economic analysis of intellectual property law january 30, 2007

ECONOMIC ANALYSIS OF INTELLECTUAL PROPERTY LAWJanuary 30, 2007

ECONOMIC ANALYSIS OF INTELLECTUAL PROPERTY LAW

Private Goods

Public Goods

Public Bads

Private Bads


Public Goods

Intellectual Property Patents

Copyright Trade Marks Trade Secrets

Other Public space

Public Auto Insurance Workers Compensation


• The following diagrams compare and contrast demand for private goods with the demand for public goods with respect to the properties of

• Exclusivity of the good• Rivalrous or Non-rivalrous nature of the good


• Horizontal Summation of Individual Demand Curves – » Private Good - Rivalrous Good$

Private Good

Demand Function For Private Good

Demand Function For Private Good – Agent 1

Demand Function For Private Good – Agent 2


• Horizontal Summation of Individual Demand Curves – » Private Good - Rivalrous Good$

Private Good

Demand Function For Private Good

Supply Function For Private Good


Bilateral Negative Externalities – Example: Cournot Duopoly

Both Producers Produce Private Goods Which Are Perfect Substitutes

a2 = Output of Agent 2

a1 = Output of Agent 1

NASH EQUILIBRIUM

Iso-Profit Curve For Agent 1


PARETO OPTIMAL EQUILIBRIUM


• .

Public Goods


Bilateral Positive Externalities – Example: Cournot Duopoly

Both Producers Produce Public Goods Which Are Perfect Substitutes

Y2 = Produced By Agent 2

Y1 = Produced by Agent 1


Iso-Profit (Utility) Curve For Agent 1


NASH EQUILIBRIUM


• Vertical Summation of Individual Demand Curves – » Public Good - Non-Rivalrous Good$

Public Good

Marginal Social Value Function For Public Good

Demand Function For Public Good – Agent 1

Demand Function For Public Good – Agent 2


• Vertical Summation of Individual Demand Curves – » Public Good - Non-Rivalrous Good$

Public Good

Marginal Social Value Function For Public Good

Supply Function For Public Good


• Example: Auto Insurance as a “Public Good”


Bilateral Positive Externalities – Example: The “Insurance” Game

I2 = Insurance Purchased By Insured 2

I1 = Insurance Purchased by Insured 1


Utility Curve For Insured 1

Utility Curve For Insured 2NASH EQUILIBRIUM


• Countering the “Insurance Game”: • Many types of insurance coverage are

mandatory • By law• By contract

• Some provinces treat the system of “tort compensation” for motor vehicle accidents as a “public good” which is to be provided by through public insurance

• British Columbia• Manitoba• Quebec


• Countering the “Insurance Game”: • Most provinces treat the system of “tort

compensation” for workplace injuries as a “public good” which is to be provided by through a form of public insurance – workers compensation


The “Insurance” Game – Impact of “credible” mandatory insurance minimums

I2 = Insurance Purchased By Insured 2

I1 = Insurance Purchased by Insured 1


Utility Curve For Insured 1

Utility Curve For Insured 2NASH EQUILIBRIUM


• .

What Is Intellectual Property?


• Intellectual property protection attempts to reverse the “prisoners dilemna” effect of under supply of the “unprotected” public good


Bilateral Positive Externalities – Example: Cournot Duopoly

Both Producers Produce IP Goods Which Are Perfect Substitutes

Y2 = IP Produced By Agent 2

Y1 = IP Produced by Agent 1




NASH EQUILIBRIUM


• Historically, governments sought to supply public goods such as inventions and books directly

• Romans – Aquaducts and Highways Built By The Military

• Middle Ages – Writers, Actors and Singers Paid directly by sponsors


• However, economies became too big for every public good to be supplied directly by the government

• Laws were passed granting protection and remedies analogous to private property rights in land and trespass

• The “objective” is to counteract underproduction of the “good”


The “Intellectual Property” Game – Impact of “credible” intellectual property protection

Y2 = IP Produced By Agent 2

Y1 = IP Produced by Agent 1



Isoprofit Curve For Agent 2NASH EQUILIBRIUM


• How do the laws operate?

• Generally, the laws assign an individual or a corporation “exclusive” rights to make and ultimately sell the “good”

• What does “exclusivity” mean?

• It “means” monopoly


• .

Patents


• The “oldest” IP

• Arose in the early seventeenth (17th) century

• Parliamentary law – not common law

• Patents grant inventors a temporary monopoly (twenty (20) years) over their invention so that they can recover their initial investment


• What sort of things get patented?

• New inventions – Edison, Bell, Research In Motion

• New production processes• Computer hardware• Medicines• Genetically modified plants• Not genetically modified animals


• On Thursday, December 5, 2002, the Supreme Court of Canada ruled the Harvard mouse was a higher life form and could not be patented under Canadian patent law.

• Canada stood alone on this issue, after the United States and Europe granted Harvard patents.

• Harvard College v. Canada (Commissioner of Patents) [2002] 4 S.C.R. 45


• On May 21, 2004, the Supreme Court of Canada ruled against Saskatchewan farmer, Percy Schmieser.

• It held that U.S. biotechnology giant, Monsanto holding a valid patent on a gene in its canola seed, may control the use of the plant.

• Monsanto Canada Inc. v. Schmeiser, [2004] 1 S.C.R. 902, 2004 SCC 34


• .

Trade Marks


• Arose in the late eighteenth (18th) century

• Both Parliamentary law and common law apply

• Trade marks grant “permanent” rights to owners in how they “present” their goods and is related to “passing-off” and counterfeiting laws

• Colour or shape of product • Logos, names, designs


• Mickey Mouse, like all major Disney characters, is protected as a trade mark. Like all trade marks it lasts in perpetuity as long as it continues to be used commercially by its owner.

• In 1989, Disney sued three daycares in for having Mickey Mouse and other Disney characters painted on the walls.

• The characters were removed, and rival Universal replaced them with Universal cartoon characters.


• In 1997 The dance group Aqua released a song called “Barbie Girl”

• Mattel argued that this constituted a trade mark infringement against its “iconic” toy doll “Barbie”. Mattel filed a defamation lawsuit against MCA Records but lost.

http://en.wikipedia.org/wiki/Aqua_%28band%29


• In July 2002, Judge Alex Kozinski (9th Circuit) ruled that the song was protected as a parody under the U.S. First Amendment.


• On June 2, 2006, the Supreme Court of Canada upheld the right of a restaurant owner in Montreal to use the “Barbie” name when Mattel filed a complaint against the restaurant with the Trademarks Board.


• The BARBIE doll was said by Mattel to be an iconic figure of pop culture.

• However, the restaurants’ market was sufficiently remote from Mattel’s toy market to allow it the use of Barbie’s name.


• .

Copyright


• Arose in the early eighteenth (18th) century

• In Canada, only Parliamentary law applies

• Copyright grants rights to owners in what they write, sing, paint, design for the lifetime of the creator plus a further fifty(50) years following the death of the creator


• What sort of things get copyright?

• New songs – Sarah McLachlin, Nickelback

• New books

• Art

• Other • Computer software• Medicinal instructions• The drawings and plans of architects• Lecture notes


• Walt Disney Company's copyright on Mickey Mouse, who made his screen debut in a 1928 cartoon short was due to expire in 2003.

• Rather than allow Mickey and friends to enter the public domain, Disney and its friends told Congress that they wanted an extension of copyright bill passed.


• Congress passed and President Clinton signed the SONNY BONO COPYRIGHT TERM EXTENSION ACT into law on October 27, 1998.


• On January 15, 2003 the U.S. Supreme Court upheld the constitutionality of this law.

• Eldred v. Ashcroft


• In 1993, CCH Canadian Limited, Canada Law Book Inc. and Carswell Thomson Professional Publishing sued the Law Society of Upper Canda, claiming the Law Society’s Great Library not-for-profit photocopy service infringed their copyright in legal publications.


• On March 4, 2004, the Supreme Court of Canada unanimously ruled against the publishers.

• The Court stated • “Research must be given a large and liberal

interpretation in order to ensure that users’ rights are not unduly constrained” and “is not limited to noncommercial or private contexts.”


• SOCAN sought permission from the Copyright Board to charge Internet Service Providers (ISP) royalties for music downloaded in Canada from the Internet.

• SOCAN proposed the amount and allocation of the royalty due to the members it represented.


• On June 30, 2004, Binnie J., speaking for the majority of the Supreme Court held that Internet Service Providers (“ISP”) are not "users" at all for purposes of the Copyright Act.

• As long as an ISP does not itself engage in acts that relate to the content of the communication, but confines itself to providing a "conduit" for information communicated by others, then it attracts no infringement liability.


• In some cases, where an ISP has been given notice of infringing content and failed to respond by "taking it down," it may be exposed for having "authorized" the communication, but such cases will turn on findings of fact.


• In 2001, Heather Robertson, commenced a $100,000,000.00 class action law suit on behalf of freelance authors against Thomson Corp., Information Access Co. and The Globe and Mail.


• On October 3, 2006, the Supreme Court of Canada ruled that data bases compiled by newspapers and other publishers cannot simply reproduce freelance work without the specific agreement of writers, photographers and illustrators.

• This ruling only applies to freelancers and not employees.


• However, the class action must now proceed to trial where a major issue will be whether, in selling their work to the newspaper, freelancers presumed that their work could end up being used in any way the newspaper desired.

• A further issue. When does a newspaper cease to be a newspaper and instead become an electronic collection of searchable articles?


• .

Infringement of

Intellectual Property?

ECONOMIC ANALYSIS OF TORT LAW BILATERAL AGENCY

AGENT 1 AGENT 2

“SUPER”Principal

= Parliament

INTELLECTUAL PROPERTY

Its “problem” is to maximize social surplus


• In the case of perfect information the rule of strict liability against agents of externalities is socially optimal because it internalizes the cost of the externality to the producer


• STRICT LIABILITY – Asymmetric Information

a1*

$

Strict Liability Rule

Cost of Precaution

economic analysis of intellectual property law january 30, 2007

Documents

public good agent

private good agent

public gooddemand function

public goodsupply function

private gooddemand function

private goodsupply function

agent 2y1

insurance gamei2