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

gooseliverBiotechnology

Oct 22, 2013 (3 years and 7 months ago)

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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


Micro
-
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


Victims:


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
-
in


All are limited (actual and potential) to discourage hold
-
out


Basic intuition is a strategy for property of coordination and self
-
restraint


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
-
cost
-
engineers


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

IP

Owners

Operating

Entity

Customers

Products

&

Services

Money

Social

Pressure

Limited,

Nonexclusive

License

of

the

IP

Voting

Power

Money

Information


Complementary

Sales

Peer

Pressure

Promoter

Resources

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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
-
owned


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
concerns


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
public


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


Cash


Control

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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
hold
-
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
-
favored
-
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


Legality


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
-
all)


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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Conclusion


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
-
up


New project on “Institutions and Technology Development”


Law


IP


Corporate/securities


Contract


Economics


Finance


Industrial Organization


Sectors


Public: government and academic


Private


Modes of action


Basic research


Expert consulting/testifying


Grants


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