法学资料大全二（英文）：知识产权法中的一致性问题

VILLANOVA Public Law and Legal Theory Working Paper Series One For All: The Problem of Uniformity Cost in Intellectual Property Law by Michael W. Carroll Villanova University School of Law Public Law and Legal Theory Working Paper 2005-17 This paper can be downloaded without charge from the Social Science Research Network Electronic Paper Collection at http://ssrn.com/abstract=820308 Vol. ##] THE PROBLEM OF UNIFORMITY COST 1 ONE FOR ALL: THE PROBLEM OF UNIFORMITY COST IN INTELLECTUAL PROPERTY LAW MICHAEL W. CARROLL * I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 II. THE PROBLEM OF UNIFORMITY COST . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 A. Standard Economic Justification for Intellectual Property Rights . . 6 B. The Problem of Uniformity Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1. The Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2. Uniformity Cost Typology . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3. Qualifying the Problem. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 III. UNIFORMITY AND ITS LIMITS IN U.S. INTELLECTUAL PROPERTY LAW 15 A. Uniformity and Institutional Options for Reducing Its Costs. . . . . 15 B. The Constitutional Framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 C. Patent Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 1. Uniform Entitlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 2. Tailored Entitlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 D. Copyright Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 1. Uniform Entitlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 2. Tailored Entitlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 E. Sui Generis Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 F. Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 IV. OPTIONS AND STANDARDS AS TOOLS TO REDUCE UNIFORMITY COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 A. Real Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 1. Patent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 2. Copyright . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 3. Scope Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 B. Standards in Intellectual Property Entitlements . . . . . . . . . . . . . . . 55 1. Patent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 2. Copyright . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 * Associate Professor of Law, Villanova University School of Law. I am grateful to Dan Burk, Brett Frischmann, and Mark Lemley for helpful comments and to the participants in the Third Annual Intellectual Property Scholars= Conference held at Boalt Hall and at the Penn-Wharton-Temple Colloquium who commented on a prior version of this Article. William Freiberg and Edward Topolewski provided superb research assistance. All errors remain mine. Vol. ##] THE PROBLEM OF UNIFORMITY COST 2 V. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 I. INTRODUCTION The law grants patents to inventors and copyrights to authors to encourage investments in technological and cultural innovation. While addressing an appropriability problem faced by innovators, these intellectual property rights create a different problem by supplying rightsholders with powerful weapons against end-users, direct competitors and follow-on innovators who seek to bring socially beneficial innovations to market. To promote progress, intellectual property law must strike a balance, providing sufficient incentives for innovation without unduly stifling the efforts of follow-on innovators or the liberties of end-users. In the law, balance usually calls for context-sensitivity. However, intellectual property law protects the owner of each patented invention or copyrighted work of authorship with a largely uniform set of exclusive rights. 1 Historically, this uniformity may have been justified in light of the relative homogeneity of market conditions obtaining with respect to protected subject matter, such as books or mechanical inventions. Technological progress since the founding has led to considerable growth in the range of inventions and expressive works to which patent and copyright law apply, respectively. 2 In the modern context, it is clear that innovators’ needs for intellectual property protection vary substantially across industries and among types of innovation. 3 Applying a socially costly, uniform solution to problems of differing magnitudes means that 1 There are exceptions and qualifications to the claim that patent and copyright owners enjoy uniform rights, respectively. Nonetheless, as the discussion in Section III infra demonstrates, in the main the law does not differentiate the scope or duration of rights granted on the basis of subject matter, level of investment, or any other metric. For purposes of this Article, discussion of “intellectual property” is limited to patent and copyright law. Trademark, trade secret, rights of publicity and other rights in information present related but different features that require separate analysis beyond the scope of this Article. 2 See, e.g., Dan L. Burk & Mark A. Lemley, Is Patent Law Technology Specific?, 17 BERKELEY TECH. L.J. 1155, 1159 (2002) [hereinafter Burk & Lemley, Technology- Specific?] (AThe >useful arts= envisioned by the Framers were mechanical inventions useful in a primarily agrarian economy.@). Copyright regulated the publishing business. See The Copyright Act of 1790 extended protection only to Amaps, charts, and books@ Copyright Act of 1790, 1 Stat. 124; see also infra notes XX and accompanying text (charting expansion of copyrightable subject matter). 3 See, e.g. Dan L. Burk & Mark A. Lemley, Policy Levers in Patent Law, 89 VA. L. REV. 1575, 1581 (2003) [hereinafter Burk & Lemley, Policy Levers] (A[T]he cost of R&D varies widely from industry to industry and from innovation to innovation.@). Vol. ##] THE PROBLEM OF UNIFORMITY COST 3 the law necessarily imposes uniformity costs by underprotecting those who invest in certain costly innovations and overprotecting those with low innovation costs or access to alternative appropriability mechanisms. Legal scholars recently have begun analyzing the problem of uniformity cost in patent law. Professor Glynn Lunney, Jr. argues that uniformity cost is the key to understanding the economic structure of patent law and that recent doctrinal changes affecting the scope of patents demonstrate the point. 4 Further raising the prominence of the problem, Professors Dan Burk and Mark Lemley argue in a series of articles and in a forthcoming book that uniformity costs are particularly high in relation to patent law’s application to software and biotechnology and that these costs can be reduced by differential application of the Patent Act. 5 Building on this prior work, this Article includes copyright law within its scope and argues more generally that the problem of uniformity cost is the central problem for intellectual property policymaking. This uniformity-cost perspective is dynamic, accepting that exclusive rights must promise some potential power over price to induce innovation but also recognizing that different innovators require different kinds of promises from the law. From the uniformity-cost perspective, if intellectual property rights were the only policy tool available to promote innovation, perfectly tailored rights that promise innovators only the expected value required to induce socially desirable innovation would be theoretically optimal. 6 Intellectual property law falls short of this ideal for a host of reasons including uncertainty about innovation, information asymmetries between policymakers and innovators, administrative costs of tailoring, and the political economy of intellectual property policymaking. While substantial, these obstacles do not disable all potential context-sensitivity 4 See generally Glynn S. Lunney, Jr., Patent Law, the Federal Circuit, and the Supreme Court: A Quiet Revolution, 11 SUP. CT. ECON. REV. 1 (2004) [hereinafter Lunney, Quiet Revolution] (discussing uniformity costs). Professor Lunney’s colleague Professor Christopher Cotropia has further extended this line of analysis. See Christopher Cotropia, “After-Arising” Technologies and Tailoring Patent Scope, 61 N.Y.U. ANN. SURV. AM. L. ___ (forthcoming 2005); Christopher Cotropia, Patent Claim Interpretation and Information Costs, 9 LEWIS & CLARK L. REV. 57 (2005); Chrisopher Cotropia, "Arising Under" Jurisdiction and Uniformity in Patent Law, 9 MICH. TELECOMM. TECH. L. REV. 253 (2003), reprinted at 36 INTELL. PROP. L. REV. 209 (2004). 5 See DAN L. BURK & MARK A. LEMLEY, TAILORING INNOVATION LAW (forthcoming 2005); Dan L. Burk & Mark A. Lemley, Biotechnology’s Uncertainty Principle, 54 CASE W. RES. L. REV. 691 (2004); Burk & Lemley, Policy Levers, supra note XX; Burk & Lemley, Technology- Specific?, supra note XX. 6 See infra notes XX and accompanying text (qualifying claim concerning optimality in general and optimality of tailored rights in particular). Vol. ##] THE PROBLEM OF UNIFORMITY COST 4 in intellectual property law. As uniformity costs rise with the growing economic importance of, and variation among, information-centric industries, policymakers should strive harder to maximize context- sensitivity in intellectual property law. This Article analyzes current U.S. patent and copyright law from the uniformity-cost perspective and identifies three features that function, or should function, to reduce uniformity cost: (1) real options that regulate who acquires, and who keeps, intellectual property rights; (2) flexible standards that define rights to promote context-sensitive application of the law; and (3) legislative or judicial measures that explicitly vary the subject matter, scope, or duration of intellectual property rights. After identifying these, this Article focuses analysis on the economic function of real options and flexible standards in patent and copyright law. I take up analysis of tailoring intellectual property rights in a separate paper. 7 By making uniformity cost the focus of economic analysis of intellectual property law and by analyzing the features of entitlement design that can be deployed to reduce uniformity cost, this Article supplies a general framework for analyzing the economic stakes in a range of policy debates in contemporary intellectual property law. Moreover, this Article argues for legal realism in the analysis of the formally uniform rights that patent law and copyright law grant and shows that the law is far less uniform in practice than some analysts assume. This Article unfolds as follows. Section II introduces the uniformity-cost perspective by showing how granting differently-situated innovators a uniform set of rights leads to overprotection in some cases and underprotection in others. Section III offers a working definition of “uniformity” for purposes of this discussion and through that lens provides a snapshot of current U.S. intellectual property law as specified by constitutional, international, and statutory sources. This Section demonstrates that rights in patent and copyright law generally are uniform but have been tailored for a number of purposes. Section IV demonstrates that in addition to explicitly tailored rights, real options and legal standards are features of current law designed to reduce uniformity cost. This analysis suggests that future research should focus on how to better use these features to reduce uniformity cost. Section V concludes. 7 See Michael W. Carroll, Tailoring Intellectual Property Rights (draft April 2005) (on file with author). Vol. ##] THE PROBLEM OF UNIFORMITY COST 5 II. THE PROBLEM OF UNIFORMITY COST Economic analysts have long recognized that intellectual property rights impose social costs because they interfere with competitive distribution of information goods. 8 But from a dynamic perspective, some distortion must be tolerated as the price to be paid for having the information good created in the first place. 9 The social costs that matter, then, are not all static deadweight losses, but only the distortions caused by rights that are more or less robust than necessary to have induced investments in innovation that deliver a net benefit to society. Uniform intellectual property rights necessarily impose such costs. Therefore, uniformity cost is the central problem that intellectual property policymaking must manage. This section demonstrates this point by revisiting the standard economic justification for intellectual property rights and then by reorienting this analysis around the problem of uniformity cost. This reorientation reveals that the theoretically optimal policy, if intellectual property rights are the only feasible response to underproduction of valuable information, is to fashion perfectly tailored rights rather than to promote perfect price discrimination, as some theorists suggest. 10 While perfect tailoring is just as elusive as perfect price discrimination, the uniformity-cost perspective shows that the focus of policy analysis should be on how intellectual property rights can be rendered more context-sensitive. Further, this theoretical reorientation emphasizes the role of “law” in the law-and-economics of intellectual property because even after economic analysis identifies industries or technologies for which uniformity costs are particularly high, legal scholars must assess whether legal institutions can competently address this problem. Legal analysis demonstrates that while tailoring rights ex ante is an important strategy for reducing uniformity cost, it is not the only one. As is discussed in Section IV, infra, real options and flexible standards also can be used to inject context sensitivity into the application of formally uniform rights. 8 See, e.g., WILLIAM M. LANDES & RICHARD A. POSNER, THE ECONOMIC STRUCTURE OF INTELLECTUAL PROPERTY LAW 74, 310 (2003) (discussing social costs of copyright and patent law, respectively). 9 See id. 10 See id. at 40 (discussing perfect price discrimination). Vol. ##] THE PROBLEM OF UNIFORMITY COST 6 A. Standard Economic Justification for Intellectual Property Rights Intellectual property rights are a second-best solution to an “appropriability problem.” The now-familiar utilitarian justification for intellectual property law starts with Thomas Jefferson=s observation that information=s Apeculiar character . . . is that no one possesses the less, because every other possesses the whole of it. . . . . [H]e who lites his taper at mine, receives light without darkening me.@ 11 For Jefferson, the capacity for information to Afreely spread from one to another over the globe@ is part of nature=s Abenevolent[]@ design. 12 For the economist, however, the Abenevolent@ design of information poses a problem. 13 To the extent that pecuniary motivation drives innovation, we should not expect to see useful information 14 produced unless the producer can recoup his or her investment. 15 Because the distribution of valuable information cannot be controlled in the ways that distribution of scarce goods like tubes of toothpaste or radial tires might be B that is, information can be consumed nonrivalrously B the producer, acting alone, cannot rely on competitive markets to supply a sufficient return to make the investment in producing such information worthwhile. 16 The government 11 Letter from Thomas Jefferson to Isaac McPherson (Aug. 13, 1813), in 6 THE WRITINGS OF THOMAS JEFFERSON 180 (H.A. Washington, ed. 1861). 12 Id. 13 Information exhibits public goods characteristics. A public good can be consumed without depletion (non-rivalrous consumption) and can be withheld from nonpaying beneficiaries only at prohibitive cost (non-excludability). See ROBERT COOTER & THOMAS ULEN, LAW AND ECONOMICS 40-41 (2d ed. 1997); see also Wilfried Ver Eecke, Public Goods: An Ideal Concept, 28 J. OF SOCIO-ECONOMICS 139 (1999). Information is imperfectly excludable but it is because it is its non-rivalrous quality that makes it “problematic.” 14 The terms Avaluable@ and Auseful@ information in this Article refer to information that is costly to produce and that members of our society find to be useful, informative, enriching, or otherwise of value. Such information includes the ideas and expressions or embodiments of those ideas found in, for example, novels, movies, music, methods for manufacturing useful articles (medicines, computers, clothing, etc.), computer software, etc. 15 E.g., Mark A. Lemley, The Economics of Improvement in Intellectual Property, 75 TEX. L. REV. 989, 994 (1997) [hereinafter Lemley, Economics of Improvement] (AIn a private market economy, individuals will not invest in invention or creation . . . unless they can reasonably expect to make a profit from the endeavor.@); Christian Koboldt, Intellectual Property and Optimal Copyright Protection, 19 J. OF CULTURAL ECON. 131, 134 (1995) (same). 16 See, e.g., CARL SHAPIRO & HAL VARIAN, INFORMATION RULES: A STRATEGIC GUIDE TO THE NETWORK ECONOMY 3 (1999); F.M. SCHERER & DAVID ROSS, INDUSTRIAL Vol. ##] THE PROBLEM OF UNIFORMITY COST 7 response has been to grant and administer rights under patent and copyright law. Such rights give the innovator the power to exclude or inhibit direct competition, which yields potential power over price. If demand is sufficient, the innovator can use that power to earn a positive return on investments in innovation. While addressing underproduction, intellectual property rights also impose social costs. Professor Lemley nicely summarizes these as follows: First, intellectual property rights distort markets away from the competitive norm, and therefore create static inefficiencies in the form of deadweight losses. Second, intellectual property rights interfere with the ability of other creators to work, and therefore create dynamic inefficiencies. Third, the prospect of intellectual property rights encourages rent-seeking behavior that is socially wasteful. Fourth, enforcement of intellectual property rights imposes administrative costs. Finally, overinvestment in research and development is itself distortionary. 17 B. The Problem of Uniformity Cost Economic analysts generally agree that these social costs must be minimized, and intellectual property rights should be no more robust than necessary to induce the desired level of investment in cultural and technological innovation. 18 However, in both the economic and the law- MARKET STRUCTURE AND ECONOMIC PERFORMANCE 622 (3d ed. 1990); See, e.g., Mark A. Lemley, Property, Intellectual Property, and Free Riding, 83 TEX. L. REV. 1031, 1054-55 (2005) [hereinafter Lemley, Free Riding]; Ian E. Novos & Michael Waldman, The Effects of Increased Copyright Protection: An Analytic Approach, 92 J. POL. ECON. 236, 237 (1984). 17 Lemley, Free Riding, supra note XX, at 1058-59. 18 See, e.g., Lunney, Quiet Revolution, supra note XX, at 5 (arguing that patent protection should be provided only to the precise extent necessary to secure each individual innovation’s ex ante profitability and acknowledging that this level will have to account for unsuccessful research efforts); William W. Fisher III, Property and Contract on the Internet, 73 CHI.-KENT L. REV. 1203, 1249 (1998) (arguing that the goal of copyright law “is to give creators enough entitlements to induce them to produce the works from which we all benefit but no more”). The canonical version of this argument was voiced by Lord Macauley, who argued that a grant of copyright was a grant of an evil monopoly and that “[f]or the sake of the good we must submit to the evil; but the evil ought not to last a day longer than is necessary for the purpose of securing the good.” Thomas Babington, Lord Macaulay, A Speech Delivered in the House of Commons on the 5th of February, 1841, Vol. ##] THE PROBLEM OF UNIFORMITY COST 8 and-economics literature, the problem of social cost in intellectual property law often is discussed at a very high level of abstraction. The literature surrounding the optimal length of a patent is a typical example. Neoclassical economic models concerning an optimal patent term often hold that optimality is conditional, implicitly recognizing that efficiency might dictate varying terms from patent to patent. 19 Other analysts make the point more explicitly. 20 But these economists offer no suggestion for how variable patent terms might be implemented, and those who contemplate the matter find the administrative difficulties intractable. These economists apparently have recognized and despaired over, the problem of uniformity cost in intellectual property law. 21 This despair is premature. Economic analysis can help identify situations in which uniformity costs are particularly high, but it will require pragmatic legal analysis to identify ways in which the legal system can competently redress the problem. 1. The Problem Legal scholars only recently have begun to analyze the social costs of uniform rights as a general problem in intellectual property law. Analyzing U.S. patent law, Professor Lunney has advanced a formal economic model of uniformity cost that assesses the trade-offs between strictly uniform rights, rights tailored to individual innovations, and certain intermediate options. 22 At bottom he shows “[e]ven where an innovative product represents the most valuable use of available resources in Speeches by Lord Macaulay with his Minute on Indian Education 156, 162 (G.M. Young ed., 1935). Professor John Duffy argues that the mobility of capital makes analysis of the causal connection between rights and investment levels unstable. See John F. Duffy, Intellectual Property Isolationism And The Average Cost Thesis, 83 TEX. L. REV. 1077, 1078-89 (2005). But, Professor Lemley rightly responds that because intellectual property rights distort the market away from competitive equilibrium, entry will not necessarily compete away supracompetitive returns. See Lemley, What is Different, supra note XX, at 1102-03. 19 See infra notes XX and accompanying text (discussing economic literature on patent length). 20 See infra notes XX and accompanying text (discussing recognition of uniformity cost in the literature). 21 See Lunney, Quiet Revolution,, supra note XX, at 6 (stating that uniformity costs rise as gap between optimal uniform level of protection and level needed for individual innovation increases). 22 See Lunney, Quiet Revolution,, supra note XX, § IV. Vol. ##] THE PROBLEM OF UNIFORMITY COST 9 . . . . an optimal uniform scheme of protection will provide protection that will leave some desirable innovative products unprofitable.” 23 To illustrate the point, imagine four innovations, A, B, C, and D. These could be musical compositions, types of business software, biotechnological inventions, or chemical compounds with pharmacological uses. Society places a value of 50 on each of these if it is available for use and is free from any intellectual property rights. Assume that intellectual property rights apply uniformly to all covered forms of information and can be calibrated to yield levels of protection ranging from 0 to 3. Innovations B-D will require a level of protection above 0 to be created and distributed, so that A alone will be created and distributed at 0, A and B will be created and distributed at level 1, and so on. As protection increases, however, social value decreases because some users are priced out of desired uses for which they would pay more than marginal cost. Assume that each increase in the level of protection reduces the social value of each innovation by 10. Sliding the protection lever upward yields the following distribution of social values: Table 1 Level of Protection Innovations Created and Distributed Total Social Value 0 A 50 1 A, B 80 2 A,B,C 90 3 A,B,C,D 80 A policymaker interested in maximizing social value from intellectual property rights but bound by the uniformity condition would set the level of protection at 2, leaving innovation D unprofitable even though society places a net positive value of 20 on having it created. Within this highly stylized example, it is easy to see that if the uniformity condition could be relaxed, it would be possible to adjust rights to entice the creation of A-D by, for example, eliminating protection for A and reducing the scope or duration of rights granted to B. 24 23 See Lunney, Quiet Revolution,, supra note XX, at 50-51. 24 Some empirical data suggests that innovations such as A are more than hypothetical. Edwin Mansfield interviewed research and development managers from 100 randomly- selected firms to ask what percentage of the firm’s inventions would have been developed and brought to market in the absence of patent protection. See Edwin Mansfield, Patents and Innovation: An Empirical Study, 32 MGMT SCIENCE 173 (1986). Vol. ##] THE PROBLEM OF UNIFORMITY COST 10 In fact, the problem of uniformity cost is potentially far more significant than the example above suggests. The distribution of rewards from both cultural and technological innovation is highly skew. 25 For example, uncertainty about demand or about feasibility leads recording companies, motion picture studios, pharmaceutical companies, and biotechnology research firms to invest millions of dollars that will never be recouped in innovation. 26 In these industries, profits from chart-busting songs, blockbuster movies, and blockbuster drugs must be sufficient to cover the losses incurred on other investments. 27 Consequently, industries such as these demand robust intellectual property rights to maximize the profitability of successful innovations. When these rights apply uniformly, the social costs are magnified. 2. Uniformity Cost Typology Uniformity costs can be categorized as Type I or Type II. Type I uniformity costs arise when the creators of the same class of subject matter face different magnitudes or types of appropriability problem. For Although any counterfactual query introduces certain biases and uncertainties, and posing a counterfactual to interested parties poses others, Mansfield’s data suggest that (1) a significant percentage of inventions would have been developed and brought to market without the prospect of patent protection; (2) this effect varies significantly by industry; and (3) that nonetheless 80% of patentable inventions were patented in industries with high patent-dependencies (pharmaceuticals, chemicals, petroleum, machinery, and fabricated metal products) and 60% of inventions were patented in less patent-dependent industries (primary metals, electrical equipment, instruments, office equipment, motor vehicles, rubber, and textiles). See id. at 175-76. 25 See, e.g., F.M. Scherer, The Innovation Lottery, in EXPANDING THE BOUNDARIES OF INTELLECTUAL PROPERTY: INNOVATION POLICY FOR THE KNOWLEDGE SOCIETY 1 (Rochelle Cooper Dreyfuss et al., eds. 2001) (collecting data showing skew distributions in variety of industries); F.M. Scherer, Dietmar Harrhoff & J?rg Kukies, Uncertainty and the Size Distribution of Rewards from Innovation, 10 J. OF EVOLUTIONARY ECON. 175 (2000) (showing through empirical study that distributions of rewards for innovation is highly skew). 26 See, e.g., Edwin Mansfield, et al, Social and Private Rates of Return from Industrial Innovations, 91 QUARTERLY. J. ECON. 221, 233-34 (1977). 27 See, e.g., Arthur S. DeVany & W. David Walls, Motion Picture Profit, the Stable Paretian Hypothesis, and the Curse of the Superstar, 28 J. ECON. DYNAMICS & CONTROL 1035, 1042 (2004) (estimating from gross profit data over 13-year span that only 22% of movies made were profitable and of those, 35% made 80% of the total profits earned); Henry G. Grabowski, Patents and New Product Development in the Pharmaceutical and Biotechnology Industries (working paper 2002) (finding that “the search for blockbuster drugs is what drives the R&D process in pharmaceuticals” and that “[t]he median new drug does not cover the R&D costs of the average compound”) at http://www.econ.duke.edu/Papers/Other/Grabowski/Patents.pdf (visited Aug. 1, 2005). Vol. ##] THE PROBLEM OF UNIFORMITY COST 11 example, in the absence of copyright some composers would still create new music; whereas, others may pursue a different line of work. The public would benefit if copyright applied to only music created by the latter group. 28 Instead, under U.S. copyright law all music is protected by the same entitlement. 29 Even when some copyright incentives are needed, the magnitude of that need will vary based on the time, effort, and capital at risk or the incentives may be needed to solve different kinds of problem. With respect to software, for example, open source programmers rely on rights under copyright to prohibit private appropriation of common-pool software; whereas, many commercial software producers rely on copyright to prohibit unauthorized public appropriation of a privately-held software. Copyright law treats all software as literary works and supplies the same rights to both groups. 30 Type II uniformity costs also arise out of variable appropriability problems. Even when all creators within an industry or technological field face roughly the same type and magnitude of appropriability problem, among industries and technological fields the magnitude and type of problem will certainly vary. 31 Nonetheless, patent grants the same entitlement to inventors of pharmaceutical drugs and novelty toys, and copyright grants roughly the same entitlement to, for example, authors of novels and computer programs. 3. Qualifying the Problem Granting uniform entitlements in patent and copyright law necessarily will impose some Type I and Type II costs, and the question for policymakers is how best to reduce these. The magnitude of social costs incurred when the government rewards all innovators with the same entitlement depends on the currency used. If the government were to 28 More thorough-going welfare analysis would include, among other things, the disaffection costs imposed on unprotected composers’ from being treated differently than protected composers. 29 See 17 U.S.C. § 102(a)(2), (7); id. § 106. 30 See 17 U.S.C. § 101. 31 See, e.g., Rebecca S. Eisenberg, Patents, Product Exclusivity, and Information Dissemination: How Law Directs Biopharmaceutical Research and Development, 72 FORDHAM L. REV. 477, 486 (2003) (“Our patent laws are one-size-fits-all, applying essentially the same rules to biopharmaceutical research that apply to automotive engineering, information technology, semiconductors, and rocket science. But the needs of these fields for patent protection differ.”); Burk & Lemley, Policy Levers, supra note XX, at 1584 (“Appropriability is itself an amalgam of a complex set of variables, many of which are themselves industry-specific.”). Vol. ##] THE PROBLEM OF UNIFORMITY COST 12 grant a uniform monetary entitlement to all inventors – say a bounty of $1 million – whether their invention were a life-saving biomedical device or a novelty toy, the social costs of uniformity would be apparent and such a system would be grossly inefficient. Policymakers have chosen, in the main, to grant legal rather than monetary entitlements to innovators. Uniform exclusive rights are not immediately problematic because three market-based features of the intellectual property system reduce uniformity cost: demand elasticity, price discrimination, and Coasean bargaining. The social costs of intellectual property rights arise only when there is demand for protected information. If demand for a novelty toy that would have been invented in the absence of protection is 0, then even though granting uniform patent rights was unnecessary, uniformity cost is 0 because no potential buyers have been excluded. 32 Uniformity costs rise with demand. 33 Even when these uniformity costs arise, under traditional economic analysis, perfect price discrimination theoretically would eliminate the underdistribution of protected information. That is, if intellectual property owners are able to engage fully in first-degree price discrimination – selling or licensing to each user willing to pay more than marginal cost – static deadweight loss would be 0. 34 As others have shown, however, even as a matter of theory perfect price discrimination would not eliminate all social costs of intellectual property rights. 35 Moreover, even if perfect 32 For a site dedicated to identifying such low-demand inventions, see Patently Silly, available at http://www.patentlysilly.com/. Of course, demand for the invention does not refer to only demand in product markets. Any potential user of information for which a patent owner might make a credible threat must be plotted on the invention’s demand curve. 33 Increases in demand for a work also attract free riding competitors so that increases in demand increase both the magnitude of the appropriability problem and the magnitude of social cost. Cf. Glynn S. Lunney, Jr. Reexamining Copyright’s Incentives-Access Paradigm, 49 VAND. L. REV. 483, 557 (1996) (incentives and access both functions of degree of market power conferred by exclusive rights). Although we should expect rising demand to generate correlated offsetting effects in many cases, when creators of popular works do not require the power over price that patent or copyright promise, uniformity costs rise. 34 See HAL VARIAN & CARL SHAPIRO, INFORMATION RULES; Harold Demsetz, The Private Production of Public Goods, 13 J. L. & Econ. 293 (1970). 35 Economists have become less certain about the theoretical efficiency of perfect price discrimination by natural monopolists or firms engaged in monopolistic competition. See, e.g., V. Bhaskar and Ted To, Is Perfect Price Discrimination Really Efficient? An Analysis Of Free Entry, 35 RAND J. OF ECON. 762 (2004); Aaron S. Edlin, Mario Epelbaum & Walter P. Heller, Is Perfect Price Discrimination Really Efficient? Welfare and Existence in General Equilibrium, 66 ECONOMETRICA 897 (1998). Moreover, many attempts to modify intellectual property law to enhance opportunities for price Vol. ##] THE PROBLEM OF UNIFORMITY COST 13 price discrimination would theoretically avoid reduction in social value, perfect first-degree price discrimination in the intellectual property context is a practical impossibility. 36 The real question is whether policymakers should design intellectual property entitlements to facilitate price discrimination so as to reduce uniformity cost. As Michael Meurer has shown, some forms of price discrimination are socially beneficial and others are socially harmful. 37 Consequently, even when the law can encourage price discrimination, the problem of uniformity cost reemerges with respect to the need to tailor entitlements to promote only beneficial price discrimination. Finally, when demand is positive and price discrimination is imperfect, the Coase Theorem asserts that uniformity cost will affect allocative efficiency only if reallocation or reapportionment of uniform entitlements by contract is too costly. 38 Commentators disagree about the general magnitude of transaction costs in intellectual property sales and licensing, but all will agree that the costs are greater than 0. 39 Indeed, most agree that difficulties in valuing patents and copyrights raise transaction costs to the point that allocative efficiency will depend upon discrimination likely are undesirable. See generally Julie E. Cohen, The Perfect Curve, 53 VAND. L. REV. 1799 (2000); Michael Meurer, Copyright Law and Price Discrimination, 23 CARDOZO LAW REVIEW 55 (2001) [hereinafter Meurer, Price Discrimination]; Brett M. Frischmann, An Economic Theory Of Infrastructure And Commons Management, 89 MINN. L. REV. 917, 978-80 (2005) (discussing distortionary effects of promoting price discrimination). 36 See, e.g., Lemley, Free Riding, supra note XX, at 1059 n.115; Christopher S. Yoo, Copyright and Product Differentiation, 79 N.Y.U. L. REV. 212, 255 (2004) (noting that perfect price discrimination is impossible); Daniel Farber & Brett McDonnell, Why (and How) Fairness Matters at the IP/Antitrust Interface, 87 MINN. L. REV. 1817, 1867 (2003) (same). 37 See generally Meurer, Price Discrimination, supra note XX; Michael Meurer, Price Discrimination, Personal Use and Piracy: Copyright Protection of Digital Works, 45 BUFF. L. REV. 845 (1997). 38 See Ronald Coase, The Problem of Social Cost, 3 J. LAW & ECON. 1, 8 (1960) (“In these conditions [of high transaction costs] the initial delimitation of legal rights does have an effect on the efficiency with which the economic system operates.”). While arguing that policymakers should recognize the effects they have on allocative efficiency when fashioning legal rights for high-transaction-cost environments, Coase also recognized that distributional justice matters and that “the choice between different social arrangements for the solution of economic problems should be carried out in broader terms than this [maximizing total output] and that the total effect of these arrangements in all spheres of life should be taken into account.” Id. at 21. 39 See Robert P. Merges, Of Property Rules, Coase, and Intellectual Property, 94 COLUM. L. REV. 2655, 2661 (1994) [hereinafter Merges, Of Property Rules] (“Despite a few brave attempts to assume away the obvious, those who have considered the application of the Coase theorem to IPRs have noted the pervasive presence of transaction costs.”). Vol. ##] THE PROBLEM OF UNIFORMITY COST 14 the content of intellectual property entitlements. 40 This is particularly true because the externalities that justify patent and copyright law differ fundamentally from those that inspired Coase, 41 and the law’s choice is not between granting an entitlement to party A or to party B but between granting an entitlement to party A or to the public at large, comprised of an unknown and often unknowable proportion of higher- and lower-valued users. 42 Consequently, allocative inefficiency in intellectual property law potentially imposes a far more significant social cost than it does with respect to real property. Thus, even after demand elasticity, price discrimination, and Coasean bargaining have been accounted for, we find that if the law is strictly uniform when granting intellectual property rights, society pays too much for numerous innovations that would be created with less robust protection, and the optimal level 43 of protection must be set lower than is necessary to induce the creation of certain costly but socially desirable innovations. 44 The uniformity-cost perspective calls for a reorientation in the economic analysis of intellectual property law. Those who argue that perfect price discrimination alone would be a complete solution to the 40 See, e.g., Clarisa Long, Proprietary Rights and Why Initial Allocations Matter, 49 EMORY L.J. 823 (2000) (arguing that uncertainty in valuation of patents on basic research tools is likely to block efficient licensing of such tools); Gallini & Scotchmer, supra note XX, at 67 (“The optimal design of IP depends importantly on the ease with which rights holders can contract around conflicts in rights.”); Lemley, Economics of Improvement, supra note XX, at 1053 (analyzing components of transaction costs and concluding that “[t]he result of all these factors is that the transaction costs of intellectual property licenses are significant.”); James Bessen, Holdup and Licensing of Cumulative Innovations With Private Information, 82 ECON. LTRS 321 (2004) (showing that “[t]he possibility of ex ante licensing does not eliminate the problem of holdup in cumulative innovation”). 41 See, e.g., Merges, Of Property Rules, supra note XX, at 2657-64; Lemley, Free Riding, supra note XX; Mark A. Lemley, What’s Different About Intellectual Property, 82 TEX. L. REV. 1097 (2005) (reply essay); Mark A. Lemley, Ex Ante Versus Ex Post Justifications for Intellectual Property, 71 U. CHI. L. REV. 129 (2004). 42 See generally Frischmann, supra note XX (discussing variety of demand-side considerations for information resources). 43 In my view, interpersonal and intrapersonal incommesurability problems make the notion of an optimal level of protection incoherent. Nonetheless, the case for some level of protection is persuasive for at least some forms of information. Those who share my doubts about the utility of optimality analysis should understand “optimal level” to mean the level of protection that democratically-representative policymakers would choose to bring about a desired amount of investment in innovation, recognizing the incommensurable interests that are sacrificed with each change in the level of protection. 44 See Lunney, Quiet Revolution,, supra note XX, at 50-51. Vol. ##] THE PROBLEM OF UNIFORMITY COST 15 social costs of intellectual property rights err. In fact, if intellectual property rights were the only available solution to the underproduction problem, the ideal implementation would be perfectly tailored rights 45 – i.e. rights that promised the expected value necessary to induce investment in only socially-desirable innovations. III. UNIFORMITY AND ITS LIMITS IN U.S. INTELLECTUAL PROPERTY LAW Recognizing that theoretically desirable perfect precision in entitlement design is unattainable, we must now focus on pragmatic understanding of uniformity cost and on institutional options for reducing these costs. After considering these matters, this section analyzes contemporary patent and copyright law to identify the legal constraints on policymakers’ options to reduce uniformity cost and to identify the extent to which institutional options for reducing uniformity cost have been implemented. A. Uniformity and Institutional Options for Reducing Its Costs Intellectual property rights have three dimensions: subject matter, scope, and duration. The subject matter of intellectual property potentially is all information. Scope defines the actions that the rightholder may engage in lawfully with respect to protected subject matter, the actions of others for which the rightholder may seek legal redress, and the remedial rules specifying available redress. 46 Duration is a relevant dimension 45 The claim for perfect tailoring is qualified because if policymakers had sufficient information about expected value to perfectly tailor rights, a more efficient policy response to underproduction would be to pay innovators directly for the costs of innovation while leaving the costs of distribution to competitive markets. See, e.g., Mark A. Lemley, Ex Ante versus Ex Post Justifications for Intellectual Property, 71 U. CHI. L. REV. 129, 131, 135 (2004) (characterizing intellectual property rights as a “necessary evil” and arguing that default preference in market economy is to leave distribution to competitive markets). Nonetheless, if the policymaker’s options are restricted to the creation of exclusive rights, perfectly tailored rights are superior to a regime of uniform rights with perfect price discrimination because dynamic inefficiencies would be eliminated as well. 46 See, e.g. Wendy J. Gordon, An Inquiry Into The Merits Of Copyright: The Challenges Of Consistency, Consent, And Encouragement Theory, 41 STAN. L. REV. 1343, 1356 (1989) (using Hohfeldian entitlement schema to describe scope of rights under copyright). Vol. ##] THE PROBLEM OF UNIFORMITY COST 16 because the U.S. Constitution requires that federal patent and copyright rights be limited in time. 47 Intellectual property rights are “uniform” when the subject matter is broadly defined and the scope and duration of rights is the same for all protected subject matter. Rights are “tailored” when scope or duration varies depending either on the classification of the work or invention along industry-specific or technology-specific lines, say, as computer software, or classification of the initial rightholder (e.g., whether the rightholder was a government employee or used public funds to create the protected information). Rights can be, and have been, tailored along a continuum of abstraction. In the most abstract sense, all intellectual property law has been tailored because its subject matter does not include all information. Even when the law makes some distinction between protected and public domain information, that distinction could be captured by a single set of intellectual property rights. 48 From this perspective, differences in the rights granted by copyright and patent law, respectively, represent a form of tailored protection driven by the relative differences in functionality and expressiveness in patentable and copyrightable subject matter. 49 For purposes of this Article, the baseline for measuring uniformity will be the now-traditional copyright/patent distinction: Rights are Auniform@ if the standard rights under patent or copyright apply and are Atailored@ if these have been varied for particular subject matter or for particular initial rightsholders. Five sources of law specify whether U.S. intellectual property rights are uniform or tailored: (1) the U.S. Constitution; (2) international obligations; (3) statutory entitlements; (4) judicial opinions refining the contours of those entitlements, and (5) administrative adjudicatory and regulatory interpretations of those entitlements. The Constitution grants Congress power to enact patent and copyright laws, and Congress has 47 See U.S. CONST. art. I, § 8, cl. 8 (granting Congress power to secure exclusive rights for authors and inventors for “limited Times”). 48 During the Renaissance, for example, the scope and duration of royal privileges or letters patent granted to publishers and inventors were quite similar. See, e.g., Michael W. Carroll, Whose Music Is It Anyway?: How We Came To View Musical Expression As A Form Of Property, 72 U. CIN. L. REV. 1405 (2004). 49 See, e.g., Dennis Karjala, Distinguishing Patent and Copyright Subject Matter, 35 CONN. L. REV. 439, 524 (2003) (arguing that digital technology creates pressure on the expression/function distinction between copyrightable and patentable subject matter); see also Clarisa Long, Information Costs in Patent and Copyright, 90 VA. L. REV. 465 (2004) (arguing that patent and copyright bundle distinct entitlements because of differing costs of conveying information about the protected subject matter). Vol. ##] THE PROBLEM OF UNIFORMITY COST 17 provided some form of patent and copyright protection since 1790. 50 More recently, the United States has committed itself to exercise that constitutional authority subject to copyright-specific and patent-specific multilateral, international agreements administered by the World Intellectual Property Organization. 51 Overarching and reinforcing the obligations under WIPO agreements are those imposed on the United States as a party to the Agreement on Trade-Related Aspects of Intellectual Property Rights (ATRIPS@). 52 The current statutory 50 See Act of April 10, 1790, 1 Stat. 109, 1st Cong. 51 The copyright-specific agreements to which the United States is a party are: The Berne Convention for the Protection of Literary and Artistic Works, Sept. 9, 1886, 25 U.S.T. 1341, 828 U.N.T.S. 211 (last revised at Paris, July 24, 1971) (hereinafter Berne Convention), The Universal Copyright Convention, Sept. 6, 1952, 6 U.S.T. 2732, 216 U.N.T.S. 132, WIPO Performance and Phonograms Treaty, adopted Dec. 20, 1996, S. Treaty Doc. No. 105-17, 36 I.L.M.76 (hereinafter WPPT), and WIPO Copyright Treaty, adopted Dec. 20, 1996, S. Treaty Doc. No. 105-17, 36 I.L.M. 65 (hereinafter WCT). The United States also is party to narrower agreements offering tailored protections with respect to specific forms of expression or modes of delivery. See, e.g., The Convention Relating to the Distribution of Programme-Carrying Signals Transmitted by Satellite, May 6-21, 1974, art. 2(1), 13 I.L.M. 1444 (obligating member states to regulate satellite transmission); The Convention for the Protection of Producers of Phonograms Against Unauthorized Duplication of Their Phonograms, Oct. 29, 1971, art. 2, 25 U.S.T. 309, 866 U.N.T.S. 67 (obligating member states to protect phonogram producers). The patent-specific agreements to which the United States is a party are the Paris Convention for the Protection of Industrial Property, Mar. 20, 1883, 21 U.S.T. 1583, 626 U.N.T.S. 305 (hereinafter Paris Convention), the Patent Cooperation Treaty, June 19, 1970, 28 U.S.T. 7645, 1160 U.N.T.S. 231 (hereinafter PCT), and the Strasbourg Agreement Concerning the International Patent Classification, Mar. 24, 1971, 26 U.S.T. 1793. The United States also has signed but not ratified the Patent Law Treaty, June 1, 2000, 39 I.L.M. 1047, which entered into force in Member States on January 28, 2005. See http://www.wipo.int/edocs/notdocs/en/plt/treaty_plt_12.html (last viewed date) The United States also is party to agreements specifying tailored procedural requirements. See, e.g., Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure, Apr. 28, 1977, 32 U.S.T. 1241, 1861 U.N.T.S. 361 available at http://www.wipo.int/treaties/en/registration/budapest/trtdocs_wo002.html#P69_4336. The International Court of Justice has jurisdiction to resolve disputes under the principal substantive agreements, the Berne Convention (copyright) and the Paris Convention (patent), but that jurisdiction has yet to be invoked. See GRAEME B. DINWOODIE et al., INTERNATIONAL INTELLECTUAL PROPERTY LAW AND POLICY 44 (2001); Graeme B. Dinwoodie, International Property Litigation: A Vehicle For Resurgent Comparativist Thought?, 49 AM. J. COMP. L. 429 (2001) (hereinafter “Int’l IP Litigation”). In principle, the International Court of Justice has jurisdiction to resolve disputes arising under both conventions, but no parties have invoked this jurisdiction to date. See DINWOODIE et al., supra, at 45. 52 Agreement on Trade-Related Aspects of Intellectual Property Rights, Apr. 15, 1994, Vol. ##] THE PROBLEM OF UNIFORMITY COST 18 entitlements reside in the Patent Act of 1952, as amended, 53 and the Copyright Act of 1976, as amended. 54 The federal courts have exclusive jurisdiction to enforce these entitlements, 55 with the U.S. Court of Appeals for the Federal Circuit and the United States Supreme Court sharing exclusive appellate jurisdiction over well-pled complaints arising under the Patent Act. 56 Finally, the United States Patent and Trademark Office (“PTO”) has administrative responsibility for examining and issuing patents pursuant to the Patent Act; whereas, the United States Copyright Office issues copyright registrations, subject to minimal examination, and performs other tasks delegated by the Copyright Act. Taken together, these sources of law require that patent and copyright entitlements be uniform in some respect, be tailored in others, and they grant judicial and administrative officials a range of interpretive discretion to enforce these entitlements either uniformly or in tailored fashion. Within these constraints, it is likely as an institutional matter that tailoring will have to be done on an industry-specific or technology- specific basis. 57 There are five methods of tailoring: (1) executive Marrakesh Agreement Establishing the World Trade Organization, Annex 1c, LEGAL INSTRUMENTS – RESULTS OF THE URUGUAY ROUND vol. 31, 33 I.L.M. 81 (1994) [hereinafter TRIPS Agreement]. As a matter of substantive law, the TRIPS Agreement primarily incorporates the essential requirements of the Berne Convention for copyrights and the Paris Convention for patents, as revised, but the enforcement mechanism under the TRIPS Agreement is far more effective. The TRIPS Agreement is administered by the TRIPS Council of the World Trade Organization. See DINWOODIE et al., supra note XX, at 45-47. Disputes under the TRIPS Agreement are subject to the WTO=s dispute settlement procedure and are subject to review by the WTO=s Appellate Body. Id. These obligations apply only to how member States treat innovators or innovations from other member States. Congress can depart from uniformity without violating these obligations if such departures apply only to works created by United States innovators. See, e.g., 17 U.S.C. § 411 (applying registration requirement in copyright law only to U.S. works). For further analysis of this registration requirement, see infra notes XX and accompanying text. 53 See Pub. L. No. 82-593, 66 Stat. 792 (1952) (codified as amended at 35 U.S.C. § 1, et seq.), 54 See 17 U.S.C. §§ 101-806. 55 See 28 U.S.C. § 1338(a). 56 See Holmes Group, Inc. v. Vornado Air Circulation Sys., Inc., 535 U.S. 826 (2002) (applying well-pleaded complaint rule to “arising under” jurisdiction under 28 U.S.C. §§ 1295(a)(1), 1338). 57 See Richard C. Levin, et al., Appropriating the Returns from Industrial Research and Development, 1987 Brookings Papers on Econ. Activity 728, 818 (1987) (“Since the impact of legal protection of intellectual property depends on the strength of other appropriability mechanisms and varies widely among industries, focused efforts to solve problems in specific markets would be more prudent than a broad attempt to upgrade Vol. ##] THE PROBLEM OF UNIFORMITY COST 19 tailoring by treaty; (2) legislative tailoring, (3) judicial tailoring, (4) administrative tailoring, and (5) tailoring through options. Tailoring by treaty gives the executive branch a powerful role in intellectual property policymaking. But most intellectual property treaties are not self- executing and require legislative action. It should be no surprise, then, that tailoring rights by legislation is the most powerful form of adaptation since Congress is the source of these rights. Legislative tailoring in its most assertive form disaggregates information from patent or copyright and designates it as subject to sui generis rights. 58 While most legislative tailoring has as its goal creating differential treatment, some provisions, such as those applicable to the term of patent for certain pharmaceutical drugs are aimed at overcoming differential treatment caused by regulatory approval processes and making uniform the effective term of protection. 59 Less well recognized is the practice of judicial tailoring. As Section IV.B, infra demonstrates, because rights under patent and copyright have to be interpreted and applied in context, the rights always are tailored for particular subject matter to some degree. For purposes of this Article, judicial tailoring requires more systematic differentiation in the application or interpretation of formally uniform rights. The effectiveness of judicial tailoring for making intellectual property law more context-sensitive depends on the dimension of rights being adapted. With regard to subject matter, courts have a certain amount of discretion to determine whether a work is sufficiently original 60 or to draw the line between unprotected idea and protected expression. Similarly, determining whether a process is protectible 61 or whether a biological organism is a Amachine,@ a Amanufacture@ or Acomposition of matter@ 62 requires the exercise of interpretive discretion through which the courts can tailor protection. As with subject matter, the scope doctrines under both patent and copyright law delegate to courts substantial discretion that can be exercised to tailor the balance of incentives and access for specific types of information. With regard to duration, however, the courts have little discretion to tailor the term of protection directly. Nonetheless, some commentators have shown that courts can use their discretion over scope protection.”). 58 See Section III.D., supra (describing sui generis intellectual property rights). 59 See Lunney, Quiet Revolution, supra note XX, at 47-48. 60 See, e.g., Trotter Hardy, The Copyrightability of New Works of Authorship: "XML Schemas" as an Example, 38 HOUS. L. REV. 855 (2001). 61 See State Street Bank & Trust Co. v. Signature Financial Group, 149 F.3d 1368 (Fed. Cir. 1998) (holding methods of doing business to be patentable Aprocesses@). 62 See, e.g., Diamond v. Chakrabarty, 447 U.S. 303 (1980) (holding human-made bacteria not naturally occurring to be patentable subject matter) (5-4). Vol. ##] THE PROBLEM OF UNIFORMITY COST 20 to limit or enhance the effective duration of protection. 63 When courts disagree with a legislative judgment to tailor protection, judicial interpretation also can be used to make intellectual property rights more uniform by subverting legislative tailoring. 64 Administrative tailoring has been implemented to limited degree. Administrative tailoring has greater potential effect in patent law because protection does not commence until the PTO has issued a patent, and tailoring can be accomplished during the examination process. As with judicial tailoring, mere differential treatment - such as the issuance of patents for obvious software inventions because of the absence of prior art - does not amount to administrative policy to alter the subject matter or scope of protection to better balance incentives and access. Administrative tailoring in patent law affects eligibility but does not affect the scope of rights in issued claims. 65 For example, the PTO=s examination guidelines for biotechnological inventions or business method patents, on the other hand, reflect a tailored interpretation of the requirements of patentability. 66 In copyright law, Congress has delegated limited tailoring authority to the Copyright Office. 67 For example, the Copyright Office=s determination that the deposit requirement for source code should be altered to enable copyright owners to enjoy both copyright and trade secret protection is a tailoring of copyright law=s disclosure function. The Copyright Office has made the judgment that incentives are more 63 See, e.g. Justin Hughes, Fair Use Across Time, 50 UCLA L. REV. 775 (2003); Joseph P. Liu, Copyright and Time: A Proposal, 101 MICH. L. REV. 409 (2002). 64 See, e.g., Bleistein v. Donaldson Lithographing Co., 188 U.S. 239, 250-51 (1903) (construing definition of copyrightable subject matter which stated that Athe words 'engraving,' 'cut' and 'print' shall be applied only to pictorial illustrations or works connected with the fine arts@ and rendering nugatory the Afine arts@ limitation on grounds that A[i]t would be a dangerous undertaking for persons trained only to the law to constitute themselves final judges of the worth of pictorial illustrations@); cf. Diamond v. Chakrabarty, 447 U.S. 303, 318 (1980) (Brennan, J., dissenting) (accusing majority of overriding congressional intent to tailor patent rights in inventions comprising living organisms); J.E.M. AG Supply, Inc. v. Pioneer Hi-Bred Intern., Inc., 534 U.S. 124 (2001) (holding that tailored protection for plant varieties not exclusive of general utility patent protection for same subject matter). 65 I thank Mark Lemley for this point. 66 See John R. Allison & Emerson H. Tiller, The Business Method Patent Myth, 18 BERKELEY TECH. L.J. 987, 1082 & n.263 (2003) (describing PTO initiative to give extra scrutiny to applications for inventions with International Patent Classification 705). 67 E.g., 17 U.S.C. ' 1201(a)(1)(B),(C) (exempting classes of users identified by Librarian of Congress through administrative rulemaking from paracopyright prohibition in ' 1201(a)(1)(A)). Vol. ##] THE PROBLEM OF UNIFORMITY COST 21 important than access for software and implemented that within the discretion granted by the Copyright Act. 68 Finally, even when rights are formally uniform, they can be tailored in substance through real options – i.e. conditions imposed on potential rightsholders. Policymakers, have three choices when allocating entitlements: (1) grant the entitlement to all eligible holders; (2) grant an option to acquire the entitlement to all eligible holders (a call option); or (3) grant multi-tiered options to acquire the entitlement; that is, an automatic grant of an option to acquire an option to acquire the full entitlement, etc. 69 Many legal entitlements, perhaps most, are in fact options to acquire the entitlement rather than the entitlement itself. 70 For example, even among rights considered to be fundamental, options rather than entitlements are common. We say that a U.S. citizen acquires the “right” to vote in federal elections upon reaching the age of majority. 71 In fact, she acquires the option to have the right to vote but does not acquire the right to vote in any given election until she exercises the option by registering to vote. 72 When policymakers choose options over direct grants of entitlements, option price performs a filtering function. As the costs of exercising the option increase, the percentage of actual entitlement holders will decrease. With the option to vote, Jim Crow laws in the South were designed to increase the cost of exercising the option, 73 while the “motor voter” law was designed to bring the option cost down significantly. 74 68 See 17 U.S.C. ' 408(c). 69 Other layers of complexity can be added. For example, when the law directly grants an entitlement, whether the holder has a put option (the option to alienate) will vary depending upon the transaction structure governing the entitlement. 70 See, e.g., IAN AYRES, OPTIONAL LAW: THE STRUCTURE OF LEGAL ENTITLEMENTS (forthcoming 2005); Oren Bar-Gill, Pricing Legal Options: A Behavioral Perspective, (working paper, 2005), available at http://lsr.nellco.org/cgi/viewcontent.cgi?article=1019&context=nyu/lewp 71 See U.S. CONST. amend XXVI (making age 18 the age of majority for voting purposes). 72 See, e.g. 42 U.S.C. § 1971(e) (implementing Fifteenth Amendment and stating that “[w]hen used in the subsection, the word ‘vote’ includes all action necessary to make a vote effective including, but not limited to, registration or other action required by State law prerequisite to voting, casting a ballot, and having such ballot counted and included in the appropriate totals of votes cast with respect to candidates for public office and propositions for which votes are received in an election”). 73 See, e.g., 42 U.S.C. § 1971(a)(2)(C) (limiting use of literacy tests as prerequisite for voting in response to abuse of such practices to achieve racially discriminatory objectives). 74 See 42 U.S.C. § 1973gg(b)(1) (stating that purpose of motor-voter registration is “to establish procedures that will increase the number of eligible citizens who register to vote Vol. ##] THE PROBLEM OF UNIFORMITY COST 22 Option prices also reveal information about the value of the entitlement. One goal of entitlement design can be to force private actors to reveal their private valuations of options regulated by legal rules. 75 In patent and copyright law, call options serve two important economic functions: (1) limiting the number of entitlement holders, and thereby reducing social costs by tailoring the number of entitlements granted; and (2) producing coarse-grained information about the private valuation of the entitlement. Relatively recent changes in copyright law have greatly diminished the filtering function that real options once played in the form of renewal terms and formalities. In intellectual property law, real options promote social welfare when the benefits of sorting innovations and nourishing the public domain outweigh the costs of forcing entitlement bearers to calculate an option value with respect to their innovations and to expend resources to purchase the option in order to enjoy protection. 76 B. The Constitutional Framework Patent and copyright law find constitutional legitimacy in the grant of power ATo 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.@ 77 For purposes of this Article, the in elections for Federal office.”). 75 See, e.g., Lee Ann Fennell, Revealing Options, 118 HARV. L. REV. 1399 (2005). 76 See Long, Information Costs, supra note XX, at XX. 77 U.S. CONST. art. I, ' 8, cl. 8. This constitutional provision lacks a consensus designation among courts or commentators. For some, it is the “Copyright and Patent Clause.” See, e.g., Eldred v. Ashcroft, 537 U.S. 186, 192 (2003); Merges & Reynolds, supra note XX, at 52. For others it is the “Patent and Copyright Clause.” See Eldred, 537 U.S. at 214 n.20; Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 162 (1989); Mazer v. Stein, 347 U.S. 201, 206 n.5 (1954). Others prefer the more textual “Exclusive Rights Clause.” See, e.g., Lawrence Lessig, Copyright’s First Amendment, 48 UCLA L. REV. 1057, 1068 (2001); Yochai Benkler, Through The Looking Glass: Alice and the Constitutional Foundations of the Public Domain, 66 LAW & CONTEMP. PROBS. 173, 175 (2003); Jed Rubenfeld, The Freedom Of Imagination: Copyright's Constitutionality 112 YALE L.J. 1, 12 (2002). Others would have it be the “Promotion of Progress Clause,” see Giles R. Rich, Principles of Patentability, 14 FED. CIR. B. J. 135, 142 (2004-05), or simply the “Progress Clause.” See Malla Pollack, What Is Congress Supposed to Promote?: Defining "Progress" in Article I, Section 8, Clause 8 of the United States Constitution, or Introducing the Progress Clause, 80 NEB. L. REV. 754 (2001); Lawrence Lessig, The Balance of Robert Kastenmeier, 2004 WIS. L. REV. 1015, 1015. And, finally, many refer to it as the “Intellectual Property” Clause. See, e.g., Paul J. Heald & Suzanna Sherry, Implied Limits on the Legislative Power: The Intellectual Property Clause as an Absolute Constraint on Congress, 2000 U. ILL. L. REV. 1119. In Vol. ##] THE PROBLEM OF UNIFORMITY COST 23 important question is whether, Clause 8 requires or prohibits uniform rights under patent or copyright. In general, the constitution grants policymakers wide discretion to address the problem of uniformity cost in intellectual property law. Subject Matter. The Court has inferred constitutional subject matter limitations from the Clause 8=s reference to Aauthors@ and their Awritings@ and Ainventors@ and their Adiscoveries.@ The Court has held that Awritings@ should be understood broadly, 78 but a creative work that has not been expressed in any tangible form would fail to qualify as copyrightable subject matter. 79 In addition, from the terms Aauthors@ and Awritings,@ the Court has inferred that copyright requires a modicum of creativity and may not extend to unoriginal writings, such as factual compilations organized in an obvious manner. 80 With respect to patent law, the Court has asserted, as a matter of statutory interpretation, that laws of nature, natural phenomenon, and abstract ideas are unpatentable. 81 Whether there is a constitutional foundation for this assertion may be tested in future cases. 82 More aggressively, at least one commentator has argued that “useful arts” is the relevant subject matter limitation, which limits the discoveries that patent law can protect to those related to technology, in contradistinction to innovations in the traditional liberal and fine arts. 83 The Court does not seem to be receptive to such arguments, however. With respect to the interests of scholarly and judicial consensus, it shall be referred to hereinafter, however inelegantly, as “Clause 8,” since we can all agree that the provision is the eighth clause in Article I. See Goldstein v. California, 412 U.S. 546, 562 (1972) (using “Clause 8”). 78 See Goldstein v. California, 412 US 546 (1973); Burrow-Giles Lithographic 111 U.S. 53, 59 (1884) (stating that Clause 8 “Writings” include “all forms of writing, printing, engraving, etching, &c., by which the ideas in the mind of the author are given visible expression”). 79 See United States v. Martignon, 346 F. Supp.2d 413, 423-24 (S.D.N.Y. 2004) (stating that unfixed works not constitutional “writings”); KISS Catalog v. Passport Intern. Productions, Inc.. 350 F.Supp.2d 823, 831 (C.D.Cal. 2004) (“If ‘writings’ continues to exist as a constitutional limit, live performances cannot be within the scope of that term.”). 80 See Feist Pub., Inc. v. Rural Tel. Svc. Co., 499 U.S. 340, 361-363 (1991) (holding that Clause 8 requires originality for copyright protection). 81 See, e.g., Diamond v. Diehr, 450 U.S. 175, 185 (1981). 82 See, e.g., Saul Levmore, Property=s Uneasy Path and Expanding Future, 70 U. CHI. L. REV. 181 (2003) (A[W]e should expect sporadic agitation for a property right in a (mere) idea--because the winners are identifiable and the exploitation of the idea will often not identifiably impede on an existing set of easily organized holders of property rights.@). 83 See John R. Thomas, The Patenting of the Liberal Professions, 40 B.C. L. REV. 1139, 1164 (1999). Vol. ##] THE PROBLEM OF UNIFORMITY COST 24 uniformity, it would be possible to argue that if Congress chooses to grant exclusive rights to some “inventors,” however the term is defined, then Congress must grant such rights to all inventors. More convincingly, a tailoring proponent could use the text to argue that the greater discretion to grant or deny any patent protection includes the lesser discretion to grant protection selectively. Scope. The Constitution empowers Congress to Asecure@ the Aexclusive right@ to a writing or discovery. 84 To date, the courts have not had reason to define the limits of Congress=s power to define the scope of an author=s or inventor=s exclusive right, although one Justice has asserted that the constitutional text does impose such a limit. 85 Presumably the text imposes some nexus requirement between the right granted and the writing or discovery to which the right relates, but the courts have not specified how close this nexus must be. With respect to uniformity, the text might support an argument that the grant of power to secure “the” exclusive right requires that if Congress enacts patent or copyright legislation, it must extend the same right to all inventors or authors, respectively; however, little in the history or structure of Clause 8 supports this reading. Duration. Patents or copyrights may be Asecured@ only for Alimited Times.@ 86 At a minimum, this means that Congress may not make the term of patent or copyright protection perpetual, 87 the wishes of some legislators notwithstanding. 88 The Court=s current interpretation of the 84 U.S. CONST. art. I, ' 1, cl. 8. 85 See U. S. v. Line Material Co., 333 U.S. 287, 321 (1948) (Douglas, J., concurring): Congress has much to say as to the pattern of our economic organization. But I am not clear that Congress could expand 'the exclusive right' specified in the Constitution into a right of inventors to utilize through a price-fixing combination the production and marketing facilities of competitors to protect their own high costs of production and eliminate or suppress competition. It is not apparent that any such restriction or condition promotes the progress of science and the useful arts. 86 U.S. CONST. art. I, ' 1, cl. 8. 87 See, e.g., Eldred, 537 U.S. at 210 (A[T]he Constitution >clearly precludes Congress from granting unlimited protection for copyrighted works=@) (quoting with approval S. Rep. No. 104-315 at 11 (1996)); Martignon, 346 F. Supp.2d at 424 (“It is clear that the ‘Limited Times’ restriction in the Copyright Clause prohibits Congress from granting Copyright protection of perpetual duration.”); KISS Catalog, 350 F. Supp.2d at 833 (holding that perpetual term violated “limited Times” requirement). 88 See Eldred, 537 U.S. at 256-57 (Breyer, J., dissenting) (“After all, the statute was named after a Member of Congress, who, the legislative history records, ‘wanted the term of copyright protection to last forever.’”) (citation omitted). Vol. ##] THE PROBLEM OF UNIFORMITY COST 25 constitutional limit, is that Congress does not violate the Alimited Times@ constraint by retrospectively extending the terms of subsisting copyrights and patents so long as the extended term has a defined end. 89 Additionally, the Court has suggested that Congress may not extend protection to protected subject matter for which the limited time of protection has expired, 90 although lower courts recently have rejected that understanding. 91 In addition to these explicit subject matter, scope, and duration limits, Clause 8 declares that the purpose of the grant of power is Ato promote the progress of science and useful arts.@ If this “preamble” imposes a progress limitation on Congress=s power, it could serve as the basis for attacking or promoting uniformity in some circumstances. 92 Although Congress undoubtedly would have wide discretion to define progress and to determine whether a particular legislative measure promotes it, 93 at the margins, the progress limitation could support an argument that application of uniform rights to particular subject matter or in a particular case would so clearly impede progress that the rights must be tailored to be constitutional. For example, during the late nineteenth and early twentieth centuries, lower courts held that the Aprogress@ limitation required that copyright law be tailored to exclude protection for 89 See Eldred, 537 U.S. at 199 (interpreting Alimited@ to mean Aconfined within certain bounds,@ Arestrained,@ or Acircumscribed@ and holding that Aa timespan appropriately >limited= as applied to future copyrights does not automatically cease to be >limited= when applied to existing copyrights@). 90 See Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 146 (1989) (“Congress may not authorize the issuance of patents whose effects are to remove existent knowledge from the public domain, or to restrict free access to materials already available.”) (quoting Graham v. John Deere Co. of Kansas City, 383 U.S. 1, 6 (1966); Eldred, 537 U.S. at 234 (Stevens, J., dissenting) (same). 91 See Luck’s Music, Inc. v. Gonzales, 407 F.3d 1262, 1266 (D.C. Cir. 2005) (distinguishing Graham); Golan v. Gonzales, 2005 WL 914754 (D. Colo. Apr. 20, 2005) (appeal filed). 92 Whether the current Court reads the preamble to be hortatory or mandatory is subject to doubt. Compare Graham v. John Deere Co. of Kansas City, 383 U.S. 1, 5-6 (1966) (treating preamble as substantive limit on Congress=s power) with Eldred, 537 U.S. at 211-12 (relying on petitioners= concession below that circuit precedent precluded argument that progress was substantive limit while also implicitly treating progress clause as limitation on congressional action subject to rational basis review); see also Figueroa v. United States, ___ Fed. Cl. ___, 2005 WL 1515904 *1, 14 (Fed. Cl. Jun. 28, 2005) (accepting progress limitation on Congress’s power and holding that diversion of fees from PTO to be necessary and proper to promotion of progress). 93 See Eldred, 537 U.S. at 212 (AThe justifications we earlier set out for Congress= enactment of the CTEA . . . provide a rational basis for the conclusion that the CTEA >promote[s] the Progress of Science.=@) (internal citation omitted). Vol. ##] THE PROBLEM OF UNIFORMITY COST 26 immoral subject matter. 94 Similarly, a tailoring measure that kept the subject matter, scope, and duration of intellectual property rights within otherwise constitutional bounds but which had no rational relation to promoting progress also would likely be struck down. 95 Legislative or judicial departures from uniformity could implicate three other constitutional provisions: the First Amendment, 96 the Commerce Clause, 97 and the Takings Clause. 98 The First Amendment=s broad prohibition on content and viewpoint discrimination in expression is more likely to constrain Congress=s ability to differentiate rights under copyright than patent. 99 While the Court has expressly acknowledged that the First Amendment imposes limits on Congress=s power to grant rights under copyright, those limits remain largely undefined because, in the current Court=s view, doctrines internal to copyright law supply sufficient limits for the time being. 100 The First Amendment could require tailoring 94 See Simonton v. Gordon, 12 F.2d 116 (D.C.N.Y. 1925) (holding that public policy required denying copyright protection for Aimmoral, blasphemous, seditious or libelous@ subject matter but that work in suit was not immoral); see also Broder v Zeno Mauvais Music Co., 88 F. 74 (C.C. Cal. 1898) (holding that song ADora Dean@ with lyrics describing woman as Athe hottest thing you=ve ever seen@ not entitled to copyright protection because use of Ahot@ in this context rendered lyrics immoral); Martinetti v Maguire, 16 F. 920, 922 (C.C. Cal. 1867) (concluding that consistent with progress limitation Congress had tailored protection to exclude immoral subject matter by defining protected musical compositions as those Asuited for public presentation@). 95 See Merges & Reynolds, supra note XX, at 53 (arguing that history and context of Clause 8 prohibits extension of intellectual property rights in response to unproductive rent-seeking). 96 U.S. CONST. amend. I. 97 Id. art. I, ' 8, cl. 3. 98 Id. amend V. 99 With respect to patent law, one could imagine the First Amendment furnishing the basis for a successful challenge to a rejection on the grounds of Amoral utility@ assuming that the applicant could find a nexus to protected expression either with respect to the invention itself or, perhaps, an expressive interest in having the government recognize the inventor qua inventor. In addition, software patents are an area in which the First Amendment may play a role. See generally Dan L. Burk, Patenting Speech, 79 TEX. L. REV. 99, 162 (2000) (arguing that First Amendment protections of expressive elements in software patents will pose challenge for patent law and concluding that A[i]n patent law, perhaps new doctrines can be tailored specifically to the problem of patenting speech.@). Patent law may also have to confront other claims of expressive harm as well. See Timothy R. Holbrook, Curing Heterosexuality? Moral Signals and the Potential for Expressive Impacts in Patent Law (working paper). 100 See, e.g., Eldred, 537 U.S. at (AWe recognize that the D.C. Circuit spoke too broadly when it declared copyrights >categorically immune from challenges under the First Amendment.= But when, as in this case, Congress has not altered the traditional contours of copyright protection, further First Amendment scrutiny is unnecessary.@). Nonetheless, Vol. ##] THE PROBLEM OF UNIFORMITY COST 27 of copyright=s exclusive rights to permit unauthorized uses in certain cases or classes of case. 101 Alternatively, the First Amendment also could be used to limit Congress’s power to tailor rights. 102 The Commerce Clause and Takings Clause deserve mention but do not warrant extended discussion for present purposes. Whether the Commerce Clause offers Congress an alternative basis to pass legislation that would violate the constraints imposed by Clause 8, such as protection of unoriginal databases, is a question the Court has touched on, 103 and is one over which lower courts and commentators have engaged in vigorous debate. 104 If the Commerce Clause is available, then the wide discretion the power to enjoin speech through a copyright injunction remains potentially problematic. See SunTrust v. Houghton Mifflin, 252 F.3d 1165 (11th Cir. 2001) (dissolving copyright infringement injunction on First Amendment grounds), vacated and superseded by 268 F.3d 1257 (11th Cir. 2001); Mark A. Lemley & Eugene Volokh, Freedom Of Speech And Injunctions In Intellectual Property Cases, 48 DUKE L.J. 147 (1998) (arguing that infringement injunctions should be subjected to constitutional scrutiny). 101 See, e.g., MELVILLE NIMMER, NIMMER ON COPYRIGHT § 1.10[A] (1981) (suggesting potential First Amendment defense to copyright infringement) as expanded in 1 MELVILLE B. NIMMER & DAVID NIMMER, NIMMER ON COPYRIGHT § 1.10(D) (2002) (extending potential First Amendment defense to instances in which “vital news elements will be lost unless the exact language can be quoted”). 102 Consider, for example, whether Congress constitutionally could withdraw copyright protection from pornographic expression on the theory that the exclusive rights serve as an undesirable public subsidy for this form of expression. See Martinetti, 16 F. at 922 (interpreting grant of copyright protection as form of public subsidy). In recent decades, the lower courts have rejected the contention that an obscenity exception should be read into current copyright law and have suggested that any attempt to so tailor rights under copyright may violate the First Amendment. See generally Mitchell Bros. Film Group v. Cinema Adult Theater, 604 F.2d 852 (5 th Cir. 1979); cf. The Pillsbury Co. v. Milky Way Prods., 1981 WL 1402 *9 n.10 (N.D. Ga. Dec. 24, 1981) (holding no implied obscenity exception to fair use defense). 103 See, e.g., Dastar, 539 U.S. at 23 (suggesting that Congress could not rely on Commerce Clause to impose attribution requirement on public domain information). 104 See United States v. Moghadam, 175 F.3d 1269 (11th Cir. 1999) (suggesting Congress may protect unfixed sound recordings under Commerce Clause). But see Martignon, 346 F. Supp.2d at 425 (“Congress may not, if the Copyright Clause does not allow for such legislation, enact the law under a separate grant of power, even when that separate grant provides proper authority.”); KISS Catalog, 350 F. Supp.2d at 837 (same). Among commentators, compare, e.g., Thomas B. Nachbar, Intellectual Property and Constitutional Norms, 104 COLUM. L. REV. 272 (2004) (arguing that Congress may rely on other Article I enumerated powers to evade constraints imposed by Clause 8) with, e.g., Yochai Benkler, Constitutional Bounds of Database Protection: The Role of Judicial Review in the Creation and Definition of Private Rights in Information, 15 BERKELEY TECH. L.J. 535, 538-39 (2000); Paul J. Heald & Suzanna Sherry, Implied Limits on the Legislative Power: The Intellectual Property Clause as an Absolute Vol. ##] THE PROBLEM OF UNIFORMITY COST 28 granted Congress to regulate interstate commerce would further extend the already broad range of tailoring options available under Clause 8. Conversely, the Takings Clause potentially raises the price of tailored intellectual property legislation. If the federal government, through the legislative or executive branch, violates rights under copyright or patent, it has consented to be sued for damages in the U.S. Court of Federal Claims. 105 Similarly, it seems likely that if the government were to condemn for public use an individual patent or copyright, just compensation would be due under the Takings Clause. 106 A far more contestable issue is whether legislative change to patent or copyright law could ever amount to a regulatory taking. 107 In sum, the Constitution imposes few constraints on policymakers’ discretion to address the problem of uniformity cost in intellectual property law. The constitutional text could support arguments requiring tailoring of intellectual property rights in specific circumstances and prohibiting it in others. The cases likely to generate such arguments will be rare, and as a general matter courts are likely to be unreceptive to constitutional arguments concerning tailored rights under patent or copyright. Consequently, Congress and the courts retain wide discretion in this field. Constraint on Congress, 2000 U. ILL. L. REV. 1119, 1177 & n.409; Robert Patrick Merges & Glenn Harlan Reynolds, The Proper Scope of the Copyright and Patent Power, 37 HARV. J. ON LEGIS. 45, 63-64 (2000); William Patry, The Enumerated Powers Doctrine and Intellectual Property: An Imminent Constitutional Collision, 67 GEO. WASH. L. REV. 359, 361 (1999). 105 See 28 U.S.C. § 1498. With respect to infringement by States, some commentators argue that the Takings Clause should supply a remedy. See, e.g., Mitchell N. Berman et al., State Accountability for Violations of Intellectual Property Rights: How to "Fix" Florida Prepaid (And How Not To), 79 TEX. L. REV. 1037, 1072 (2001) (stating that State infringements of patents, copyrights, and trademarks likely to be compensable takings); Shubha Ghosh, Toward a Theory of Regulatory Takings for Intellectual Property: The Path Left Open After College Savings v. Florida Prepaid, 37 SAN DIEGO L. REV. 637 (2000) (arguing that state infringement of intellectual property might be remedied by takings suits); Paul J. Heald & Michael L. Wells, Remedies for the Misappropriation of Intellectual Property by State and Municipal Governments Before and After Seminole Tribe: The Eleventh Amendment and Other Immunity Doctrines, 55 WASH. & LEE L. REV. 849 (1998). 106 See, e.g., 42 U.S.C. § 2181(a) (2000) (revoking patent grant for any invention useful in connection with atomic weapons and ordering that just compensation be paid to patent owners); cf. Ruckleshaus v. Monsanto Co., 463 U.S. 1315 (1983) (holding that government-mandated disclosure of trade secret a compensable taking). 107 See, e.g., J. Nicholas Bunch, Note, Takings, Judicial Takings, and Patent Law, 83 TEX. L. REV. 1747 (2005). Vol. ##] THE PROBLEM OF UNIFORMITY COST 29 C. Patent Law Rights under U.S. patent law are largely uniform. Some features of the law are designed to reduce the social costs of this uniformity, but the problem of uniformity cost has been exacerbated by recent international commitments that limit policymakers’ flexibility. TRIPS and the Paris Convention generally establish a set of uniform patent rights that member states must grant, but both agreements either tailor the minimum requirements for some subject matter or, more often, grant member states discretion to tailor patent rights. The Patent Act grants largely uniform rights, although Congress has exercised its tailoring discretion in some important instances. 1. Uniform Entitlements Subject Matter. TRIPS demands that non-domestic inventors receive protection for Aany inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application.@ 108 Largely tracking this requirement, the Patent Act grants utility patent protection for any novel, non-obvious, and useful process, machine, manufacture or composition of matter. 109 Though uniform, the legal standards defining subject matter are flexible. Recently, the courts have used this flexibility to extend patent protection to inventors of living organisms, 110 methods of doing business, 111 and software. 112 With respect to the other subject matter requirements, an invention is “useful” if the invention performs as the inventor specifies and if the utility of that performance is specific, substantial and credible. 113 An invention is novel if it is not “known or 108 TRIPS Agreement, supra note XX, art. 27(1). For an argument that U.S. patent law is in tension with these uniformity constraints by tailoring on technology-specific lines, see Burk & Lemley, Technology-Specific, supra note 4, at 1183-85 (describing the different treatment U.S. law gives to different industries). Separately, the inventor has the right to be identified as such in an issued patent. See Paris Convention, supra note XX, art. 4ter. 109 See 35 U.S.C. § 101 (2004). 110 Diamond v. Chakrabarty, 447 U.S. 303 (1980). 111 See State Street Bank & Trust Co. v. Signature Financial Group Inc., 149 F.3d 1368 (Fed. Cir. 1998); AT&T v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999). 112 See id. 113 See Brenner v. Manson, 383 U.S. 519, 534-35 (1966) (stating that an invention is useful if a “specific benefit exists in a currently available form”). But see In re Brana, 51 F.3d 1560, 1568 (Fed. Cir. 1995) (“Usefulness in patent law, and in particular in the context of pharmaceutical inventions, necessarily includes the expectation of further research and development.”). The PTO has refined the Brenner understanding of utility Vol. ##] THE PROBLEM OF UNIFORMITY COST 30 used in this country, or patented or described in a printed publication in this or a foreign country.” 114 Non-obviousness is the subject matter doctrine that does the most work in striking the incentives/access balance in patent law. An invention is unpatentable “if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art [PHOSITA] to which said subject matter pertains.” 115 When assessing non-obviousness, courts must consider context-specific information: (1) the scope and content of the prior art; (2) the differences between the prior art and the claimed invention; (3) the level of ordinary skill in the pertinent art; (4) secondary considerations such as commercial success and long-felt need in the art. 116 Commentators generally agree that the Federal Circuit elevated the stature of these “secondary” considerations, rendering them central to Section 103 analysis. 117 Scope. The scope of patent rights is defined uniformly for most types of invention, but the legal standards defining scope require flexibility in judicial application. TRIPS requires that the owner of a by requiring the applicant to show “well-established utility” for the invention, meaning that “a person of ordinary skill in the art would immediately appreciate why the invention itself is useful” and that such utility is “specific, substantial, and credible.” U.S. Dept. of Commerce, Patent and Trademark Office, Utility Examination Guidelines, 66 Fed. Reg. 1092, 1098 (Jan. 5, 2001); see also Jonathan Kahn, What's The Use? Law and Authority in Patenting Human Genetic Material, 14 Stan. L. & Pol’y Rev. 417, 435-36 (2003) (discussing competing models of utility in comments to PTO). Application of the Utility Guidelines to express sequence tags (ESTs), is at the heart of In re Fisher, No. 04-1465 (Fed. Cir.) (argued May 3, 2005). 114 35 U.S.C. § 102(a). For an argument that the Patent Act imposes two distinct requirements: “newness” under Section 101 and “novelty” under Section 102, see Linda J. Demaine & Aaron Xavier Fellmeth, Reinventing The Double Helix: A Novel and Nonobvious Reconceptualization of the Biotechnology Patent, 55 STAN. L. REV. 303, 386-88 (2002). 115 See 35 U.S.C. § 103(a). 116 Graham v. John Deere Co. of Kansas City, 383 U.S. 1, 17-18 (1966). 117 See, e.g., Robert L. Baechtold, How To Sell Nonobviousness and Obviousness, 258 Practicing Law Inst. 511, 527-40 (1988) (“The other great contribution the Federal Circuit made to the patentee's cause was to elevate the considerations of commercial success, long felt need, failure of others and copying to major players in the determination of obviousness.”); Lunney, Quiet Revolution, supra note XX, at 23-24. Cases reinforcing this view include Robotic Vision Systems, Inc v View Eng'g, Inc, 189 F3d 1370, 1376 (Fed Cir 1999); Modine Mfg Co v Allen Group, Inc, 917 F2d 538, 541 (Fed Cir 1990); Loctite Corp. v Ultraseal, Ltd, 781 F2d 861, 872-73 (Fed Cir 1985); Oscar Mayer Foods Corp. v Con-Agra, Inc, 35 USPQ 2d 1278, (Fed Cir 1994). Vol. ##] THE PROBLEM OF UNIFORMITY COST 31 product patent have the exclusive right Ato prevent third parties not having the owner=s consent from the acts of: making, using, offering for sale, selling, or importing for these purposes that product.@ 118 The owner of a process patent is to have the exclusive right Ato prevent third parties not having the owner=s consent from the act of using the process, and from the acts of: using, offering for sale, selling, or importing for these purposes at least the product obtained directly by that process.@ 119 In the United States, the scope of patent law has been quite uniform from inception. 120 A utility patent gives its owner the rights to exclude others from (1) making, (2) using, (3) offering to sell, (4) selling, or (5) importing the invention in the United States during the term of protection. 121 A few statutory exceptions permit certain classes of users to use certain types of invention without liability, 122 but otherwise patentees all enjoy the same rights of exclusion. The patent entitlement is protected by both a property and a liability rule. Patent owners are eligible to receive preliminary 123 and permanent injunctive relief. 124 Property rule protection is presumptively available except in the rare cases in which the balance of equities favors the defendant. 125 The liability rule that protects the patent entitlement sets a “reasonable royalty” as the floor for damages, 126 but measuring actual damages in litigation has become an increasingly complex and costly undertaking. In general, patent owners seek to be compensated by one of 118 TRIPS Agreement, supra note XX, art. 28(1)(a). 119 Id. art. 28(1)(b). 120 Compare Patent Act of 1790, ch. 7, § 1, 1 Stat. 109 (granting inventor “the sole and exclusive right and liberty of making, constructing, using and vending to others to be used, the said invention or discovery”) with 35 U.S.C. § 271(a) (2004). 121 See 35 U.S.C. ' 271(a). The exclusive right to offer to sell the invention was added in response to the TRIPS Agreement. See Uruguay Round Agreements Act, Pub. L. No. 103-465, § 533(a), 108 Stat. 4809, 4988 (1994) (adding offer-to-sell language to 35 U.S.C. § 271(a), (c), (e), and (g)). 122 See infra notes XX and accompanying text (discussing tailored rights). 123 See Bio-Technology Gen. Corp. v. Genentech, Inc., 80 F.3d 1553, 1558 (Fed. Cir. 1996). 124 See 35 U.S.C. § 283. 125 See, e.g., Lear Siegler, Inc. v. Sealy Mattress Co., 846 F.2d 78 (table), 1988 WL 24933, *2 (Fed. Cir. 1988); Trans-World Mfg. Corp. v. Al Nyman & Sons, Inc., 750 F.2d 1552, 1565 (Fed. Cir. 1984) (damages in form of license fee adequate). 126 See 35 U.S.C. § 284 (2004); Rite-Hite Corp. v. Kelley Co., Inc., 56 F.3d 1538, 1544 (Fed. Cir. 1995) (en banc); TWM Mfg. Co., Inc. v. Dura Corp., 789 F.2d 895, 899-900 (Fed. Cir. 1986) (using “Georgia-Pacific” 15-factor analysis derived from Georgia- Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y.1970), modified and aff'd, 446 F.2d 295 (2d Cir. 1971). Vol. ##] THE PROBLEM OF UNIFORMITY COST 32 three measures: (1) lost profits; (2) reasonable royalty; or (3) a combination of (1) and (2). 127 Duration. As a formal matter, the duration of patent rights is quite rigid. TRIPS requires that patent rights endure for twenty years from the date the patent application was filed. 128 The Patent Act implements this requirement, adding a condition that the patent owner pay maintenance fees at three intervals. 129 The term can be adjusted if certain kinds of delay in processing a patent application occur. 130 2. Tailored Entitlements Subject Matter. The international obligations of the United Sates permit States to tailor the subject matter if granting protection would violate public morality, pose a health threat or threaten the environment. 131 More specifically, the United States may deny patent protection in the health and biomedical science industries for therapeutic, diagnostic or surgical processes and for plants, animals, microorganisms and biological processes for producing plants, animals, and microorganisms. 132 Finally, one WTO panel has declared that “[A]rticle 27 does not prohibit bona fide exemptions to deal with problems that may exist only in certain product areas.” 133 Plant varieties (i.e. sexually-reproducing plants) are to be protected by the uniform rights under patent, by sui generis rights or by any combination thereof. 134 Similarly integrated circuit designs are subject to sui generis protection. 135 In addition to the power to tailor de 127 See George F. Pappas, Damages and Remedies for Patent Infringement, SJ018 ALI- ABA 67, 69 (2003). 128 See TRIPS Agreement, supra note XX, art. 33. 129 See 35 U.S.C. ' 154(a)(2). Utility patents that issue from applications filed on and after December 12, 1980 are subject to the payment of maintenance fees necessary to maintain the patent in force. Fees are due 3 2, 7 2 and 11 2 years from the date the patent is granted. See 35 U.S.C. 41(b) (2004). A 6-month grace period is provided during which the maintenance fee may be paid with a surcharge. See 37 C.F.R. 1.362(e) (2004). Failure to pay the current maintenance fee on time may result in expiration of the patent. 130 See 35 U.S.C. § 154(b). 131 See TRIPS Agreement, supra note XX, art. 27(2). 132 See TRIPS Agreement, supra note XX, art. 27.3(a),(b). Although this provision permits tailoring of subject matter, Congress chose to reach a similar result by tailoring scope. See infra notes XX and accompanying text; see also Duffy, Harmony and Diversity, supra note XX, at 722-23 (arguing that TRIPS Agreement, supra note XX, Article 27.3 should be interpreted to permit tailoring of scope in lieu of subject matter). 133 See Canada-Patent Protection of Pharmaceutical Products, WT/DS114/R ? 7.92 (WTO Dispute Settlement Panel 2000). 134 See id. art. 27.3(b). 135 See generally TRIPS Agreement, supra note XX, ' 6 (requiring establishment of Vol. ##] THE PROBLEM OF UNIFORMITY COST 33 jure, member States may retain even broader tailoring discretion by fashioning formally uniform requirements that function as de facto tailoring provisions. 136 Congress has tailored patentable subject matter in a few instances. If an invention is classified as a “design,” 137 “plant,” 138 or “plant variety,” 139 differential rights are available. In addition, Congress has ordered that no patents be granted for “any invention or discovery which is useful solely in the utilization of special nuclear material or atomic energy in an atomic weapon.” 140 With respect to biotechnology, Congress adopted a measure to expand the patentability of certain biotechnological processes, 141 but subsequent judicial interpretation has rendered this tailored provision largely irrelevant by extending this protection to all utility patents. 142 minimum rights applicable to layout designs (topographies) of integrated circuits). 136 In the Canada-Patent Protection decision, supra note XX, the panel accepted in principle the argument that Article 27 could be violated by a facially neutral patent law that had a disparate impact on a discrete subset of patents, but to succeed on such a showing, the complainant may also have to produce evidence of intentional tailoring. See, e.g., Graeme B. Dinwoodie & Rochelle Cooper Dreyfuss, WTO Dispute Resolution And The Preservation Of The Public Domain Of Science Under International Law, in INTERNATIONAL PUBLIC, GOODS AND TRANSFER OF TECHNOLOGY UNDER A GLOBALIZED INTELLECTUAL PROPERTY REGIME 861, 865-68 (Keith E. Maskus and Jerome H. Reichman, eds., 2005) (describing uncertainty concerning legal standard for de facto discrimination under TRIPS Agreement Article 27). 137 See Design Patent Act of 1842, 35 U.S.C. §§ 171-173 (2004). 138 See Plant Patent Act of 1930, 35 U.S.C. '' 161-164 (2000 & Supp. V). 139 See, e.g., Plant Variety Protection Act of 1970, 7 U.S.C. ' 2321 et seq.; Asgrow Seed Co. v. Winterboer, 513 U.S. 179 (1995) (rejecting Federal Circuit=s Acrop-by-crop@ reading of the PVPA). TRIPS Agreement, supra note XX, Article 27.3 permits adherents to adopt sui generis protection for plant varieties. As is discussed infra, the distinct statutory treatment for plant varieties has become economically less meaningful in the wake of a judicial interpretation making utility patents also available to inventors of plant varieties. See infra notes XX and accompanying text; see also Mark D. Janis & Jay P. Kesan, U.S. Plant Variety Protection: Sound and Fury . . . ?, 39 Hous. L. Rev. 727 (2002) (describing history of plant variety protection). 140 See 42 U.S.C. § 2181(a). 141 See 35 U.S.C. § 103(b). This provision was enacted in response to In re Durden, 763 F.2d 1406 (Fed. Cir. 1985) (holding obvious a process claim involving novel and non- obvious starting products and novel and non-obvious end products). Section 103(b) states that “a biotechnological process using or resulting in a composition of matter that is [novel and nonobvious] shall be considered nonobvious if [claimed properly] and the composition of matter, and the process at the time it was invented, were owned by the same person or subject to an obligation of assignment to the same person.” 142 See In re Ochiai, 71 F.3d 1565 (Fed. Cir. 1995) (reinterpreting application of Section 103(a)’s “subject matter as a whole” condition to render otherwise obvious processes non-obvious if starting materials or end products are novel and non-obvious). Vol. ##] THE PROBLEM OF UNIFORMITY COST 34 A more uncertain issue is whether formally uniform provisions have been judicially or administratively tailored in application. In terms of categorical exclusions from patentable subject matter, the interpretive bars to the patentability of software, living organisms and business methods have been removed. 143 Potentially, the only remaining categorical judicial or administrative tailoring of subject matter may involve cloned human beings. 144 Commentators dispute whether judicial and administrative application of the flexible subject matter doctrines discussed in Section III.B., infra, amount to tailoring. Professors Burk and Lemley assert that the Federal Circuit has applied the PHOSITA-based eligibility doctrines in technology-specific fashion to software and biotechnology inventions. 145 They argue that the Federal Circuit has not explicitly chosen to tailor patent law in this way, but that it should. 146 Others resist the call for judicial tailoring. 147 The PTO also arguably applies the Patent Act in 143 See supra notes XX and accompanying text. 144 See ROBERT PATRICK MERGES & JOHN FITZGERALD DUFFY, PATENT LAW AND POLICY: CASES AND MATERIALS 165 (2002) (recognizing that industry- or field-specific subject matter inquiry may encourage careful inquiry into economic effects of patents but that “the courts have not taken a field-based approach to defining the limits of patentability.”). With respect to human cloning, recent congressional attempts to tailor subject matter to deny patentability to cloned human beings have failed. See BNA, Senate Refuses to Attach Ban on Clone Patents to Terrorism Bill, 64 PAT. TRADEMARK & COPYRIGHT J. 174 (2002) (describing defeat of Brownback amendment). However, Congress has used the appropriations process to limit issuance of such patents. See The Consolidated Appropriations Bill of 2004, Pub. L. No. 108- 199, 118 Stat. 3 (directing that no appropriated funds be used to issue patents directed to or encompassing human organisms). Professor Margo Bagley, in arguing for law reform, is pessimistic about the possibility of judicial or administrative tailoring in the human cloning context. See Margo A. Bagley, Stem Cells, Cloning And Patents: What's Morality Got To Do With It?, 39 NEW ENG. L. REV. 501, 507 (2005); Margo A. Bagley, Patent First, Ask Questions Later: Morality And Biotechnology In Patent Law, 45 WM. & MARY L. REV. 469, 546-47 (2003). 145 See Burk & Lemley, Technology-Specific?, supra note XX, at 1196-1202; Burk & Lemley, Policy Levers, supra note XX, at 1593; Burk & Lemley, Biotechnology’s Uncertainty Principle, 54 CASE W. RES. L. REV. 691 (2004)) 146 See Burk & Lemley, Technology-Specific?, supra note XX, at 1194-95 (rejecting tailoring thesis as explanation for technology-specific case law); Burk & Lemley, Policy Levers, supra note XX, at 1675-95 (proposing judicial tailoring for biotechnology, chemical-pharmaceutical, software, and semiconductor inventions). 147 See R. Polk Wagner, (Mostly) Against Exceptionalism, in PERSPECTIVES ON PROPERTIES OF THE HUMAN GENOME PROJECT 367 (F. Scott Kieff ed., 2003); R. Polk Wagner, Comment: Exactly Backwards: Exceptionalism and the Federal Circuit, 54 CASE W. L. REV. 749, 755-56 (2004). Vol. ##] THE PROBLEM OF UNIFORMITY COST 35 tailored fashion. For example, evidence shows that potential patentees in certain industries encounter more demanding prosecution than others, and that this is a relatively recent development. 148 Scope. Under TRIPS, the United States may tailor the scope of rights by Aprovid[ing] limited exceptions to the exclusive rights conferred by a patent, provided that such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties.@ 149 The Paris Convention specifies that compulsory licensing is a permitted form of tailoring scope under certain conditions. 150 Finally TRIPS establishes a set of minimum conditions that apply to measures that tailor scope by permitting certain uses without the patent owner=s authorization. 151 Congress has tailored patent law’s rights to exclude others from making, selling, offering to sell, using, and importing an invention in response to specific developments in certain industries. The provision with the greatest economic significance probably is the Hatch-Waxman Act’s immunity for a generic drug manufacturer’s use of a patented invention to pursue regulatory approval for a drug to compete with a patented drug six months prior to the patent’s expiration. 152 Also significant is the Bayh- Dole Act, which permits federal grantees to pursue patent protection for inventions created with the support of federal funds but limits scope by providing the government with “march-in” rights. 153 This tailoring measure is specifically aimed at reducing uniformity cost. Federal grantees face differential appropriability problem because the government has supplied both direct financial support and exclusive rights to induce the investment. With respect to process patents, Congress has created defenses that limit scope for medical method claims and business method claims in response to perceived uniformity costs. 154 148 See Burk & Lemley, Policy Levers, supra note XX, at 1589-90 (collecting sources). 149 TRIPS Agreement, supra note XX, art. 30. For interpretation of this provision, see Canada Pharmaceuticals and In re Section 110(5), discussed infra nn. XX and accompanying text; see also Dinwoodie & Dreyfuss, supra note XX, at 868-75 (outlining interpretive approach to Article 30). 150 See Paris Convention, supra note XX, art. 5(2) (AEach country of the Union shall have the right to take legislative measures providing for the grant of compulsory licenses to prevent the abuses which might result from the exercise of the exclusive rights conferred by the patent, for example, failure to work.@); see also id. art. 5(4) (placing further limits on compulsory licensing). 151 See TRIPS Agreement, supra note XX, art. 31. 152 See 35 U.S.C. § 271(e). 153 See 35 U.S.C. §§ 200-212. 154 See id. § 287(c) (medical methods); id. § 273 (prior inventor defense). Vol. ##] THE PROBLEM OF UNIFORMITY COST 36 Duration. TRIPS does not permit reducing patent duration below the 20-year term. Congress has tailored patent duration by extending the 20-year term only for inventions subject to regulatory approval prior to commercialization. This tailoring measure arguably has as its goal to promote uniformity because its goal is to compensate for regulatory delay, providing pharmaceutical patent owners with roughly the same duration of effective protection as other patent owners enjoy. 155 D. Copyright The United States= treaty obligations impose a baseline of uniform rights under copyright that are supplemented by some required tailored protections and the option to further tailor rights in a number of respects. 1. Uniform Entitlements Subject Matter. TRIPS and Berne require that copyright protection extend to Aevery production in the literary, scientific and artistic domain, whatever may be the mode or form of its expression,@ 156 excluding ideas, procedures, methods of operation or mathematical concepts. 157 Unlike patent law, copyright law’s subject matter was legislatively tailored until the beginning of the twentieth century. In the Copyright Act of 1976, as amended, Congress departed from the tailored approach to subject matter, broadly granting copyright to any original work of authorship fixed in any tangible medium of expression. 158 The threshold for originality is set as low as the Constitution allows. A work is “original” if it was created by the author rather than copied from another source and if the work reflects a modicum of creativity. 159 Courts have found such originality in a commercial photograph of a vodka bottle, 160 in blank forms, 161 county tax maps, 162 and 155 See 35 U.S.C. §§ 155-156; Lunney, Quiet Revolution, supra note XX, at 47. 156 TRIPS Agreement, supra note XX, art. 9(1) (incorporating by reference Berne Convention, supra note XX, art. 2(1)). 157 See TRIPS Agreement, supra note XX, art. 9(2); see also WIPO Copyright Treaty art. 2 (same). 158 See 17 U.S.C. ' 102(a). 159 See Feist Pub., Inc. v. Rural Tel. Svc. Co., 499 U.S. 340, 361-363 (1991); see also generally David Nimmer, Copyright in the Dead Sea Scrolls: Authorship and Originality, 38 Hous. L. Rev. 1 (2001) (exploring application of originality standard to series of hypothetical cases). 160 Ets-Hokin v. Skyy Spirits, Inc., 225 F.3d 1068 (9th Cir. 2000). 161 Bucklew v. Hawkins, Ash, Baptie & Co., 329 F.3d 923 (7th Cir. 2003). Vol. ##] THE PROBLEM OF UNIFORMITY COST 37 have suggested that a seven-note measure in a musical composition is potentially original. 163 A work meets the fixation requirement “when its embodiment in a copy or phonorecord, by or under the authority of the author, is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration.” 164 Scope. The United States’ international obligations are scattered among different agreements. Broadly speaking, the scope of uniform rights includes the exclusive rights to reproduce 165 and adapt 166 a protected work. In addition, authors of most classes of work for which it would matter have the exclusive right to publicly perform, communicate or recite a protected work. 167 The scope of rights is circumscribed by a user’s privilege to quote the copyrighted work. 168 The WIPO treaties add an exclusive distribution right, 169 and require the creation of Aparacopyright@ protections for digital rights management technologies. 170 Finally, Berne requires member states to enforce moral rights, 171 but TRIPS does not incorporate this provision. 172 162 County of Suffolk, New York v. First American Real Estate Solutions, 261 F.3d 179 (2d Cir. 2001). 163 See Swirsky v. Carey 371 F.3d 841 (9th Cir. 2004). 164 17 U.S.C. § 101. 165 See TRIPS Agreement, supra note XX, art. 9(1) (incorporating by reference Berne Convention, supra note XX, art. 9(1)). 166 See TRIPS Agreement, supra note XX, art. 9(1) (incorporating by reference Berne Convention, supra note XX, art. 8 (translation), art. 12 (general adaptation), art. 14(1) (cinematographic adaptation)). 167 See TRIPS Agreement, supra note XX, art. 9(1) (incorporating by reference Berne Convention, supra note XX, art.11(1) (performance of dramatic, dramatico-musical, and musical works), art. 11bis (broadcast or Acommunication by wire@ of artistic or literary works), art. 11ter (public recitation and communication of public recitation of literary work), art. 14 (communication by wire of cintematographic works)); see also WIPO Copyright Treaty art. 8 (establishing more general communication right for literary and artistic works); WIPO Performances and Phonograms Treaty art. 14 (creating a Amaking available@ right for owners of phonograms). Member States also have the option to add resale rights (a.k.a. droit de suite) in original works of art and original manuscripts. See TRIPS Agreement, supra note XX, art. 9(1) (incorporating by reference Berne Convention, supra note XX, art. 14ter). 168 See TRIPS Agreement, supra note XX, art. 9(1) (incorporating by reference Berne Convention, supra note XX, art. 10(1)). 169 See WIPO Copyright Treaty art. 6(1); WPPT, supra note XX, art. 12. 170 See WCT, supra note XX, arts. 11-12; WPPT, supra note XX, arts. 18-19. 171 See Berne Convention, supra note XX, art. 6bis. 172 See TRIPS Agreement, supra note XX, art. 9(1) (expressly excluding Berne Convention, supra note XX, art. 6bis from incorporation). Vol. ##] THE PROBLEM OF UNIFORMITY COST 38 The Copyright Act broadly grants the owner the exclusive rights to authorize or to (1) reproduce in copies, (2) adapt, and (3) distribute copies of the work. 173 These rights extend to literal copies of the work and to non-literal copies that are substantially similar to the rightholder=s work. 174 The right to prepare derivative works also grants the owner the power to appropriate without liability any unauthorized improvements that are derived from or substantially similar to the copyrighted work. 175 In the basic entitlement, Congress has tailored scope by extending to owners of only certain classes of works the exclusive rights to (4) publicly perform, 176 or (5) publicly display 177 the copyrighted work. Collectively, the exclusive rights under copyright for all classes of subject matter are limited by a series of provisions, most notably fair use 178 and first sale. 179 The copyright entitlement is protected by a property rule and by two liability rules. A copyright owner is entitled to temporary and permanent injunctive relief “on such terms as [a court] may deem reasonable to prevent or restrain infringement of a copyright.” 180 Liability rule protection comes in two forms. The copyright owner can receive compensation in the form of actual damages. 181 These include the portion of the infringer’s profits attributable to infringement and not otherwise captured in the calculation of damages. 182 In lieu of actual damages, the copyright owner can elect to receive statutory damages in the range of $750 to $30,000 for each work infringed, with possible trebling for willful infringement. 183 173 See id. ' 106. 174 See generally, e.g., Laureyssens v. Idea Group, Inc., 964 F.2d 131 (1992). 175 See Anderson v. Stallone, 1989 WL 206431, 11 U.S.P.Q.2d 1161 (C.D.Cal. 1989); Mark A. Lemley, Economics of Improvement in Intellectual Property Law, 75 Tex. L. Rev. 989 (1997). 176 The general public performance right applies to “literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works.” 17 U.S.C. § 106(4). Sound recordings receive a more limited exclusive right of public performance by digital audio transmission. See id. § 106(6). 177 The public display right applies to “literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work.” Id. § 106(5). 178 See 17 U.S.C. ' 107. 179 See id. ' 109. 180 17 U.S.C. ' 502(a). 181 See id. ' 504(b). 182 Id. 183 See 17 U.S.C. ' 504(c). Vol. ##] THE PROBLEM OF UNIFORMITY COST 39 Duration. The duration of protection under Berne and TRIPS must be at least the life of the author plus fifty years. 184 Under the Copyright Act, the term of copyright depends upon its date of creation. Until 1976, copyright law divided duration into two terms. Works created on or after January 1, 1978 are subject to a unitary term. Until 1998, that term coincided with the life-plus-fifty term required by the Berne Convention. Now, authors receive copyright protection from the moment a work of authorship is created until seventy years after the author=s death. 185 If a work is anonymous, pseudonymous or is a work-made-for-hire protection lasts for 95 years from the date of publication or 120 years from the date of creation. 186 2. Tailored Entitlements Subject Matter. In a few instances, the copyright-specific multilateral agreements tailor baseline rights by, for example, requiring that only certain types of work enjoy a rental right. 187 More commonly, the broad statements of uniform rights in the copyright-related multilateral agreements are subject to a number of limitations and exceptions that leave member states with a substantial range of tailoring discretion. With respect to subject matter, the United States is free to include or exclude works that have not been fixed in a material form, official texts of a legislative, administrative, and legal nature, works of applied art and industrial design, 188 and political and certain other public speeches. 189 Significantly, however, the tailoring possibilities for one likely candidate – computer programs – are limited because software is to be considered a 184 See TRIPS Agreement, supra note XX, art. 12; Berne Convention, supra note XX, art. 7(1). 185 See 17 U.S.C. ' 302(a). Until passage of the Copyright Act of 1976, the term of copyright was divided into an initial and a renewal term. See, e.g., Tyler Ochoa, Patent and Copyright Term Extension and the Constitution: A Historical Perspective, 49 J. COPYRIGHT SOC’Y OF THE U.S.A 19 (2001). 186 See id. ' 302(c). 187 See TRIPS Agreement, supra note XX, art. 11 (requiring that owner of copyright in computer programs and cinematographic works be granted right to control public rentals, with qualification for cinematographic works); WCT, supra note XX, art. 7 (requiring rental right for computer programs, cinematographic works, and works embodied in phonograms, as determined in the national law of Contracting Parties); WPPT, supra note XX, art. 13 (requiring rental right in phonograms, subject to grandfather provision). 188 See TRIPS Agreement, supra note XX, art. 9(1) (incorporating by reference Berne Convention, supra note XX, art. 2(2),(4),(7)). 189 See TRIPS Agreement, supra note XX, art. 9(1) (incorporating by reference Berne Convention, supra note XX, art. 2bis). Vol. ##] THE PROBLEM OF UNIFORMITY COST 40 literary work and is subject to the uniform rights applicable to such works. 190 The current Act tailors copyrightable subject matter in some respects, and it is important to see that this is part of a long tradition in copyright law. The following table charts the tailored expansions (and contractions) in copyrightable subject matter: Table 2 Year Subject Matter 1790 Maps, Charts, and Books 191 1802 Expansion: Historical and Other Prints 192 1831 Expansion: Musical Compositions (printing and vending only) and expanding protection to all types of Cuts and Engravings 193 1834 Contraction: Judicial Opinions and Government Edicts excluded 194 1865 Expansion: Photographs 195 1870 Expansion: Paintings, Drawings, Chromolithographs, Statues and Statuaries, and Models or Designs “intended to be perfected as works of fine art.” 196 1874 Contraction: Protection for any “Engraving”, “Cut”, and “Print” to be construed to apply “only to pictorial illustrations or works connected with the fine arts” 197 1895 Contraction: “No Government publications shall be copyrighted.” 198 190 See TRIPS Agreement, supra note XX, art 10(1); WIPO Copyright Treaty art. 4. 191 Act of May 21, 1790, 1st Cong., 2d Sess., 1 Stat. 124. 192 Act of April 29, 1802, 7th Cong., 1st Sess., 2 Stat. 171. 193 Act of February 3, 1831, 21st Cong., 2d Sess., 4 Stat. 436; see also Michael W. Carroll, The Origins of Music Copyright in the United States (draft) (on file with author). 194 See Wheaton v. Peters, 33 U.S. (8 Pet.) 591 (1834). 195 Act of March 3, 1865, 38th Cong., 2d Sess., 16 Stat. 198; see also Christine Haight Farley, The Lingering Effects of Copyright's Response to the Invention Of Photography, 65 U. Pitt. L. Rev. 385 (2004) (discussing 1865 amendment). 196 Act of July 8, 1870, §§85-111, 41st Cong., 2d Sess., 16 Stat. 198, 212-16. 197 Act of June 18, 1874, 43d Cong., 1st Sess., 18 Stat. 78; see infra n. XX (discussing Justice Holmes’ hostility to the “fine arts” limitation); see also Fargo Mercantile Co. v. Brechet & Richter, 295 F. 823 (8th Cir. 1924) (discussing 1874 Act and applying copyright law in exactly the opposite manner in which it would apply today by declaring that fanciful emblem on label was not copyrightable but that recipe printed on label was). 198 Printing Law of 1895, Act of January 12, 1895, 53d Cong., 3d Sess., 28 Stat. 608. This was not an amendment to the Copyright Act but a regulation of the Government Printing Office. See Patry, supra note XX, at 50. Currently, works created by federal government Vol. ##] THE PROBLEM OF UNIFORMITY COST 41 1909 Expansion: Compilations, Periodicals, Lectures, Sermons, and Addresses prepared for oral delivery; broadening “works of fine art” to “works of art,” and adding protection for “all the writings of an author.” 199 1912 Expansion: Motion Pictures 200 1938 Expansion: Stamps printed by U.S. Government 201 1968 Expansion: Federally-financed Standard Reference Data 202 1972 Expansion: Sound recordings 203 Despite the sweeping language of the 1976 Act, Congress has continued to tailor subject matter. In the 1976 Act, Congress had called for advice on whether computer programs should be deemed copyrightable. A divided National Commission on New Technology Uses (CONTU) recommended protecting computer source code as literary works, 204 and in 1980 Congress followed the recommendation. 205 In 1990, Congress extended protection to the design of architectural works to comply with the Berne Convention. 206 Scope. The United States retains broader discretion to tailor the scope of protection either through general free use principles or on a employees within the scope of employment are not copyrightable. 17 U.S.C. § 105. 199 See Act of March 4, 1909, Pub. L. No. 60-349, 60th Cong., 2d Sess., 35 Stat. 1075. 200 Act of August 24, 1912, Pub. L. No. 62-303, 62d Cong., 2d Sess., 37 Stat. 488. 201 See Act of January 27, 1938, Pub. L. No. 75-421, 75th Cong., 3d Sess., 52 Stat. 6; H.R. Rep. No. 1633, 75th Cong., 1st Sess. (1937); S. Rep. No. 1159, 75th Cong., 1st Sess. (1937). This provision was later codified in Section 8 of title 17 by the Act of July 30, 1947, Pub. L. No. 80-281, 80th Cong., 1st Sess., 61 Stat. 652. See also Act of September 7, 1962, Pub. L. No. 87-646, 87th Cong., 76 Stat. 442. 202 Congress authorized the Secretary of Commerce to “secure copyright and renewal thereof on behalf of the United States as author or proprietor in all or any part of any standard reference data which he prepares or makes available under this Act, and may authorize the reproduction and publication thereof by others.” Act of July 11, 1968, Pub. L. No. 90-366, 90th Cong., 2d Sess., 82 Stat. 339. See Standard Reference Data Act: Hearings on S. 998 Before the Committee on Commerce, United States Senate, 90th Cong., 1st Sess. (1967). But see Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340 (1991). 203 Act of October 15, 1971, Pub. L. No. 92-140, 92d Cong., 1st Sess., 85 Stat. 391. 204 See Final Report of the National Commission of New Technological Uses of Copyrighted Works (1978) available at http://digital-law- online.info/CONTU/contu2.html 205 Act of December 12, 1980, Pub. L. No. 96-517, §10(b), 96th Cong., 1st Sess., 94 Stat. 3028. 206 Act of December 1, 1990, Pub. L. No. 101-650 (tit. VII), 101st Cong., 2d Sess., 104 Stat. 5089, 5133. Vol. ##] THE PROBLEM OF UNIFORMITY COST 42 subject-matter-specific basis. 207 TRIPS layers a cautionary provision over the tailoring discretion granted by Berne, admonishing that AMembers shall confine limitations or exceptions to exclusive rights to certain special cases which do not conflict with a normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the right holder.@ 208 Congress has tailored the scope of protection, primarily by creating statutory licenses for certain uses of certain classes of works. 209 Examples of these provisions include one that tailors rights in musical works to permit garage bands and other musicians the right to record cover versions of their favorite songs without the songwriter’s permission 210 and others tailoring performance rights to permit cable and satellite companies to retransmit network television programming without prior consent of the copyright owners. 211 In addition, for certain authors, such as recognized visual artists, Congress has granted additional rights, 212 while for other classes of author, such as architects 213 and authors of sound recordings, 214 Congress has limited the exclusive rights available. Similarly, Congress has limited the scope of rights in functional pictorial, graphical, or sculptural works. 215 Congress also has tailored copyright scope by identifying certain privileged users, primarily librarians and educators, who enjoy certain additional limits on liability or available remedies. 216 Recently, some commentators have remarked upon how underanalyzed these features of copyright law have been. 217 207 See, e.g., TRIPS Agreement, supra note XX, art. 9(1) (incorporating by reference Berne Convention, supra note XX, art. 10(2) (permitting tailoring for educational use), art. 10bis (permitting tailoring for use of news sources and for incorporation of copyrighted works in news and current events communication), art. 11bis (permitting limited tailoring regarding broadcasting rights), art. 13(1) (permitting tailoring of scope in musical works by statutory license), art. 208 TRIPS Agreement, supra note XX, art. 13; see also WIPO Copyright Treaty art. 10 (imposing same limitation on tailoring discretion). 209 See, e.g., 17 U.S.C. §§ 111 (cable retransmission license), 114 (sound recording license), 115 (musical composition license), 119 (satellite retransmission license). 210 See id. § 115. 211 See id. §§ 111, 119. 212 See id. § 106A. 213 See id. § 1 214 See id. § 106(6) (limiting public performance right to performances by “digital audio transmission”). 215 See 17 U.S.C. § 113. 216 See, e.g., id. ' 110 (privileging certain users of copyrighted works); id. ' 504(c)(2) (providing for remission of statutory damages for certain classes of users acting with a good faith belief of fair use). 217 See, e.g. Tim Wu, Copyright’s Communications Policy, 103 MICH. L. REV. 275 (2005); Joseph Liu, Regulatory Copyright, 83 N.C. L. REV. 87 (2004). Vol. ##] THE PROBLEM OF UNIFORMITY COST 43 Congress also has tailored scope through the Copyright Act’s remedial provisions. Internet service providers are immune from monetary liability for four types of activities if an elaborate set of conditions is met. 218 Librarians, archives, and public broadcasters are immunized from statutory damages if, under certain circumstances, their respective employees infringe with a good faith belief that they are engaged in fair use. 219 In the only case brought to date to enforce treaty limits on tailoring, the United States has been adjudged by a WTO dispute settlement panel to have violated TRIPS by having tailored the public performance rights of copyright owners of non-dramatic musical works. 220 Under the challenged provision, the so-called Ahomestyle exemption,@ Congress tailored the scope of the public performance right with respect to non-dramatic musical works by making certain public performances of such music in bars, restaurants and retail stores non-infringing so long as the establishment meets certain limitations on square footage and the type of audio equipment used to play the music. 221 Prompted by complaints from Ireland=s performing rights organization, which collects license fees from such retail establishments, the European Communities brought the case arguing that the homestyle exception in U.S. law violates the requirements in TRIPS for broadcasting and rebroadcasting rights for copyright owners of musical works and that, to the extent that TRIPS=s incorporation of Berne permitted some tailoring, the United States had exceeded the permissible bounds on tailoring as reinforced by TRIPS Article 13. The panel concluded that the traditional homestyle exemption was permissible but that the 1998 expansion of the exemption violated TRIPS. 222 The remedy for a TRIPS violation is trade sanctions imposed by the plaintiff nations. The parties settled the dispute when the United States paid $3.3 million to set up a fund to pay European 218 See 17 U.S.C. § 512 (2004); Alfred Yen, Internet Service Provider Liability for Subscriber Copyright Infringement, Enterprise Liability, and the First Amendment, 88 Geo. L.J. 1833 (2000) (analyzing Section 512’s conditions on immunity); Michael W. Carroll, Disruptive Technology and Common Law Lawmaking: A Brief Analysis of A&M Records, Inc. v. Napster, Inc., 9 VILL. SPORTS & ENTER. L.J. 5, 29-32 (2002) (discussing Section 512). 219 See 17 U.S.C. § 504(c)(2). 220 See Report of the Panel, United States - Section 110(5) of the US Copyright Act, WTO Doc. No. WT/DS160/R (Jun. 15, 2000) available at http://docsonline.wto.org/DDFDocuments/t/WT/DS/160R-00.doc (visited Feb. 1, 2005). 221 See 17 U.S.C. ' 110(5). The action prompting the case was the expansion of the homestyle exemption in the Fairness in Music Licensing Act of 1998, Pub. L. No. 105- 298, 105th Cong. (Oct. 27, 1998) (effective date Jan. 26, 1999). 222 See Report of the Panel, supra note XX, at 69. Vol. ##] THE PROBLEM OF UNIFORMITY COST 44 performers. 223 Congress has not amended the Copyright Act in response to the WTO decision, demonstrating that U.S. treaty obligations do not foreclose Congress=s power to tailor intellectual property rights but they do affect the potential costs of such measures. Duration. Under international law, some States have limited discretion to tailor the term of protection for cinematographic, works of applied art, and sound recordings, but the United States has forfeited this discretion. 224 Under the Copyright Act, duration has not been legislatively tailored, and is not subject to judicial tailoring. 225 E. Sui Generis Rights In rare circumstances, Congress has tailored the law to create sui generis intellectual property rights for specific forms of information. The two most noticeable provisions are those governing semi-conductor chip masks 226 and Aoriginal designs,@ defined for the time being as vessel hull designs. 227 Rather than bringing these two forms of innovation into patent or copyright, Congress chose to give patent-like protection but reduce duration and scope of rights to provide narrower coverage. Significantly, proposed database legislation in the United States would create a sui generis rights in non-copyrightable compilations of information, 228 an approach already adopted in the European Union. 223 See H.R. 1559 (2003), 23 WASH. TARIFF & TRADE NEWSLETTER (Apr. 21, 2003). 224 See TRIPS Agreement, supra note XX, art. 9(1) (incorporating by reference Berne Convention, supra note XX, art.7(2), (4),(7)). Under the TRIPS Agreement=s incorporation of Berne Convention Article 7(4), member states can tailor the duration of protection for photographic works. However, members of the WIPO Copyright Treaty have forfeited that tailoring discretion. See WCT, supra note XX, art. 9 (contracting parties agree not to apply Berne Convention, supra note XX, art. 7(4)). Under the WPPT, supra note XX, art. 17 the term of protection for performances and phonograms is 50 years from the date of fixation in a phonogram. 225 Duration in copyright law has been indirectly tailored through the work-specific categories that limit application of the work-made-for-hire doctrine in the case of independent contractors. See 17 U.S.C. ' 101(2). The duration of works made for hire differs from duration of copyright in works by individual authors. See supra nn. 186-87. 226 See 17 U.S.C. '' 901-14; see also Robert W. Kastenmeier & Michael J. Remington, The Semiconductor Chip Act of 1984: A Swamp or Firm Ground?, 70 MINN. L. REV. 417 (1985) (describing rationale for sui generis approach and legislative process from participants’ perspective). 227 See 17 U.S.C. '' 1301-32; U.S. COPYRIGHT OFFICE & U.S. PATENT AND TRADEMARK OFFICE, THE VESSEL HULL DESIGN PROTECTION ACT: OVERVIEW AND ANALYSIS (Nov. 2003). 228 See The Database and Collections of Information Misappropriation Act, H.R. 3261, 108 th Cong. (introduced, Oct. 8, 2003, amended and passed, House Judiciary Comm. Jan. Vol. ##] THE PROBLEM OF UNIFORMITY COST 45 F. Summary Patent and copyright law grant largely uniform exclusive rights to inventors and authors, respectively, subject to a number of tailored provisions. The constitution leaves policymakers free to address the problem of uniformity cost in a variety of ways, but recent international obligations hem in this discretion considerably. Nonetheless, the formally uniform subject matter and scope provisions of both patent and copyright require judicial flexibility in application which can be used to reduce uniformity cost. IV. OPTIONS AND STANDARDS AS TOOLS TO REDUCE UNIFORMITY COSTS The analysis in Section II, supra, shows that uniformity cost is the central problem in intellectual property policymaking and that perfect tailoring of entitlements in patent and copyright law would be theoretically optimal. Section III, supra, shows that although patent and copyright law have been tailored in a number of instances, current law imposes constraints on the use of explicit tailoring to address uniformity costs. Consequently, while it is important to analyze how and when tailoring can feasibly be used to reduce uniformity costs, it is equally important to understand how formally uniform rights can be, and have been, designed to reduce uniformity costs through use of real options and flexible subject matter and scope doctrines. A. Real Options The default rules for obtaining, enforcing and maintaining intellectual property rights can, and sometimes do, require affirmative, costly acts on the part of potential intellectual property owners. Such rules require potential owners to place an option value on the prospect of protection. Patent law, and, to a lesser extent, copyright law, use “call options” to reduce uniformity cost by filtering who possesses intellectual property entitlements. 229 21, 2004). 229 In finance circles, options are divided among “call” and “put” options. See, e.g., Risk Glossary: Options, available at http://www.riskglossary.com/articles/option.htm (last visited Apr. 30, 2005). A call option gives the holder the option to purchase an asset at a specified price, and a put option gives the holder the option to sell an asset at a specified Vol. ##] THE PROBLEM OF UNIFORMITY COST 46 1. Patent Patent law deploys call options along both the subject matter and duration dimensions. With respect to subject matter, not every inventor of a new, useful, and non-obvious process, machine, manufacture or composition of matter receives a patent because a potential patentee must undergo a time-consuming and expensive process to prosecute his or her claim to a patent. 230 The potential patentee must assess the option value or strike price of patent protection and compare that to the costs of exercising the option through patent prosecution. 231 The option value of patent protection in a given case usually is comparative because the potential patentee generally also has the options to keep trade secret protection or acquire the benefits of defensive publication. 232 When a potential patentee forgoes protection, society is spared the associated social costs. 233 As one might expect, real options reduce Type I uniformity costs by weeding out low-value inventions across all industries. Empirical research demonstrates that real options also reduce Type II uniformity costs because the value placed on patent protection generally varies by industry. 234 price. See id. Option contracts generally include certain temporal constraints, such as date on which the option expires or constraints on when the option may be exercised. See id. (distinguishing among American (exercise any time up to expiration date), European (exercise only on expiration date), and Bermudan (exercise at specified dates prior to expiration) options). 230 A benchmark for the out-of-pocket expenses of patent prosecution is $20,000, although costs will vary with complexity. See, e.g., Clarisa Long, Patent Signals, 69 U. CHI. L. REV. 625, 639 n.44 (2002) (collecting sources). 231 Cf. F. Russell Denton & Paul J. Heald, Random Walks, Non-Cooperative Games, And The Complex Mathematics Of Patent Pricing, 55 RUTGERS L.J. 1175 (2003) (adapting pricing methodology for stock options to pricing options to license a patent). 232 See, e,g,, Rebecca S. Eisenberg, The Promise And Perils Of Strategic Publication To Create Prior Art: A Response To Professor Parchomovsky, 98 MICH. L. REV. 2358 (2000) (identifying when defensive publication is attractive in patent race context); see also PriorArtDatabase available at www.ip.com/pad/ (last visited Jun. 2, 2005) (online database for defensive publications). 233 It will not always be the case that society gains a net benefit when a potential patentee fails to exercise the option. If the patentee chooses to keep the invention secret, society loses the benefits of disclosure, which may outweigh the social costs associated with any potential market power the patent may confer. 234 See, e.g., Wesley M. Cohen et al., Protecting Their Intellectual Assets: Appropriability Conditions and Why U.S. Manufacturing Firms Patent (Or Not) 9- 11 (Nat'l Bureau of Econ. Research, Working Paper No. 7552, 2000) [hereinafter Cohen et al., Why U.S. Manufacturing Firms Patent] (showing industry-specific variation in value assigned to Vol. ##] THE PROBLEM OF UNIFORMITY COST 47 Call options along the duration dimension also play an important, and often overlooked, role in reducing uniformity cost. 235 The formally uniform 20-year term of patent protection is, in substance, quite heterogeneous. By conditioning protection on payment of maintenance fees, the Patent Act forces the patent owner periodically to place an option value on continued protection and to reveal something about that valuation. A patent owner’s decision not to pay the relatively modest maintenance fees is a decision in effect to dedicate the invention to the public domain. 236 One study shows that the owners of more than half of all patents choose to dedicate their inventions to the public domain prior to the expiration of the full 20-year term. 237 Data for fee payments during the 10-year period from 1994 to 2003 show that, on average, 18% of patent owners placed little value on their patents and permitted protection to lapse at the 3.5-year mark, 42% of patent owners who had proceeded past the first stage chose not to extend protection at the 7.5-year mark, and of those patentees who previously had purchased extended protection, fully 64% chose to end the patent term at the 11.5-year mark. 238 As this data demonstrate, patent law’s maintenance-fee provision serves to render a uniformly-defined dimension of patent rights more context-sensitive. In a sense, patent owners self-tailor the duration of protection. By viewing these rules as filters, the uniformity-cost perspective reframes at least two debates that have engaged economically-oriented scholars. First, the “patent quality” debate can be recast as a debate about setting the right price for the option of patent protection. Most commentators appear to agree that some real option should be placed along the subject matter dimension. There also seems to be consensus that patent protection); Richard C. Levin et al., Appropriating the Returns from Industrial Research and Development, in 1987 Brookings Papers on Econ. Activity 783, 794-97 (1987) (role of patents as means for appropriating returns from R&D investments varies among industries). 235 See, e.g., Lunney, Quiet Revolution, supra note XX, at 51-52; Frank Partnoy, Finance and Patent Length 37 (working paper 2001) (recognizing maintenance fees as form of real option) at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=285144#PaperDownload. 236 See, e.g., Kimberly A. Moore, Worthless Patents, draft at [7]. 237 See Kimberly A. Moore, Worthless Patents (claiming that 53.71% of all patentees permit protection to lapse for failure to pay maintenance fees); see also Suzanne Scotchmer, On the Optimality of the Patent Renewal System, 30 RAND J. OF ECON. 181, 182 (1999) (citing economic research showing that “a regularity across technology classes and countries is that no more than 50% of patents are maintained more than ten years” and that “there is considerable variance in renewal rates if patents are categorized by technology and nationality of owner”) (citations omitted). 238 See, e.g. R. Polk Wagner & Gideon Parchomovosky, Patent Portfolios, at [14]; Vol. ##] THE PROBLEM OF UNIFORMITY COST 48 the option price should be relatively high, by requiring prosecution and examination rather than mere registration. 239 Most scholarly debate has focused on whether the mesh of the current examination filter should be made smaller to restrict the flow of invalid patents into the system. 240 Improving quality control in the PTO would tend to increase the option value necessary to make pursuing patent protection cost-justified. 241 Second, the extensive economic literature on optimal patent duration generally overlooks the role of real options either by assuming a uniform term or contemplating variability without analysis of how it might be implemented. Some analysts seek to make the case for the efficiency of a uniform term, not recognizing that in fact real options render actual term heterogeneous. 242 The bulk of the literature demonstrates theoretically that uniform duration for all patents is inefficient because optimal patent life is conditional. 243 Some analysts recognize what I have 239 See, e.g., Shubha Ghosh, Patents And The Regulatory State: Rethinking The Patent Bargain Metaphor After Eldred, 19 BERKELEY TECH. L. J. 1315, 1344 (2004) (analyzing trade-offs between registration and prosecution); see generally F. Scott Kieff, The Case For Registering Patents And The Law And Economics Of Present Patent-Obtaining Rules, 45 B.C. L. REV. 55 (2003) (using hypothetical registration system to illustrate social benefits of prosecution system). For a brief summary of comparative experiences with examination and registration systems, see Duffy, Harmony and Diversity, supra note XX, at 713-15. 240 See generally Symposium, 19 BERKELEY TECH. L.J. 1 (2004) (responding to Lemley, Rational Ignorance, with most authors arguing for greater investments in patent quality); F. Scott Kieff, The Case For Registering Patents and the Law and Economics of Present Patent-Obtaining Rules, 45 B.C. L. REV. 55, 123 (2003) Lemley, Rational Ignorance v. Merges, Shubha Ghosh & Jay Kesan, What Do Patents Purchase? In Search Of Optimal Ignorance In The Patent Office, 40 HOUS. L. REV. 1219 (2004); Jay P. Kesan & Andres A. Gallo, Why “Bad” Patents Survive In The Market And How Should We Change? – The Private And Social Costs Of Patents (working paper). 241 Portfolio strategy suggests that option value has to be calculated not only in reference to potential revenues from exploitation of individual invention but also from revenues associated with marginal increase in portfolio value. See generally R. Polk Wagner & Gideon Parchomovosky, Patent Portfolios, at [14]. 242 See, e.g., D.G. McFetridge & M. Rafiquzzaman, The Scope and Duration of the Patent Right and the Nature of Research Rivalry, 8 RESEARCH IN L. & ECON. 91, 117 (1986) (“A good case for the existing patent term if one is willing to assume that the ability to invent is not widely distributed.”). 243 In the foundational work for this enterprise, Professor Nordhaus’s model acknowledges that “optimal life is extremely sensitive to changes in the parameters of the system,” but he then accepts that actual life is a uniform term. See WILLIAM D. NORDHAUS, INVENTION, GROWTH, AND WELFARE: A THEORETICAL TREATMENT OF TECHNOLOGICAL CHANGE 81 (1969). In 1969, U.S. patent law did not impose maintenance fees, so his assumption of a uniform term is more understandable than for post-1982 analyses. Vol. ##] THE PROBLEM OF UNIFORMITY COST 49 named Type II uniformity costs and have suggested that patent term should be tailored to vary by industry. 244 Other analysts tend to assume a one-to-one relation between patents and products and assert that patent life would optimally be tailored for each product. 245 These analyses generally overlook a deep conceptual tension in analyzing the conditions for perfectly-tailored protection. Patents are second-best solutions to appropriability problems. 246 If policymakers had sufficient information about the value of individual inventions to tailor duration for each invention, some form of direct compensation would likely be a more efficient way to finance innovation than would a patent. 247 Since policymakers will never have perfect information but may be in a position to acquire sufficient information to tailor along industry- specific or technology-specific lines, tailoring may well be preferable for addressing Type II uniformity costs. As the discussion in Section III, supra, demonstrates, however, tailoring patent duration would be very difficult. 248 Real options address at least some Type II uniformity costs 244 See, e.g., F.M. Scherer, Nordhaus’ Theory of Optimal Patent Life: A Geometric Reinterpretation, 62 AM. ECON. REV. 422, 426-27 (1972) (recognizing uniformity cost of single patent duration whenever other barriers to imitation permit sufficient innovator appropriation and suggesting compulsory licensing as form of tailoring); Michael Waterson, The Economics of Product Patents, 80 AM. ECON. REV. 860, 869 (1990); Donald J. Wright, Optimal Patent Breadth and Length with Costly Imitation, 17 INT’L J. INDUS. ORG. 419, 432 (1999); M.H.I. Dore, J. Kushner & I. Masse, The Optimal Length of a Patent with Variable Output Elasticity and Returns to Scale in R &D, 21 ATLANTIC ECON. J. 10, 11, 19, 23 (1996) (explicitly recognizing uniformity cost, modeling patent duration on per-invention according to demand and output elasticities, which correspond to industry maturity); Nancy T. Gallini, Patent Policy and Costly Imitation, 23 RAND J. ECON. 52, 62-63 (1992). 245 See, e.g., Lawrence M. DeBrock, Market Structure, Innovation, and Optimal Patent Life, 28 J. L. & Econ. 223, 233-34 (1985); Vincenzo Denicolo, Patent Races and Optimal Patent Breadth and Length, 44 J. OF INDUS. ECON. 249, 263 (1996); Richard Gilbert and Carl Shapiro, Optimal Patent Length and Breadth, 21 RAND J. OF ECON. 106, 111-12 (1990); Manfredi La Manna, Ross Macleod, & David de Meza, The Case for Permissive Patents, 33 EUROPEAN ECON. REV. 1427, 1430 (1989) (modeling variable patent life in permissive patent system); Partha Dasgupta & Joseph Stiglitz, Uncertainty, Industrial Structure, and the Speed of R&D, 11 BELL J. ECON. 1, 19 (1980) (modeling variable effects of patent life). 246 Cf. DeBrock, supra note XX, at 226 (“However, it should be clear that such a first- best situation is not relevant in a world where policymakers are forced to use an inherently second-best tool: patent protection.”). 247 See, e.g., Louis Kaplow, The Patent-Antitrust Intersection: A Reappraisal, 97 HARV. L. REV. 1813, 1844 (1984) (acknowledging that as patent policy becomes more case- specific the justification for patent over direct reward weakens). 248 See Section III.X, supra, analyzing provisions requiring formally uniform patent duration; see also M.K. Berkowitz & Y. Kotowitz, Patent Policy in an Open Economy, Vol. ##] THE PROBLEM OF UNIFORMITY COST 50 and can be quite effective in reducing Type I costs. The uniformity-cost perspective suggests that future research on the patent system should analyze option pricing rather than either assuming a uniform term or modeling per-invention variability. 249 2. Copyright In copyright law, the uniformity-cost perspective reveals how recent changes that eliminate or constrict real options have increased the social costs of copyright law. Traditionally, U.S. copyright law tracked patent law by deploying real options along the subject matter and duration dimensions. Prior to enactment of the Copyright Act of 1976, authors arguably directly received a common-law entitlement to prohibit unauthorized publication. 250 However, if and when, the author chose to publish the work, any common law protection was extinguished and federal protection was conditioned on exercise of the option – complying with the notice, registration, and deposit requirements. 251 An author who 15 CANADIAN J. ECON. 1, 12 (1982) (recognizing that “[i]ndustrial structure of invention may be different in different industries, calling for drastically different patent policies” but concluding that because patent policy has traditionally been uniform, scope and duration must reflect conditions for majority of industries); John F. Duffy, A Minimum Optimal Patent Term 9 (working paper 2003) (arguing that even if theoretically efficient to vary patent duration by sector, administrative costs and risks of wasteful rent-seeking make tailored duration unattractive) at http://ssrn.com/abstract=354282. 249 Suzanne Scotchmer is the leading thinker along these lines. See generally Suzanne Scotchmer, On the Optimality of the Patent Renewal System, 30 RAND J. ECON. 181 (1999) (modeling options price under certain conditions); see also Frank Partnoy, Finance and Patent Length 34-37 (working paper 2001) (suggesting varying option price as means of regulating effective patent duration) at http://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID285144_code010927520.pdf?abstracti d=285144&mirid=1; cf. Helen Weeds, Strategic Delay in a Real Options Model of R&D Competition, 69 REV. ECON. STUD. 729 (2001) (applying option theory to model investment decisions in R&D); Ted O’Donoghue, Suzanne Scotchmer & Jaques-Fran?ois Thisse, Patent Breadth, Patent Life, and the Pace of Technological Progress, 7 J. ECON. & MGMT. STRATEGY 1, 24-25 (1998) (modeling patent’s “effective” life based on patent breadth’s effects on demand for invention). The concept of effective life could be extended to include patent owner’s response to real options as well. 250 See, e.g. Birnbaum v. United States, 588 F.2d 319, 327 (2d Cir. 1978) (describing “common law copyright” as more limited to right of first publication); Diane Leenheer Zimmerman, Information As Speech, Information As Goods: Some Thoughts On Marketplaces And The Bill Of Rights, 33 WM. & MARY L. REV. 665, 694 & n. 205 (1992) (discussing possible common law copyright in unpublished works) . 251 In the 1909 Act, Congress slightly relaxed these by requiring notice only to secure protection and requiring registration and deposit as prerequisites for a copyright infringement action. See Washingtonian Pub. Co. v. Pearson, 306 U.S. 30, 36-38 (1939) Vol. ##] THE PROBLEM OF UNIFORMITY COST 51 chose to publish without complying with these so-called “formalities,” effectively chose to dedicate the work to the public domain – thereby eliminating the social costs of copyright with respect to that work. 252 The exercise price for copyright protection was considerably lower than for patent protection because registration fees were cheaper than patent filing fees and copyright registration involved no examination initially and only very cursory examination subsequently. 253 Even with the lower strike price, during the early years of copyright, very few copyright owners valued the option of protection sufficiently to exercise their options, 254 and even well into the most recent years in which registration was required for published works, the total number of registrations was less than 600,000. 255 Policymakers reduced the effectiveness of the filtering function that the registration-and-notice requirements played when the United States chose to adhere to the Berne Convention, which requires that member states grant the entitlement itself rather than an option to acquire the entitlement. 256 Current law has not entirely abandoned real options, however. Instead, authors of U.S. works receive both a call option and a put option 257 along the subject matter dimension. Although the copyright entitlement is granted automatically as soon as an original work of authorship is fixed in a tangible medium of expression, the entitlement is (reviewing legislative history and rejecting claim that post-publication infringements occurring prior to registration and deposit immune from suit). 252 See, e.g., Scherr v. Universal Match Corp., 297 F. Supp. 107, 112 (S.D.N.Y. 1967) (government statue exhibited without visible notice of copyright and no restrictions regarding copying constituted a divestive publication), aff'd on other grounds, 417 F.2d 497 (2d Cir. 1969). 253 See LANDES & POSNER, supra note XX, at 235 (registration fees climbed from $10 to $20 in 1991, to $30 in 2000, and now are $45). 254 See, e.g., WILLIAM F. PATRY, COPYRIGHT LAW AND PRACTICE 33 (2d ed. 2000) (reporting that 15,000 titles were published in the United States between 1790 to 1800 and evidence of only 779 copyright registrations has been found). 255 See Annual Report of the Register of Copyrights (2002) at http://www.copyright.gov/reports/annual/2002/registrations.html (showing that total pre- 1989 registrations peaked at 581,276 in 1987); LANDES & POSNER, supra note XX, at 236. 256 See supra notes XX and accompanying text (analyzing the Berne Convention and the TRIPS Agreement); see also Kahle v. Ashcroft, 2004 WL 2663157 (C.D. Cal. 2004) (rejecting argument that removal of traditional real options violates Clause 8 and First Amendment) (appeal filed). 257 The option to alienate the copyright entitlement is clouded. Although sale and licensing are readily done, see 17 U.S.C. § 201(d) (2004), dedication of the entitlement to the public domain is slightly less certain because of the inalienable termination-of- transfers provisions. See id. § 203. Vol. ##] THE PROBLEM OF UNIFORMITY COST 52 not fully functional. The entitlement can be assigned or licensed, and alleged infringers can be threatened by cease-and-desist letters. However, authors of U.S. works or their assigns must still exercise a call option (registration with the Copyright Office, subject to minimal examination) to enforce the entitlement in federal court. 258 The Section 411 call option still performs a filtering function, but it is much less effective at reducing uniformity cost than was true under pre- 1989 law. Under prior law, the registration-and-notice filter reduced uniformity costs because a user coming upon a published, unregistered work or a published work without a copyright notice was free to make his or her desired use of the information. Under current law, a potential user must now assume that a work of authorship, even one published without notice, is protected and cannot be used without a license (unless the desired use is a privileged use under the law), even if the author has no intention of enforcing rights or would encourage the desired use. In order to regain some of the former benefits provided by the real option on copyrightable subject matter, some efforts are underway to make public licensing or public dedication cheap and easy for authors interested in exercising the put option that current law now grants. 259 While these efforts reduce uniformity cost by promoting reallocation of entitlements, transaction costs for doing so remain positive. On balance, U.S. adherence to the Berne Convention has exacerbated uniformity cost along the subject matter dimension. Matters are worse with respect to copyright duration. Until 1976, copyright law divided duration into two terms, which served to vary the effective term of protection because the renewal procedure acted as a real option similar to patent law’s maintenance fees. 260 The Copyright Act of 1976 removed this filter by adopting a life-plus-fifty term, recently extended to life-plus-seventy. 261 This change has rendered the duration 258 See 17 U.S.C. § 411 (2004); William F. Patry, Does Copyright Registration Matter?, THE PATRY COPYRIGHT BLOG, Jun. 7, 2005, available at http://williampatry.blogspot.com/ 259 See, e.g., Robert P. Merges, A New Dynamism in the Public Domain, 71 U. CHI. L. REV. 183 (2004) (describing private-law responses to imbalanced public law). 260 See supra notes XX and accompanying text (discussing option value and effect of maintenance fees on patent duration); LANDES & POSNER, supra note XX, at 235-49 (analyzing copyright renewal data to show strong filtering effect of renewal term and weaker, but significant effect of modest changes in registration and renewal fees). 261 See 17 U.S.C. ' 302(a). Until passage of the Copyright Act of 1976, the term of copyright was divided into two renewable terms. See Tyler Ochoa, Patent and Copyright Term Extension and the Constitution: A Historical Perspective, 49 J. COPYRIGHT SOC’Y OF THE U.S.A 19 (2001). Vol. ##] THE PROBLEM OF UNIFORMITY COST 53 dimension of copyright law particularly insensitive to context, as was made dramatically evident by the submissions to the Supreme Court in Eldred v. Ashcroft. 262 Implicitly recognizing the problem of uniformity cost, the Copyright Office has recently launched a proposal to broaden the rights of libraries and archives with respect to “orphan works.” 263 While this effort is welcome, it cannot materially alter the substantial social costs imposed by removing the real option of renewable terms. 264 The increase in social costs imposed by a substantively uniform term of copyright protection has led even leading law-and-economics scholars William Landes and Richard Posner, who once praised the life- plus-fifty term as economically efficient, 265 to call for reestablishing a real option along copyright law’s duration dimension. 266 Some policymakers have made modest proposals along these lines. 267 The uniformity-cost perspective underscores why such measures are needed. 262 See generally Submission of Amici in support of Petitions at http://eldred.cc/legal/supremecourt.html; 263 See U.S. Copyright Office, Notice of Inquiry, Orphan Works, 70 FED. REG. 3739 (Jan. 26, 2005) (seeking comment on recommended solutions for works whose copyright owner(s) cannot be identified or located). 264 See, e.g., Rip. Mix. Burn., THE ECONOMIST, Jun. 30, 2005 (urging Congress to enact 14-year renewable copyright terms) (editorial). 265 William M. Landes & Richard A. Posner, An Economic Analysis of Copyright Law, 18 J. LEGAL STUD. 325 (1989). 266 See LANDES & POSNER, supra note XX, at 244 (noting that “[c]urrent copyright law does not differentiate among different types of work” and arguing that “a system of indefinite renewal would automatically distinguish between the enduring and the ephemeral”); see also id. at 249 (“a system of indefinite renewals . . . will separate valuable works in which continued copyright protection may be socially efficient from works in which the cost of continuing that protection exceeds the sum of administrative and access . . . costs.”). 267 See Public Domain Enhancement Act, H.R. 2408, 109th Cong., 1st Sess., (May 17, 2005) at http://thomas.loc.gov/cgi-bin/query/C?c109:./temp/~c109nZHwwF. Vol. ##] THE PROBLEM OF UNIFORMITY COST 54 3. Scope Options The full range of real options as a policy tool to reduce uniformity cost has not been explored in the literature. While commentators have wrestled with the merits of registration versus examination procedures along the subject matter dimension, and others have discussed the relative merits of renewable terms or maintenance fees along the duration dimension, few have discussed how the benefits of real options also could be realized along the scope dimension of copyright or patent entitlements. Consider the scope of copyright law, for example. Copyright prohibits four kinds of copying: (1) complete duplication; (2) partial duplication; (3) creation of a work substantially similar to the whole; and (4) creation of a work with a substantially similar part. At a minimum, a copyright owner should receive the right to prohibit complete duplication if copyright is to serve as any kind of solution to the appropriability problem. As is well known, copyright law historically was restricted in scope to this kind of copying and gradually has expanded to grant the owner the entitlement to control these other forms of copying as well. It would be possible to impose a call option filter by conditioning the grant of the right to control the other three kinds of copying on either payment of a modest fee and/or registration of the claim to control these uses. Take, for example, the scope of copyright in a novel. If a real option were in place, the author would receive the exclusive right to complete duplication at the time copyright vests. If the author also would like to have the rights to prepare derivative works from the novel, such as motion pictures or theatrical adaptations, the author would have to pay a small fee and register the claim with the Copyright Office. There already is a well-established market for “movie rights,” that is, the option to adapt a novel for use in a film. Adding a real option into the scope dimension would simply give the public a right to participate in this market as well. Novelists who placed little or no value on the adaptation option would effectively dedicate that right to the public domain, potentially making filmmaking a marginally less expensive enterprise. Similarly, with musical works and sound recordings, one could imagine a real option to control the right to make partial duplication in the form of digital samples. Some recent evidence indicates that some copyright owners would not purchase the partial duplication option. 268 268 See, e.g., Michael W. Carroll, The Struggle for Music Copyright, 57 FLA. L. REV. ___ (forthcoming 2005) (describing Wired magazine compilation CD comprised of tracks from famous artists all released under a Creative Commons sampling license). Switching the default from automatic protection with the option of open licensing to open resource Vol. ##] THE PROBLEM OF UNIFORMITY COST 55 Scope options potentially would reduce uniformity costs, but the administrative costs of implementation could be quite significant. The point here is not to advocate for adoption of real options for the scope of intellectual property rights but to demonstrate that the option-value conception captures much of the debate about subject matter and duration and that this concept could be extended to scope as well. B. Standards in Intellectual Property Entitlements One reason that real options may not be used along the scope dimension of patent and copyright law is that both bodies of law reduce uniformity costs by adopting standards rather than rules to define the scope and subject matter dimensions. 269 This flexibility can serve to reduce uniformity costs by adapting the availability and scope of protection to the appropriability conditions that prevail in specific contexts. By contrast, both patent and copyright law use rules to specify duration and rely on real options, in the case of patent law, to reduce uniformity costs. Legal standards confer interpretive discretion on adjudicators, and, generally, the more broadly a standard is stated, the more discretion adjudicators have. 270 This interpretive discretion can be deployed ad hoc with the option of closing it off would increase the pool of resources from which samples could be drawn. 269 The rules/standards literature is substantial. See, e.g., MARK KELMAN, A GUIDE TO CRITICAL LEGAL STUDIES 15-63 (1987); FREDERICK SCHAUER, PLAYING BY THE RULES: A PHILOSOPHICAL EXAMINATION OF RULE-BASED DECISIONMAKING IN LAW AND IN LIFE 104 (1991); Duncan Kennedy, Form and Substance in Private Law Adjudication, 89 Harv. L. Rev. 1685, 1687-1713 (1976); Pierre Schlag, Rules and Standards, 33 UCLA L. REV. 379, 379-430 (1985); Carol M. Rose, Crystals and Mud in Property Law, 40 STAN. L. REV. 577, 592-93 (1988); Margaret Jane Radin, Reconsidering the Rule of Law, 69 B.U. L. REV. 781, 783-90 (1989); Louis Kaplow, Rules Versus Standards: An Economic Analysis, 42 DUKE L.J. 557 (1992); Cass R. Sunstein, Problems With Rules, 83 CAL. L. REV. 953 (1995); Eric A. Posner, Standards, Rules, and Social Norms, 21 HARV. J.L. & PUB. POL'Y 101 (1997). 270 For present purposes, the following definitions make the point: (a) Rules. - A legal directive is "rule"-like when it binds a decisionmaker to respond in a determinate way to the presence of delimited triggering facts. . . . . (b) Standards. - A legal directive is "standard"-like when it tends to collapse decisionmaking back into the direct application of the background principle or policy to a fact situation. Kathleen M. Sullivan, The Justices of Rules and Standards, 106 HARV. L. REV. 22, 57-58 (1992). It is critical that “the decisionmaker” be understood to include the enforcer as Vol. ##] THE PROBLEM OF UNIFORMITY COST 56 or systematically. With respect to the scope of intellectual property rights, courts can choose to use flexible doctrines to strike the incentives-access balance either on a per-work or per-invention basis or more broadly along industry-specific or technology-specific lines. For purposes of this discussion, this subsection addresses only the ways in which intellectual property scope and subject matter doctrines reduce uniformity costs by requiring ad hoc balancing. 1. Patent Patent law deploys standards rather than rules along the subject matter and scope dimensions. 271 Although helpful, use of standards along the subject matter dimension permits only coarse-grained exercise of interpretive discretion because an adjudicator can choose only between applying all or no rights to a particular innovation or class of innovations. The standards that govern patent scope, by contrast, supply a wider range of responses to uniformity cost. Subject Matter. The formally uniform statutory definition of patentable subject matter is broadly stated and therefore confers a considerable degree of interpretive discretion on the federal courts and the PTO. Flexible subject matter doctrines include the limitation on patenting “abstract ideas,” 272 the utility doctrine, 273 novelty’s requirement of a prior “public” use, 274 and the non-obviousness standard. 275 Application of other eligibility doctrines, such as the disclosure requirements of enablement, 276 best mode, 277 and written description, 278 as well as the triggers for the well as the adjudicator. A speed limit would appear to be a paradigmatic rule, but it becomes a standard in the hands of an enforcer who relies on a set of contextual factors when deciding how to enforce the provision. 271 See Burk & Lemley, Policy Levers, supra note XX, at 1642- XX (identifying nine such “policy levers”: (1) abstract ideas; (2) utility; (3) experimental use; (4) skill in the art; (5) secondary considerations; (6) written description; (7) doctrine of equivalents; (8) pioneering patents; (9) reverse doctrine of equivalents). 272 See O’Reilly v. Morse, 56 U.S. (15 How.) 62 (1853) (giving birth to the doctrine). 273 See supra note XX and accompanying text (describing utility requirement). Although broadly construed, utility still places a meaningful limit on patentability, particularly with respect to biotechnology and upstream research tools. See, e.g. Burk & Lemley, Policy Levers, supra note XX, at 1644-45 (discussing utility’s function with respect to inventions in life sciences). 274 See, e.g., Bernhardt, L.L.C. v. Collezione Europa USA, Inc., 386 F.3d 1371, 1381 (Fed. Cir. 2004) (explaining standard for determining public use). 275 See 35 U.S.C. § 103. 276 See id. § 112. 277 See id. Vol. ##] THE PROBLEM OF UNIFORMITY COST 57 statutory bars, 279 all supply tools for the courts to assess and reduce uniformity costs. For example, non-obviousness and the disclosure doctrines vary to a certain degree along technology-specific or industry- specific lines because these are applied with reference to a “person having ordinary skill in the art” (PHOSITA). 280 When specifying eligibility through the PHOSITA device, the law requires a court or a patent examiner to make a variety of judgments concerning the level of skill in the art and the set of background knowledge that the PHOSITA would be able to rely upon when drafting or reading a patent. 281 The courts can and do vary patent eligibility for different industries or technologies by the amount of information and the kinds of technical skills that a patentee can incorporate by reference. 282 Consider, for example, the role of the PHOSITA in three doctrines: non- obviousness, enablement, and the written description. When contemplating whether the inventor’s solution to a particular problem would have been obvious at the time of invention, courts and patent examiners must make judgments about the rate and direction of innovation in a particular field and about the amount of prior art and background knowledge that a PHOSITA could call upon. 283 Similarly, courts and patent examiners must invoke the PHOSITA to determine whether the written description in the patent demonstrates that the inventor possessed the invention at the time of filing, and whether the patent provides sufficient information to enable a PHOSITA to practice the invention 278 See id. 279 See id. § 102(b). 280 See, e.g., Wagner, Exactly Backwards, supra note XX, at 751-52 (discussing effects of PHOSITA standard on eligibility and scope). 281 See, e.g., Burk & Lemley, Policy Levers, supra note XX, at 1649-50; Wagner, supra note XX; Allison & Tiller, supra note XX, at 1083 n.265 (“When one realizes that an ordinarily skilled practitioner may range from an experienced mechanic or electrician to a person with a Ph.D. and much experience in molecular biology or computer science, the conclusion is inescapable that not all rules can be applied exactly the same in every case.”). 282 See In re GPAC, Inc., 57 F.3d 1573, 1579 (Fed. Cir. 1995) ("The person of ordinary skill in the art is a hypothetical person who is presumed to know the relevant prior art."); Custom Accessories, Inc. v. Jeffrey-Allan Indus., Inc., 807 F.2d 955, 962 (Fed. Cir. 1986) (same). 283 See, e.g., Rebecca S. Eisenberg, Obvious To Whom? Evaluating Inventions from the Perspective of PHOSITA, 19 Berkeley Tech. L.J. 885 (2004) (arguing that Federal Circuit only partially incorporates the PHOSITA’s knowledge by excluding tacit knowledge); Burk & Lemley, Policy Levers, supra note XX, at 1593-94; Donald S. Chisum, Anticipation, Enablement and Obviousness: An Eternal Golden Braid, 15 AIPLA Q.J. 57, 58 (1987). Vol. ##] THE PROBLEM OF UNIFORMITY COST 58 without undue experimentation. 284 The patentee may incorporate by reference a wide range of background theoretical and practical knowledge to satisfy either inquiry, so long as the goals of the written description and enablement requirements are met. 285 From the perspective of entitlement design, the legislative decision to define patent eligibility largely through these standards rather than rules renders this nominally uniform dimension of patent law more context- sensitive. Indeed, the choice of standards over rules reflects a legislative expectation that courts will use this interpretive discretion to reduce uniformity cost by varying patentable subject matter in response to the appropriability conditions surrounding a class of invention or particular inventions, as circumstances may indicate. This discretion has been, and can be, used to tailor subject matter to manage and reduce Type II uniformity costs by differentiating among types of processes in patent law (e.g. business methods) for which no appreciable appropriability problem exists. The subject matter doctrines are less well suited for addressing Type I uniformity costs, but at the margins these doctrines still have an impact. Scope. The scope doctrines of patent law provide courts with an even wider range of tools to reduce uniformity cost, particularly when the remedial options are included within the definition of an entitlement’s scope. Commentators have recognized that the scope doctrines that rely upon the PHOSITA can be used by courts to purposefully tailor patent protection along industry-specific or technology-specific lines. 286 For example, an invention is defined by the patent’s claims, and the claims are to be interpreted as a matter of law in the way a PHOSITA would read them. 287 Normally, the words in a claim are to be given their ordinary 284 See, e.g. Northpoint Technology, Ltd. v. MDS America, Inc., ___ F.3d ___, 2005 WL 1514258 (Fed. Cir. Jun. 28, 2005) (court divided over whether evidence at trial sufficient to show lack of enablement based on level of PHOSITA’s background knowledge). 285 See, e.g. University of Rochester v. G.D. Searle & Co., Inc., 358 F.3d 916 (Fed. Cir. 2004); see also id., 375 F.3d 1303 (Fed. Cir. 2004) (order denying rehearing en banc accompanied by range of dissenting and concurring opinions discussing recent doctrinal developments with respect to enablement and written description). 286 See, e.g., Robert P. Merges & Richard R. Nelson, On the Complex Economics of Patent Scope, 90 COLUM. L. REV. 839, 916 (1990) (“Our goal has been to show that scope doctrines can be used to approximate the ‘tailoring’ function proposed by economists who model optimal patent length, with an eye toward retaining incentives for subsequent improvements.”); Burk & Lemley, Policy Levers, supra note XX, at 1648-51 (analyzing tailoring flexibility enabled by PHOSITA doctrines). 287 See, e.g., Multiform Desiccants, Inc. v. Medzam, Ltd., 133 F.3d 1473, 1477 (Fed. Cir. 1998) (“It is the person of ordinary skill in the field of the invention through whose eyes the claims are construed.”); see also Craig Allen Nard, A Theory of Claim Interpretation, Vol. ##] THE PROBLEM OF UNIFORMITY COST 59 meaning, unless the patentee has acted has her own lexicographer. 288 In the latter case, linguistic conventions within the field of invention could serve to expand or narrow the scope of the “invention” to which the exclusive rights apply. 289 Consequently, the scope of patent protection also can vary depending upon how liberally the courts and patent examiners understand the amount of background knowledge that can be incorporated. Patent scope also can vary along industry-specific or technology-specific lines through application of the doctrine of equivalents, which extends the patentees’ rights to products or processes with elements deemed to be the Aequivalent@ of elements in the claims defining the protected invention. 290 To the extent that the PHOSITA is used to evaluate equivalence, application of the doctrine is rendered context-sensitive. 291 The eligibility doctrines also do double-duty to influence patent scope. For example, enablement is an eligibility doctrine insofar as at least one embodiment of the invention must be enabled, but once that threshold has been crossed, the doctrine delimits scope. Finally, courts enjoy considerable discretion to fashion relief when infringement has been proven, and this discretion can be applied to reduce uniformity cost. Professors Burk and Lemley rightly point out that there may be more situations than courts currently recognize to withhold injunctive relief. 292 The point can be extended to monetary relief as well. 14 HARV. J.L. & TECH. 1, 6 (2000). 288 See Vitronics Corp. v. Conceptronic, Inc., 90 F.3d 1576, 1582 (Fed. Cir. 1996). 289 See, e.g. Hoechst Celanese Corp. v. BP Chems., Ltd., 78 F.3d 1575, 1578 (Fed. Cir. 1996) (“A technical term used in a patent document is interpreted as having the meaning that it would be given by persons experienced in the field of the invention.”). 290 See Warner-Jenkinson Co. v. Hilton Davis Chem. Co., 520 U.S. 17 (1997) (recasting the doctrine of equivalents); see also Julie E. Cohen & Mark A. Lemley, Patent Scope And Innovation in the Software Industry, 89 Cal. L. Rev. 1, 53-55 (2001) (arguing that the doctrine should be tailored as applied to software patents); Cotropia, “After Arising”, supra note XX, at XX (arguing that doctrine should be tailored for rapidly-developing, cumulative technology industries). 291 The courts have announced two different tests for equivalence: the function-way- result test, see Graver Tank & Mfg. Co. v. Linde Air Prods. Co. 339 U.S. 605, 609 (1950), and the reasonable interchangeability test, see Hilton Davis Chem. Co. v. Warner-Jenkinson Co., 62 F.3d 1512, 1519 (Fed. Cir. 1995) (en banc), rev'd on other grounds, 520 U.S. 17 (1997). The latter test explicitly relies on the PHOSITA; it is less clear whether the former does as well. 292 See Burk & Lemley, Policy Levers, supra note XX, at 1665-68 (citing hold-ups, anticommons situations, and cases in which appropriability conditions may favor a subsidized compulsory license as candidates for withholding injunctive relief); see also Colleen Chien, Cheap Drugs at What Price to Innovation: Does the Compulsory Licensing of Pharmaceuticals Hurt Innovation?, 18 BERKELEY TECH. L.J. 853 (2003) (suggesting that appropriability conditions in pharmaceutical industry do not require Vol. ##] THE PROBLEM OF UNIFORMITY COST 60 Industry-specific information plays an essential role in the evidence supporting willfulness of the infringement and the amount of any damage award, whether that be calculated as a reasonable royalty or as lost profits. 2. Copyright Copyright law also uses standards along the subject matter and scope dimensions to reduce uniformity cost. Subject Matter. With respect to subject matter, copyright law provides courts with even greater doctrinal flexibility than does patent law. Principally, these doctrines are the idea/expression dichotomy, the functionality exception, and the merger doctrine. 293 Copyright applies only to the author’s original expression and not the abstract ideas embodied in the copyrighted work. 294 As Learned Hand famously expounded, courts seeking to draw the line between idea and expression must choose a point along a continuum of abstraction. 295 Similarly, facts are not copyrightable but an author’s expression in relating facts usually will be sufficiently original to be copyrightable. 296 Similar line-drawing difficulties arise and may be resolved differently depending on subject matter. The merger doctrine holds that if there are limited means to express ideas or facts, the expression merges with the uncopyrightable element and the whole of the author’s work is either uncopyrightable or the copyright in the expression is unenforceable. 297 The functionality doctrine is related to merger and holds that protection for expressive property rule protection to maintain incentives). 293 See infra notes XX and accompanying text. 294 The idea/expression dichotomy emanates from judicial interpretation and is now codified at 17 U.S.C. § 102(a), (b). 295 See Nichols v. Universal Pictures Corp., 45 F.2d 119 (2d Cir. 1930). 296 See Miller v. Universal City Studios, Inc., 650 F.2d 1365, 1372 (5th Cir. 1981) 297 Courts and scholars debate whether the merger doctrine applies to the plaintiff’s claim to own a valid copyright or the claim that the defendant’s work is infringing. Compare, e.g., Kern River Gas Transmission Co. v. Coastal Corp., 899 F.2d 1458, 1460 (5th Cir. 1990) (applying doctrine to hold “the maps at issue are not copyrightable”); Gates Rubber Co. v. Bando Chem. Indus., 9 F.3d 823, 838 (10th Cir. 1993) (“Under the merger doctrine, copyright protection is denied to expression that is inseparable from or merged with the ideas, processes, or discoveries underlying the expression) with Kregos v. Associated Press, 937 F.2d 700, 705 (2d Cir. 1991) (applying doctrine to “determin[e] whether actionable infringement has occurred, rather than whether a copyright is valid; Schoolhouse, Inc. v. Anderson, 275 F.3d 726, 730 (8th Cir. 2002) (holding website not infringing on magazine's local school information because there was “only one way or only a few ways of expressing [the] idea”); Computer Assoc. Int'l, v. Altai, Inc., 982 F.2d 693, 708 (2d Cir. 1992) (where computer program was "the only and essential means of accomplishing a given task" the expression and idea had merged). Vol. ##] THE PROBLEM OF UNIFORMITY COST 61 sculptural, pictorial, and graphic works that are combined with functional goods is limited only to expressive elements that are physically or conceptually separable from the functional good. 298 Scope. The scope of rights under copyright is determined in relation to a number of context-sensitive standards. For example, whenever the defendant’s work does not literally reproduce the plaintiff’s work, the court must resolve whether the two works are “substantially similar” from the “ordinary observer’s” perspective. 299 Both of these judgments are context-sensitive and can be applied to reduce uniformity cost. The most notable example in which a court has used this flexibility is Computer Associates International, Inc. v. Altai, Inc, 300 which endorsed use of an abstraction-filtration-comparison method for determining substantial similarity in software cases. 301 Even when literal copying takes place, the copyright owner’s rights are limited by flexible standards such as fair use. 302 This doctrine is flexible enough to grant courts substantial tailoring discretion, 303 as are less-frequently-invoked infringement doctrines such as de minimis use, 304 scènes a faire, 305 and the 298 See 17 U.S.C. § 113. In addition, the uncopyrightable forms of expression identified in 17 U.S.C. § 102(b) exclude protection for functional literary works such as certain aspects of software. See Lotus v. Borland, 49 F.3d 807 (1st Cir. 1995) (software menu structure was uncopyrightable “method of operation”), aff’d by an equally divided Court, 516 U.S. 233 (1996). 299 See, e.g., Johnson v. Gordon, __ F.3d __, (1st Cir. 2005); Incredible Technologies, Inc. v. Virtual Technologies, Inc., 400 F.3d 1007, 1011 (7th Cir. 2005) (“It is clear, then, that the concept of the ordinary observer must be viewed with caution in this case, and we must heed the principle that, despite what the ordinary observer might see, the copyright laws preclude appropriation of only those elements of the work that are protected by the copyright.”). 300 982 F.2d 693 (2d Cir. 1992). 301 See id. at 706-12. 302 See 17 U.S.C. ' 107 (supplying illustrative list and four factors for courts to use when assessing fair use). 303 See, e.g., Harper & Row, Publishers, Inc. v. Nation Enters., 471 U.S. 539, 552 (1985) (“[F]air use analysis must always be tailored to the individual case.”). 304 See, e.g., Newton v. Diamond, 388 F.3d 1189, 1193-94 (9th Cir. 2004) (discussing de minimis standard); Ringgold v. Black Entm't Television, Inc., 126 F.3d 70, 74-75 (2d Cir. 1997); Fisher v. Dees, 794 F.2d 432 (9th Cir. 1986) (same). 305 Scènes à faire are otherwise copyright expressive elements that “necessarily result from the choice of a setting or situation.” Walker v. Time Life Films, Inc., 784 F.2d 44, 50 (2d Cir. 1986). Because they are unprotected, unauthorized reproduction does not constitute infringement. See, e.g., Hoehling v. Universal City Studios, Inc., 618 F.2d 972 (2d Cir. 1980) (holding representation of Hindenberg disaster non-infringing because similarities necessitated by subject matter). Vol. ##] THE PROBLEM OF UNIFORMITY COST 62 useful article doctrine. 306 Moreover, the courts have license to be flexible with choice of remedy. 307 V. CONCLUSION The problem of uniformity cost has been recognized but underanalyzed in the economic analysis of intellectual property law. As the economic importance of information increases and as the appropriability conditions in information-production sectors continue to become more heterogeneous and complex, the law will continue to come under increasing pressure to respond with greater context-sensitivity. Doing so will be difficult, however, because policymakers have limited capacity for aggregating and acting on the necessary information about information-production. Current law demonstrates use of three policy tools for reducing uniformity cost. Real options, which place conditions on the acquisition, enforcement, and maintenance of intellectual property rights, reduce the social costs associated with low-value innovations and those created under conditions offering appropriability alternatives to intellectual property rights. Deployment of legal standards rather than rules along the subject matter and scope dimensions of patent and copyright enable more contextual decisionmaking to reduce uniformity costs. More directly, policymakers have tailored rights in a number of cases. Recent trends in international law reflect a move to constrain member States’ tailoring discretion to the extent that tailoring would reduce the robustness of some intellectual property rights. Notwithstanding this pressure, policymakers still retain substantial tailoring discretion and more analysis is needed to assess how and when this discretion should be exercised. 306 See 17 U.S.C. § 113(b). 307 See 17 U.S.C. § 502(a) (2004) (stating that court’s decision to grant injunction discretionary); Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 578 n.10 (1996) (urging lower courts to give due consideration to this discretion in parody cases).