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Thursday, August 30, 2012

The Common Cause of Trolls and Orphans

One of the key functions of a property system is to bring owners and users together in a mutually beneficial exchange. Problems arise when a user cannot easily find the property owner ahead of time. In general, there are four potential solutions: (1) we can make the users look harder, by imposing stronger penalties on them for failing to find the property owner before using the property, (2) we can try lower the users’ search costs, by improving information infrastructure such as having a database of property owners, (3) we can convert to a liability rule regime, making search unnecessary, and (4) as I argued in this article, and I think has been generally overlooked in the literature, we can make the property owner look for the user rather than the other way round.

Also in general, each of these solutions has potential downsides. For (1), imposing really strong liability on users creates the potential for holdup by property owners. For (2), the improved infrastructure is costly, has all sorts of potential unanticipated side effects, and the upside reduction in user search costs is often limited (e.g. can we really make a better patent database in any significant way?) For (3) the downside is that liability rule regimes require courts to value the property, when often they cannot do so. For (4), it depends strongly on whether owners can do any better than users in a particular situation.

I really think option (4) is something people should think about more often (i.e. read the article, please!), but here I want to make a different point. The point is that the problem and the potential solutions happen in both patent and copyright law, but nobody seems to have noticed that they are the same problem. In patent law it is known as the “patent troll” problem. In copyright law it is known as the “orphan works” problem. The are the same problem, but I cannot find anybody in the existing literature who makes this link explicitly.

Both patent trolls and orphan works are manifestations of what economists would call a holdup problem. In the patent troll context, a user fails to find the patent holder ahead of time because of high search costs, and the patentee then uses the threat of an injunction against the (now) infringer. In the orphan works context, a user cannot find the copyright holder ahead of time because of high search costs, so the user refrains from a productive use of the copyrighted work. Although one falls into the trap and the other does not, the underlying economic problem is the same.

And the solutions proposed have been largely the same. In both patent and copyright law, the doctrine is currently (1), where we impose ever-more-draconian sanctions on infringers no matter how impossible it was for them to find the owner ahead of time. There are lots of proposals for (2), in getting better copyright and patent notice. There are also lots of proposals for (3), in the form of proposals to issue compulsory licenses. And, as I recently discovered at the IP Scholars conference, Arial Katz proposed the equivalent of (4) in copyright law just months after I proposed it in patent law.

My point here isn't to advocate for my solution as much as it is to note the commonality of the problem and the fact that people don't seem to have regarded them as the same problem. And that suggests to me that, for all the lumping of patent and copyright as "IP," we actually don't talk to each other as often as we should.

Posted by Tun-Jen Chiang on August 30, 2012 at 02:48 PM | Permalink

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