Please make a note… Syllabus http://gspp.berkeley.edu/iths/Cyberlife_Syllabus.htm Stephen M. Maurer email@example.com Todd Fawley-King Tfawleyk@gmail.com
Cyberlife Lecture 4A & B: IP Law and Economics
IP Economics Main Focus: Patents
IP Economics 1. Ex Post Inefficiency a.k.a. "Deadweight Loss"
IP The New Economy: Economics “Patents” CS Price π > MC DWL MC = 0
IP The New Economy: Economics “Intellectual Property” Mitigating Deadweight Loss Price Discrimination Digital Rights Management (Independent Invention)
IP Today’s Question: How Much Reward Should Lady Gaga Get? Economics P MC = 0
Reward: Top Album 2009: 3.2m units/$374m (20% downloads) 1999: 9.4m units/$755m Record Company Down 60% since Employment: 1999
New Tactics: The 360-Degree View Free Downloads
Analysis So Far: How Big Is the Reward? Basic Model: Reward = IP Monopoly (Existing vs. New Music) Narrower Protection Less Reward But: Complements May Also Be Appropriable
Analysis So Far: How Big Should the Reward Be? Lady Gaga’s Second-Best Job Superincentives? Fighting Over the Rents How Many Music Executives Does Society Need? Information asymmetry Free downloads How Much Product Diversity is Best for Consumers?
IP Economics Compare: Prizes, Grants, Contract Research No DWL (assumes taxes are efficient) Compare: Patent Buyouts Weird Stuff: CRADAs and Bayh-Dole
IP Economics 2. Ex Ante Efficiency a.k.a. Innovation
IP Economics π MC (v - c) = ? Problem: П is always less than V Problem: П is unrelated to C
IP Economics What Incentive is Optimal? (v – c) Set П too small. Set П too large. Racing, Duplication and Waste Expected value = R&D Effort “Risk” What is the Ideal Level? Normative and Factual Issues
IP Economics Good But Not Perfect… Cumulative Innovation Example: Invention 1: c = $1 million, v = $0.50 + Platform for follow-on invention Invention 2: c = $0.50, v = $2 million
IP Economics Good But Not Perfect… Solution: (v-c) > 0 for both Inventors When does Licensing Occur? Fundamental knowledge, grants, and the public domain.
IP Economics Compare: Prizes, Grants, Contract Research Contract R&D is competitive Sponsor must know v!
IP Economics 3. Eliciting Privately Held Information
IP Economics Information About (v - c) is Dispersed. Two Types of Information Technical Feasibility – Telephone Value to Consumers – Radio Limits on Information Sharing
IP Economics Compare: Prizes, Grants, Contracts Directed Prizes (DARPA, X-Prize) Blue Sky Prizes (Google)
IP Economics 4. Agency Problems - Researchers
IP Economics What If Researchers . . . * Lie About (V – C)? * Go to the Beach? Patents vs. prizes, grants, and contract research
IP Economics 5. Agency Problems - Sponsors
IP Economics What If The Sponsor Doesn’t Pay? * Patent Litigation?
IP Economics Compare: Prizes, Grants, Contracts Prize Design: Discretion vs. Commitment Strategies
IP Evidence Are Patents Important? Is Appropriability Necessary? Are Patents the Only Way? Air Races to Frank Sinatra Why IBM Loves Open Source First Mover Advantages
IP Beyond The Model? Transactions Costs ASCAP-Type Systems Mutual Assured Destruction & Trolls Patent Thickets The Anticommons The Cournot Problem Irrational Actors Cultural Impediments Do Academics Profit-Maximize?
Researcher May Provide Negative Value Excessive Incentives Inadequate Incentives Researchers Go to the Beach Deadweight Loss? Intellectual Property No Yes Yes No Yes “Blue Sky” Prizes Yes Yes Yes No No “Targeted” Prizes Yes Yes Yes No No Academic Grants Yes Yes No No No Contract Research (Bids) Yes No No No No In-House R&D Yes Yes No Yes No CRADAs Slightly Yes Yes Perhaps Yes
New IP Rights? Common Law (Hamidi) Legislature (Database policy)
Hamidi Cf. Lessig: Using trespass (physical space) to limit cyber-freedom Cf. Reading employee e-mail bots, price comparison sites.
Hamidi Majority: “No physical damage or functional disruption.” Is trespass the right lens? Does precedent control discretion? In dictum: Lessig’s Social Justification Majority: State power must respect First Amendment Dissent: Intel should be able to keep others from using its property.
Related issues: Bots and search engines; SETI in Georgia; The Iguana Channel; Parasitic computing. Property Lens: Public goods and congestion. Type of Use: Free speech, making markets, implied agreement from joining the Internet.