“Property & Biotechnology” - Hoover Project on Commercializing ...


22 Οκτ 2013 (πριν από 4 χρόνια και 7 μήνες)

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“A Private Ordering Solution

to the Public Problems of Anticommons”

F. Scott Kieff & Troy A. Paredes

School of Law

Washington University in St. Louis


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Introducing the Problem

What if a vast number of IP rights cover a single good or service?

Will such a line of business be unduly taxed or retarded?

Will transaction costs alone prevent any investment in it in the first place?

The problem seems real and life threatening, in both the literature and business

For example consider DNA on a chip technologies

arrays using on the order of 10,000 DNA sequences

Used as diagnoses and treatments targeted to specific genetic profiles

Most sequences patented

Most of those separately owned

on the order of 1,000 owners


Those wanting to enter such a line of business but can’t

Those wanting to buy its goods or services but can’t

Present solutions are proposed policy changes to target “upstream” patents

Make enforcement provisions weaker

liability rule vs. property rule

Make patentability & patent
validity provisions harder

utility, statutory
subject matter, description, and obviousness


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Introducing the Proposed Solution

Recognize theoretical debate over anticommons (nature of the rights instead of
number; and permit thickets instead of patent or property thickets)

Recognize real limitations of any real rights

Recognize the real strengths of other proposed solutions

Recognize real strengths of law and government

So just offer one new alternative to consider; one based on private ordering
against the backdrop of existing laws and government

A limited liability entity that encourages all IP owners to give license

With a vast team of stakeholders including promoter and IP owners

All stakes are real, to encourage buy

All are limited (actual and potential) to discourage hold

Basic intuition is a strategy for property of coordination and self

Two issues often not a focus of the property literature in general

But emphasized throughout the work by both of the present authors


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Thinking About Coordination and Self Restraint

(With thanks for the photo to Tim Caulfield)


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Basic Concepts and Context

Similar to several models in wide use

A new combination of existing elements from each

A sketch, needing further review

Approaching as Gilsonian transaction

Builds on commercialization/coordination theory of IP

Shows how it is not just pro IP and IP owner

Shows some reasons why otherwise unexplained aspects of the positive law
make sense

Already attracting interest from real world


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Model One: Limited Liability and Modern Mass Torts

Core of anticommons problem is threat of too many suits

Consider model of Dow Corning breast implant business

Operating business

Of benefit to all members of team production story

Despite possibility of enough litigation to put company out of business

Business gets done, notwithstanding risk of massive litigation, with team extracting
value while operating

Proposed entity

Limited liability company (LLC), partnership (LLP), or corporation

Get limited, non
exclusive licenses from all IP owners

Give actual stake to all stakeholders

IP owners, and promoter (who may also be an IP owner)

Share in receipts, votes, information, complementary sales

Self restraint to avoid hostage effect so no actual or potential benefit can be too big

Hold outs mitigated because opting in gives benefit and opting out gives nothing, so
business gets done and keeps operating

Use tools like the web to mitigate search costs and deal costs

iTunes® is thousands of licenses being sold from a central location for low price
and a “click”

Inverse is thousands of licenses being bought at a central location for low price
and a “click”

Search costs may even shift from licensee to licensors


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Basic Organizational Chart





























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Model Two: Peer & Social Pressures & Airline Bankruptcies

Not always rational acting, so may need added pressure

Consider model of interactions among various labor and customer groups in
modern airline bankruptcies

No longer a story of management versus labor

Now a story of circular disputes among different groups of labor (pilots,
crew, etc)

Some airlines are now even employee

Plus ticketed customers as additional non
trivial population of potentially
adversely impacted individuals

Proposed entity

Similarly any one IP owner as a hold out faces ire from class of IP owners

As well as from customers, a sympathetic population

The entity and its founders avoid center of dispute and instead are moderators

A story of peer pressure, shaming, and fashion


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Model Three: Collective Action, Antitrust, and ASCAP/BMI

Coordination among such a large set of actors within a field may raise antitrust

Consider model of ASCAP/BMI antitrust exemptions

Proposed entity

Easier case because
per se
treatment has been replaced by rule of reason
(anticommons outcry itself suggests social benefit outweighs antitrust cost)

Better case because vertical not horizontal

Better case because no market at all yet, rather than one being monopolized,
so society is getting something, not losing something

Better case because it allows coordination before investment by participants

Better case because not a monopoly in that it is not exclusive

As academics we really like this! (so no patent)


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Model Four: Mass Infringement & Google Libraries Project

The threat of mass infringement seems repugnant

Consider the model offered by the Google Libraries project suggests a far greater
tolerance for such a move

In part because of shaming and fashion constraints from peers and public

In part because it gives IP owners some indirect benefits

Proposed entity

Like Google, it provides shaming and fashion constraints from peers and

Like Google, it offers a variety of indirect benefits to IP owners

A use that the IP owner itself could not achieve

Information about potential other uses

Advertising to others of these uses

Potential complementary sales

It offers IP owners more than Google offers them

a real stake




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Responses to Principal Obstacles & Limitations I

Hold outs, suits for injunctions, motions for contempt proceedings

Because transaction costs are also borne by IP owners, these costs discourage
outs from suing so long as higher than expected hostage value

Delay allows time for IP owners to better educate potential holdouts as to
why they should opt in

Suits provide their own coordination effect

Potential for hostage getting too big

Acquire assets with loans backed by security interests or by renting rather
than owning (avoids asset accumulation, which is not even needed)

Recognize real operating costs (minimizes profits)

Possible related entity transactions such as equipment, space, employees
for economies of scale, NOT for sham

Payout dividends or distributions (disperses remainder)

Finally, the operating/partnership/shareholder agreement prevents the
payment of a ransom even if hostage is taken

Express most
nation (MFN) clause

Inherent difficulty in having to restructure entire deal

collective choice


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Responses to Principal Obstacles & Limitations II

Promoter’s interests

Initiating and operating will require non trivial amounts of money, skill, time, etc.

In exchange may want cash, kudos, control, etc.

At least two models contemplated

but both may face hostage effects

A profiteer (in operating business or in complementary business)

A non
profit “mediator”

university, trade association, NGO, famous personality

But not a government

fear that collective choice among stakeholders will
become hostage to larger political winds

Diversity among IP owners’ contributions

How will amounts be allocated?

Won’t know until deals are struck


Will there be veil piercing?

Opinions of counsel will have to be written and may not be sufficient to get deal done
or to protect deal in court

Likely sweet spot, if not only spot (this is not a cure

DNA on a chip arrays

General homogeneity and
ex ante
uncertainty among IP owners

No real profit from operating business (mere diagnosis or population segmenting)

Real profit is from complementary business (actual therapies etc)


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Implications for thinking about IP rights themselves (discussed more in paper)

Criminal liability (none)

Inducement (suggest focus should be on
ex ante
effect in facilitating or
frustrating coordination

anticommons cases may be clearest safe harbors)

A story about coordination in the face of transaction costs

The interactions generated as the result of the credible threat of an injunction
bring people together who otherwise may not interact

Deals do get done

We hope this proposal helps people think about how to get more deals done


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Inviting Follow

New project on “Institutions and Technology Development”







Industrial Organization


Public: government and academic


Modes of action

Basic research

Expert consulting/testifying


give and receive

Most importantly….collaborations


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“A Private Ordering Solution

to the Public Problems of Anticommons”

F. Scott Kieff & Troy A. Paredes

School of Law

Washington University in St. Louis