Econ 522 Economics of Law Dan Quint Fall 2016 Lecture 8

Announcements No office hours this Thursday (sorry) HW2 is up online, due next Thurs Oct 13 HW1 solutions

Last week… Discussed what efficient property law system would look like Introduced dynamic games, sequential rationality, subgame-perfect equilibrium This week: some applications of these ideas But first…

Discussion question (old exam question, question by Alex Tabarrok at Marginal Revolution blog) In Virginia, the common law has long held that if a neighbor’s tree encroaches on your yard you may cut the branches as they cross the property line, but any damage the tree does to your property is your problem. Your neighbor can even sue if your pruning kills the tree. In 2007, the Virginia Supreme Court overruled this 70-year-old precedent, making it your neighbor’s duty to prune or cut down the tree if it is a “nuisance.” Which is better: the new rule or the old? What would the Coase Theorem say about the two rules?

Intellectual Property patents copyrights trademarks trade secrets

Intellectual Property Intellectual property: broad term for ways that an individual, or a firm, can claim ownership of information Patents – cover products, commercial processes Copyrights – written ideas (books, music, computer programs) Trademarks – brand names, logos Trade Secrets The first application we’ll consider is a non-obvious answer to the question, what can be privately owned? And this is the area of information and intellectual property Intellectual property is a broad term for ways that an individual, or a firm, (or a university) can claim ownership of information. There are four areas we’ll look at within information economics: patents copyright trademark trade secrets

Information: costly to generate, easy to imitate up-front investment: 1,000 monopoly profits: 2,500 duopoly profits: 450 each Information: costly to generate, easy to imitate Example: new drug Requires investment of $1,000 to discover Monopoly profits would be $2,500 Once drug has been discovered, another firm could also begin to sell it Duopoly profits would be $450 each The general “problem” with information is that it tends to be expensive to create, but then very cheap to disseminate once it’s been created That is, once an idea has been developed – whether it’s a technological innovation, or a song, a piece of software, or a catchy logo for a company – it is very easy to imitate or share This means that without some sort of intervention, it may be impossible for whoever developed the idea to recoup the costs – time, effort, and actual money invested – in coming up with the idea And this means that there may not be sufficient incentive to come up with ideas in the first place To see how this works, consider an example There’s a firm that has some idea for a totally new and innovative product It’s a good idea: it’s a product that will be valuable to a large number of people But it’s an idea that will take a large amount of money to develop; and it’s also an idea that, once it’s out there, will be easy for other firms to imitate (A good example of this is a new drug A huge amount of money goes into researching drugs, finding one that’s effective, testing for safety and for side effects, and so on But once a drug is released, it may be very easy for other firms to reverse-engineer it, figure out how to make it relatively cheaply, and compete with the firm that developed it. So now suppose a firm is deciding whether to make the initial investment in developing a new drug The drug will cost $1,000 to develop Monopoly profits in the market would be $2500, but if two firms are competing, then price competition would drive down profits to $450 each Only one firm has the capability to develop the drug; they move first, deciding whether or not to develop it; and then another firm moves second and decides whether to imitate it

Information: costly to generate, easy to imitate up-front investment: 1,000 monopoly profits: 2,500 duopoly profits: 450 each Information: costly to generate, easy to imitate FIRM 1 (innovator) Innovate Don’t FIRM 2 (imitator) (0, 0) Imitate Don’t (-550, 450) (1500, 0) We can model this example as a dynamic game, and write the game tree this way: Firm 1 moves first, and chooses to innovate or not to Firm 2 moves second, and chooses whether or not to imitate firm 1’s product If firm 1 innovates and earns monopoly profits, it earns $2500, minus the up-front cost of innovation ($1000), = $1500 If firm 1 innovates and both firms enter the market, duopoly profits are $450 each, but firm 1 paid the up-front cost of $1000 to innovate If firm 1 doesn’t innovate, firm 2 has nothing to imitate, and both earn 0 profits We can solve the game by backward induction… Solve the game by backward induction: Subgame perfect equilibrium: firm 2 plays Imitate, firm 1 plays Don’t Innovate, drug is never discovered (Both firms earn 0 profits, consumers don’t get the drug)

Patents: one way to solve the problem up-front investment: 1,000 monopoly profits: 2,500 duopoly profits: 450 each Patents: one way to solve the problem Patent: legal monopoly Other firms prohibited from imitating Firm 1’s discovery Subgame perfect equilibrium: firm 2 does not imitate; firm 1 innovates, drug gets developed FIRM 1 (innovator) Innovate Don’t FIRM 2 (imitator) (0, 0) Imitate A patent is one way to solve this problem A patent is basically a legal monopoly – a patent prevents the second firm from imitating the first firm’s product, allowing the first firm to function as a monopolist for a predetermined amount of time In the U.S., patents last 20 years from the time of application. So if the firm’s invention were be protected by a patent, the firm can count on receiving several years of monopoly profits; which may be enough to cause them to innovate in the first place. (Modify the game tree by imposing a large penalty on the imitating firm – the new SPE is now innovation.) Don’t (-550, 450) (1500, 0) 450 – P

Comparing the two outcomes up-front investment: 1,000 monopoly profits: 2,500 duopoly profits: 450 each Comparing the two outcomes FIRM 1 (innovator) FIRM 2 (imitator) Without patents: Drug never discovered With patents: Drug gets discovered But… Innovate Don’t (0, 0) Imitate Don’t (-550, 450) (1500, 0) FIRM 1 (innovator) FIRM 2 (imitator) Innovate Don’t (0, 0) Imitate Don’t (-550, 450 – P) (1500, 0)

Patents solve one inefficiency by introducing another up-front investment: 1,000 monopoly profits: 2,500 duopoly profits: 450 each Patents solve one inefficiency by introducing another Without patents, inefficient outcome: drug not developed With patents, different inefficiency: monopoly! Once the drug has been found, the original incentive problem is solved, but the new inefficiency remains… Monopoly Duopoly CS 1,250 Net Surplus = 2,750 CS 4,050 Net Surplus = 3,950 P = 50 Profit 2,500 DWL 1,250 A key thing to remember: monopoly is inefficient! Monopoly pricing always involves a deadweight loss, since a monopolist maximizes profits by setting price higher than marginal costs For example, suppose demand for the new drug is Q = 100 – P Suppose the monopolist has 0 marginal costs; then he sets monopoly price at 50, sells to half the market, gets profit of 2500 and generates consumer surplus of 1250 But there’s a deadweight loss of 1250 – if the drug were sold for free, it would generate total surplus of 5000 (all of it going to consumers in this case) But if the drug were going to be very cheap, it might never have been developed in the first place So patents trade off one sort of inefficiency for another. That is, patents solve the dynamic inefficiency – not enough drugs being developed – by introducing a static inefficiency – monopoly pricing once the drug has been developed (Of course, once the innovation has occurred, the incentive problem has been solved, and the inefficiency from the monopoly remains, and can sometimes look pretty undesirable. There’s been lots of talk in recent years about the cost of AIDS drugs, most which are protected by patents. The manufacturers are pricing them high, to maximize their profits or, arguably, to recoup the investments they made to develop the drugs in the first place But it’s hard to not notice that pills which can be produced at a marginal cost of pennies are priced high enough that they are not available to much of the developing world. There have been a number of proposals to try to make them available cheaply (at cost) in developing countries, but the challenge is how to do that without undermining profits in the U.S. and Europe) (Aside: not all pharma pricing problems come from patents. Recent story – Daraprim, used to fight infections in AIDS and cancer patients. Turing Co bought the rights, raised price from $13.50/pill to $750/pill – but the patent had already expired! Other barriers to entry under FDA, so monopolist even though no patent.) P = 100 – Q DWL 50 P = 10 Profit 450 x 2 Q = 50 Q = 90

Patents: a bit of history First U.S. patent law passed in 1790 Patents currently last 20 years from date of application For a patent application to be approved, invention must be: novel (new) non-obvious have practical utility (basically, be commercializable) Patentholder whose patent has been infringed can sue for both damages and an injunction against future violations Patents are property – can be sold or licensed to others A little bit of history The power of Congress to legislate both patents and copyrights was actually written into the Constitution The first patent law was passed in 1790, and has been updated several times since At present, patents last for 20 years from the date of application To be approved, a patent application must satisfy three conditions they must be for something which is novel (new), non-obvious, and has practical utility (basically, is commercializable) Applications are reviewed by the patent office, which handles a huge volume and is therefore sometimes criticized for granting patents too easily In particular, in recent years, there’s been criticism that the “non-obvious” test had not been applied Amazon, for instance, was granted a patent on “one-click purchasing”, which many thought was an obvious extension of online shopping. A patentholder who feels his patent has been violated can sue both for damages already done and for an injunction, stopping the violator from future violations Thus, patents are protected both by injunctive and damages relief Patentholders are also free to license their patents to others, that is, to allow others to use them for a fee (called a royalty). When you apply for a patent, the details of your innovation go into the public record, so in some industries, firms choose not to patent new inventions, instead choosing to keep them secret.

Patent breadth Narrow patents might allow us each to patent own invention Broad patents might not “Winner-take-all” race to be first One important question: how broad, or general, should patents be? We can think about this question in different ways. First, suppose two different firms are developing distinct, but similar, products If patents are fairly narrow, we might each be able to patent our own invention, regardless of who finished first This might lead each of us to develop our product slowly, trying to make it as good, or as cheap, as possible, knowing we’ll be competing against each other in the end and it doesn’t really matter who’s first If patents are very broad, then if I finished my invention first, I might be able to prevent you from selling yours So in a world with broad patents, we might end up in a race – both of us try very hard to develop the product very quickly, since whoever applies for the patent first will get all the gains from both products So the breadth of patents affects the intensity of the research effort But it’s not clear which is more efficient

Patent breadth Does a patent on the “pioneering invention” cover the application as well? Can you patent an improvement to an existing product? Another way to think of breadth is to suppose that a new product might require two distinct innovations: one “pioneering invention” that is worth little on its own, and then the subsequent development of an application, which can be sold profitably The question then is, does a patent on the original invention also cover the application? Or would separate patents be required for the pioneering invention and the application? (A similar question can be asked of whether an improvement to an existing product is patentable. The question can also be asked in other configurations.) Courts have sometimes held that an improvement with great commercial value does not infringe on a pioneering invention that had little standalone value Such rulings, of course, increase the incentives to invest in applications and improvements to existing technologies, and decrease the incentives to engage in fundamental research On the other hand, when patents on pioneering inventions are held to be broad, this encourages fundamental research but discourages new firms from attempting to commercialize existing (but unexploited) technologies Which of these is preferable depends on the details of a particular industry. (Example: drug company patenting small improvement right before original patent expires)

Patent length Patent length U.S.: all patents last 20 years Need to last long enough for firms to recover up-front investment… …But the longer patents last, the longer we have DWL from monopoly (Example from textbook: drug price drops from $15 to $1 per pill when patent expires) Tradeoff between ex-post inefficiency and ex-ante incentive provision U.S.: all patents last 20 years Jeff Bezos (founder of Amazon) once suggested software patents should last just 3 years Germany: full-term patents for major inventions, 3 year “petty patents” for minor ones, annual renewal fees There is also the question of how long a patent should last Obviously, patents must last long enough for firms to be able to recover their investment costs, in order to give sufficient incentives for innovation But since monopolies are inefficient, having patents last too long is bad – once the patent expires, competition will drive down the price of the product, eliminating DWL. (When drug patents expire, for example, competing firms can begin selling generic versions of the same drug – the book gives an example where the price per pill dropped immediately from $15 to $1, and I think that’s pretty typical.) So the optimal length is a tradeoff between maintaining ex-post inefficiency versus creating a sufficient incentive for innovation. Clearly, the optimal level is likely to vary across different industries In the U.S., all patents last the same amount of time, 20 years Jeff Bezos, the founder of Amazon, proposed that, since innovation occurs so fast in the software industry, software patents should expire after 3 years In Germany, there are two different types of patents: full-term patents, which are granted for major inventions; and petty patents, granted for minor inventions and improvements, which last 3 years In addition, in Germany, patentholders must pay an annual fee to continue the patent, which starts out cheap but escalates over time In the U.S., patents used to be renewable under certain conditions – I believe now they are not.)

Patent policy: where are we now? “Patent Policy on the Back of a Napkin” (Marginal Revolution) New York Times a few years ago “Last year, for the first time, spending by Apple and Google on patent lawsuits and unusually big-dollar patent purchases exceeded spending on research and development of new products” (“The Patent, Used as a Sword”, 10/7/2012) references: http://marginalrevolution.com/marginalrevolution/2012/09/patent-theory-on-the-back-of-a-napkin.html http://www.nytimes.com/2012/10/08/technology/patent-wars-among-tech-giants-can-stifle-competition.html?_r=1&pagewanted=all And that’s where we ran out of time.

Do the details matter? Coase: without transaction costs, initial allocation of rights irrelevant for efficiency But transaction costs may be high Uncertainty on whether a patent is valid Uncertainty of outcome of research Many parties Coase – in a world without transaction costs, the initial allocation of rights should not matter for efficiency – if the patent as initially granted is inefficient, firms should be able to bargain around it (That is, as long as the initial grant of the patent gives the inventor enough surplus to overcome the initial incentive problem, Coase suggests we should be able to negotiate around any further inefficiencies.) However, there are several impediments to this. Patent law is often ambiguous Until a patent has been tested in court, its breadth (and even whether or not it is valid) are often uncertain So firms may not know what their threat points are, and therefore may find it hard to reach an agreement Research itself is often uncertain That is, if you make an investment in research or in developing a product, it is often unpredictable whether you’ll be successful Consider the extreme case where a significant investment will lead only to a small probability of a discovery, but the discovery will be extremely valuable if it occurs If the big discovery may infringe on an existing patent, it’s very hard to bargain around this problem beforehand – hard to agree on how likely the discovery is to be made, how valuable it will be, and so on But it’s also risky to make the investment, knowing that you may still have to share your profits with the other patentholder if the discovery occurs.

Do the details matter? Coase: without transaction costs, initial allocation of rights irrelevant for efficiency But transaction costs may be high Uncertainty on whether a patent is valid Uncertainty of outcome of research Many parties In some areas, there is a belief that there are too many existing patents, and that it’s very difficult to innovate without infringing on existing patents In biotech, many new projects require techniques, or even ingredients, that are patented; so there is a problem of “royalty stacking”, that is, having to pay multiple monopolists for rights to their good in order to do anything new (The textbook mentions a Congressional act, and a Supreme Court ruling, meant to address this problem and encourage the development of new drugs and generic alternatives to existing ones.) On the flip side, I have a friend who does microchip design, who told me that the conventional wisdom in chip design is, “Never ever try to find out what patents exist – just design the chip the way you want to, and deal with the patents later.” This is because any design is likely to infringe on lots of patents Their owners have to decide to sue you for it to matter If they do, you may only be liable for damages But if they can prove you knew about the patent beforehand, the penalty may be more severe So you’re better off pleading ignorance, which is easier when you actually are ignorant!

Do the details matter? Coase: without transaction costs, initial allocation of rights irrelevant for efficiency But transaction costs may be high Uncertainty on whether a patent is valid Uncertainty of outcome of research Many parties research being risky also leads to the problem of “submarine patents” There’s a significant lag (multiple years) between applying for a patent and it being granted; and the details of the application aren’t made public until the patent is granted So someone could develop a product that infringes on a patent that hadn’t been granted yet! For this reason, in many areas, patents are only valid if you can show that you were actively trying to commercialize the innovation, not just waiting around hoping someone else would do the work and then sue them for infringement (This is what happened in a well-publicized case with Blackberry a couple years ago. Some Canadian firm which had no real business other than buying other peoples’ patents, claimed to have a patent that Blackberry was infringing on, and tried to get an injunction to shut down Blackberry unless they agreed to a huge settlement. In most patent cases, a preliminary injunction is granted – that is, the injunction is issued in advance of the case actually going to court. In this case, the injunction was denied, and the case subsequently went away.) Of course, even when low transaction costs would lead to cooperative outcomes, this can sometimes be a problem in other ways Often times, firms doing similar research are also competitors in the market; so attempts to cooperate (through joint research projects or in other ways) may be viewed suspiciously by antitrust authorities. (A paper I wrote last year was on patent pools - … Much of the interest in patent pools stems from the need to figure out how they should be viewed by antitrust regulators.)

Alternatives to patents for encouraging innovation government purchase of drug patents prizes Google $30 million prize for landing a rover on the moon direct government funding of research ~25% of research spending in U.S. is funded by government Of course, a patent system is not the only way to encourage innovation; and given the inefficiency inherent in a monopoly, there may be other ways to do it better One proposal with drug patents has been that when a particularly valuable drug is invented, the government should buy the patent, and then allow multiple firms to produce the drug, leading to lower pricing and higher overall welfare Since the government could pay the fair value (say, the discounted present value of expected monopoly profits) to the firm, there is no problem of incentives The question then becomes how to calculate the economic value of the patent itself (One proposal was to let the market decide – hold an auction for the patent, with the understanding that once the auction was complete, a coin would be flipped; with a high probability, the government would buy the patent at that price, but with some probability, the winner of the auction would buy the patent This way, a decent estimate of “fair value” could be obtained, and the deadweight loss associated with monopoly could still be eliminated “most of the time”.) Another way to give incentives for innovation is through prizes A couple years ago, Google announced a $30 million prize for any private citizen landing a rover on the moon Similar prizes have been offered by governments, and by private foundations, to encourage innovation in particular directions And finally, government (or a private foundation) can simply give grants to subsidize research directly – which they do – reducing the need for ex-post incentives.

patents copyrights trademarks trade secrets

Copyright Property rights over original expressions writing, music, other artistic creations Creations like this tend to fit definition of public goods nonrivalrous nonexcludable so private supply would lead to undersupply Several possible solutions government subsidies charitable donations legal rights to creations – copyrights Copyrights are property rights over “original expressions” – writing, music, or other artistic creations Creations like this tend to fit the definition of a public good nonrivalrous – one more person reading a book, or listening to a song, or using a piece of software, doesn’t impose any costs on the creator or on other users nonexcludable – this isn’t quite as literally true; but technology has made it very cheap, often free, to copy and share music or software, so in some instances it’s very difficult to prevent people from accessing it (This has become more dramatically true in the last decade – once something is available digitally, it’s very hard to limit access to it.) So it is natural to think of creations like these in terms of public goods As with any public good, if they are privately supplied, we would expect them to be undersupplied That is, without any specific sort of reward system, creators could not capture the full social benefit of their creations, and so the free market would likely produce an inefficiently low level of “original expressions.” However, there are several possible ways to remedy this problem: Have the government subsidize it, that is, have it publicly supplied Happens with scientific research; happens with art Another is for these activities to be paid for with charitable donations This is implicitly what happens with shareware – you download it for free, but are asked to pay for it voluntarily if you use it (Of course there’s the usual freerider problem.) And a lot of art is supported by private foundations and donations. Finally, the creator of a song, or of a computer program, can be given legal rights to it, which make it illegal for others to disseminate it, so that in order to use it legally, people have to buy it from the creator (or from someone else who pays fees to the creator) This last one is the case of copyright – exclusive legal rights to written material.

Copyright Copyright law less rigid than patent law Unlike patent law, allows for certain exceptions Copyrights last much longer than patents Current U.S. law: copyright expires 70 years after creator’s death No application process Copyright law automatically applies to anything you’ve written/created Copyrights more narrow than patents Cover exact text, not general idea Copyright law is less rigid than patent law Patents serve as injunctions against any unauthorized use of the idea But copyright law allows for certain exceptions For example, a few lectures ago, I handed out Xerox copies of the amputated leg story The article was copyrighted, but I wasn’t breaking the law by handing out copies, because educational use is recognized as “fair use” of copyrighted material, and is therefore exempt Similarly, small selections from a book can legally be quoted in reviews, or used in satires, and pieces of songs can be sampled in other songs. On the other hand, copyrights last much longer than patents the lifetime of a copyright has been extended several times in the U.S., copyrights currently expire 70 years after the death of the creator Unlike patents, you don’t have to apply for a copyright – it automatically applies to anything you’ve written or created. Copyrights are generally more narrow than patents In theory, they cover only the specific text, not the general idea, of a creation Although this line is sometimes a bit vague

Copyright Retelling of Gone With The Wind, from point of view of a slave on Scarlett’s plantation, published in 2001 Margaret Mitchell’s estate sued to halt publication Eventually settled out of court Was there really any harm? Copyrights are generally more narrow than patents In theory, they cover only the specific text, not the general idea, of a creation Although this line is sometimes a bit vague In 2001, Alice Randall published the book “The Wind Done Gone,” which was meant as a retelling of “Gone With The Wind” from the point of view of a slave on Scarlett’s plantation The estate of Margaret Mitchell sued the book’s publisher; an injunction was initially issued, halting publication, but was later overturned; in the end, a settlement was reached. In this case, though, even if the book did violate the copyright, it’s hard to see any financial damage to Mitchell’s estate That is, it’s hard to imagine there are many people who would see an “unauthorized parody” as a substitute for the original; hard to imagine a lot of people who planned to buy a copy of Gone With The Wind, then read the parody and felt they no longer needed to. In my own opinion, copyright holders sometimes defend their copyright aggressively as a reflex, without giving much thought to whether the activity they’re opposing actually hurts their interests Lots of book publishers were opposed to Google Book Search, which would allow people to search the text of books, but would only return the relevant paragraph, not the whole work Again, it’s hard to imagine that searching for a phrase or an idea, and finding it contained in a book you didn’t know about, would make you less likely to buy that book; yet the publishers felt some instinctive need to oppose the idea (Google Book Search is now mostly limited to books in the public domain, that is, works whose copyrights have expired or which are not protected by copyright for other reasons.) A similar argument could be made about the well-publicized RIAA lawsuits against music downloaders (There is little doubt that unlicensed copying of music does violate copyright; there is less clarity that treating potential customers as criminals is the best long-term strategy for the music and movie industries.)

Last time I taught this class, the song “Happy Birthday” was in the news Melody dates back to 1893, lyrics to at least 1912 Some company claimed a copyright for the lyrics in 1935 In 1988, Warner/Chappell Music bought that company, valuing the copyright to Happy Birthday (and the ability to charge royalties when it’s played in movies, on TV, on the radio, etc.) at $5 million By one estimate, the song has earned $50 million in royalties In 2010, a law prof researched the song and concluded the copyright was unlikely to still be valid In 2015, someone sued Warner/Chappell for falsely claiming copyright; a federal judge declared the copyright invalid, and W/C settled, allowing the song to enter the public domain "Happy Birthday to You", also known more simply as "Happy Birthday", is a song that is traditionally sung to celebrate the anniversary of a person's birth. According to the 1998 Guinness World Records, "Happy Birthday to You" is the most recognized song in the English language, followed by "For He's a Jolly Good Fellow". The song's base lyrics have been translated into at least 18 languages.[1] The melody of "Happy Birthday to You" comes from the song "Good Morning to All",[2] which has traditionally been attributed to American sisters Patty and Mildred J. Hill in 1893,[3][4] although the claim that the sisters composed the tune is disputed.[5] Patty Hill was a kindergarten principal in Louisville, Kentucky, developing various teaching methods at what is now the Little Loomhouse;[6] her sister Mildred was a pianist and composer.[7] The sisters used "Good Morning to All" as a song that young children would find easy to sing.[8] The combination of melody and lyrics in "Happy Birthday to You" first appeared in print in 1912, and probably existed even earlier.[9] None of the early appearances of the "Happy Birthday to You" lyrics included credits or copyright notices. The Summy Company registered a copyright in 1935, crediting authors Preston Ware Orem and Mrs. R. R. Forman. In 1988, Warner/Chappell Music purchased the company owning the copyright for US$25 million, with the value of "Happy Birthday" estimated at US$5 million.[10][11] Based on the 1935 copyright registration, Warner claimed that the United States copyright will not expire until 2030, and that unauthorized public performances of the song are illegal unless royalties are paid to Warner. In one specific instance in February 2010, these royalties were said to amount to US$700.[12] By one estimate, the song is the highest-earning single song in history, with estimated earnings since its creation of US$50 million.[13][14] In the European Union, the copyright of the song was set to expire no later than December 31, 2016.[15] The American copyright status of "Happy Birthday to You" began to draw more attention with the passage of the Sonny Bono Copyright Term Extension Act in 1998. When the U.S. Supreme Court upheld the Act inEldred v. Ashcroft in 2003, Associate Justice Stephen Breyer specifically mentioned "Happy Birthday to You" in his dissenting opinion.[16] American law professor Robert Brauneis, who extensively researched the song, concluded in 2010 that "It is almost certainly no longer under copyright."[17] In 2013, based in large part on Brauneis's research, Good Morning to You Productions, a company producing a documentary about "Good Morning to All", sued Warner/Chappell for falsely claiming copyright to the song.[5][10] In September 2015, a federal judge declared that the Warner/Chappell copyright claim was invalid, ruling that the copyright registration applied only to a specific piano arrangement of the song, and not to its lyrics and melody. In February 2016 Warner/Chappell settled for US $14 million, paving the way for the song to become public domain.[18] (Wikipedia, https://en.wikipedia.org/wiki/Happy_Birthday_to_You , downloaded Nov 28 2016)

An econ blogger I like (“The Undercover Economist”) wrote: It’s worth remembering the purpose of copyright. Copyright is justifiable because it is very hard to write The Lord of the Rings but easy to copy it once Tolkien has written it. Copyright gives authors and other creators some ability to stop copycats, and thus gives them an incentive to do the creative work in the first place. The longer intellectual property rights last, the greater that incentive is. But there is a sharp trade-off here. In a world without copyright, creative works could be widely shared. New ideas could be adapted, remixed and improved. All this ensures a rapid spread of good ideas. The longer copyright lasts, the longer that spread will be delayed. Blog post at http://timharford.com/2015/10/copyrights-and-wrongs/ (The context for the blog post was a recent court ruling that the Warner/Chappell Music does not own the copyright on the song Happy Birthday – W/C had been making about $2 million a year on licensing fees, for example, collecting money each time a movie or theater character sang happy birthday to someone. The lyrics – which W/C claimed to own – are from before World War I, and the melody goes back to 1893.)

An econ blogger I like (“The Undercover Economist”) wrote: Because copyright terms are so long, few creative works are in the public domain. Some are – from the works of Shakespeare, Chaucer and Milton, to Victorian pornography or the earlier adventures of Sherlock Holmes… Alan Moore’s League of Extraordinary Gentlement pitched Dr. Jekyll and Captain Nemo against Moriarty and Fu Manchu. Such remixed creativity is vastly easier when the original material is no longer under copyright. A recent study commissioned by the UK’s Intellectual Property Office examined the value of the public domain, looking at the popularity of Wikipedia entries or Kickstarter projects that drew on art and writing in the public domain. That value is large and if more recent work entered the public domain, it would be far larger. Blog post at http://timharford.com/2015/10/copyrights-and-wrongs/ (The context for the blog post was a recent court ruling that the Warner/Chappell Music does not own the copyright on the song Happy Birthday – W/C had been making about $2 million a year on licensing fees, for example, collecting money each time a movie or theater character sang happy birthday to someone. The lyrics – which W/C claimed to own – are from before World War I, and the melody goes back to 1893.)

An econ blogger I like (“The Undercover Economist”) wrote: So, bearing in mind that this is a pragmatic question, how long should copyright last? The current answer is 70 years after the death of the author – typically about a century. That is absurd. Most books, films and albums enjoy a brief window of sales… The truth is that 10 years of copyright protection is probably sufficient to justify the time and trouble of producing most creative work… Blog post at http://timharford.com/2015/10/copyrights-and-wrongs/ (The context for the blog post was a recent court ruling that the Warner/Chappell Music does not own the copyright on the song Happy Birthday – W/C had been making about $2 million a year on licensing fees, for example, collecting money each time a movie or theater character sang happy birthday to someone. The lyrics – which W/C claimed to own – are from before World War I, and the melody goes back to 1893.)

An econ blogger I like (“The Undercover Economist”) wrote: Why don’t we see a more sensible system of copyright? Two words: Mickey Mouse. That is an oversimplification, of course. But the truth is that a very small number of corporations and literary estates have a lot to gain from inordinately long copyright – and since it matters a lot more to them than to the rest of us, they will focus their lobbying efforts and get their way. Mickey Mouse will enter the public domain in 2024 – unless copyright terms are extended yet again. Watch this space. Blog post at http://timharford.com/2015/10/copyrights-and-wrongs/ (The context for the blog post was a recent court ruling that the Warner/Chappell Music does not own the copyright on the song Happy Birthday – W/C had been making about $2 million a year on licensing fees, for example, collecting money each time a movie or theater character sang happy birthday to someone. The lyrics – which W/C claimed to own – are from before World War I, and the melody goes back to 1893.) Chart from http://artlawjournal.com/mickey-mouse-keeps-changing-copyright-law/ source: http://artlawjournal.com/mickey-mouse-keeps-changing-copyright-law/

patents copyrights trademarks trade secrets

Trademarks Reduce confusion over who made a product Allow companies to build reputation for quality Don’t expire, unless abandoned Generic names can’t be trademarked Probably less controversial than patents and copyrights are trademarks This is protection for brand names, as well as distinctive commercial symbols such as McDonald’s golden arches and Nike’s swoosh Trademark protection prevents competitors from putting the same mark on their products; thus, it helps establish who a product is made by, allowing consumers to rely on a firm’s or a product’s reputation for quality – which gives the company more of an incentive to produce high-quality goods (Without trademarks, if I spend more to make a better product, someone else could build a cheap version and put my name on it. Customers wouldn’t know which one they’re getting, so they wouldn’t be willing to pay more. Which means I have no reason to invest in quality in the first place. With trademarks, this problem is eliminated.) Unlike other forms of intellectual property, trademarks last forever, unless they are abandoned Makes some sense – unlike patents and copyrights, there doesn’t seem to be the same tradeoff of long-term incentives versus short-term inefficiency. Generic names cannot be trademarked – for example, nobody can trademark the word “camera”, and sue anyone else who advertises a product called a camera Sometimes, this goes in the other direction: occasionally, a brand-name product is so successful that their name becomes synonymous with the product “Kleenex,” “Xerox,” “Scotch tape,” and “Band-Aid” are all commonly used to refer to generic products The name “Aspirin” was once the name of acetacylicilic acid sold by the Sterling Drug Company; in 1921, a federal court ruled that the name had become the common word for the drug, and other companies were allowed to start using the term “aspirin.” (Bayer currently holds a trademark on the word “aspirin” in Mexico and Canada, where nobody else can sell a product with that name.) The book also talks about a program by Coca-Cola, which employs 25 “investigators” who order Coke all over the place and analyze what they’re given, in an effort to ensure that people don’t start using the term to refer to any generic soda and destroy the trademark

Trademarks – example WSJ article 9/17/2010: “Lars Johnson Has Goats On His Roof and a Stable of Lawyers To Prove It” Restaurant in Sister Bay WI put goats on roof to attract customers “The restaurant is one of the top- grossing in Wisconsin, and I’m sure the goats have helped.” Suing restaurant in Georgia “Defendant has willfully continued to offer food services from buildings with goats on the roof” http://online.wsj.com/article/SB10001424052748704285104575492650336813506.html From the article: Some patrons drive from afar to eat at the restaurant and see the goats that have been going up on Al Johnson's roof since 1973. The restaurant 14 years ago trademarked the right to put goats on a roof to attract customers to a business. "The restaurant is one of the top-grossing in Wisconsin, and I'm sure the goats have helped," says Mr. Johnson, who manages the family-owned restaurant. So when a tourist spot 750 miles away decided to deploy a rooftop-caprine population, Mr. Johnson made a federal case of it. Last year, he discovered that Tiger Mountain Market in Rabun County, Ga., had been grazing goats on its grass roof since 2007. Putting goats on the roof wasn't illegal. The violation, Al Johnson's alleged in a lawsuit in the U.S. District Court for the Northern District of Georgia, was that Tiger Mountain used the animals to woo business. The suit declared: "Notwithstanding Al Johnson's Restaurant's prior, continuous and extensive use of the Goats on the Roof Trade Dress"—a type of trademark—"defendant Tiger Mountain Market opened a grocery store and gift shop in buildings with grass on the roofs and allows goats to climb on the roofs of its buildings." Al Johnson's "demanded that Defendant cease and desist such conduct, but Defendant has willfully continued to offer food services from buildings with goats on the roof," the suit continued.

Trademarks – another example In court papers, the oil behemoth effectively argues that it owns the exclusive right to put two X’s next to each other. Deadline notes, “This double-cross brawl may come as a surprise to Dos Equis…” An FX spokesperson called the suit “entirely meritless” and said, “We are confident that viewers won’t tune into FXX looking for gas or motor oil and drivers won’t pull up to an Exxon pump station expecting to get ‘It’s Always Sunny in Philadelphia.’” The FX TV network launched two new stations – FXM, which is for movies, and FXX, which it describes as “more X!” They’re being sued by ExxonMobil Here’s the article I found on Friday 32 source: http://www.salon.com/2013/10/04/big_oil_loses_it_exxonmobil_claims_it_owns_the_letter_x/ 32

Trademark dilution In 1989, Toyota introduced the Lexus name (L-E-X-U-S) They were sued by Lexis (L-E-X-I-S), a company that provides searches of legal sources (now Lexis-Nexis, which those of you who go to law school will get to know quite well) The court ruled for the car company, saying they were not infringing. The first time I taught this class, I stumbled on an article that for the second time in a year, Toyota was suing a porn star who’s adopted the stage name “Lexus” Taken together, these seem to suggest that Toyota believes that: you are unlikely to mistake a luxury car for an online legal search but you might mistake a luxury car for gay porn (The CEO of EBoys Studios claims the actor took the name “in honor of the Greek god Lexus”, which would be a better story if there had been a Greek god Lexus.) Of course, Lexus isn’t really claiming that people will be confused about whether they’re getting a car or gay porn Obviously, trademark law prohibits someone else from selling a soft drink called Coca-Cola Less obviously, it also prohibits someone else from selling, say, a clothing line or a sandwich meat called Coca-Cola The legal doctrine here is “dilution of the distinctive quality of a mark or trade name,” which can be claimed even in “the absence of competition between the parties or the absence of confusion as to the source of goods or services.” That is, once you’ve established a brand name, people can’t use it in a way that hurts its image, even if it doesn’t create genuine confusion about whose products are whose. The economic argument for trademark protection seemed pretty clear – reduce buyer uncertainty, increase seller incentives to maintain a reputation for quality The argument against trademark dilution is a bit harder – seems more to be protecting vested interest But I thought it was interesting

patents copyrights trademarks trade secrets

Trade Secrets Protection against misappropriation But plaintiff must show… Valid trade secret Acquired illegally Reasonable steps taken to protect it I mentioned that if you apply for a patent, the details of your invention become public As a result, rather than using patents, some business simply refuse to disclose how they do things This is a trade secret A trade secret is any information "used in one's business" that gives its owner "an opportunity to obtain an advantage over competitors who do not know or use it." For instance, the exact formula for Coca-Cola or for the Big Mac “special sauce” are supposedly closely-guarded trade secrets In order to charge someone with misappropriating a trade secret, I have to show three things: One, that it is a valid trade secret, that is, that it is commercially valuable, and that it was not already commonly known throughout the industry. Two, that they acquired it illegally. Buying my product and reverse-engineering how I built it is not illegal. However, breaking into my lab and stealing my notes is. Three, that I took reasonable steps to protect it. Trade secrets behave like property – they can be transferred or sold The protection does not expire, as long as the secret remains a secret Trade secret protection is limited, however Suppose my firm hires an engineer to work on a secret project, and I have him sign a non-disclosure agreement, agreeing not to disclose my secrets After a while, he quits, and begins working for my competitor If he reveals my secrets to them, I can sue him for breach of contract But if my competitor did not know about the contract, I have no recourse against them, and now they have my secret. (Nondisclosure agreements tend to be difficult to enforce. Particularly in Silicon Valley, where people change jobs very frequently, trade secret protection is not felt to be particularly effective. Silicon Valley vs 128 Corridor, Kozmo/Urbanfetch)

patents copyrights trademarks trade secrets