil Versus Common Law Property, 88NOTRE DAME L. REV. 1 (2012).
65. Of two basic types of standards, one promotes economies of scale and the other lowers transaction costs.
66. Charles P. Kindleberger, Standards as Public, Collective and Private Goods, 36 KYKLOS 377 (1983)
67. Richard N. Langlois & Deborah Savage, Standards, Modularity, and Innovation: The Case of Medical Practice, in PATH DEPENDENCE AND CREATION 149, 150- 51 (Raghu Garud & Peter Karnøe eds., Lawrence Erlbaum 2001).
68. Rudi Bekkers & Andrew Updegrove, A Study of IPR Policies and Practices of a Representative Group of Standards Setting Organizations Worldwide (U.S. Nat'l Acad. Sci., Bd. of Sci., Tech., & Econ. Pol'y (STEP), Commissioned Paper 2012), available at http://home.tm.tue.nl/rbekkers/nas/Bekkers_Updegrove_NAS2012_main_report.pdf.
69. For an application of Williamsonian organization theory as a response to opportunism in the context of SSOs, see Joseph Scott Miller, Standard Setting, Patents, and Access Lock-In: RAND Licensing and the Theory of the Firm, 40 IND. L. REV. 351 (2007). On the relationship of equity as an ex post anti-opportunism safety valve to Williamsonian contracting and organizations as methods to counter opportunism
70. Kenneth Ayotte, Ezra Friedman & Henry E. Smith, A Safety Valve Model of Equity as Anti-Opportunism (Draft Mar. 30, 2013), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2245098.
71. For an argument that RAND pricing is unworkable and proposing in its stead an agreement not to assert a patent after a set time, see Marc Rysman & Timothy Simcoe, A NAASTy Alternative to RAND Pricing Commitments, 35 J. TELECOMM. POL'Y 1010 (2011).
72. Int'l News Serv. v. Assoc. Press, 248 U.S. 215 (1918). Shyamkrishna Balganesh, Quasi-Property: Like, But Not Quite Property, 160 U. PA. L. REV. 1889 (2012)
73. Henry E. Smith, Equitable Intellectual Property: What's Wrong with Misappropriation?, in INTELLECTUAL PROPERTY AND THE COMMON LAW 42 (Shyamkrishna Balganesh ed., Cambridge Univ. Press 2013).
74. JAMES BESSEN & MICHAEL J. MEURER, PATENT FAILURE: HOW JUDGES, BUREAUCRATS, AND LAWYERS PUT INNOVATORS AT RISK (Princeton Univ. Press 2009) (discussing how "the implementation of patent notice suffers important deficiencies").
75. MICHELE BOLDRIN & DAVID K. LEVINE, AGAINST INTELLECTUAL MONOPOLY (Cambridge Univ. Press 2010) (arguing that patent and copyright should be done away with); Jaideep Venkatesan, Compulsory Licensing of Nonpracticing Patentees After eBay v. MercExchange, 14 VA. J.L. & TECH. 26, 31 (2009) (describing courts as having substantially "decided, though not always expressly, that a nonpracticing patentee is entitled only to [a] royalty").
76. Stewart E. Sterk, Property Rules, Liability Rules, and Uncertainty about Property Rights, 106MICH. L. REV. 1285, 1334 (2008).
77. Harold Demsetz, Toward a Theory of Property Rights, 57AM. ECON. REV. 347 (1967).
78. Mark A. Lemley, Property, Intellectual Property, and Free Riding, 83 TEXAS L. REV. 1031 (2005) (arguing for detaching intellectual property from property, reconceptualizing it as tort or regulation, and even relabeling it "IP" to obscure the connection)
79. LAWRENCE LESSIG, THE FUTURE OF IDEAS: THE FATE OF THE COMMONS IN A CONNECTED WORLD 161 (Vintage 2001) (contending that the process of enclosure, in which media and software companies propertize information, is stifling innovation in the new economy)
80. Jesse Walker, How Intellectual Property Laws Stifle Popular Culture, REASON, Mar. 2000, at 46, available at http://www.reason.com/news/show/27635.html (arguing that IP is a government-granted monopoly and should be disfavored).
81. There is a large literature on direct rewards.Michael Abramowicz, Perfecting Patent Prizes, 56VAND. L. REV. 115, 123-24 (2003)
82. Steven Shavell & Tanguy van Ypersele, Rewards Versus Intellectual Property Rights, 44 J.L. & ECON. 525, 534-45 (2001).
83. For statements of the commercialization theory, see, e.g., F. Scott Kieff, Property Rights and Property Rules for Commercializing Inventions, 85 MINN. L. REV. 697 (2001) (arguing that the commercialization function requires property rule protection for patents)
84. Giles S. Rich, The Relation Between Patent Practices and the Anti-Monopoly Laws, 24 J. PAT. OFF. SOC'Y 159, 177-81 (1942) (arguing that promoting the commercialization of inventions is the most important function of patent law)
85. EdmundW. Kitch, The Nature and Function of the Patent System, 20 J.L. & ECON. 265, 276-77, 284 (1977) (discussing, inter alia, the role of patent prospect in giving "the patent owner . . . an incentive to make investments to maximize the value of the patent," including investments in manufacture, distribution, and market development).
86. On the role of patents in promoting transactions, see Paul J. Heald, A Transaction Costs Theory of Patent Law, 66 OHIO ST. L.J. 473 (2005) (asset partitioning)
87. Robert P. Merges, A Transactional View of Property Rights, 20 BERKELEY TECH. L.J. 1477 (2005) (precontractual liability and enforcement flexibility from IP support exchange)
88. Oskar Liivak, Establishing an Island of Patent Sanity (Cornell Leg. Stud. Res. Paper No. 13-06, Jan. 2013) (patent law providing support for voluntary exchange of inventions).
89. Henry E. Smith, Property and Property Rules, 79 N.Y.U. L. REV. 1719, 1753-74 (2004).
90. Henry E. Smith, Institutions and Indirectness in Intellectual Property, 157 U. PA. L. REV. 2083 (2009).
91. F. Scott Kieff, Coordination, Property, and Intellectual Property: An Unconventional Approach to Anticompetitive Effects and Downstream Access, 56 EMORY L.J. 327, 333-34, 346-47, 350-54 (2006).
92. Henry E. Smith, An Economic Analysis of Law Versus Equity (Draft Oct. 22, 2010), available at http://www.law.yale.edu/documents/pdf/LEO/HSmith_LawVersusEquity7.pdf.
93. Richard A. Epstein, Unconscionability: A Critical Reappraisal, 18 J.L. & Econ. 293, 293-301 (1975). On the nineteenth-century view that unconscionability referred to fraud that could not readily be proved
94. Seymour v. Delancey, 3 Cow. 445, 521-22, 15 Am.Dec. 270 (N.Y. Sup. 1824) ("Inadequacy of price, unless it amount to conclusive evidence of fraud, is not itself a sufficient ground for refusing a specific performance of an agreement.") (citing cases)
95. James Gordley, Equality in Exchange, 69 Cal. L. Rev. 1587, 1639 (1981).
96. Riggs v. Palmer, 115 N.Y. 506, 22 N.E. 188, 190 (N.Y. 1889) (employing the principle that "[n]o one shall be permitted to profit by his own fraud, or to take advantage of his own wrong, or to found any claim upon his own iniquity, or to acquire property by his own crime" to justify enjoining the administrator of the estate from allowing any benefit to a grandson who murdered the testator)
97. RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT § 45(2) (A. L.I. 2011) ("A slayer's acquisition, enlargement, or accelerated possession of an interest in property as a result of the victim's death constitutes unjust enrichment that the slayer will not be allowed to retain."). These days "anti-slayer" statutes typically cover many of these situations.
98. JESSE DUKEMINIER, ROBERT H. SITKOFF & JAMES LINDGREN, WILLS, TRUSTS, AND ESTATES 149-51 (Aspen Publishers 8th ed. 2009).
99. The characteristic of fiduciary law is to set the presumption for opportunism in wide areas in which the danger is especially acute.
100. Henry E. Smith, Rose's Human Nature of Property, 19WM. & MARY BILL RTS. J. 1047, 1052-53 (2011).
101. Rambus Inc. v. F.T.C., 522 F.3d 456 (D.C. Cir. 2008).
102. eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006).
103. Mark P. Gergen, John M. Golden & Henry E. Smith, The Supreme Court's Accidental Revolution? The Test for Permanent Injunctions, 112 COLUM. L. REV. 203 (2012).
104. eBay, 547 U.S. at 391.
105. Appellate Brief of Amici Curiae of 52 Intellectual Property Professors, in Support of Petitioners at 9, eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) (No. 05-130), 2006 WL 1785363.
106. Packet Co. v. Sickles, 86 U.S. 611, 617-18 (1873)
107. Joel Eichengrun, Remedying the Remedy of Accounting, 60 IND. L.J. 463 (1985)
108. George P. Roach, Unjust Enrichment in Texas: Is It a FloorWax or a Dessert Topping?, 65 BAYLOR L. REV. 153 (2013).
109. Herbert Hovenkamp, Notice and Patent Remedies, 88 TEX. L. REV. 21, 224 (2011), available at www.texaslrev.com/sites/default/files/seealso/vol88/pdf/88TexasLRevSee Also221.pdf.
110. Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297 (3d Cir. 2007).
111. Rambus Inc. v. F.T.C., 522 F.3d 456 (D.C. Cir. 2008).
112. Williamson's definition of guile is probably more expansive than what we need to explain equity. OLIVER E. WILLIAMSON, THE ECONOMIC INSTITUTIONS OF CAPITALISM 47 (Free Press 1985).
113. Wang Labs v. Mitsubishi Elecs., 103 F.3d 1571, 1578-79 (1997).
114. HENRY L. MCCLINTOCK, HANDBOOK OF THE PRINCIPLES OF EQUITY § 31 (West 2d ed. 1948).
115. Carmen v. Fox Film Corp., 269 F. 928 (2d Cir. 1920).
116. The Second Circuit recently captured this relationship well: "Chutzpah" as a legal term of art is analytically similar to "unclean hands," though not necessarily coterminous with that concept as understood in the law of Chancery. The "classic definition" of chutzpah has been described as "that quality enshrined in a man who, having killed his mother and father, throws himself on the mercy of the court because he is an orphan." . . . Courts in this Circuit have employed the "classic definition" and contemporary variations where a party's conduct is especially and brazenly faulty. Motorola Credit Corp. v. Uzan, 561 F.3d 123, 128 n.5 (2d Cir. 2009) (Cabranes, J.) (citations omitted) (summarizing cases involving former state senator serving sentence for selling stolen bonds who sued purchasing bank for negligence in accepting the bond leading to his conviction, and case in which a person who was mauled by the 450-pound Siberian tiger he was raising along with an alligator sued city and police attempting to rescue the animals for entering without a search warrant).
117. Robert G. Bone, Personal and Impersonal Litigative Forms: Reconciling the History of Adjudicative Representation, 70 B.U. L. REV. 213 (1990)
118. Emily Kadens, The Myth of the Customary Law Merchant, 90 TEXAS L. REV. 1153, 1193-94 (2012) (noting that following custom was considered evidence of good faith).
119. Henry E. Smith, Community and Custom in Property, 10 THEORETICAL INQUIRIES L. 6, 35-36 (2009).
120. Moses v. Macferlan, (1760) 97 Eng. Rep. 676, 681 (K.B.) (Mansfield, J.) ("In one word, the gist of this kind of action is, that the defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity to refund the money.").
121. Henry E. Smith, Custom in American Property Law: A Vanishing Act, 48 TEX. INT'L L.J. 507 (2013).
122. As Andrew Kull puts it: Where a benefit is conferred pursuant to a valid contract, the presence or absence of unjust enrichment-the starting point of analysis in restitution-can only be determined by reference to the parties' bargain. Because a voluntary agreement fixes the baseline of enrichment as between the parties, the existence of a valid contract to govern a particular transaction normally establishes a boundary beyond which liability in restitution cannot extend.
123. Andrew Kull, Rationalizing Restitution, 83 CAL. L. REV. 1191, 1200 (1995).