Law & Economics - The Italian Edition

It was on the bus to the villa on the second day that it clicked - why there were only two faces I recognised at the conference.  The European Association of Law & Economics (EALE), whose annual conference I attended in Bologna, looks at law, and IP, from a different approach than the economics-of-innovation-based arguments that dominate UK IP policy debates. Presentations emphasised theoretical constructs of law and offered insights into potential policy impacts and IP strategies used by firms.

It will come as no surprise to readers that we (and I include lawyers) tend to self-separate into silos by discipline.  Amongst economist studying IP, there are two main camps - those that stem from a Law & Economics approach, and those that start from an innovation perspective. There are very few Law & Economics scholars based in the UK, while the discipline is very popular in the U.S. Both camps are dominated by microeconomics, and often use industrial organisation (economic analysis of market structure and firms) theories to bolster their arguments.

Law & Economics largely comes from the Chicago School of economic thought (think free trade and rational choice theory - essentially that all choices are a rational weighing up of costs and benefits.) On the other hand, approaching law and policy from an Innovation Economics perspective (where your Katonomist sits) is also law and economics (lower case), but focuses more on innovation and entrepreneurship impacts of law.  The two meet in subject, and frankly the differences are subtle, but the underlying methodological and theoretical differences maintain a distance between the two. Hence IP scholars often attend only one of these conference circuits.

A hot topic at EALE was understanding "Pay for Delay," aka a reverse payment patent settlement. It's the bizarre phenomena in the US where patent holders pay potential competitors not to challenge their patent or enter the market.  This is most common in the pharmaceutical industry when companies seeking to keep generics out of their market. Ramsi Woodcock, in a presentation entitled, "Innovation, Litigation and New Drugs" looked at the consumer welfare impact of these payments.  Using a theoretical model in combination with empirical data, he estimates that payments which delay the entry of a generic drug by more than 15 months result in consumer harm.

Another paper, by Daniel Pi et al, looked at the fascinating world of Blackstonian ratios.  These ratios stem from William Blackstone's premise that, "It is better that ten guilty persons escape than that one innocent suffer." This is a ratio of 1/10; other philosophers argue for smaller or larger ratios. Pi estimates that the US is 1/12.5, meaning 12.5 criminals go free for every one innocent.  It's an interesting argument that will be of more interest in the future as IP infringement becomes increasingly criminalised.

Bryan Khan, (Bologna) one of the few economists looking at copyright, presented on broadcasting rights. He modelled the decisions to infringe, license and enforce broadcasting rights. He argued that there should be a means to pool the copyright claims of infringed parties - so that a single action can be taken when a broadcasting right is infringed - both the broadcast and any underlying copyright - in order to reduce transaction costs. He essentially argued for a "copyright system tiered by subject matter," in order to increase efficiency in the system.

Bologna Business School

Paul Heald looked at testing theories of tarnishment in trade and copyright law. He argues for lumping the two together as, in the US, they stem from the same theoretical starting point. Tarnishment Theory argues that ownership of trade marks and copyrights allows owners to control their uses and protect their value. Owners are permitted to "shepherd" their work. However, tarnishment is largely concerned with sexual connotations. The theory "rests on an empirical assertion about how people think, but it has never really been tested and is rarely questioned." He runs an experiment where he attempts to tarnish famous movies to measure the impact on consumer's perceptions. He find that movies he attempted to tarnish benefitted from increases (or at least not decrease) in consumer interest. He noted that this is well established in the marketing literature.  It looks as though sexual imagery in tarnishment cases is simply about regulating sex. (Covered previously here.)

Next year's conference is in London, from September 14 to 16.