Economics and management of intellectual property

(38E00100, 6 study points)Mikko Välimäki 14.1.2008

Requirements• Lectures

• Written assignment

• A 3-10 page essay, which can deal with any topic related to the economics and management of intellectual property. A good topic for an essay would come from some current business, policy or legal case or a scientific article

• Exam

Course objective and contents

• “Intellectual property is no longer a topic reserved to corporate lawyers and engineers in R&D labs but it has become everyday stuff for CEOs and policy makers: the values of corporations and entire economies hinge on intangible assets and their management via intellectual property policies. This course covers a variety of issues related to the economics and management of intellectual property, with a relative large section on innovation and intellectual property in financial services sector. While the basic legal concepts are briefly covered, the course should be seen as complementary to a course on intellectual property law: the topics are primarily approached from economics and technology policy viewpoint. More specifically, the objective is to equip the student with the necessary economic tools to evaluate the strategic and welfare importance of intellectual property and the various means to protect it, such as patents, copyrights and secrecy, as well as ways to generate revenue from intellectual property, such as licensing.”

Syllabus 1/314.1. Välimäki: basics of intellectual property law

16.1. Välimäki: intellectual property contracts (licenses, assignments); economic arguments in the preparation & interpretation of laws

21.1. Takalo: basic economics of intellectual property

23.1. Guest Olli Ilmarinen, National Board of PAtents and Registration

28.1. Takalo: Designing optimal IP policy

Syllabus 2/330.1. Takalo: Cumulative innovation and IP policy

4.2. Välimäki: Microsoft cases in the US and Europe: the role of economic arguments

6.2. Välimäki: economic arguments in selected cases (copyright and patent law)

11.2. Takalo: Network industries, competition policy and IP

Syllabus 3/3

13.2. Guest (to be confirmed)

18.2. Takalo: Basics of IP management

20.2. Takalo: innovation and IP in financial services sector

25.2. Takalo: TBA

27.2. Guest: Xavier Carpentier, Nokia

TeachersTuomas Takalo, Research Supervisor, Bank of Finland

tuomas takalo at bof fi, phone: 010-8312370, www.takalo.net (course main website)

Mikko Välimäki, teaching researcher at Hanken

valimaki at hanken fi, phone: 050-5980498, www.valimaki.org

Today’s lecture

• A short history of intellectual property laws

• Current IPR systems and their main principles: international, European and US

• Intellectual property law as a distinctive legal discipline

Birth of IPR systems

“Mystery of copyright”• Roman law didn’t recognize any kind of IPRs - why?

• There was for example relatively cheap book manufacturing (by slaves), bookshops etc.

• It was thought to be “immoral” to charge for authorship

• Plagiarism was prohibited, however

• Did publishing happen “on demand”? Because the market size was limited there was no real competition (and need to shelter from it)?

Monopoly privileges• First “IPR-like” monopoly privileges were given

by medieval city-states to individuals (later generalized)

• 1331 first technology privilege to Dutch John Kempe in England (incentives to import technology to England)

• 1469 first 5-year printing privilege to German Johannes de Spira in Venice (starts publishing industry in Venice); Venice also gave the first privileges to fonts in 1501 (”design right”)

Johannes de Spira’s print from 1469

First written laws• First modern laws enacted in England:

• Statute of Monopolies 1623 - 14 year monopoly privilege to inventors of “manners of new manufacture”

• Statute of Anne 1710 - 14 + 14 year right to “authors or their assigns”; censorship dropped from the system

• France and US by the end of 1700s...

First international treaties• Paris Convention for the Protection of

Industrial Property 1883: patents and trademarks

• Berne Convention for the Protection of Literary and Artistic Works 1886: copyright

• National treatment: must give foreigners the same rights as to own citizens

• Minimum rights: can not be any less than what is defined in the treaty

Current systems

Major IPR regimes

• International: multilateral treaties administered by WTO and WIPO; bilateral treaties

• Regional: EU directives and other legislative measures

• National: IPRs are in most cases enforced in national courts

WTO’s TRIPS

Result of Uruguay round trade talks in 1994; US influence critical

Most comprehensive treaty: covers basically all aspects of IPRs from copyright to plant varieties; most provisions adopted from the old Berne and Paris conventions

Dispute resolution; also used in copyright, trademark and patent cases

Examples of disputes

Europe v. US on the US copyright law exemption to allow certain bars to play music without paying royalties (US found not being in compliance with TRIPS)

US v. India on the lack of adequate patent protection for pharmaceuticals (India found not being in compliance with TRIPS)

WIPO’s relevant treaties• Copyright: Berne convention (updated 1971),

Rome convention (1961) and WIPO Copyright Treaty 1996 - substantive copyright law

• Patent and trademark law: Paris convention (updated 1967), Madrid agreement (update 1971) - mainly international filing issues

• In talks: substantive patent law treaty, broadcast treaty ...

• No enforcement - WIPO is not a trade org!

“The Congress shall have power... To promote the progress of science and useful arts, by securing for

limited times to authors and inventors the exclusive right to their respective writings and

discoveries”

US constitution 1787

US IP law

• Federal statutory law on copyright, patents, trademarks etc.; trade secrets as well as contracts (licensing) remain state law

• Also remains of common law exist

• Supreme court and circuit-level cases important in interpreting and developing the law further

European IP law 1/2• EC treaty: competition law (Art 81 & 82)

• Directives

• Harmonization i.e. approximation of laws in member states - all copyright directives, also trademarks and design rights

• Substantive EU IP law: Community Trade Mark and Community Design, ... Community Patent?

• “Soft law”; Commission guidelines, recommendations etc. important for interpretation

European IP law 2/3• Directive 2004/48/EC of the European Parliament and of the Council on the enforcement of intellectual property

rights

• Directive 2001/84/EC of the European Parliament and of the Council on the resale right for the benefit of the author of an original work of art

• Directive 2001/29/EC of the European Parliament and of the Council on the harmonisation of certain aspects of copyright and related rights in the information society

• Directive 96/9/EC of the European Parliament and of the Council on the legal protection of databases

• Council Directive 93/98/EEC harmonizing the term of protection of copyright and certain related rights

• Council Directive 93/83/EEC on the coordination of certain rules concerning copyright and rights related to copyright applicable to satellite broadcasting and cable retransmission

• Council Directive 92/100/EEC on rental right and lending right and on certain rights related to copyright in the field of intellectual property

• Council Directive 91/250/EEC on the legal protection of computer programs

European IP law 3/3• European Court of Justice and Court of First

Instance interpret directives and EC treaty

• European Patent Convention

• European Patent Office independent from EU (has more member states)

• Interpreted by EPO Board of Appeals (criteria of patentability) and national courts

International level: WTO, WIPO treaties high-level policy forums

Regional level: EU, US - detailed laws, interpretive courts, registries etc.

National level: individual states - enforcement

Major trendsDuring the 1900s lots of new treaties and directives following technological and economic developments; more details of lawmaking shifted to international and regional forums; in many senses the expansion of IPRs into new domains

Early 2000s: growing critique towards the trend of global “mass-regulation”; many new stakeholders and interest groups participating and slowing down the lawmaking process; polarization of the global and national policy debates...

IP lawmaking yesterday

IP lawmaking today

Scope of IPRs

Numerus clausus 1/2• The object of rights is defined in law:

• Creative work (copyright law), which has to be original

• Technical invention (patent law), which has to be new, inventive and industrially applicable (useful in the US)

• Commercial mark (trademark law), which has to be distinctive

• No general “intellectual property” exists! (nor “immaterial property” for that matter)

Numerus clausus 2/2• Defined IP laws cover only defined acts:

• Copyright: author (copyright holder) has the exclusive rights to copy and make the work available to the public, the right to be called as the author etc.

• Patent law: inventor (patent holder) has the exclusive rights to make, market, sell and commercially use the invention

• Trademark law: trademark owner has the exclusive right to commercially use the mark

Balancing principle• The scope of IPRs is further limited through a

set of defined “user rights” or exceptions to the exclusive rights

• Copyright: in the US a general fair use doctrine, elsewhere rights to make private copies, citation, parody etc.

• Patent law: right to experimental use, right to (noncommercial) private use

• Trademark law: reference for compatibility etc.

Temporal limits• Usually intellectual property rights eventually

enter public domain

• Copyright exists a given number of years (usually 70 years after the death of the author) and then the work drops (”returns”) to public domain

• Patent exists max. 20 years on condition that annual payments are made and then the invention drops to public domain

• Only trademarks can live forever...

Territorial limits• While there is a lot of harmonization going on and

international registration systems available, the enforcement of IPRs remains national (save for Community marks & designs)

• Thus, European granted patent or registered trademark is not valid in the US and vice versa

• However, in the field of copyright the principle of minimum rights means e.g. that European author enjoys copyright protection in the US without registration, which might be required for US authors (Berne convention lacks registration requirement)

Limits from other laws• Competition law: IPRs can not be used to

restrict competition e.g. through licenses outside the statutory scope of IPRs or refusals to license

• Constitutional law: right to private property and freedom of business support IPRs; others such as the freedom of speech, right to education and privacy may define limits

• Consumer law: IPRs can not be used against the reasonable expectations of consumers

What is the nature of IPRs?

Personal rights approach

• Emphasis on individual; “romantic” authorship (”droit d’auteur”) and “heroic” inventors

• Rights are traced back to individual’s contribution

• Rights connected to the individual non-transferable such as the right to be called as the author or inventor; “natural rights”

• These days no longer in fashion...

“... minimum term laid out by the Berne Convention ... [50 years from the author’s death] ... was intended to provide protection for the author and the first two generations of his descendants; whereas the average

lifespan in the Community has grown longer...”

The one and only justification for extending copyright’s term to 70 years in Europe (1992)

Monopoly rights approach• Emphasis on clear limits of the monopoly in the name

of competition: temporal, territorial, only named uses etc.

• Instrumentalist arguments following US constitution:

• There must be incentives to create new technology, works of art etc.

• Must benefit the society as a whole; balancing the interests of creators and users

“Without a legal monopoly not enough information will be produced but with the legal monopoly too little information will be used.”

Cooter & Ulen: Law and Economics

Property rights approach

• World Inte"ectual Property Organization, 1967

• Term “intellectual property” universally accepted (though “propriete intellectuelle” in French law already in the 1800s); policy language changes, e.g. “infringement” -> “theft”

• Corporate interests: can create and own IP

• Expansion of intellectual property laws to include new kinds of information and its uses

“Any harmonisation of copyright and related rights must take as a basis a high level of protection, since such rights are crucial to intellectual creation. Their protection helps to ensure the maintenance and development of creativity

in the interests of authors, performers, producers, consumers, culture, industry and the public at large.

Intellectual property has therefore been recognised as an integral part of property.”

EU copyright directive (2001), recital 9

IP “rights”• An analytical legal approach: copyright law, patent law, trademark

law etc. all differ substantially from each other - devil is in the details!

• For example different experts for registration (patent and trademark offices) & enforcement (attorneys)

• IP rights can not be categorized simply as “personal”, “monopoly” or “property” rights but they form a distinctive discipline of their own that can be used to foster different economic and political goals

• IP rights can not be read in isolation from the legal system but must be balanced towards many other conflicting interests and rights arising from e.g. competition and consumer laws