Econ 522 Economics of LawSlide 1Intellectual PropertyExample of a patent: creating a new drugSince monopoly is inefficient, important tradeoffs in patent designSlide 6Slide 6CopyrightSlide 9Slide 10Slide 11Slide 11TrademarksSlide 14Slide 15Slide 15Trade SecretsSlide 17Slide 18OrganizationsMultiple forms of public ownershipThird form of public ownership: political control/regulationSlide 23Slide 23Fugitive propertyTwo principles for establishing ownershipFirst Possession versus Tied OwnershipSlide 28This brings us to the following tradeoff:A nice historical example: the Homestead Act of 1862Friedman on the Homestead Act of 1862When should resources become privately owned?Slide 33What can be done to prove ownership of something?Slide 35That’s all for todayEcon 522Economics of LawDan QuintSpring 2010Lecture 72back toIntellectualProperty3Intellectual property: broad term for ways that an individual, or a firm, can claim ownership of informationPatents – cover products, commercial processesCopyrights – written ideas (books, music, computer programs)Trademarks – brand names, logosTrade SecretsIntellectual Property4Example of a patent:creating a new drugFIRM 1 (innovator)Innovate Don’tFIRM 2 (imitator)Imitate Don’t(-750, 250) (1500, 0)(0, 0)up-front investment: 1,000monopoly profits: 2,500duopoly profits: 250 eachFIRM 1 (innovator)Innovate Don’tFIRM 2 (imitator)Imitate Don’t(-750, 250 – P) (1500, 0)(0, 0)Without patents:Drug never discoveredWith patents:Drug gets discoveredBut…5Patent breadthPatent lengthtradeoff: how long to maintain ex-post inefficiency (monopoly) to create enough incentive for innovation?Since monopoly is inefficient, important tradeoffs in patent design6Patent breadthPatent lengthtradeoff: how long to maintain ex-post inefficiency (monopoly) to create enough incentive for innovation?Alternatives to patentsgovernment purchase of drug patentsprizesdirect government funding of researchSince monopoly is inefficient, important tradeoffs in patent design7patentscopyrightstrademarkstrade secrets8Property rights over original expressionswriting, music, other artistic creationsThese tend to fit definition of public goodsnonrivalrousnonexcludableso private supply would lead to undersupplySeveral possible solutionsgovernment subsidiescharitable donationslegal rights to creations – copyrightsCopyright9Copyright law less rigid than patent lawUnlike patent law, allows for certain exceptionsCopyrights last much longer than patentsCurrent U.S. law: copyright expires 70 years after creator’s deathNo application processCopyright law automatically applies to anything you’ve written/createdCopyright10Copyright law less rigid than patent lawUnlike patent law, allows for certain exceptionsCopyrights last much longer than patentsCurrent U.S. law: copyright expires 70 years after creator’s deathNo application processCopyright law automatically applies to anything you’ve written/createdCopyrights more narrow than patentsCover exact text, not general ideaCopyright11Copyright law less rigid than patent lawUnlike patent law, allows for certain exceptionsCopyrights last much longer than patentsCurrent U.S. law: copyright expires 70 years after creator’s deathNo application processCopyright law automatically applies to anything you’ve written/createdCopyrights more narrow than patentsCover exact text, not general ideaCopyright12patentscopyrightstrademarkstrade secrets13TrademarksTrademarks do not expire, as long as they’re not “abandoned”No trade-off between long-term incentives (innovation) and short-term inefficiency (monopoly) – little apparent downside14TrademarksTrademarks do not expire, as long as they’re not “abandoned”No trade-off between long-term incentives (innovation) and short-term inefficiency (monopoly) – little apparent downside15Trademarks do not expire, as long as they’re not “abandoned”No trade-off between long-term incentives (innovation) and short-term inefficiency (monopoly) – little apparent downsideProtected against infringement and also dilutionTrademarks16patentscopyrightstrademarkstrade secrets17Protection against misappropriationBut plaintiff must show…Valid trade secretAcquired illegallyReasonable steps taken to protect itTrade Secrets18patentscopyrightstrademarkstrade secrets19More on: what can be privately owned?20Most organizations are not owned by anyonechurches, clubs, cooperatives, charities, etc.But many corporations are ownedcan be bought and sold like propertyGeneral principle:Organizations whose primary purpose is to earn profits should be ownedOrganizations whose primary purpose is something else should notOwnership leads to a principal-agent problemOrganizations21Open AccessAnyone free to use the resourceLeads to overutilization (Tragedy of the Commons)Example: oyster bedsUnanimous ConsentOpposite of open access – multiple owners must all agree to any use of the resourceLeads to underutilizationExample: empty storefronts in post-Communist MoscowPolitical Control/RegulationMultiple forms of public ownership22Dividing the mountain pasture among individual owners would require fencing it, which is prohibitively expensive.Instead, the highland pasture is held in common, with each village owning different pastures that are separated by natural features such as lakes and mountain peaks.If each person in the village could place as many sheep as he or she wanted in the common pasture, the meadows might be destroyed and eroded by overuse.Third form of public ownership: political control/regulation23In fact, the common pastures in the mountains of Iceland have not been overused and destroyed, because the villages have effective systems of governance.They have adopted rules to protect and preserve the common pasture. The sheep are grazed in common pasture in the mountains during the summer and then returned to individual farms in the valleys during the winter.The total number of sheep allowed in the mountain pasture during the summer is adjusted to its carrying capacity.Each member of the village receives a share of the total in proportion to the amount of farmland where he or she raises hay to feed the sheep in the winter.Third form of public ownership: political
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