**IP & Business Strategy** William Fisher, 2017.12.11
  1. Assert a Legal Privilege
    Weapons for resisting suits
      a. Challenge Validity of the IP Right
        Invalidity defense in patent law
          Windsurfer
          "One-Click"
          ANDA IV procedure
        Subject matter coverage in copyright law
          Yoga
        Misuse
          Napster
        Trademark Law
          Genericity Defense
            Murphy Bed
          Functionality Defense
            Traffix
      b. Defend Legality of Use
        No violation of exclusive rights
          Cablevision
            remote storage offers significant benefits
              less expensive
              less likely to break down
              less reliant on skill of consumers
            remote storage gives rise to several copyright hazards, but cable companies have been able to avoid them
            the cost of avoidance, however, has been the preservation of significant inefficiency
          Sirius XM
        Fair Use in Copyright Law
          White v. West (2013)
          Hope Poster
        Fair Use in Trademark Law
          KP Permanent Make-Up
    Hazards
      High Cost of Litigation
      Emotional toll
      If you win, competitors are free to capitalize on one's success
        exception: exclusivity period for successful ANDA challenge
      If you lose, damage awards can be catastrophic
        Taco Cabana
        Kodak
        MP3. com
        exception: no risk of damages under ANDA procedures
    Guidelines
      1. Declaratory judgment is usually better than defending a suit
        but the delay in launching the technology may be disqualifying
      2. Rare circumstances in which defensive litigation may be the preferred option:
        a. dominant firm(s) can use litigation to establish a broad precedent
        b. reputational deterrent
        c. ANDA paragraph IV
      c. Limit Remedies Available to IP Holder
        eBay
        Salinger
  2. Develop an Alternative
    Benefits
      Avoid both Litigation and License Fees
      Enhance Bargaining Position in License Negotiations and Acquisitions
        Short term: improve BATNA
        Long Term: strategic value of reputation
          e.g., Microsoft
    Hazards
      Costs of "Inventing Around"
        a. costs associated with the technology
          probability of developing an alternative
            e.g., in software, very high
            e.g., in pharmaceuticals, lower
          cost of developing an alternative
            e.g., in software, medium
            e.g., in pharmaceuticals, typically high
        b. costs associated with the "thickness" of the legal protection for the pioneer
          thick: patent equivalents
            element-by-element approach
            refinements
              state of mind
                bad intent on part of defendant is unnecessary
              PHOSITA knowledge
                a factor in the analysis is whether PHOSITA, at the time of the infringement, knew of the interchangeability of P's and D's components
                  Warner (1997)
              limitations
                prior art
                  Wilson (CAFC 1990)
                material disclosed but not claimed
                  Johnson (CAFC 2002)
                Prosecution History Estoppel
                  applies to any change designed to meet one of the substantive requirements of patent law
                    Festo
                  burden on patentee to show some other reason for change
                  Flexible standard, not "complete bar"; doesn't extend to:
                    equivalent unforseeable at time of application
                    rationale for the amendment bears only tangential relationship to the equivalent
                    patentee could not reasonably have been expected to describe the equivalent
            special standard for software?
              Cohen & Lemley (2001) advocate narrow standard of equivalents for software
              courts have not as yet accepted it
          thick: copyright substantial similarity
            for doctrine, see map for Copyright Law
            Kookaburra
            Steinberg
          medium: copyright standard for software
            Altai
              Altai test (CA2 1992)
              Spread of Altai SSO test, 1992-1996
                see Samuelson 2009, 2011
            Major software developers shift increasingly from copyright to patent protection
              U.S.
                Doctrinal
History
                  1960s: CCPA forces PTO to increase availability of patent protection for software
                    Prater (1969)
                    Bernhart (1969)
                      software for depicting three dimensional objects in two dimensions
                      Held: A machine programmed in a new and nonobvious way is patentable
                    Musgrave (1970)
                  1970s: Supreme Court
applies the brakes
                    Gottshalk v. Benson (1972)
                      computerized process for converting binary-coded numerals to pure binary form
                      Held: unpatentable because the invention claimed consists of no more than a mathematical algorithm; a patent would preempt its use
                    Parker v. Flook (1978)
                      computerized method for continuously recalculating the "alarm limit" during a chemical conversion process
                      Held: unpatentable, because if one ignores the algorithm on which the process is based, the claimed invention contains nothing new or inventive
                      Door left open a crack: "We do not hold that no process patent could ever qualify if it did not meet the requirements of our prior precedents. It is said that the decision precludes a patent for any program servicing a computer. We do not so hold."
                  1980s and early 1990s:
Gradual Relaxation of
impediments
                    CCPA
                      "Freeman-Walker-Abele test"
                        If the claimed invention (a) directly or indirectly recites a mathematical algorithm, but (b) applies that algorithm in an otherwise statutory appparatus or process claim, it's patentable
                      In re Freeman (1977)
                      In re Walter (1980)
                      In re Abele (1982)
                    Supreme Court
                      Diamond v. Diehr
(US 1981)
                        a process for continuously monitoring the temperature inside a synthetic rubber mold, using a computer and the well-known Arrhenius equation for measuring cure time as a function of temperature and other variables
                        Held: patentable, because this is an ordinary industrial process that happens to incorporate a computer program
                    CAFC
                      Iwahashi (1989)
                        voice pattern recognition software
                          incorporating improved technique for calculating autocorrelation coefficients
                          i.e., compaing short snippets of speech
                        held: fact that it was embedded in a read-only device made it a patentable machine or manufacture
                      Arrhythmia (1992)
                        computerized method of analyzing electrocardiograph ("ECG") patterns to detect persons at risk for certain heart diseases
                        "These claimed steps of 'converting,' 'applying,' 'determining,' and "comparing' are physical process steps that transform one physical, electrical signal into another."
                      Allappat (1994)
                        software for controlling the illumination of pixels on an oscilliscope to minimize discontinuity and jaggedness
                        Held: an algorithm embedded in general purpose computer is patentable
                    PTO
                      1996 Guidelines
                        will accept applications for patents on software on disks
                  late 1990s:
Culmination
                    State Street Bank (1998)
                      computerized hub & spoke accounting method
                      Transformation of data by a machine into a final share price constitutes a practical application of an algorithm and is therefore patentable subject matter
                      Repudiate "business methods" exception to patentability
                    AT&T (1999)
                Data
              E.U.
              imperfect strategy: increased cost; patent protection not available in all countries
          medium: trademark law
            "consumer confusion"
            dilution
          thinnest: copyright standard for sound recordings
            Digital Sampling in Hip Hop
            17 U.S.C. 114(b)
              The exclusive right of the owner of copyright in a sound recording under clause (1) of section 106 is limited to the right to duplicate the sound recording in the form of phonorecords or copies that directly or indirectly recapture the actual sounds fixed in the recording.
            Bridgeport Music (CA6 2005)
      Regulatory Costs
        Bioequivalent Drugs
        increased by data exclusivity rules in pharmaceutical industry
          5 years for NCEs
          3 years for IMPs
          12 years for biologics
      Resulting Competition
        pharmaceuticals
          oligopolistic pricing among me-too drugs
            during period of patent protection, price competition among therapeutic substitutes is rare
              Danzon 2009
            instead, compete on brand and therapeutic nuances
            in relatively undifferentiated markets, newcomers without clear quality advantages often employ "market penetration" pricing strategy
              initially somewhat below dominant player(s)
              then gradually rise
              Reekie 1978, Chen 2012
            by contrast, newcomers with clear quality advantage often employ "skimming"
              initially somewhat higher than dominant players
              then gradually decline
                in effect, a form of temporal price discrimination
              Dean 1969, Reekie 1978
          market division among pioneer and generics
            after expiration of patent, generics enter; competition among them soon drives prices down
              Berndt 2010
            but price of originator drug commonly declines only modestly -- or even rises -- as a form of market segmentation
              Frank and Salkever 1997
              Danzon 2009
        software
          effect depends heavily on the nature and power of the firm that introduces the alternative technology
    Examples
      Sanofi v. Dabur
        process, not product patent
    Guidelines
      Combine technology, law, and marketing to estimate the total costs and benefits of each potential way of inventing around the protected technology of the incumbent
      If selected early enough, this path can often be much less expensive than the others
      Credible threat to pursue this strategy can drastically reduce license fees
        i.e., a powerful BATNA in negotiation
  3. Get Permission
    Benefits
      Short Time to Market
        Windsurfing
      Eliminate Risk of IP Infringement
        YouTube
    Costs
      Potential Antitrust Liability
      Reduced Bargaining Power
      Costs vary with number of IP rights that must be obtained
        Transaction Costs
          Examples
            Rhapsody
            Choruss
              See Free Riding (2011)
            Google Book Search
          Mitigating Mechanisms
            Patent Pools
            Collecting Societies
              Copyright Clearance Center
            Extended Collective Licensing
        Royalty Stacking
          academic debate concerning its frequency
    Guidelines
      The potential advantages to this strategy mirror the potential advantages to IP holders of licensing
      in circumstances in which licensing is advantageous for the holder, it's potentially beneficial to licensees
  4. Detente
    Benefits
      Mutual Assured Destruction deters costly litigation
        Ford and General Motors
          Ford, then GM, amass large patent portfolios, but don't assert them
          Wegner & Maebius, "Patent Flooding" (2002)
        Electronics
          Bessen & Hunt, An Empirical Look at Software Patents (2004)
        RPX
          defensive patent aggregator
            service it offers to participants: insurance against patent litigation
            cf. "protection" offered by Mafia
          the counterpart to NPEs
          problems
            they can only offer incomplete insurance
              at best, a reduction in the probability of being successfully sued for patent infringement
            free-rider problem
              competitors of their customers benefit from the protection that RPX offers to their customers
              reduces the competitors' willingness to sign up
              knowing this, the first wave of customers are reluctant to sign up
            potentially vulnerable to antitrust suit
              Cascades Computer Innovation complaint
          ambiguous signals from the market
            went public in May 2011
            stock price fluctuates
        number of patents, not content or quality, is the decisive variable
          cf. Texas Instruments
            "For TI to know what's in its patent portfolio, we think, is just a mind-boggling budget-busting exercise to try to figure out with any degree of accuracy at all"
            Statement of Fred Telecky, Senior VP and General Patent Counsel, TI
              Competition and Intellectual Property Law and Policy in the Knowledge-Based Economy: Joint Hearings Before the Fed. Trade Comm’n & Dep’t of Justice 743 (Feb. 28, 2002)
      Cross Licensing Ensures Access to Technology
        Canon
        Semiconductor Industry
          Hall and Ziedonis (2001): "Instead of being driven by a desire to win strong legal rights to a standalone technological prize, these firms appear to be engaged in 'patent portfolio races' aimed at reducing concerns about being held up by external patent owners and at negotiating access to external technologies on more favorable terms"
    Hazards
      Wasteful
        from the standpoint of the firm, wasteful
          cf. advertising to stabilize market share
        from the standpoint of social welfare, pure waste
      Byproduct: untethered stockpiles of patents
    Guideline
      This approach is almost as bad as litigation
      In a highly litigious industry, it may be the only way of securing room to operate, but it is wasteful for all concerned -- and incidentally will feed the trolls
  5. Rapid Dissemination
    Strategy
      deploy putatively infringing technology fast enough to provoke either favorable judicial ruling or license
      Hope that by the time a dispute ripens, the system will either be too valuable to IP holders to suppress or will be culturally embedded
    Case Studies
      Success
        Sony in VCRs
          dissemination of VCRs
          the Betamax case
          impact
        Image Search Engines
          Arriba Soft
          Perfect 10
        Google
          Adwords litigation
      Failure
        Napster
          Bertelsmann
            Bertelsmann invests $85 in Napster in hopes of converting it to lawful service
            Bertelsmann loses the investment when licensing fails
            Napster shut down through suit for secondary liability
              no damages, because Napster had no resources
              Napster files for bankruptcy in 2001
            record companies & music publishers bring tertiary liability suit against Bertelsmann
              factors tilting toward settlement
                enormous potential liability, because of statutory damages
                risks of litigating in the US
                May 2006, Judge Patel rejects B's motion for summary judgment
                  Basis: plaintiffs can try to prove facts that would establish liability for "inducement" under Grokster
              settlements
                September 2006, Bertelsmann settles with UMG for $60M
                  part of sale by Bertelsmann of its music publishing arm
                April 2007, Bertelsmann settles with Warner Music for $110M
                May 2007 Bertelsmann settles with EMI for undisclosed amount
                  as a result, Bertelsmann posts a first-quarter loss of 70M Euros
                August 2007, Bertelsmann agrees to pay publishers $130M
                  $32M allocated to litigation expenses
        Google Book Search
    Guidelines
      1. This approach is only available to large-scale enterprises
        either are already large when considering this option
        or have realistic prospects of becoming large very fast
      2. Very high risk
        if you lose the predictable infringement suit and/or the copyright owners refuse to license, the result is likely to be catastrophic
      3. Potentially huge gains
        success, conjoined with direct network effects, can create high barriers to entry
  5. Donate
    Nonstrategic
      Commons-based peer production
        Wikipedia
          see Benkler, Coase's Penguin
        NASA Mars Clickworkers
        Slashdot
      Universities
        Scholarship
          Open-access publishing
            e.g., Harvard University
        Nonenforcement of Patents
          substitute for experimental-use exception
      Philanthropic responses to global health crisis
        see Infection map
      Humanitarian Tech Transfer
        e.g., Global Access in Action
    Strategic
      a. Reduce Hold-up Risk
        Merck
          In the early 1990s, it appeared that ESTs would be deemed patentable
          many separate firms were filing applications for ESTs
          hazard: anticommons
            fragmentation of the rights that would have to be assembled in order to create a product (e.g., a therapeutic test) created hold-out risk
          Merck responded by creating the Merck Gene Index (in collaboration with Washington Univ.)
            public database of gene sequences that code for particular proteins
            by 1998, published more than 800,000 sequences
          purposes:
            prevent other firms from acquiring patents on published sequences
            prompt other firms to follow suit: acquiesce in de-propertization of a crucial common resource for research and product development
          sources
            Merges
      b. Encourage Complementors
        Merck
      c. Signal Quality of Ideas
      d. Stimulate Demand for Other Products or Services
        Independent Musicians
          examples
            e.g., Brazil (Lemos)
            e.g., Amanda Palmer
            Wechsler on Free Revealing
          widespread distribution of recordings fuels demand for complements:
            concerts
            merchandise
          social welfare cost: distortion of kinds of music generated
            see Fisher, Promises to Keep (2004)
        Fremium Strategy
          e.g., Nine Inch Nails
            Ginsburg 2016
        Open Source Software
          individual programmers
            see Lerner
          IBM
            see Benkler, Coase; Sharing Nicely
          Sun
            Palfrey, Swords & Shields
            for integrated firms, open-source at one level may increase proprietary value at other levels
              e.g., donate IP to create, unilaterally, a platform that then works to your advantage
      e. accelerate obsolescence of your product; fuel demand for next wave
        Fashion
          Examples of Copying
          Variety of Legal Regimes
            USA
              Minimal copyright,
trademark, or design patent protection
            Europe
              EU
                25 years of protection for registered designs; 3 years for unregistered
              France & Italy
                Strong protection for both registered and unregistered designs
          When should designers donate IP?
      f. maintain presence in rapidly changing market
        Viacom/South Park
  4. Collaborate
    a. With Competitors
      Tacit
        Depression Drugs
        University Research
        Sampling in Hip-Hop
      Express
        Patent Pools
          especially useful in overcoming "patent thickets"
            disagreement concerning the seriousness of the patent-thicket problem
              serious
                Eisenberg, Rai
              not serious
                Kieff 2001; Adelman 2005; Lei et al 2009
            may be mitigated by patent pools for complementary patents
              Bittlingmayer (1988)
              Gilbert/Shapiro (1997)
              Shapiro (2001)
              offsetting danger that pools may facilitate anticompetitive behavior, particularly with respect to substitute patents
                Kaplow (1984)
                Barton (1996)
                Carlson (1999)
              possible sorting mechanism: requirement of independent licensing option would corrode (bad) substitute pools, without adversely affecting (good) complementary pools
                Lerner/Tirole (2002)
                cf. Lerner/Tirole/Strojwas (2003)
                implication: to minimize risk of antitrust liability, one should probably permit independent licensing
        Standard Development Organizations
          Potential Advantages of SSOs to Participants
            1. increases value of the products produced by all firms in the market
              Sources of increased value
                1. network externalities
                  e.g., AM radio
                  e.g., interoperability of mobile phone systems radically expands direct network effects associated with each system
                  adherents to a standard can share benefits of indirect network effects
                    standardization of VCR format enables all manufacturers to share indirect network effects of increased production of movies
                2. increase in functionality: safety and reliability
                  pool knowledge concerning (and control over) attractive features
                3. economies of scale in manufacture of components can reduce production costs for all participants
              Benefits are maximized by anticipatory standard setting
                agree on a common technology prior to the introduction of any products
                contrast Betamax v. VHS
              Magnitude of increased value
                EU Commission Staff estimates that 1% increase in number of standards used in a country correlates with ~1% increase in GDP
            2. Potential IP licensing revenue
              the more closely the standard aligns with a firm's IP, the higher the revenues
              e.g., 4G LTE standard
                Qualcomm owns ~12.5% of SEPs for 4G LTE standard; receives in licensing revenue ~3.2% of price of every 4G LTE phone sold in the world
                  source: Trefis, "Nokia" (2013)
                Nokia owns an even larger share
              from a social-welfare standpoint, this is neutral
                transfer payment; no impact on aggregate welfare
            3. Increase Barriers to Entry
              block competition from a new technology
                e.g., manufacturers of steel electrical conduits combine to form a standard forbidding use of plastic conduits
                e.g., noodles
            4. Opportunities for Rent Seeking
              each participating firms wants disproportionate share of the social benefit of the standard
                illustration
                problematic from standpoint of social welfare
                  a. waste of resources resulting from struggle over shares
                  b. potential sacrifice of safety and efficiency benefits of the standard
          Law Governing SDOs
            SDOs are permitted
              exception to antitrust prohibitions
            But
              1. They must have a legitimate objective
                General guideline: If suppression of competition is the only plausible rationale for the standard, AT violation
                  Allied Tube & Conduit Corp. v. Indian Head, Inc. ( US Supreme Court, 1988)
                However, if there are type #1 benefits, then standard setting is not an AT violation
              2. They must abide abide by procedural requirements designed to reduce abuse
                ANSI Requirements
                  Openness
                  Balance/Lack of Dominance
                  Public Notice
                  Consideration of Views
                  Consensus Voting
                  Appeals Process
                  Written Procedures
                  IP Policy
                    both US and EU treat these policies as contracts: binding on SDO members
                      Broadcom v. Qualcomm (CA3 2007)
              3. Ability of Participating Firms to Use their IP rights is curtailed
                Duty to Disclose
                  Each firm must reveal patents -- or pending applications -- that might be necessary to implement the standard
                  failure to do so may render patents unenforceable against SDO members
                    e.g., In re Dell (1996)
                    Stambler v. Diebold (CAFC 1989)
                    Mitsubishi v. Wang (CA3 1997)
                Duty to License
                  Option #1: Announce in advance refusal to abide by constraints
                  Option #2: Commit to Licensing on Particular Terms. The terms vary widely. The most common are:
                    a. Royalty-free licensing
                    b. FRAND Licensing
                      "Fair"
                        license terms would not be considered anticompetitive if imposed by a dominant firm in a market without a standard
                        "unfair" license terms include:
                          bundling
                            to get the attractive license, licensee must license an unattractive product or process
                          free grantbacks
                            license agrees to grant to licensor licensee's patents for free
                          mandatory exclusivity
                            licensee agrees not to license from licensor's competitors
                          agreement not to challenge patents
                            Motorola Mobility (EC April 2014)
                      "Reasonable"
                        general guidelines
                          license fee should approximate the amount that patentee could have collected in the absence of a standard
                          license fees not so high as to render the industry uncompetitive
                          applied more strictly in EU than US
                        Microsoft v. Motorola (W.D. Wash. 2013)
                          reasonable rates determined through application of Georgia-Pacific factors
                          modified by:
                            a. sensitivity to public benefits of standards through increased production and price competition
                            b. need to avoid royalty stacking
                              each licensor enters into licensing negotiations as if it were bilateral
                              net result: higher aggregate licenses than would emerge if all patents were held by a single entity
                              in extreme cases, higher aggregate license fee than licensee can afford
                            c. principle that the license fee should be commensurate with the value the technology in question contributes to the standard and to the product
                          applied:
                            Motorola asked for $4B p.a.
                            at trial, Motorola reduced demand to $400M
                            Court concludes that RAND licensing would require Microsoft to pay Motorola $1.8M p.a.
                            Motorola’s refusal to license on such terms and effort to secure an injunction (in Germany) held to be a breach of contract
                              Microsoft can enforce as 3rd party beneficiary
                              Microsoft recovers in damages $15M (for relocating EU distribution center to Netherlands and for atty fess and costs)
                          Affirmed by CA9 (2015)
                      "Nondiscriminatory"
                        same terms offered to all firms in the industry and to all potential entrants
                        OK to vary terms with credit-worthiness, volume
                      Limits on injunctive relief
                        Motorola (Google) v. Apple
                          July 2013, FTC Order accepts settlement
                            Google will not seek injunctions
                            anywhere in the world
                            for 10 years
                            for use of SEPs related to any standard set by any SSO
                            against potential licensees who commit to specified licensing framework
                              good-faith negotiation for 6 months
                              arbitration by AAA, JAMS, or WIPO
                          April 2014, EC accepts settlement
                            If patentee has committed to FRAND licensing of a SEP and a manufacturer has committed to enter into a license on reasonable terms, patentee may not seek an injunction against use of the patented technology
                              Motorola Mobility holds patents on technologies essential to GPRS standard (part of GSM)
                              Apple had agreed to take a license and to abide by determination of reasonable license fees by a German court
                        Samsung v. Apple
                          In 2011, Samsung initiated lawsuit against Apple, seeking injunctions in several EU countries for violation of Samsung's SEPs related to 3G UMTS standard
                          December 2012, EC informs Samsung that it considers the initiative an abuse of dominant position
                          October 2013, Samsung proposes settlement
                          April 2014, EC accepts -- and renders binding under EU antitrust rules -- Samsung's commitments to:
                            not seek injunctions
                            in EEA
                            for 5 years
                            for use of SEPs related to mobile-device standards
                            against potential licensees who commit to a specified licensing framework
                              12-month good-faith negotiation period
                              if negotiations fair, FRAND terms will be determined by a court or mutually agreed arbitrator (with ICC)
                        No consensus yet on whether patentee may seek an injunction in the absence of such a commitment
                      Mechanisms for Interpretation
                        Judicial Opinions
                        Orders by Competition Authorities
                          FTC
                          EC
                        Acceptance of Settlements by Competition Authorities
                        Public Statements by Officials
                        Growing use of "voluntary" commitments to define "FRAND"
                          e.g., FRAND "Clarification" Letters by Apple, Microsoft, Google, February 7-8, 2012
                            FRAND Coverage
                            FRAND Obligations
                Legal Source of Obligation
                  Implied license
                  Patent Misuse
                  Equitable Estoppel
                  Abuse of Dominant Position (EU)
                  Duty of Good Faith (EU)
                  Treaty of Rome
                    unfair competition and antitrust
          Patent Pledges
            Commitments, made outside the context of SDOs, to use (or refrain from using) patents in particular ways
              Examples
              Enforcement theories
                Contract + third-party-beneficiary doctrine
                Promissory Estoppel
                Antitrust violation (FTC)
                Market reliance theory (Contreras 2015)
        Drug Tracking Systems
          World Customs Organization: IPM System
          Sproxil
            Sproxil uses mobile technology to combat counterfeiting and increase brand equity by relying upon consumer-focused product protection
              Mobile Product Authentication (MPA)
              Cascading Authentication
              Stolen Product Investigator
            large deployment in Nigeria
          mPedigree
          Accredited Drug Dispensaries
            Tanzania
        Reverse-Payment Settlements
          long version
          short version
        Drug Pricing Principles: Best Practices
          cf. Global Network Initiative
      Opportunities
        (1) Reduce price competition and thus increase profits
        (2) Share technology and thus reduce costs
        (3) Capitalize on network externalities
      Hazards
        Antitrust Liability
        Finding of "misuse" will render copyright or patent unenforceable
      Guidelines
        Engagement in a collaborative standard-setting process in often imperative
          unilateral standard-setting usually isn't feasible
          if you stay out, your competitor may come in with its own IP to drive through the standard-setting process, thus reducing or perhaps eviscerating your IP value
            either through robust licensing
            or by obtaining a large exit premium
              such as Motorola Mobility achieved through its Google sale
          the risks associated with collaborative standard-setting, although complex, can be managed successfully
        But avoidance of liability requires close attention to antitrust constraints
          disclosure obligations
          licensing obligations
          Strategy
            Since most standards will be utilized both in the US and Europe, the legal advice sought must reflect the differing legal doctrines of these jurisdictions
              assume greater scrutiny in Europe
            government standard-setting may be easier to execute outside the US, in countries such as Australia, Japan and Mexico
              the latter are more top-down than the US, where satisfying all disparate interests (direct and indirect) may be more difficult to achieve
        Process
          Both senior executives and lawyers need to be involved as a team from the outset, working together at all stages of the standard setting process.
          Plan carefully: develop a strategic matrix that analyzes the full IP portfolio, charted across the relevant SSOs and what IP in your portfolio provides the most coverage if the standard is adopted conversely
          commit to stay with the process through its completion
          Patent pools are worth exploring before and during the standard-setting process
            both for the potential upside licensing revenues and the relatively low level of antitrust scrutiny this will raise (particularly in the US)
          Source: Stuart Brotman
    b. With Developers of Complements
      Open APIs
      Apple's App Store
        Apple requires "sandboxing" of all apps as of March 2012
      Community Health Workers in Uganda
      Guideline
        use contracts and technology to create an environment in which complements for your product and service are as numerous, readily available, and inexpensive as possible
    c. With Customers
      Grant-back licenses
        a condition of a patent license: licensee grants to licensor a license on any improvement patents
        varieties
          agreement to assign
          exclusive
          nonexclusive
        Benefits
          avoid being beholden to a licensee who improves your technology
          increase dominance of a field of technology
            GE
        Hazards
          be careful not to run afoul of antitrust or competition law
            not per se unlawful under antitrust laws, but may constitute AT violations or patent misuse under the "rule of reason"
            nonexclusive GB licenses, limited to duration of the underlying patent, generally upheld in both US and EU
      "User Innovation"
        Sell customers “toolkits”
          Enable them more easily to modify the products they purchase
          See Nikolaus Franke & Frank Piller, Value Creation by Toolkits for User Innovation and Design: The Case of the Watch Market, 21 J. Prod. Innovation Mgmt. 401, 412–13 (2004).
        "Idea Competitions"
          Frank T. Piller & Dominik Walcher, Tookits for Idea Competitions: A Novel Method to Integrate Users in New Product Development, 36 R&D Mgmt. 307, 307 (2006)
        "Collective Consumer Commitment Method"
          Susumu Ogawa & Frank T. Piller, Reducing the Risks of New Product Development, 47 MIT Sloan Mgmt. Rev. 65, 66 (2006)
        "Collaborative Customer Co-Design"
          Overcoming Mass Confusion: Collaborative Customer Co-Design in Online Communities, 10 J. Computer-Mediated Comm. 3, 4 (2005); Christoph Berger et al., Co-Designing Modes of Cooperation at the Customer Interface: Learning from Exploratory Research, 2 Eur. Mgmt. Rev. 70 (2005); Per Kristensson et al., Harnessing the Creative Potential Among Users, 21 J. Product Innovation Mgmt 4, 11–13 (2004)
        Sources
          von Hippel
          Fisher, "The Implications for Law of User Innovation"
      Pharma Collaborations with Patient Representatives
        Vertex and Pfizer / Cystic Fibrosis Foundation
    d. With Governments and Foundations
      Ebola
  3. License
    Opportunities
      Increase Capacity
        University Technology Transfer Offices
          AUTM US Licensing Survey, FY2014
            • 5,435 licenses executed (up 4.5% over prior year)
• 1,461 options executed (up 7.7%)
• 549 executed licenses containing equity (up 17%)
• 914 startup companies formed (up 11.7%)
• 4,688 startups still operating as of the end of FY2014 (up 11.4%)
• 965 new commercial products created (up 34.2%)
• 6,363 U.S. patents issued (up 11%)
        Jerome Lemelson
          Independent Inventor
            received aprx. 600 patents on a wide variety of inventions
          earns huge income by licensing to manufacturing companies
      Increase Demand
        Monsanto
          Technological innovations
            "Roundup"
              M develops powerful herbicide, based primarily on glyphosate (a salt) that is nontoxic to animals but kills most green plants until dissolved by rainwater
                exception: pigweed
              benefit: sharply reduce costs of weed control
              disadvantage: requires careful timing in order to avoid killing the crops themselves
              patented in many countries
                patent expired in 2000
            "Roundup-ready" seeds
              through genetic engineering, M is able to identify a gene that makes plants resistant to Roundup, to incorporate that gene in soybeans, and to produce seeds containing the modification
              patented in many countries
                duration: 1994-2014
            "Roundup-ready 2"
              contains same gene, but inserted in different place in the genome
              slightly altered "genetic cassette"
              M claims modestly more efficacious than RR1
                7% increase in yields
              competitors claim no more efficacious
              patented in many countries
                duration: 2000-2020
          Licenses to develop and sell seeds containing RR1 technology
            licenses granted on reasonable terms to 200-300 seed companies
            benefit #1: rapid deployment of the technology
              soybeans
                91% of soybeans in USA are genetically modified
                of that number, 92% contain RR1 gene
                acceptance is accelerating in Latin America and Asia
              other crops
            benefit #2: technological lock-in facilitates "evergreening"
              M wishes to maintain revenue stream past 2014 -- and to increase license fees (by 40%)
              licensees reluctant to pay the premium
              M pressures RR1 licenses to switch to RR2 technology
                allegedly by threatening (in 2008) to terminate RR1 licenses in 2012 (before RR1 patent has expired)
                  if M had waited until RR1 patent expired, then licensees, faced with this demand, could have refused and continued to produce seeds containing RR1 gene without a license
                  but if they refused in 2012, they would have been unable to operate for 2 years
                through discounts and other incentives
              hazard: may run afoul Antitrust law
                private antitrust suit by Dupont against M
                US Justice Department investigation
              factual dispute concerning extent to which M exercised this power
          Licenses to combine RR1 technology with other other modified genes
            licenses granted to Dupont (Pioneer Hi-bred), Bayer, Syngenta, Dow AgroSciences, and BASF to combine RR gene with other modified genes to produce seeds with multiple advantages
            benefit to M: strategic position enables M to extract some of the value of the competitors' innovations
              illustration
              hazard: may run afoul Antitrust law
          Sources
            Parloff, Monsanto's Seeds of Discord (2010)
            Palfrey, Swords & Shields (2011)
        Qualcomm
          Palfrey, Swords & Shields
      Discourage "inventing around"
      Reinforce IP rights
      Pure Profit Center
        Film Industry
          Series of licenses in successive markets
          License depiction of fictional characters on consumer goods
        Texas Instruments
          beginning in mid-1980s, TI escaped bankruptcy by entering into nonexclusive licenses to its neglected patent portfolio
          supplemented with new patents
            1986-1995, filed 3537 applications
            double the rate of the previous decade
              Chien
          total revenues more than $4b
        GE
        Fees
          Data on Licensing Revenues
            Palfrey, Swords & Shields 2011
          Variation: Option and Evaluation Agreement
            potential licensee gets short-term exclusive right to assess the technology and, if satisfactory, negotiate a license
            consideration: either modest fee or duty to transfer test results to putative licensor
    Hazards
      Undermine Monopoly Rents
        licensees keep a portion of the potential profits
        government(s) keep a share, because licensing transactions are often taxed
          can be reduced by locating IP Holding company in a low-tax jurisdiction
            crucial that the holding company actually operate in that country
            Christopher Bull
      Divergence of Interests of Licensor and Licensee
        result: dissipation of the value of the IP
        examples
          licensor typically has more long-term interests than licensee
          Licensor often has greater interest in the maintenance of reputation and brand value
          one party is commonly more risk averse than the other
        especially serious in context of TM licenses
          Calvin Klein
        Techniques for mitigating the divergence
          (1) People
            (a) Careful selection of licensees
              family members
              friends
            (b) Cultivate Relationship of Trust
              customs are highly culture-specific
          (2) Control behavior of both parties through license terms
            the more complex the relationship, the more difficult and unreliable is this strategy
          (3) Align Incentives
            structure the relationship so that when licensee gains, licensor gains; when licensor loses, licensee loses
      Risk of antitrust liability
    Guidelines
      Circumstances in which licensing may be optimal
        1. pioneer lacks capacity to satisfy potential demand
          under those circumstances, licensing will increase total industry profit
          license payments will make this profit-maximizing for the pioneer
            McGee (1966)
        2. licensing will enhance demand for a new product
          simple version: by exposing more consumers to the product faster
          especially important consideration when increased use of the product results in strong direct network effects
            Windsurfer
              Hoyle Schweitzer licensed the pioneering technology broadly
                Ten Cate
                Dufour/Tabur/Bic Sport
                F2
                Mistral
          more complex version: may enable innovator to commit credibly to pursuit of quality
            by creating a situation in which pioneer and licensees compete on quality
            "Second Sourcing" in Semiconductors
              Shepard 1987
        3. licensing rivals may discourage them from engaging in further research and thus preserve the pioneer's dominant position
          Synthetic Rubber and Oil
            In 1940s, Standard Oil and Farben cross licensed pioneering patents and then licensed them broadly to competitors
            Galini 1984
          hazard: antitrust liability
        4. pioneer's IP rights are shaky
          licensing on reasonable terms may discourage licensees from challenging the IP rights
          one of the "secondary factors" used to determine non obviousness in patent law is whether others have been willing to license the technology at issue
          Windsurfer
            Hoyle Schweitzer licensed the pioneering technology broadly -- and cheaply
            eventually, however, he lost challenges to the patent
              England
              Canada
              USA
      Circumstances in which licensing may not be optimal
        preference for exclusivity wrt "drastic innovations"
          Katz & Shapiro
          but cf. Monsanto
        divergence between interests of licensor and licensee are unmanageable
  2. Sell
    The Market for IP
      Impediments to Sales
        Unique assets
        Value of assets is highly context specific
        Probabilistic Assets
          validity is often uncertain
          scope of the right is often unclear
        Portfolio Effects
          value of a given patent depends heavily on what other patents it is paired with
        Due diligence is difficult and expensive
          Arrow's Paradox
      Lubricants
        Live Auctions
          Ocean Tomo
            open IP auctions, 2006-2009
              low volume
              low percentage of portfolios bought
              afflicted by low quality of patents contributed
            acquired in 2009 by British Brokerage: ICAP
        Online Platforms
          Tynax
          Yet2.com
        Brokers
          iPotential (now defunct)
          Epicenter
          Thinkfire
        NPEs
          contested terminology and scope
            NPE: nonpracticing entity
            PAE: patent assertion entity
            patent troll
          examples
            Intellectual Ventures
              acquired over 30,000 patents
              filed several major patent-infringement suits
              large laboratory in Bellevue WA, intended to develop new patentable inventions
                e.g., “Laser induced mortality of *Anopheles stephensi* mosquitoes”
                  *Nature* article
                Mazzi: big-mouthed, easy-to-clean milk container
              HBR defense
            Round Rock Research
              John Desmarais
              provocative logo
              may function as a "privateer" for select patent holders
            Acacia Research
              measured by stock price, highly successful
              10x since 2009
            NTP Inc.
              (in)famous for successful litigation against RIM (2006)
            Paice LLC
          characteristics
            sources of their patents
              assignments from technology developers
              fire sales from failed companies or product lines
              leftovers of arms race
            typical characteristics of their portfolios
              relatively small numbers of patents
                exception: IV
              relatively high quality patents
              secret or semi-secret
                "submarine" strategy
            sources of revenue
              licenses
              litigation settlements
            lawyers
              contingency fees
                pioneered by Gerald Hosier
                now commonly mimicked by attorneys for NPEs
                  Niro Scavone
                  Fish & Richardson
                  Cooley Godward
          patent law is increasingly tilted against NPEs
            eBay decision
            Vermont statute permitting targets of unsuccessful suits to sue plaintiffs for fees
            2011 AIA
              No more blunderbuss patent-infringement suits
            Obama executive order (2013)
              urge PTO to adopt various reforms to discourage trolls
              increased scrutiny of expansive or ambiguous claims
              increased scrutiny of software patents
                MS expresses concern
    Tactics to Facilitate Sales when IP rights are shaky
      "Block to Fence"
        in industries where individual patents are not strong, firms sometimes employ more complex strategies to “block” competitors and thus increase their bargaining power
          patent substitutes for the technology in question, even when the firm has no interest in commercializing them
            e.g., in 1940s, DuPont patented 200 substitutes for Nylon
          patent complements — particularly effective when several technologies are necessary to a complex product
        source: Cohen et al. 2000, pp. 21-23
      Threat of Broad Licensing
        disclose to a single party; threaten to release the information broadly if that party attempts to misappropriate the idea
      "Skin in the Game"
        disclose some of the relevant information + accept buyer's stock options as part of the compensation for sale
        the combination of partial information and "skin" enables buyer to infer value of the asset
        sources
          Anton & Yao (2002)
          Gans et al. (2008)
    Guideline
      Sale makes sense iff the difference between (a) the value of the IP in your hands and (b) its value in B's hands exceeds (c) transaction costs
        (a) in considering the value of the IP in your hands, include all the other offensive options -- including licensing
        (b) potential value in other hands may be rising as NPEs flourish
        (c) transaction costs are high but are declining
          brokers may be more promising than open markets
  1. Exercise Market Power
    Potential Sources of Market Power
      a. Legal Exclusivity
        Patents
          rights to prevent others from making, using, selling, or importing novel products or processes
          nonobvious applications
            business methods
              alternative potential basis of invalidity: indefiniteness
                Ex parte Adelman (BPAI 2012)
          legal doctrines
        Copyrights
          exclusive rights to reproduce, modify, distribute, and perform works of authorship
            Literary Works
            Music
              Compositions
              Sound recordings
            Audiovisual Works
            Dramatic Works
            Choreography
            Fictional Characters
            Useful Articles
            Architecture
          nonobvious applications:
            product labels
              shampoos
              watches
            databases
            software
          legal doctrines
        Trademarks
          exclusive rights to make commercial use of words and symbols that identify the goods and services provided by particular companies
          nonobvious applications
            enable zones of exclusivity for products through the doctrine of "trade dress"
          legal doctrines
        Trade secrets
          rights to prevent others from acquiring and then using processes or device used in the operation of a business
          applications
            information pertaining to contents of or manufacture of a product
            process of treating or preserving materials
            information relating to business operations
            customer lists
            computer programs
            single or ephemeral events
            negative information
          legal doctrines
        Data and Market Exclusivity
        Choosing a form of protection
          often more than one form of protection will be available
          they have advantages and disadvantages that are often subtle
            e.g., narrow SSO protection under copyright for software, prompting many software firms to shift to patents
          choice of form of protection may affect design of product
            e.g., nonfunctionality requirement in ™ law
              Ferrari
              Yoga
      b. Effective Enforcement
        Remedies
          Damages
          Enhanced Damages
            willfulness
            statutory damages
          Injunctions
          Pursue Facilitators
            Secondary Liability
            Tertiary Liability
          Border Controls
        Recent Responses to Filesharing
          France
            Graduated Response
              TMG monitors Internet traffic for copyright owners, seeks to detect illegal downloading; alerts Hodapi
              First offense: email warning letter
              Second offense: another email warning + registered letter
              Third offense: Hodapi may refer to prosecutors
                Potential penalty: fine of 1500 Euros + suspension of Internet access for one month
            Usage (as of December 2011)
              system initiated January 1, 2010
              822,014 first warning letters
              68,343 second warning letters
              165 under investigation for final phase
            Effect
              Danaher et al. (2012) report that iTunes sales in France are 22.5% higher in France since institution of Hodapi than in control-group European countries
                trends
            Alternative: Francois Hollande
              eliminate Hodapi
              replace with tax on ISPs, equipment manufacturers, Internet users
              revenues to be distributed to copyright owners
          USA
            Secondary Liability Suits
              Naspster
              Aimster
              Grokster
              Limewire
            RIAA suits against file-sharers
            SOPA
              Principal features
                Cutoff access to "pirate" sites
                  AG can seek court order for injunctive relief against "foreign infringing sites"
                    ISPs must take reasonable measures, within 5 days, to block access to the site for its US subscribers
                      prevent the domain name of the site from resolving to the IP address of the site
                    Search engines must take reasonable measures within 5 days to cease providing links to the site
                    Internet advertising services and payment facilitators within 5 days must cease doing business with the site
                  Copyright owners can notify payment facilitators and advertising services that they are providing services to foreign or domestic sites that are "directed to the theft of U.S. property"
                    procedure for notification by copyright owners, counter-notification by accused sites
                      intentional material misrepresentation in such notices or counter notices will give rise to liability in damages
                    in absence of counter notice, payment and ad services must cutoff access within 5 days
                    if site files a counter notice, copyright owner may seek court order
                Increased criminal penalties for unauthorized streaming
              Objections
                DNS filtering system would be ineffective
                  easily evaded
                Bad side effects
                  undermine universality of domain names
                  impede use of DNS data for other purposes
                    detect security threats
                    improve network performance
                  would block access to much non infringing material
                    e.g., opponents assert that one blog (containing infringing material) on a website could trigger system
                Unnecessary
              Narrative
                Series of initiatives and bills culminate in October 2011 SOPA draft
                Increasingly intense criticism
                Dec. 12, 2011 Revision
                  set of pirate sites limited to foreign sites that are designed or operated with the intent to promote copyright infringement
                January 18, 2012 protest by Wikipedia, Google, Yahoo, etc.
                House and Senate committees abandon current drafts, promise to reconsider the issue
            Trends
              P2P activity for music is gradually declining
                NPD Report
                  2007, 16% of US population
                  2010, 9% of US population
              increased use of local exchanges
              increased reliance on streaming, some unlawful
                these sites emerge and subside quickly
              increased use of locker services
          Spain
            Sinde Law
              ISPs must block access to websites that copyright owners identify as pirates
                both websites hosted domestically
                and foreign websites
              Procedure
                copyright owner files complaint with Ministry of Culture
                MOC requests ISPs to block
                prior to blockage, website must be notified
                  it can prevent blockage by removing the infringing material
              effective, March 1, 2012
            Hackivistas protest
              Eme Navarro has recorded a song, designated all rights reserved
              hundreds of websites have posted copies of the song, available for download
              Navarro has submitted list to MOC, which must process them in order of receipt
              in effect, distributed denial of service attack
      c. Absence of Substitutes
    Ways of Exercising Market Power
      a. Standard Pricing
        Opportunities
          Monopoly Profits
        Hazards
          Forfeit potential benefits of joint promotion of the market
            Proctor & Gamble
          Forfeit potential benefits of large scale
            e.g., network externalities
          Profits may attract competitors, who then successfully execute defensive strategies 1 or 2
            net effect: market power evaporates
            at a minimum, will have to share profits with new entrant
          Litigation may be necessary, and has many drawbacks
            Expensive
              patent litigation is the most costly
                commonly $3M - $5M per side
              complex copyright and trademark suits can be almost as expensive
            IP holder who litigates often recovers less than its costs
              Bessen & Meurer 137: filing a patent suit causes plaintiff and defendant firms to lose 1-3% of their combined asset value
            Litigation success may be insufficient to prevent copying
              Software
              Recording Industry
        Case Studies
          DJ Ortho
          Ferrari
          Ribbon Rack
          Drugs
          Diagnostic Testing
        Guidelines
          Before pursuing this strategy:
            1. Look for opportunities to increase the size of the potential market through collaborations with:
              a. competitors
              b. customers
              c. developers of complements
              d. suppliers
            2. Estimate the risks that rivals will employ one of the defensive strategies, and look for ways to discourage them from employing strategies most damaging to you.
              e.g., anticipate and discourage "inventing around"
      b. Differential Pricing
        Background
          History
            For millennia, goods were exchanged
primarily through individualized and
usually face-to-face transactions.
              Prices, the outcome
of haggling, varied widely
            emergence of commodities markets reduced differential pricing
              local, then national,
then international
              goods become
standardized
              prices stabilize
                reinforced by law: doctrines that
cast doubt on the validity of contracts
for prices much higher or lower
than the market price
            Exceptions
              firms with market power and ability
to prevent arbitrage charge different
consumers different prices for
standardized goods or services
              Transportation industry
                16th-century
Danish Sound Tolls
                canals in China,
England, and France
                railroads in England and the
United States during 19th c.
                see Andrew Odlyzko
          Theory
            Price Discrimination defined
              charging different consumers
different prices for access to
the same good or service
              charging different consumers different prices for different versions of a good or service when the variation cannot be explained by differences in the costs of the versions
            Requirements
              1. market power
                Klein 2011
              2. restrictions on arbitrage
              3. heterogeneity among buyers
              4. ability to differentiate those buyers
          Types
            1st degree
              charge each buyer what he or she
is able and willing to spend for a
good or service
              Examples
                US Private colleges
                  high tuitions; need-specific financial aid
                "clickstream"-based differential pricing
            2nd degree
              the seller does not know how much different
potential buyers are able and willing to pay,
but induces them to reveal their resources or
preferences
              Examples
                volume discounts
                "versioning"
                  business-class
airline tickets
                    Alderighi 2011
                  engine sizes
                    Thomassen 2010
                  laser printers of
different speeds
                    IBM Laser Printer E (1990)
                temporal PD
                  Golf
                    weekend vs. weekday green fees
                    contrast "peak-load pricing" as an alternative explanation for differential pricing
                      Limehouse 2011
                Groupon
                  Edelman 2011
                  Termes 2011
                bundling
            3rd degree
              seller separates buyers into classes
corresponding roughly to their ability
and willingness to pay
              Examples
                student discounts
                senior discounts
                customer classes in electrical utility pricing
                  residential
                  industrial
                  commercial
                    see Eckel 2011
                Swiss rental housing market
                  higher prices for non Swiss in Zurich and Geneva
                  Baranzini 2011
                geographic PD
                  "zone" pricing
of gasoline
                    Barrionuevo,
Wall St. J.
(3/20/2000)
                    borderline case: partly 3rd degree, partly second degree
                      depends on the mobility of customers, likelihood of responding to price differences by traveling further
                  retail grocery trade in Australia
                comparison websites
                  sellers charge lower prices to users of such sites than to nonusers
                  Moraga 2011
        The Roles of IP Law
          Potential source of market power
          Rules that affect the set of techniques IP holders might employ to differentiate buyers
            derivative works
              art on tiles
                Mirage Editions
                Lee
            public lending rights
              may one charge
libraries more than
ordinary purchasers?
              in EU, yes; in most of the world, no
            contracts/preemption
              Pro-CD v. Zeidenberg
            patent misuse/antitrust
              patent misuse doctrine
as applied to licenses
                see Kaplow 1982
              tying arrangements
          Rules that affect the ability of IP holders to restrict arbitrage
            first-sale doctrine
              doctrine permits arbitrage which
corrodes price discrimination
              US copyright doctrine: section 109 privileges sales of copies iff:
                (a) the copy was lawfully produced
with authorization of the copyright owner;
                (b) that particular copy was transferred
under the copyright owner's authority;
                (c) the defendant qualifies as the
lawful owner of that copy; and
                  often contested in the context of software: sellers try to structure relations with buyers to grant them only "licenses" to copies of the programs
                  Microsoft v. Harmony Computers,
846 F.Supp. 208 (EDNY 1994)
                  Adobe v. One Stop Micro,
84 F. Supp. 2d 1086 (ND Cal. 2000)
                    defendant purchased "educational copies" of plaintiff's software on the open market, removed education stickers, reshrunk the wrapper, and resold
                    Held: first-sale doctrine does not
apply if defendant received only a
"license to use the software"
                  Autodesk (CA9 2010)
                    expands the ability of software sellers through labeling to prevent buyers from becoming owners of their copies
                    "We hold today that a software user is a licensee rather than an owner of a copy where the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user's ability to transfer the software; and (3) imposes notable use restrictions"
                      Applied: "Autodesk retained title to the software and imposed significant transfer restrictions: it stated that the license is nontransferable, the software could not be transferred or leased without Autodesk's written consent, and the software could not be transferred outside the Western Hemisphere. The SLA also imposed use restrictions against the use of the software outside the Western Hemisphere and against modifying, translating, or reverse-engineering the software, removing any proprietary marks from the software or documentation, or defeating any copy protection device. Furthermore, the SLA provided for termination of the license upon the licensee's unauthorized copying or failure to comply with other license restrictions. Thus, because Autodesk reserved title to Release 14 copies and imposed significant transfer and use restrictions, we conclude that its customers are licensees of their copies of Release 14 rather than owners.
                (d) defendant thereupon simply
distributed that particular copy
            exhaustion
              copyright
                "Round-trip" parallel importation
                  Quality King (1998)
                    copyright owner may not prevent importation of products embodying copyright -- if those products are produced domestically
                    602(a) is limited by 109(a)
                  Congress considers overturning
the result in DMCA, but declines
to do so
                "One-way" parallel importation
                  Omega v. Costco (2010)
                    In 2008, CA9 holds that Quality King only applies to cases where "the claims involve domestically made copies of U.S.-copyrighted works"
                      copyright owner may prevent resales in the US of products produced abroad
                      unless the copyright owner has already authorized their sale in the US
                    affirmed by an equally divided Supreme Court (December 2010)
                  followed in Microsoft v. Big Boy (SDFla. 2008)
                  Kirtsaeng (2013)
                    CA2 2011: 2/1 panel decision; follow Omega
                    Supreme Court reverses: copyright owners may not block one-way parallel importation
                  draft of TPPA, Section 4.2 (February 2011)
                    Each Party shall provide to authors, performers, and producers of phonograms the right to authorize or prohibit the importation into that Party’s territory of copies of the work, performance, or phonogram made without authorization, or made outside that Party’s territory with the authorization of the author, performer, or producer of the phonogram
                    With respect to copies of works and phonograms that have been placed on the market by the relevant right holder, the obligations described in Article [4.2] apply only to books, journals, sheet music, sound recordings, computer programs, and audio and visual works (i.e., categories of products in which the value of the copyrighted material represents substantially all of the value of the product). Notwithstanding the foregoing, each Party may provide the protection described in Article [4.2] to a broader range of goods.
              trademark
                "Grey-market goods" defined:
                  Bordeau (CAFC 2006): products produced by or with the consent of the US TM holder, but not authorized for sale in US
                USA system
                  Importation is lawful if US and foreign TM holders have common interest or control (parent, subsidiary, or same) and goods bearing the TM are the same
                    Kmart (US 1988) upholds Customs Service regulations, construing 526, that refuse to ban the importation of foreign-made goods in cases of common control
                    Variations
                      Foreign firm (FF) makes and sells goods in France; sets up US subsidiary F-US); FF has foreign TM; F-US has US TM on identical mark; T buys goods abroad and imports to US: OK
                      US firm U sets up foreign subsidiary (U-France) to manufacture goods; U-France ships goods to US for sale here; U-France also sells goods in France; T buys goods in France and sells in US: OK
                      US firm U sets up a plant in France to manufacture goods; plant ships goods to US for sale here; also sells goods in France; T buys goods in France and sells in US: OK
                  Importation is unlawful if the two firms, though affiliated, lack common interest or control
                    Classic example: F-France sells to US firm U right to register Mark and to sell FF’s goods in US; T buys goods in France and imports to US. Not OK
                    Variation: US Firm authorizes foreign Firm F to sell goods bearing the mark abroad, requires F to agree not to sell in US; T buys goods in France and sells in US. Not OK
                      Until 1988, Customs Service permitted importation under these conditions,
                      But SCt in K Mart struck this interpretation down
                  Importation is unlawful even if the US and foreign TM owners have common interest or control if US and foreign goods bearing identical marks differ materially in substance
                    Theory: generates consumer confusion because consumers will not know which set of characteristics to associate with the product
                    Under 1526, material difference standard applies only to goods manufactured abroad – K Mart
                    Under 1337, material difference standard applies both to goods manufactured in US and sold overseas, and to goods manufactured overseas (Bordeau)
                    Not necessary that D’s product be inferior, just different
                    wide range of views concerning how big the difference must be
                      Martin Herend Imports (CA5 1997) -- slight difference sufficient
                      Bordeau Bros. (CAFC 2006) GLK 996: Low threshold; only necessary that consumers would consider the features significant when deciding whether to buy
                        Different lighting systems, safety features, wagon hitches, instruction manuals on US and European tractors easily fit the bill
                      Nestle, 982 F.2d 639: different amounts of ingredients in chocolate
                      Original Appalachian, 816 F.2d 68 (CA2 1987): Cabbage Patch dolls sold in Spain have “adoption papers” in Spanish
                      Kia: differences in warranties sufficient
                    Procedure: Kia Motors (2009):
                      “Therefore, courts have adopted a simpler, two-part test to determine if likelihood of confusion exists in a gray market goods context: (1) were the goods not intended to be sold in the United States; and (2) are they materially different from the goods typically sold in the United States? Once a plaintiff establishes a material difference, the burden shifts to the accused infringer to establish by a preponderance of evidence that the difference is not the kind that consumers, on average, would likely consider in purchasing a product.
                    P loses the benefit of the doctrine if it sells some goods within US with the same characteristics of the goods whose importation it’s challenging
                      Bordeau Bros. (CAFC 2006)
                Systems used by regional TM regimes
              patent
                Traditional Rules: broad scope for exhaustion
                  Domestic
                    Principle: authorized sale of a patented
product to consumers carries with it
right to use and resell that product
                    Cases
                      Adams v. Burke (US 1873)
                        patent on improved coffin lids
                        patentee limits geographic area in which assignee may sell coffins
                        held: No permissible limits on use of lawfully purchased products
                      General Talking Pictures (US 1938)
                        patentee of amplifiers used in projectors granted license to ATC, but only to make and sell projectors to homes, not theatres
                        held: patentee could prevail in infringement suit against D, who had notice of the restriction but bought amplifiers for use in theatres
                      Univis (US 1942)
                        price-fixing scheme -- in which patentee on bifocals sought to set prices charged by (a) manufacturer, (b) wholesalers, and (c) retailers -- held unlawful
                        General principle: “[T]he authorized sale of an article which is capable of use only in practicing the patent is a relinquishment of the patent monopoly with respect to the article sold. . . . Sale of a lens blank by the patentee or by his licensee is thus in itself both a complete transfer of ownership of the blank, which is within the protection of the patent law, and a license to practice the final stage of the patent procedure.”
                          “The reward [Univis] was demanded and received is for the article and the invention which it embodies . . . . He has thus parted with his right to assert the patent monopoly with respect to it and is no longer free to control the price at which it may be sold either in its unfinished or finished form.”
                          "double-dipping" rationale
                  International
                1986-2008: Contraction
                  Domestic
                    exhaustion can be overridden by
contract or notice
                      Mallinkrodt (CAFC 1992)
                        "single use" notice on medical device
                        held: patentee has infringement claim against firm that refurbishes the devices in violation of the notice
                        Univis distinguished on the ground that this restriction did not violate antitrust laws or other public policies
                      R Braun Med. (CAFC 1997)
                        conditional sales do not result in exhaustion of patentee's right to control uses of the product
                  International
                    Jazz Photo (CAFC 2002)
                      appears to adopt national exhaustion & reject international exhaustion
                      but ruling may be limited to products used and repaired prior to reimportation
                    Fuji Photo (CAFC 2005)
                      more clearly reject international exhaustion principle
                      rationale: foreign sales cannot be "authorized" under a U.S. patent
                        because that would imply extraterritorial application of U.S. patents
                2008-present: Expansion
                  Quanta
                    Facts
                      LGE held both product patents on chips and process patents on making them
                      LGE granted Intel a license to make chips -- with a restriction:
                        purchasers of chips may not combine them with non-Intel parts
                      Quanta bought chips from Intel and combined with non-Intel parts
                    CAFC:
                      Exhaustion not applicable to process patents
                      Conditional sales; no exhaustion
                    Holding
                      Exhaustion is applicable to process patents
                      An authorized sale of a patented item terminates all patent rights to that item
                      use restrictions therefore invalid against purchasers
                    Issues left open:
                      application to sales overseas?
                      contract remedies still available?
                        potential limitations:
                          privity problems
                          preemption
                          more limited remedies
                        potential advantages:
                          fine tune using "public policy" limitations
                      can downstream behavior by purchasers retroactively render initial sales "unauthorized"?
                        see Hungar memo
                      may patentee restrict licensee's freedom to sell products embodying product or process patents (as opposed to restricting post-sale uses)?
                        answer appears yes
                        can expect many restrictive licenses in the future to take this form
                  Aftermath of Quanta
                    Broadcom v. Qualcomm (filed 2008)
                      Qualcomm licenses chipset makers -- with a restriction:
                        chipsets may only be incorporated into handsets by handset manufacturers who pay Qualcomm a royalty
                      Broadcom asserts patent misuse; exhaustion
                      settled -- as part of comprehensive settlement -- in 2009
                    Transcore (CAFC 2009)
                      unconditional covenant not to sue is the functional equivalent of unconditional license
                      surprisingly expansive interpretation of "estoppel" doctrine to enlarge the set of patents covered by a prior settlement/covenant
                        unclear whether this will affect treatment of the two forms of permission in bankruptcy
                    Static Control (EDKy 2009)
                      Quanta impliedly overruled Mallinckrodt
                      single-use restrictions no longer enforceable
                    LGE v. Hitachi (NDCa 2009)
                      unconditional foreign sale of a product licensed under a United States patent exhausts the patent holder's rights
                      repudiate Jazz Photo as inconsistent with logic of Quanta
                      Issues left open:
                        May the resultant impediment to geographic price discrimination be avoided through restrictions on the licensee's right to sell?
                        May the impediment be avoided by dividing patent holding companies geographically?
                2016: Re-Contraction
                  Lexmark (CAFC 2016)
                    sale in US accompanied by an otherwise valid contractual restriction on resale does not result in exhaustion
                    both initial buyer and downstream buyers with notice who violate the restriction engage in patent infringement
                    No international exhaustion in the absence of a license to import
            encryption circumvention
              History
                Encryption Examples
                  CSS for DVDs
                  SDMI for Music
                  RealNetworks "Copy" Switch
                IITF "White Paper"
                  Congress refuses to adopt the recommendation
                1996 WIPO Copyright Treaty
                  "Contracting parties shall provide adequate legal protection and effective legal remedies against the circumvention of effective technological measures that are used by authors in connection with the exercise of their rights under this Treaty or the Berne Convention and that restricts acts, in respect of their works, which are not authorized by the authors concerned or permitted by law."
                WIPO Perfomances and Phonograms Treaty (1996/2002), art. 18
              Statutes
                In USA, DMCA
                  17 USC 1201
                    "Access controls"
                      1201(a)(1)(A): "No person shall circumvent a technological measure that effectively controls access" to a copyrighted work.
                      1201(a)(2): "No person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, service, device, component, or part thereof, that:"
                        "(A) is primarily designed or produced for the purpose of circumventing a technological measure that effectively controls access to a work protected under this title" or
                        "(B) has only limited commercially significant purpose or use other than to circumvent a technological measure that effectively controls access to a work protected under this title; or"
                          Cf. Sony standard for
contributory infringement
                        "(C) is marketed by that person or another acting in concert with that person with that person's knowledge for use in circumventing a technological measure that effectively controls access to a work protected under this title"
                          Cf. Grokster theory
of inducement
                    "Copy controls"
                      No prohibition on circumvention
                      1201(b)(1) No person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, service, device, component, or part thereof, that:"
                        "(A) is primarily designed or produced for the purpose of circumventing protection afforded by a technological measure that effectively protects a right of a copyright owner under this title in a work or a portion thereof;"
                        "(B) has only limited commercially significant purpose or use other than to circumvent protection afforded by a technological measure that effectively protects a right of a copyright owner under this title in a work or a portion thereof; or"
                        "(C) is marketed by that person or another acting in concert with that person with that person's knowledge for use in circumventing protection afforded by a technological measure that effectively protects a right of a copyright owner under this title in a work or a portion thereof"
                    Definitions
                      "Circumvent"
                        to "circumvent a technological measure" means to descramble a scrambled work, to decrypt an encrypted work, or otherwise to avoid, bypass, remove, deactivate, or impair a technological measure, without the authority of the copyright owner
                      "Effectively controls"
                        a technological measure "effectively controls access to a work" if the measure, in the ordinary course of its operation, requires the application of information, or a process or a treatment, with the authority of the copyright owner, to gain access to the work
                    Exceptions
                      Libraries may circumvent in order to decide whether to buy
                      Police may circumvent to conduct an investigation
                      1201(f): Reverse Engineering for Interoperability
                        (1) Notwithstanding the provisions of subsection (a)(1)(A), a person who has lawfully obtained the right to use a copy of a computer program may circumvent a technological measure that effectively controls access to a particular portion of that program for the sole purpose of identifying and analyzing those elements of the program that are necessary to achieve interoperability of an independently created computer program with other programs, and that have not previously been readily available to the person engaging in the circumvention, to the extent any such acts of identification and analysis do not constitute infringement under this title
                        (4) For purposes of this subsection, the term "interoperability" means the ability of computer programs to exchange information, and of such programs mutually to use the information which has been exchanged
                      1201(g) Encryption research
                        (A) the term "encryption research" means activities necessary to identify and analyze flaws and vulnerabilities of encryption technologies applied to copyrighted works, if these activities are conducted to advance the state of knowledge in the field of encryption technology or to assist in the development of encryption products;
                      1201(h) Protecting Minors from Pornography
                        "In applying subsection (a) to a component or part, the court may consider the necessity for its intended and actual incorporation in a technology, product, service, or device, which ... has the sole purpose to prevent the access of minors to material on the Internet."
                      Special Exemptions created by Copyright Office -- applicable only to circumvention of access controls
                        Statutory basis: 1201(a)(1)(B-E)
                          B
                            (B) The prohibition contained in subparagraph (A) shall not apply to persons who are users of a copyrighted work which is in a particular class of works, if such persons are, or are likely to be in the succeeding 3-year period, adversely affected by virtue of such prohibition in their ability to make noninfringing uses of that particular class of works under this title, as determined under subparagraph (C).
                          C
                            (C) During the 2-year period described in subparagraph (A), and during each succeeding 3-year period, the Librarian of Congress, upon the recommendation of the Register of Copyrights, who shall consult with the Assistant Secretary for Communications and Information of the Department of Commerce and report and comment on his or her views in making such recommendation, shall make the determination in a rulemaking proceeding on the record for purposes of subparagraph (B) of whether persons who are users of a copyrighted work are, or are likely to be in the succeeding 3-year period, adversely affected by the prohibition under subparagraph (A) in their ability to make noninfringing uses under this title of a particular class of copyrighted works. In conducting such rulemaking, the Librarian shall examine -
▪ (i) the availability for use of copyrighted works;
▪ (ii) the availability for use of works for nonprofit archival, preservation, and educational purposes;
▪ (iii) the impact that the prohibition on the circumvention of technological measures applied to copyrighted works has on criticism, comment, news reporting, teaching, scholarship, or research;
▪ (iv) the effect of circumvention of technological measures on the market for or value of copyrighted works; and
▪ (v) such other factors as the Librarian considers appropriate.
                          D
                            (D) The Librarian shall publish any class of copyrighted works for which the Librarian has determined, pursuant to the rulemaking conducted under subparagraph (C), that noninfringing uses by persons who are users of a copyrighted work are, or are likely to be, adversely affected, and the prohibition contained in subparagraph (A) shall not apply to such users with respect to such class of works for the ensuing 3-year period.
                        2006 Ruling
                          1. Audiovisual works included in the educational library of a college or university’s film or media studies department, when circumvention is accomplished for the purpose of making compilations of portions of those works for educational use in the classroom by media studies or film professors.
                          2. Computer programs and video games distributed in formats that have become obsolete and that require the original media or hardware as a condition of access, when circumvention is accomplished for the purpose of preservation or archival reproduction of published digital works by a library or archive. A format shall be considered obsolete if the machine or system necessary to render perceptible a work stored in that format is no longer manufactured or is no longer reasonably available in the commercial marketplace.
                          3. Computer programs protected by dongles that prevent access due to malfunction or damage and which are obsolete. A dongle shall be considered obsolete if it is no longer manufactured or if a replacement or repair is no longer reasonably available in the commercial marketplace
                          4. Literary works distributed in ebook format when all existing ebook editions of the work (including digital text editions made available by authorized entities) contain access controls that prevent the enabling either of the book’s read-aloud function or of screen readers that render the text into a specialized format.
                          5. Computer programs in the form of firmware that enable wireless telephone handsets to connect to a wireless telephone communication network, when circumvention is accomplished for the sole purpose of lawfully connecting to a wireless telephone communication network.
                          6. Sound recordings, and audiovisual works associated with those sound recordings, distributed in compact disc format and protected by technological protection measures that control access to lawfully purchased works and create or exploit security flaws or vulnerabilities that compromise the security of personal computers, when circumvention is accomplished solely for the purpose of good faith testing, investigating, or correcting such security flaws or vulnerabilities.
                        2010 Ruling
                          The Librarian of Congress has announced the classes of works subject to the exemption from the prohibition against circumvention of technological measures that control access to copyrighted works. Persons making noninfringing uses of the following six classes of works will not be subject to the prohibition against circumventing access controls (17 U.S.C. § 1201(a)(1)) until the conclusion of the next rulemaking.
                          Educational uses of movies
                            (1) Motion pictures on DVDs that are lawfully made and acquired and that are protected by the Content Scrambling System when circumvention is accomplished solely in order to accomplish the incorporation of short portions of motion pictures into new works for the purpose of criticism or comment, and where the person engaging in circumvention believes and has reasonable grounds for believing that circumvention is necessary to fulfill the purpose of the use in the following instances:
(i) Educational uses by college and university professors and by college and university film and media studies students;
(ii) Documentary filmmaking;
(iii) Noncommercial videos.
                          Cell phone apps
                            (2) Computer programs that enable wireless telephone handsets to execute software applications, where circumvention is accomplished for the sole purpose of enabling interoperability of such applications, when they have been lawfully obtained, with computer programs on the telephone handset.
                          Cell phone network access
                            (3) Computer programs, in the form of firmware or software, that enable used wireless telephone handsets to connect to a wireless telecommunications network, when circumvention is initiated by the owner of the copy of the computer program solely in order to connect to a wireless telecommunications network and access to the network is authorized by the operator of the network.
                          Security testing of video games
                            (4) Video games accessible on personal computers and protected by technological protection measures that control access to lawfully obtained works, when circumvention is accomplished solely for the purpose of good faith testing for, investigating, or correcting security flaws or vulnerabilities, if:
(i) The information derived from the security testing is used primarily to promote the security of the owner or operator of a computer, computer system, or computer network; and
(ii) The information derived from the security testing is used or maintained in a manner that does not facilitate copyright infringement or a violation of applicable law.
                          Obsolete dongles
                            (5) Computer programs protected by dongles that prevent access due to malfunction or damage and which are obsolete. A dongle shall be considered obsolete if it is no longer manufactured or if a replacement or repair is no longer reasonably available in the commercial marketplace; and
                          Handicap access to ebooks
                            (6) Literary works distributed in ebook format when all existing ebook editions of the work (including digital text editions made available by authorized entities) contain access controls that prevent the enabling either of the book’s read-aloud function or of screen readers that render the text into a specialized format.
                  17 USC 1202
                    No person shall, without the authority of the copyright owner or the law --
(1) intentionally remove or alter any copyright management information,
(2) distribute or import for distribution copyright management information knowing that the copyright management information has been removed or altered without authority of the copyright owner or the law, or
(3) distribute, import for distribution, or publicly perform works, copies of works, or phonorecords, knowing that copyright management information has been removed or altered without authority of the copyright owner or the law, knowing, or ... having reasonable grounds to know, that it will induce, enable, facilitate, or conceal an infringement of any right under this title.
                  Remedies
                    Civil (1203)
                      Equitable
                      Damages
                        Actual Damages
                          "The court shall award to the complaining party the actual damages suffered by the party as a result of the violation, and any profits of the violator that are attributable to the violation and are not taken into account in computing the actual damages, if the complaining party elects such damages at any time before final judgment is entered."
                        Statutory Damages
                          "(A) At any time before final judgment is entered, a complaining party may elect to recover an award of statutory damages for each violation of section 1201 in the sum of not less than $200 or more than $2,500 per act of circumvention, device, product, component, offer, or performance of service, as the court considers just.
(B) At any time before final judgment is entered, a complaining party may elect to recover an award of statutory damages for each violation of section 1202 in the sum of not less than $2,500 or more than $25,000."
                    Criminal (1204)
                      "(a) In general. Any person who violates section 1201 or 1202 willfully and for purposes of commercial advantage or private financial gain--
(1) shall be fined not more than $500,000 or imprisoned for not more than 5 years, or both, for the first offense; and
(2) shall be fined not more than $ 1,000,000 or imprisoned for not more than 10 years, or both, for any subsequent offense."
                In Europe, EU Copyright Directive (2001), articles 6, 8
                  member states must provide penalties for circumvention of effective TPMs, as well as for trafficking in circumvention devices and services
                  Mandatory "public policy" exceptions
                  Optional "private copying" exceptions
                  slow and uneven implementation
                  e.g., France (2006):
                    schedule of penalties
                      EUR 750 fine for circumventing DRM
                      EUR 3750 fine for creating a means to circumvent DRM
                      EUR 30,000 fine and 6 months in prison for publishing a means to circumvent DRM
                      EUR 300,000 fine and 3 years in prison for publishing software "obviously intended" to provide the public unauthorized access to copyrighted works
                    reduced penalties for file-sharing
                      7/27/2006: Constitutional Council
declares unconstitutional impairment
of the property rights of copyright owners
                    mandatory interoperability
                      administrative agency will adopt rules forcing Apple to:
                        1. modify AAC code to allow its files to be played on other players
                        2. modify ipods sold in France to enable them to play DRMd files from other suppliers (e.g., VirginMega)
                      7/27/2006: Constitutional Council requires indemnification of Apple
              Judicial Enforcement
                Streambox (WD WA 2000)
                  Held: Streambox "VCR," that avoids copy-protection switch in RealNetworks system, violates 1201(b)
                  Sony defense not available under DMCA
                Corley
                Felten
                  Felten strips prototype SDMI watermarks out of music without degrading quality; plans to publish results
                  RIAA suggests publication "could subject you and your research team to actions under the DMCA"
                  Felten seeks declaratory judgment that a DMCA action would violate 1st amendment
                  RIAA retreats
                  Case dismissed as moot
                Elcomsoft (2002)
                  Adobe eBook Reader contains copy-protection system
                  2001 Elcomsoft distributes software, designed by Dimitri Sklyarov, that defeats the system
                  Both Sklyarov and Elcomsoft are prosecuted
                  Charges against Sklyarov dropped in return for cooperation
                  Elcomsoft acquitted because of inadequate proof of criminal intent
                IMS (SDNY 2004)
                Lexmark, 387 F.3d 522 (CA6 2004)
                  Facts
                    Lexmark uses a TPM to prevent unauthorized printer cartridges from communicating with its printers
                    Static Controls manufacturer a chip that, when installed in unauthorized cartridges, bypassed the TPM
                  Holding
                    Because the TPM did not prevent reading or copying the computer program at issue, the TPM did not constitute an "access control," and therefore the DMCA was inapplicable
                Chamberlain, 381 F.3d 1178 (CAFC 2004)
                  Facts
                    Chamberlain used a "rolling code" to control access to the software that operated its remote garage door opener
                    Skylink's generic garage-door opener imitated the rolling code
                  Holding
                    To establish a violation of the DMCA, it must be shown that the TPM being circumvented bears some "reasonable relationship to the protections that the Copyright Act otherwise affords."
                    Because the purchasers of Champerlain's opener were entitled to access the code that operated the opener, this requirement was not satisfied
                STK, 421 F.3d 1307 (CAFC 2005)
                  Holding
                    Reiterate "reasonable relationship" requirement of Chamberlain
                Blizzard, 422 F.3d 630 (CA8 2005)
                  Facts
                    The CDs containing Blizzard's video games also contained software that enabled purchasers to gain access to a network, operated by Blizzard, on which they could interact with other players
                    Defendant reversed engineered the software in order to enable purchasers of CDs to gain access to defendant's alternative network
                    the circumvention system also enabled the possessors of pirated games to gain access to the alternative network
                  Holding
                    "To successfully prove the interoperability defense under § 1201(f), Appellants must show:
                      (1) they lawfully obtained the right to use a copy of a computer program;
                      (2) the information gathered as a result of the reverse engineering was not previously readily available to the person engaging in the circumvention;
                      (3) the sole purpose of the reverse engineering was to identify and analyze those elements of the program that were necessary to achieve interoperability of an independently created computer program with other programs; and
                      (4) the alleged circumvention did not constitute infringement.
                    Because the circumvention in this instance enabled "unauthorized copies of the Blizzard games [to be] freely played on bnetd.org servers," requirement (4) was not satisfied
                RealNetworks, 641 F. Supp. 2d 913 (N.D. Cal. 2009)
        Opportunities
          Increased Profit
        Hazards
          Administrative Costs
          May offend consumer sensibilities
            evidence from anecdotes,
surveys, and experiments
            feelings are very strong; consumers
frequently have intense reactions;
but point in different directions
            rules of thumb
              unpopularity of "charging
what the market will bear":
"gouging"
                e.g., Coke temperature
strategy (1999)
                e.g., rental cars
in wake of 9/11
                  Al Franken
                e.g., survey of buyers
and sellers of bulk electricity
                  Dickson &
Kalapurakal (1994)
                  “[a] price increase under conditions of increased demand was perceived to be significantly less fair than one caused by a shortage in supply…. This is noteworthy because these conditions have traditionally been regarded as normatively equivalent, representing price increases that ration off relatively excess demand.”
              consumers like transparency,
dislike hidden pricing strategies
                e.g., reactions to Amazon.com
"dynamic pricing" for Men in Black
                "sneaky"
              consumers accept 3rd-degree PD if they think the categories are fair
                Invidious Criteria
                  see Dabu 2005
              Conflicting responses to "versioning"
                Deliberately reducing the quality of a good in order to make it available cheaply to poorer customers without undermining the demand by the more wealthy for a full-featured version is commonly denounced, in Emile Dupuit’s words – as “cruel and mean.”
                  e.g., IBM LaserPrinter Series E
                consumers like choices
                  suggests acceptability
of "versioning"
              framing matters
                "discount" or "surcharge"
                  e.g., financial aid in US colleges
                    Harvard
                      “Our goal in admissions and financial aid is clear: We want to bring the best people to Harvard, regardless of their ability to pay — and we do. About 70 percent of our students receive some form of aid, with over 60 percent receiving need–based scholarships.”
                    Yale
                      “We believe that a Yale education should not be limited to only those who can afford the full cost of attendance. By committing to an admissions policy that does not consider a student’s ability to pay, and by meeting the full financial need of all admitted students (with no loans required), we ensure that Yale is accessible to the most talented students from around the world, regardless of their family’s income.”
                    Swarthmore
                      “In order to make a Swarthmore education available to qualified students, we expect to award in excess of $29 million for scholarships for the coming year. About 54 percent of our student body receives scholarship assistance through Swarthmore on the basis of demonstrated financial need, and a total of 70 percent of our students will share more than $36 million in scholarships, loans, and work opportunities during the 2011-2012 academic year. (Although our aid awards are loan-free, some families borrow to pay their shares.) Although we believe that the primary responsibility for financing education lies with students and their parents or guardians, we stand ready to help fill in the gap when family resources do not meet our costs. Swarthmore's strong financial aid program demonstrates our commitment that all capable students have access to the College.”
                  Kahneman et al 286
                Coke's attempt: price varies
with the utility of the product
                  Doug Ivester: "In a final summer championship game when people meet in a stadium to enjoy themselves, the utility of a chilled Coca-Cola is
very high. So it is fair it should be more expensive. The machine will simply make this process automatic."
                reference transactions
                  Spiekerman
        Case Studies
          Cultural Products
            Books
              domestic geographic PD impeded by first-sale doctrine
                Bobbs-Merrill
              international geographic PD
                Cabolis et al. (2005)
                John Wiley (2013)
              hardcover vs. paperback
                combine versioning
and intertemporal PD
                  Clerides (2002)
            Movies
              windowing system
              region coding
                DVDs
                Blu-Ray "Regional
Playback Control"
                  this system gives studios the option of whether to "lock" their DVDs -- or to release them region-free
                  list of films in each category available on Blu-Ray Region Code Database List
                  but multi-region players, though uncommon, are available
            Music
              international geographic PD
                see CBS v. Scorpio (ED Pa. 1983)
            Fashion
              "bridge lines"
          Drugs
            domestic
              factors that make PD possible
                large variations among marginal evaluations by different groups of patients
                variations in bargaining power among payers
                  power of government as a payer to insist upon a lower price
                market power enjoyed by holders of patents on branded drugs
                legal and practical impediments to arbitrage
                  see Berndt 2010
              ironically, the amount of domestic PD is small
                potentially huge impact: 2% of US GDP
            international
              vaccines
                developed countries:
12% of doses;
82% of revenues
                developing countries:
88% of doses;
18% of revenues
                  National Academy
of Sciences,
pp. 108-109
              EU
              AIDS drugs (Latin America)
          Software
            Adobe
            AutoCAD
          Medical devices
          Decorated Products
            watches
            perfume
              Givenchy, Inc. v. Drug Emporium, Inc., 38 F.3d 477 (9th Cir. 1994)
          Machines/supplies
            patented canning machines and cans
            Xerox machines and paper
          "Pay what you like"
            e.g., RadioHead
            e.g., Yoga to the People
            see Isaac 2010
          Omega
          Kirtsaeng
        Guidelines
          1. Threshold question: Are all 4 of the preconditions for PD present or obtainable?
          2. Survey the array of existing PD schemes for possible models
            for other examples, see Fisher, Differential Pricing of Information
          3. Assess merits of possible PD schemes by comparing:
            a. potential gains through market segmentation
              the more precise is one's ability to match price to each consumer's willingness and ability to pay, the larger the gains
              IT is rapidly increasing opportunities for 1st-degree PD
            b. costs of creating and administering the apparatus for differentiation
            c. losses through arbitrage
            d. losses caused by consumers' anger or resistance
              to mitigate those losses, "frame" your PD mechanism very carefully
    Costs of Exercising Market Power
      Changes in competition
        Nissan
        Proctor & Gamble
      Increase rivals' incentives to innovate
        Standard Oil
      Neglect markets for complements
        Apple