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CONTACT: Amy Smorodin
October 4 , 2006
(202) 289-8928
Epstein: Unity in IP and Physical Property
PFF Publishes Aspen Remarks of Univ. of Chicago Law Professor

WASHINGTON D.C. - A basic understanding of the configuration of physical property rights can be applied to intellectual property, explained Professor Richard Epstein in "The Structural Unity of Real and Intellectual Property," his keynote address at the 2006 Aspen Summit. Epstein, James Parker Hall Distinguished Service Professor of Law, Faculty Director for Curriculum, and Director, Law and Economics Program at the University of Chicago and Peter and Kirstin Bedford Senior Fellow at the Hoover Institution, identifies four principles that create a basic framework for understanding physical property law. He concluded in his speech that all four can be applied to intellectual property with the main difference being transfer of such property is only absolute in the case of physical property.

Epstein first addressed the principle of exclusion and injunctions, which he stated is applied in both physical and intellectual property. Specifically, Epstein discussed its implication for patent holders, stating the principle applies when a patent holder is practicing, licensing, or "mothballing" an invention. Epstein explained, "if there are efficiencies from licensing that cannot be gained from practicing the invention, those advantages will be effectively destroyed if the principle of conservation of rights is violated."

Epstein next discussed the issue of licensing, which he again concluded operates in the same way for physical as intellectual property. He warned against attacks on these who pillars of property rights. "If the law doesn't protect the right to exclude and the right to license, then compulsory licensing with immense valuation difficulties and protracted litigation becomes the order of the day," he explained. "Complicated licenses with people whom you distrust does not create a platform for constructive business relationships."

Epstein then turned to the issue of fragmentation, or anticommons. He explained the concept as, if an asset is broken down in too many pieces, it will make the asset unprofitable. In the case of intellectual property, he explained, "some new patents offer alternative technologies and expanded choice, and so by creating a legal monopoly in part of a technology, the law undermines the economic monopoly that existed in another part." He continues, "Patent pooling, sophisticated licensing, and, perhaps most importantly, a willingness on the part of certain patent owners to turn a blind eye to infringements that they think will work to their benefit, has meant this system has worked rather well on the ground."

Epstein completed his overview by examining the risk of antitrust as it applies to markets and patents. Although the formal definitions of monopoly and property rights are similar, he explained, "[i]t's a vast difference to control a piece of land, on the one hand, and to control a complete market on the other hand." Epstein states, "the patent system, in fact, undermines the economic power of [one] patentee by giving incentives to rival inventors to develop [competing inventions]."

Epstein concludes by acknowledging one main difference between physical and intellectual property rights. He explains, "With real property, if you give it away, you don't have it. With intellectual property, if you give it away, you could still retain the use of the information, unless, of course, you enter into a covenant by which you agree not to use the information... That simple difference helps explain the key trade off in both areas between creation on the one hand and dissemination on the other."

"The Structural Unity of Real and Intellectual Property" is available in a text version and as a video stream on the PFF web site. Other keynote speakers at the 2006 Aspen Summit included FCC Commissioner Jonathan Adelstein, FTC Chairman Deborah Platt Majoras, Qwest Chairman and CEO Richard Notebaert, Verizon Executive Vice President, Tom Tauke and Sumner Redstone, Executive Chairman and Founder of Viacom Inc. and CBS Corporation.

The Progress & Freedom Foundation is a market-oriented think tank that studies the digital revolution and its implications for public policy. It is a 501(c)(3) research & educational organization.



The Progress & Freedom Foundation