Exchanging Information Without Intellectual Property

Michael J. Burstein

91 Texas L. Rev. 227

PDF Document

Contracting over information is notoriously difficult.   Nearly fifty years ago, Kenneth Arrow articulated a “fundamental paradox” that arises when two parties try to exchange information.  To complete such a transaction, the buyer of information must be able to place a value on the information.   But once the seller discloses the information, the buyer can take it without paying.   The conventional solution to this disclosure paradox is intellectual property.  If the information is protected by a patent or a copyright, then the seller can disclose the information free in the knowledge that the buyer can be enjoined against making, using, or selling it without permission.  This account of information exchange forms the basis for an increasingly popular argument in favor of strong and broad intellectual property rights for the purpose of overcoming the disclosure paradox and thereby facilitating the development and commercialization of ideas.  That argument, however, rests on assumptions about the nature of information that are neither theoretically nor empirically justified.

In this article, Burstein explains that, contrary to the conventional account of the disclosure paradox, information is not always nonexcludable and is not always a homogeneous asset. Instead, information is complex and multifaceted, subject to some inherent limitations but also manipulable by its holders.   These characteristics give rise to a range of strategies for engaging in information exchange, of which intellectual property is only one.   Information holders can use the characteristics of information itself as well as contractual and norms-based mechanisms and other legal or business strategies to achieve exchange.   And examples drawn from fields as diverse and disparate as software and biotechnology show that entrepreneurs and inventors use these strategies alone or in combination to effectively link their ideas with capital and development skills, often without intellectual property appearing to play a significant role in the transaction.  Intellectual property is therefore not necessary to promote robust markets for information and is, in fact, just as contingent and context-specific a solution to the paradox as the alternatives described here.   At the very least, then, there is reason to doubt that commercialization theories founded upon information exchange provide a stand-alone justification for intellectual property.   Burstein urges caution in policy interventions that seek to respond to the disclosure paradox and sets the stage for future empirical research to better understand the dynamics of information-exchange strategies and the social welfare costs and benefits that may accompany them.

Solving the Patent Settlement Puzzle

Einer Elhauge & Alex Krueger

91 Texas L. Rev. 283

PDF Document

Courts and commentators are sharply divided about how to assess reverse payment patent settlements under antitrust law.   The essential problem is that a PTO-issued patent provides only a probabilistic indication that courts would hold the patent is actually valid and infringed, and parties have incentives to structure reverse payment settlements to exclude entry for longer than this patent probability would merit.   Some favor comparing the settlement exclusion period to the expected litigation exclusion period, but this requires difficult case-by-case assessments of the probabilities of patent victory.   Others instead favor a formal scope of patent test that allows such settlements for non-sham patents if the settlement does not delay entry beyond the patent term, preclude non-infringing products, or delay non-settling entrants.   However, the formal scope of patent test excludes entry for longer than merited by the patent strength, and it provides no solution when there is either a significant dispute about infringement or a bottleneck issue delaying other entrants.   This paper provides a way out of this dilemma.  It proves that when the reverse payment amount exceeds the patent holder’s anticipated litigation costs, then under standard conditions the settlement will, according to the patent holder’s own probability estimate, exclude entry for longer than both the expected litigation exclusion period and the optimal patent exclusion period, which both harms consumer welfare and undermines optimal innovation incentives.   Further, whenever a reverse payment is necessary for settlement, it will also have those same anticompetitive effects according to the entrant’s probability estimate.  This proof thus provides an easily administrable way to determine when a reverse payment settlement is necessarily anticompetitive, without requiring any inquiry into the patent merits.  We also show that, contrary to conventional wisdom, patent settlements without any reverse payment usually (but not always) exceed both the expected litigation exclusion period and the optimal patent exclusion period, and we suggest a procedural solution to resolve such cases.

On Becoming a Great Judge

Frederick T. Davis

91 Texas L. Rev. 339

PDF Document

Davis reviews David M. Dorsen’s Henry Friendly: Greatest Judge of His Era.

Assembly Resurrected

Asuhtosh A. Bhagwat

91 Texas L. Rev. 351

PDF Document

Professor Bhagwat reviews John D. Inazu’s Liberty’s Refuge: The Forgotten Freedom of Assembly.

Recovering the Assembly Clause

Timothy Zick

91 Texas L. Rev. 375

PDF Document

Professor Zick reviews John D. Inazu’s Liberty’s Refuge: The Forgotten Freedom of Assembly.

What is the Essential Fourth Amendment?

Christopher Slobogin

91 Texas L. Rev. 403

PDF Document

Professor Slobogin reviews Stephen J. Schulhofer’s More Essential Than Ever: Fourth Amendment in the Twenty-First Century.

Setting Examples, Not Settling

Ross MacDonald

91 Texas L. Rev. 419

PDF Document

In this Note, Mr. MacDonald argues that the Securities and Exchange Commission must structurally rethink the way it enforces securities laws because the current system is radically inadequate.   Part II discusses the history of this system.  Part III details the incentives behind the settlement regime, and Part IV documents its rabid and uncompromising failures on both a theoretical and empirical level.  Part V suggests two solutions bringing more cases to trial and imposing individual, rather than corporate, liability as methods for bringing securities laws enforcement back to deterrence equilibrium, where the harm of violating the laws actually compares to the expected costs of those violations.   Ross MacDonald argues that only at such an equilibrium can the public reasonably expect to see the number of financial frauds decrease to an acceptable level.

Blowing the Whistle on Civil Rights

Ralph C. Mayrell

91 Texas L. Rev. 449

PDF Document

In this Note, Mr. Mayrell sets out to explain the legal theory through which civil rights litigators can effectively litigate claims against local government discriminators using the False Claims Act (FCA).   Part I briefly outlines the scheme of antidiscrimination laws and regulations that are potentially enforceable under the FCA and their limitations.   Part II lays out the legal theory of how an antidiscrimination action could form the basis of an FCA claim and provides recent examples of courts favorably reacting to plaintiffs’ use of the FCA in civil rights suits.   Part III briefly proposes that agencies use their contracting flexibility to add relevant constitutional requirements.   Part IV discusses the potential legal and policy hazards of using the FCA to increase the liability of local governments for civil rights violations.