Abstract
Compulsory liability rules can focus on achieving a public policy goal, such as access to medicines, but this book concentrates on liability rules that aim at enhancing the patent system’s functional efficiency, such as sustaining dynamic competition. Existing economic research on liability rules focuses on generally applicable statutory licenses, although under the TRIPS Agreement compulsory licenses are meant to be applied only case-specifically. This chapter analyses other economic concerns related to the application of compulsory liability rules, negative effects on incentives to innovate, challenges in patent evaluation, possible hold-out risks, error costs, legal uncertainty, and the instrument’s underuse. It concludes that compulsory liability rules can be designed in a manner that fosters dynamic efficiency while mitigating the unfavourable effects associated with the instrument. A compulsory liability rule may also have an indirect, balancing effect on the licensing negotiations between a patent holder and a follow-on innovator, even when it is not used in practice.
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Notes
- 1.
Krauspenhaar, Liability Rules in Patent Law, 23.
- 2.
Ibid.
- 3.
Ibid, 7, 23, 98.
- 4.
Ibid, 23. The liability rules by default may also allow a patent holder to switch to the private property rule. Ibid, 23-24. Cf. Castro Bernieri, who classifies liability rules by default as ex ante compulsory licenses “in a sense that a regulation, for instance, statutes, provide for a uniform application in all cases, and sometimes even for the due compensation”. Castro Bernieri, Ex-Post Liability Rules in Modern Patent Law, 40.
- 5.
Castro Bernieri, Ex-Post Liability Rules in Modern Patent Law, 40, fn 108. A contemporary example of such a constellation is an entitlement to compensation for the use of the subject matter of a published application (§ 33 PatG). Krauspenhaar, Liability Rules in Patent Law, 31. Historically, inventions have been protected by the default liability rule under communist regimes, sometimes with a parallel option to protect an invention by means of a property rule by default. On the “Wirtschaftspatente” of the German Democratic Republic, see ibid, 31-32 and, on the “certifications of authorship” of the Soviet Union, see Bernie R. Burrus, “Soviet Law of Inventions and Copyright,” Fordham Law Review 30, no. 4 (1962): 695-710.
- 6.
Cf. Castro Bernieri, who uses the definition of an ex post compulsory license, “meaning that the ground for granting a license and the royalty will be assessed ex post and on case-by-case basis.” Castro Bernieri, Ex-Post Liability Rules in Modern Patent Law, 40.
- 7.
The term “limitation of injunctive relief” is interchangeable with the term “denial of an injunctive relief”. The former concept qualifies the status of the compulsory liability rule in the context of the patent system, whereas the latter describes the effect of the compulsory liability rule in infringement proceedings.
- 8.
Castro Bernieri, Ex-Post Liability Rules in Modern Patent Law, 42-43.
- 9.
Krauspenhaar, Liability Rules in Patent Law, 207.
- 10.
Castro Bernieri, Ex-Post Liability Rules in Modern Patent Law, 43.
- 11.
See the discussion on the Orange Book Standard decision Sect. 8.6.4.2.
- 12.
See Sect. 9.4.3.2 on human rights-based limitations to grant of injunctive relief.
- 13.
Van Overwalle, “Exclusive Ownership Versus Open Commons,” 155, Table 1.
- 14.
See Castro Bernieri, Ex-Post Liability Rules in Modern Patent Law, 242.
- 15.
For an analysis of the misuse doctrine, see Sect. 7.4.
- 16.
Reto M. Hilty, “Legal Remedies against Abuse, Misuse and Other Forms of Inappropriate Conduct of IP Right Holders,” in Compulsory Licensing: Practical Experiences and Ways Forward, ed. Reto M. Hilty and Kung-Chung Liu (Heidelberg: Springer Verlag, 2015), 377, 393.
- 17.
Van Overwalle, “Individualism, Collectivism and Openness in Patent Law,” 105. Cf. “Exclusive Ownership Versus Open Commons,” 143, fn 34 and Table 1, which state that compulsory licenses can also represent a universal form of openness.
- 18.
- 19.
See Conde Gallego, Beatriz. “Die Anwendung des kartellrechtlichen Missbrauchsverbots auf “unerlässliche” Immaterialgüterrechte im Lichte der IMS Health- und Standard-Spundfass-Urteile.” Gewerblicher Rechtsschutz und Urheberrecht Internationaler Teil 55, no. 1 (2006): 17, 28.
- 20.
Castro Bernieri, Ex-Post Liability Rules in Modern Patent Law, 37-40, 43.
- 21.
Lamping et al., “Declaration on Patent Protection,” 688. Cf. Straus and Prinz zu Waldeck and Pyrmont and Ullrich, who identify three general categories of compulsory licenses: failure to work, dependent patents, and public interest. Joseph Straus and Wolrad Prinz zu Waldeck und Pyrmont, “Survey of Compulsory Licensing Legislation, Policy and Practice in Switzerland, Greece, Italy, the Netherlands, Norway, Poland, Spain and Sweden,” (2004), 3-4, fn 6; Ullrich, “Mandatory Licensing under Patent Law and Competition Law,” 336. Their categorisation, however, derives from observations concerning the most common types of compulsory licenses encountered in national legislation. I choose to rely on the looser categories of Lamping et al., as they better address the objectives of these measures and allow for exploration of the flexibilities of TRIPS.
- 22.
Lamping et al., “Declaration on Patent Protection,” 688.
- 23.
Ibid.
- 24.
Castro Bernieri, Ex-Post Liability Rules in Modern Patent Law, 38.
- 25.
On this topic see also Sect. 3.2.9.
- 26.
See Sect. 2.3.1.3 on transitioning from defensive to offensive strategies.
- 27.
Hilty, “Legal Remedies,” 377, 381-383, 392.
- 28.
Ibid, 392-393.
- 29.
Calabresi and Melamed, “Property Rules, Liability Rules, and Inalienability,” 1109-1110.
- 30.
Machlup, Economic Review of the Patent System, 13-14. “Patentees, under such a system, could no longer hope for attractive monopoly profits, but only for such revenues as they would collect as royalties from their licensees and as “differential rents” due to the cost advantage over their royalty-paying competitors. These revenues might not be smaller than the potential monopoly profits in cases of relatively less strategic inventions, but they would probably be much smaller in cases of basic inventions and in all other instances where a strong patent position could permit a firm to control some of its markets. Thus, the hopes for the highest prizes to be won in the “patent lottery” would be dashed, and the anticipated returns from investment in innovations based on patented inventions would be reduced”[a footnote omitted], ibid.
- 31.
“The opportunity to charge monopoly prices—at least for a short period—is what attracts “business acumen” in the first place; it induces risk taking that produces innovation and economic growth. To safeguard the incentive to innovate, the possession of monopoly power will not be found unlawful unless it is accompanied by an element of anticompetitive conduct.
Firms may acquire monopoly power by establishing an infrastructure that renders them uniquely suited to serve their customers. Compelling such firms to share the source of their advantage is in some tension with the underlying purpose of antitrust law, since it may lessen the incentive for the monopolist, the rival, or both to invest in those economically beneficial facilities.” Trinko, 540 U.S. 398, 407-408.
- 32.
Kitch, “Nature and Function of the Patent System,” 287.
- 33.
Rudyk, License of Right, Compulsory Licensing and the Value of Exclusivity, 25.
- 34.
Gervais, TRIPS Agreement, 2.112.
- 35.
Sidak, “Reply to Lemley and Shapiro,” 738.
- 36.
See Sect. 2.1.6.
- 37.
Scherer, Economic Effects of Compulsory Patent Licensing, 85.
- 38.
Ibid, 85-86.
- 39.
Ibid. Cf. Machlup, Economic Review of the Patent System, 13-14.
- 40.
Thomas F. Cotter, “Intellectual Property and the Essential Facilities Doctrine,” Antitrust Bulletin 44, no. 1 (1999): 224, fn 114.
- 41.
See Calabresi and Melamed, “Property Rules, Liability Rules, and Inalienability,” 1109-1110.
- 42.
See Van den Bergh and Camesasca, European Competition Law and Economics, 31.
- 43.
Calabresi and Melamed, “Property Rules, Liability Rules, and Inalienability,” 1098-1099, 1110.
- 44.
The choice of remedies may be based both on efficiency and distributional goals. Ibid, 1110.
- 45.
Scotchmer, “Standing on the Shoulders of Giants:,” 31.
- 46.
Cotter, Comparative Patent Remedies, 10.
- 47.
Rudyk, License of Right, Compulsory Licensing and the Value of Exclusivity, 25-26.
- 48.
See Parisi, “Positive, Normative and Functional Schools in Law and Economics,” 267, fn 7.
- 49.
See also Lamping et al., “Declaration on Patent Protection,” 683.
- 50.
Carlos M. Correa, Trade Related Aspects of Intellectual Property Rights : A Commentary on the TRIPS Agreement (New York: Oxford University Press, 2007), 313.
- 51.
See, for example, Richard A. Epstein, “Clear View of the Cathedral : The Dominance of Property Rules,” Yale Law Journal 106 (1997): 2093; Cotter, Comparative Patent Remedies, 54.
- 52.
Krauspenhaar, Liability Rules in Patent Law, 45-46.
- 53.
“Enforced sharing also requires antitrust courts to act as central planners, identifying the proper price, quantity, and other terms of dealing—a role for which they are ill-suited.” Trinko, 540 U.S. 398, 408. Cf. Unwired Planet v. Huawei [2017] EWHC 2988 (Pat) [2017] RPC 19, para 169.
- 54.
Cotter, Comparative Patent Remedies, 54-55.
- 55.
Merges, “Contracting into Liability Rules,” 1317.
- 56.
Ben Depoorter, “Property Rules, Liability Rules and Patent Market Failure,” Erasmus Law Review 1, no. 4 (2008): 74. Consequently, evaluations of entire patent portfolios may be based on intuitive perceptions of suitable prices, rather than on careful calculations.
- 57.
Castro Bernieri, Ex-Post Liability Rules in Modern Patent Law, 238, fn 766, referring to an earlier version of Thomas F. Cotter, “Patent Holdup, Patent Remedies, and Antitrust Responses,” Journal of Corporation Law 34, no. 4 (2009): 1175, fn 123.; discussing an earlier version of Mark A. Lemley, “Distinguishing Lost Profits from Reasonable Royalties,” William & Mary Law Review 51, no. 2 (2009): 667.
- 58.
Krauspenhaar, Liability Rules in Patent Law, 42, 59; see also Calabresi and Melamed, “Property Rules, Liability Rules, and Inalienability,” 1098-1101, 1110. On the levels and rationales for deliberate under- and overcompensation under compulsory liability rules in patent law, see Castro Bernieri, Ex-Post Liability Rules in Modern Patent Law, 242, Table 8.
- 59.
Farrell et al., “Standard Setting, Patents, and Hold-Up,” 661.
- 60.
Krauspenhaar, Liability Rules in Patent Law, 37.
- 61.
For a more detailed review of the assessment costs, see ibid, 36-37.
- 62.
Castro Bernieri, Ex-Post Liability Rules in Modern Patent Law, 259.
- 63.
Ibid, 237. Similarly, Unwired Planet v. Huawei, [2017] EWHC 2988 (Pat) [2017] RPC 19, para 169.
- 64.
Ibid.
- 65.
Castro Bernieri, Ex-Post Liability Rules in Modern Patent Law, 237-238, 259.
- 66.
Cotter, Comparative Patent Remedies, 54. See also Miguel Rato and Mark English, “Assessment of Injunctions, Patents, and Standards Following the Court of Justice’s Huawei/ZTE Ruling,” Journal of European Competition Law & Practice 7, no. 2 (2016): 106.
- 67.
Miguel Rato and Mark English, “Huawei/ZTE,” 106. However, the European Commission has remarked in this respect that injunctive relief must also be sought “on a patent-by-patent basis”. Case AT.39985, Motorola (29 April 2014), para 519.
- 68.
See FTC, The Evolving IP Marketplace, 220.
- 69.
Geradin and Rato, “Can Standard-Setting Lead to Exploitative Abuse?,” 119.
- 70.
Lemley, “Contracting around Liability Rules,” 471-483.
- 71.
Ibid, 484.
- 72.
Picht, “ECJ Rules on Standard-Essential Patents,” 374.
- 73.
See FTC, The Evolving IP Marketplace, 220.
- 74.
See Castro Bernieri, Ex-Post Liability Rules in Modern Patent Law, 244.
- 75.
FTC, The Evolving IP Marketplace, 219.
- 76.
Scherer, Economic Effects of Compulsory Patent Licensing, 87.
- 77.
Cotter, Comparative Patent Remedies, 48.
- 78.
Louis Kaplow, “Rules Versus Standards : An Economic Analysis,” Duke Law Journal 42, no. 3 (1992): 560.
- 79.
Castro Bernieri, Ex-Post Liability Rules in Modern Patent Law, 254.
- 80.
See, for example eBay, 126 S. Ct. 1837, 1839, 1841; Case C-170/13, Huawei, 5 C.M.L.R. 14 (2015), para 77.
- 81.
Kaplow, “Rules Versus Standards,” 622.
- 82.
Ibid, 621.
- 83.
Castro Bernieri, Ex-Post Liability Rules in Modern Patent Law, 130, fn 423.
- 84.
Kaplow, “Rules Versus Standards,” 621.
- 85.
See also Hilty, “Legal Remedies,” 393. However, some commentators have even considered the transaction costs involved in using the compulsory liability rule to contribute to the maintenance of a patent holder’s incentives to invest in improvements to an invention. Duffy, “Rethinking the Prospect Theory of Patents,” 502.
- 86.
See 4.3.5. See also Hilty, “Legal Remedies,” 393.
- 87.
See Kur and Schovsbo, Expropriation or Fair Game for All?, 22.
- 88.
See FTC, The Evolving IP Marketplace, 223.
- 89.
Straus and Prinz zu Waldeck und Pyrmont, “Survey of Compulsory Licensing Legislation,” 1.
- 90.
See Lemley, “Contracting around Liability Rules,” 479.
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Wernick, A. (2021). Economic Foundations of Compulsory Liability Rules. In: Mechanisms to Enable Follow-On Innovation. Munich Studies on Innovation and Competition, vol 15. Springer, Cham. https://doi.org/10.1007/978-3-030-72257-9_4
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