Patent Pool Outsiders

Individuals who decline to join cooperative groups — outsiders — raise concerns in many areas of law and policy. From trade policy to climate agreements to class action procedures, the fundamental concern is the same: a single member of the group who drops out could weaken the remaining union. This Article analyzes the outsider problem as it affects patents. The outsider question has important bearing on patent and antitrust policy. By centralizing and simplifying complex patent licensing deals, patent pools conserve tremendous transaction costs. This allows for the widespread production and competitive sale of many useful technologies, particularly in the consumer electronics industry. Because these transaction cost savings appear to outweigh the most common competition-related concerns patent pools raise, antitrust authorities generally view these private pools favorably. Others are less sanguine. Most patent pools are incomplete: for the technologies they cover, not all relevant patents are included. The reason for this is understandable: patent holders sometimes believe they can negotiate for higher royalties by declining to join an existing pool. Antitrust regulators are aware of this behavior, but do not worry much about it. A growing number of economists and legal scholars believe, however, that this outsider behavior may impose higher costs on pool licensees, detracting from the central benefit that patent pools offer — transaction cost savings. These commentators urge antitrust regulators to regard patent pools with greater caution and skepticism. These calls for caution, however, are based mostly on theories about how patent pools should work, rather than empirical study. Remarkably, little research has been done to shed light on the actual impact of patent pool outsiders. Through an original ethnographic study, this Article seeks to remedy this gap. A set of the most notable and public episodes of outsider behavior were collected from industry press reports, case reports, and historical archives. Crucial new information was then gathered through interviews with lawyers and executives directly involved with the episodes studied. The study reveals a characteristic of patent pools that has gone unappreciated until now: they subtly but powerfully influence bargains that take place “poolside” — i.e., deals between patent holders and licensees that take place “in the shadow” of the pool. This spill-over effect can beneficially limit the power that theorists have assumed outsiders to have. This is an unappreciated benefit of cooperation. The theorists, as it turns out, have not used the wrong approach, but rather, have been missing some important parameters. To further aid regulators, this Article builds upon its qualitative findings by introducing a new quantitative technique for estimating the cost that a licensee either incurs or saves due to an outsider. Applying this technique to original financial and industry data gathered from research subjects, this Article shows that, counterintuitively, patent licensees are sometimes better-off where cooperation among licensors is partial, rather than complete. The inflection point lies where the royalty rate hike that a unified pool would need to charge to draw in an outsider is equal to the transaction costs that licensees would conserve by dealing with a single pool. This study’s revelations have provocative implications that reach beyond patent law. Contrary to conventional wisdom, slightly fragmented property markets may sometimes be preferable to “grand coalitions.” There may exist in any given market for complementary patent rights (or other complementary property rights), an optimal level of diffusion of ownership that resides between total diffusion and total concentration. Some cooperation may not only be better than none, but also better than more. Drawing upon this study, antitrust regulators who must evaluate patent pools can assemble a clearer and more complete understanding of their overall costs and benefits — a topic that Robert Merges and I recently wrote on in a related article. This Article is also helpful beyond patent law. The ethnographic methodology followed here reveals dynamics between outsiders and groups that theory alone has not captured. Scholars concerned with outsiders in other areas of law and policy can refine and build upon theory by applying a similar ethnographic approach

Autonomy in the Age of Autonomous Vehicles

This essay describes intertwined policy challenges related to autonomous vehicle data. The policy goals of promoting privacy, safety, competition, and commerce are all so deeply intertwined, I conclude, that they must be understood and addressed together. This essay does not attempt to solve the problem. Instead, it presents a descriptive snapshot of the current state of play in the industry and closes by raising a set of questions. I hope these questions will prompt useful discussions among policy experts and the public

Communities of Innovation

This Article examines and evaluates the theory that patent holders privately self-correct the government’s excessive apportionment of patent rights by means of various cooperative efforts including patent pools, research consortia, and similar licensing collectives. According to some experts, these efforts are proof that market participants have the wisdom and the will to collectively disarm their patent arsenals in order to advance long-term innovation. But until now, this theory of market self-correction has not been evaluated through empirical study. Drawing on interviews and original research, this Article provides an ethnographic view of collective patent licensing episodes. Amidst these stories of success and failure, cooperation and conflict, the picture that emerges is more complex than theory alone predicts: government policies, the backward-looking concern of litigation over existing products, and various social goals significantly influence collective patent licensing. This study suggests some important refinements to theory and points the way forward for industry, lawmakers, and the public to begin a new discussion about the role of collective behavior in our patent system

Second Thoughts on FDA\u27s Covid-Era Mental Health App Policy

As the coronavirus pandemic swept across the globe in April 2020, the US Food and Drug Administration (FDA) made an unusual decision. The agency announced that it would relax its enforcement of compliance rules for “digital therapeutics”—smartphone apps designed to address mental health disorders. The measure was a response to widely reported upticks in symptoms of anxiety, depression, and substance abuse brought on by the pandemic. As an added benefit, the agency explained, digital therapeutics could promote social distancing by removing patients’ need to visit health care providers. This essay explores the possible lasting effects of the FDA’s temporary suspension of its rules. After the FDA put its waiver into effect, makers of unapproved apps branded as “wellness” tools rebranded their products as medical interventions. That rebranding could harm patient privacy. Many “wellness” apps that have rebranded themselves as health interventions operate outside of the confidentiality and privacy laws that bind therapists and other healthcare providers. Many of these apps share user data more liberally than health care providers. The FDA’s temporary suspension of its enforcement could provide a glut of highly sensitive information to app developers and the partners they transmit user data to. The FDA’s suspension of its rules could also suppress consumer confidence and, by extension, future innovation investments. Clinical studies do not back many wellness apps’ recent medical claims. If some of these apps are ineffective, consumers may categorically lose confidence in app-based mental health interventions—including treatments that are effective. Suppressed consumer demand could lead to a kind of mental health app “winter”—a period in which investment and research dry up. This possibility highlights the relationship between innovation and consumer behavior. Regulations on advertising could have an unintended impact on innovation. This essay begins with an explanation of how digital therapeutics fit into the history of mental health treatment. To anchor these concepts, I begin by offering a short introduction to the history and treatment of anxiety disorders—the most common class of mental health disorders in the United States. I then explain how the FDA regulates the marketing of mental health apps. Through before-and-after images of company websites, I show how the FDA’s 2020 suspension enforcement appears to have led app makers to rebrand their devices as medical interventions. Drawing on original interviews, press reports, and legal analysis, I postulate on the potential long-term consequences of the FDA’s temporary waiver

Cooling-Off and Secondary Markets: Consumer Choice in the Digital Domain

This article studies the law and economics of cooling-off periods and secondary markets for online media. The discussion is fueled by a current debate: In July 2009, the online retail juggernaut, Amazon.com, remotely deleted literary classics from consumers’ portable “Kindle” reading devices. The public outcry and class-action lawsuit that followed have reinvigorated an ongoing debate about how much control digital media distributors should wield. Pundits and plaintiffs argue that too often, digital distributors like Amazon impair consumer freedom by misusing Digital Rights Management (DRM) software systems. However, these same systems could also provide significant benefits that have largely gone ignored. This article argues that, with the help of DRM, lawmakers could provide for cooling-off periods and nurture secondary markets for downloaded media that would benefit consumers, copyright holders, and digital distributors

Communities of Innovation

This Article examines and evaluates the theory that patent holders privately self-correct the government’s excessive apportionment of patent rights by means of various cooperative efforts including patent pools, research consortia, and similar licensing collectives. According to some experts, these efforts are proof that market participants have the wisdom and the will to collectively disarm their patent arsenals in order to advance long-term innovation. But until now, this theory of market self-correction has not been evaluated through empirical study. Drawing on interviews and original research, this Article provides an ethnographic view of collective patent licensing episodes. Amidst these stories of success and failure, cooperation and conflict, the picture that emerges is more complex than theory alone predicts: government policies, the backward-looking concern of litigation over existing products, and various social goals significantly influence collective patent licensing. This study suggests some important refinements to theory and points the way forward for industry, lawmakers, and the public to begin a new discussion about the role of collective behavior in our patent system

Cooling-Off and Secondary Markets: Consumer Choice in the Digital Domain

This article studies the law and economics of cooling-off periods and secondary markets for online media. The discussion is fueled by a current debate: In July 2009, the online retail juggernaut, Amazon.com, remotely deleted literary classics from consumers’ portable “Kindle” reading devices. The public outcry and class-action lawsuit that followed have reinvigorated an ongoing debate about how much control digital media distributors should wield. Pundits and plaintiffs argue that too often, digital distributors like Amazon impair consumer freedom by misusing Digital Rights Management (DRM) software systems. However, these same systems could also provide significant benefits that have largely gone ignored. This article argues that, with the help of DRM, lawmakers could provide for cooling-off periods and nurture secondary markets for downloaded media that would benefit consumers, copyright holders, and digital distributors

Opting Out: Procedural Fair Use

This article explores the advantages of opt-out plans, and identifies a critical shortcoming in Copyright’s doctrine of Fair Use. The discussion is fueled by a current controversy: In December of 2004, Google, Inc. announced its plan to digitally scan thousands of copyrighted books as part of a massive new digital indexing service. Hedging against possible litigation, Google provided a free and easy opt-out procedure for authors who didn’t want their books scanned. Despite this measure, two major authors’ groups have sued Google, claiming the opt-out plan imposes an unfair burden. This article explores the fairness of established opt-outs in contract law, privacy law, and class action rules. Further, the discussion explores how Copyright already places similar burdens upon authors. Ultimately, these lessons are applied to the Google Book Search problem, and an important new Fair Use consideration is identified