《經(jīng)濟(jì)學(xué)與法律的對(duì)話》課件 3 21 17 Contract

IamsupposedtoremindyoutoFillouttheLSSSEWhichstandsforLawSchoolSurveyofStudentEngagement???IntellectualPropertyCopyrightislonglastingandeasytoget,patentshortandhard.Why?CopyrightisbettersuitedtobepropertybecauseItiseasiertomarkandobserveboundariesAccidentalviolationisunlikely,forthesamereasonthat…Thereisnoproblemofdepletingthecommons.ButallofthisisforprotectionagainstliteralcopyingLookandfeelandderivativeworksraisemoreofaproblemBecausetheyhavefuzzierboundariesPatentisworsesuitedtobepropertybecauseBoundariesarefuzzyandinvisiblePatentracesareevidenceofaproblemofdepletingthecommonsofideastobeinventedWhatistheRightIncentivetoCreateIP?ItdependsonthevalueproducedbytheIPPatentandcopyrightprovideanautomaticsolutiontotheproblemofsettingtherewardsinceHowmuchpeoplewillpayyoutouseitevidenceofitsvalueButtherearecoststorewardinginnovationinthatwayThedeadweightcostofmonopolypricingThetransactioncostsoftreatingideasaspropertyratherthancommonsItalsodependsonhowlongbeforesomeoneelsewouldproducethesameIPWhynotpermanentcopyrightprotection,sincenobodyelsewouldeverwritemybook?ThereisatradeoffbetweenalittlemoreincentiveandthedeadweightcostofmonopolySopatenttermshouldbeshorterthan“setrewardequaltovalueproduced”impliesTheExceptionstoCopyrightProtectionScenesafaire

MergerofideaandexpressiondoctrineIfthereisonlyoneway,orafewways,ofsayingsomethingSayingsomethinginthatwayisnotprotectedBecausecopyrightingthatwaywoulddepletethecommonsFairUseexceptionSmallinfringementscostmoretotransactoverthantheyareworthAndsomeusesarebelievedtoproducepositiveexternalitiesButthereisaproblemoffuzzybordersRequirementsforPatentProtectionNoveltyIftheideaisalreadyknownNothingofvaluehasbeenproducedNon-obviousnessIfanyonewhoneedstheideacaneasilyhiresomeonetoproduceitNotmuchofvaluehasbeenproducedUsefulness.Olddefinition:NotperniciousStory:“anewinventiontopoisonpeople,ortopromotedebauchery,ortofacilitateprivateassassination,isnotapatentableinvention”Argumentfortheolddefinition:Iftheinventorwantstowastemoneygettingapatentonsomethingnobodywantstodo,whyshouldweobject?Newdefinition:Uselessmeansnotuseful.Yet.NoreasontorewardprematureinventionOnereason:KnowingachemicalcanbesynthesizedisareasontolookforusesKitch’sProspectTheoryofPatentTherearetworeasonstogiveaprospectorrightstowhathefindsOneistorewardhim,givehimanincentivetofinditTheotheristocreateapropertyrightthatcanbeusedtobetterdevelopwhathefindsEdmundKitcharguedthatthesameappliedtopatentsAninventionrequiresfurtherdevelopment,otherinventionsThepatentholderhastheincentiveandabilitytocoordinatethatprocessJustashomesteadingturnspubliclandintoprivatepropertyMakingitpossibletoinvestinimprovingitCoordinateusesofitPatentsviewedashomesteadingideaspaceTheArgumentAgainstIntellectualPropertyInthe19thcentury,therewereseriousargumentsagainstIPSomemadebypeoplewhosawitasinconsistentwithliberalfreemarketprinciplesSwitzerlanddidnothavepatentlawuntil1907BoldrinandLevine,TheCaseAgainstIntellectualMonopolyOneargumentisthedeadweightlossofchargingwhenMCiszeroInaddition,theyarguethatpatentlawretardsinnovationJusttheoppositeofKitch’sapproach,arguingcommonsarebetterforideaspaceComputerLawIsacomputerprogramawriting?Thecourtsdisagreed,CongresssteppedintolegislatetheanswerTherightsolutionbutthewrongquestionNot“isaprogramawriting?”butDoesaprogramhavethecharacteristicsthatmakecopyrightappropriateforwritings?CleanroomreproductionofthePCROMs:Copyingwouldviolatecopyright,butindependentcreationdidn’tSotheyusedthecleanroomapproachCouldtheyhavecopiedandclaimedthescenesafairemergerexceptionTherebeingonlyonewayofwritingtheROMsthatwouldrunthePCprogramsTheDeathofCopyrightNowthatanyonecaneasilycopydigitalworksandsharethemDigitalcopyrightislargelyunenforceable.Possibleexceptions?SoftwareusedbylargeorganizationswhoseemployeescouldbetraythemforpiratingFancydigitalrightsmanagementschemestomakesharingharder,but…AnyprotectionofaworkfullyrevealedinoneuseisbrokenbytheanalogholeWhatsortofworksarenotfullyrevealedinuse?AdatabasesuchasWestlawAgamesuchasWorldofWarcraftSohowdoyougetpaidtocreateIP?Patronage–the18thcenturysolutionCharity–Patreon.Thesametechnologymakessmallscaledonationseasy.Tie-ins—webyourbooksforfree,chargeforspeechesorconsultingOtherideas?ExamplesofIPThatAlreadyWorksThatWayTheacademicworldYourrewardisinthepositionorpromotionyougetfrompublicationMoregenerallythereputationyougetOpensourcesoftwareContributingtoaprojecthelpsestablishcredentialsasaprogrammer,getsyouajobFirmsthatuseopensourcesoftwarewantanemployeewhoispartoftheprojectTheWebPutupwebpages,blogs,tospreadideas,getreputationGetpaidbyputtingadvertisementsonthemTradeSecretWhatisit?LawthatgivestheholderofatradesecretrightsagainstsomeonewhogetsitwrongfullyProvidedtheholdermadereasonableeffortstoprotectitReverseengineeringisnotwrongful.Gettinganemployeetorevealthesecretis.Whataboutaerialphotographyofafactoryunderconstruction?WhyisitNotapropertyrightNotunnecessarybecauseofpatentlawConsideritaslessofaonesizefitsallapproachthanpatentlawSupposeIbelievemyinventionwillnotbeduplicatedforahundredyearsPatentlawonlygivesmy14years(orwhateveritthenis)ofprotectionImightbeabletokeepmytradesecretforacentury.TheformulaforCocaColahasbeenatradesecretsince1891SupposeIthinkmyinventionisnon-obvious,thepatentexaminerdoesn’tConsideritasawayofmakingunpatentedinventionslesscostlytoprotectContractReputationalEnforcementInaworldwithoutlegalenforcementofcontractsIfIbreakacontract,otherpeoplewon’twanttocontractwithmeWhichisapunishment,butthatisnotwhytheyaredoingitItisasideeffectofthirdpartieswantingtoprotectthemselvesItdependsontheirknowingIwastheoneresponsibleIclaimitwasyourfaultIfthirdpartiescannoteasilytell,theyavoidbothofusSoyou,anticipatingthat,don’taccusemeofbreakingthecontractAndreputationalenforcementdoesn’tworkOnesolutionistolowertheinformationcosttothirdpartiesIfwehaveagreedinadvancetoarbitrationAlltheyhavetoknowisthearbitrator’sverdictAnotheristopostabondwithatrustedthirdpartyarbitratorIfheconcludesthatIbrokethecontract,thebondforfeitstoyouThisalsoworksagainstapartywithnoreputationtolose—perhapsaonetimetransactionProvidedthearbitratorhasareputationContractEnforcementinCyberspacePublickeyencryptionIcreateapairofkeys,longnumbersAmessageencryptedwithonecanonlybedecryptedwiththeotherImakeonekeypublic,keeptheotherprivateTosendmesecretmessages,youencryptitwithmypublickeyTodigitallysignamessage,IencryptitwithmyprivatekeyWeagreeonacontractandanarbitratorBothofusdigitallysignthecontractAnditincludesthepublickeyofthearbitratorIbreakthecontract,youappealtothearbitrator,herulesagainstmeHewritesuphisdecision,signsitusinghisprivatekeyIputthatresultonlinewithyournameonitAnyonesearchingforinformationonyoufindsitAndcanprove,bycheckingthesignaturesThatthearbitratorIagreedoninadvanceruledagainstmeThusreducingtheinformationcosttothirdpartiestonearzeroImperialChineseSolutionDesigncontractstominimizethecosttothirdpartiesofknowingwhobrokethemOwnershipgoeswithpossessionCaveatemptor—IamresponsibleforcheckinggoodswhenIbuythemPutthetemptationtobreachonthepartywithareputationalincentivenottoIfthesellercanbetrusted,payinadvanceIfthebuyercanbetrusted,payonreceiptSowhydowehavecontractlaw?TodecideifthereisacontractCourtsmaynotwishtoenforceallcontractseitherbecauseTheydonottrustindividualstoactintheirowninterest(paternalism)orTheybelievesomecontractshavelargeeffectsonthirdpartiesBecausethereisneverenoughsmallprinttocovereverythingIfthecourt’sdefaultrulesareknown,partiescanleavethingsoutUnlesstheydisagreewiththedefaultruleTheCaseforFreedomofContractCoaseTheoreminalowtransactioncostcontextAnychangethathelpsyoumorethanithurtsmeCanbecombinedwithasidepaymenttomakebothofusbetteroffUnequalbargainingpower:Whataboutamonopolyseller?ItstillpaysmetoincludefeaturesthatbenefityoumorethantheycostmeAndchargeforthemButproductcharacteristics,contractterms,canbeusedforpricediscriminationThatmightproduceaninefficientcontractorproductdesign,but…HaslittletodowithunequalbargainingpowerPriceconstraint—apartmentunderrentcontrolIfthecontrolledpriceislessthanthemarketpriceItpaysthelandlordtolowerqualityifdoingsosaveshimmoneyEvenifitisinefficientSothereisthenanargumentformandatoryterms(orabolishingrentcontrol)TheCaseAgainstFreedomofContractContractsthatimposecostsonthirdpartiesHiringahitmanContractsinrestraintoftrade—cartelagreementsContractsbypeoplenotcompetenttoactintheirowninterestChildren,lunaticsSpendthrifts?Contractsthecourtbelievescouldonlyhavebeensignedbypeoplenotcompetentto…ThatassumesthecourtcanjudgetheinterestofthepartybetterthanhecanConsiderthecaseofliquidateddamagesThecourtwillnotenforcewhatitinterpretsasapenaltyclauseLiquidateddamages>>actualdamagesButthat’sjustaprivatelynegotiatedpropertyruleActualDuressIsacontractunderliteralduressenforceable?YourmoneyoryourlifeWillyoutakeacheck?Argumentfor:Iprefermylife,whichiswhyIagreeArgumentagainst:Itmakesmuggingmoreprofitable,somoremuggingProbablyagoodargumentinthecaseofmugging,butconsiderPinochetcaseMilitarydictatoragreestogiveuppowerinexchangeforimmunityShouldthecontractbebroken?Whatisthecostoftreatingitasenforceable?Ofnotdoingso?Parolepriortothe19thcenturyPrisonersofwargavetheirparolenottotrytoescape,makesitmuchpleasanterPossiblysenthome,givetheirwordnottorejointhearmyuntilexchangedContractenforcedbysocialpressureathome,sinceIfpeoplebreakit,thenextprisonerstaysinprisonBenefit:WarislessunpleasantCost:Andtherefortherewillbemoreofit“Itiswellthatwarissoterrible,otherwiseweshouldgrowtoofondofit.”RobertE.LeeUnequalBargainingPowerasDuress?Youarelostinthedesert,IhavewaterMyprice:EverythingyouownplushalfyourincomeforeverYouarebetteroffifthatcontractisnotenforceableThatisrelevantonlywhereUnenforceabilitysubstitutesforacommitmentstrategyAwayoflimitingwhatyoucanpayinabilateralmonopolyAndeventhere,myhighpricehassomeefficiencybenefitThesupplyargumentfromthemuggingcaseturnedupsidedownItmakesitmoreworthwhilebeinginthedesertwithwaterLookingforpeopledyingofthirstWhichisagoodthingWhatcountsasduress?YourshipissinkingThetugwantstochargeyoumostofwhatitisworthYouagree.Whenyougetbacktoshore,canyourenegeonthecontract?Isthisduress?Unlikethemuggingcase,theeffectoftheincentiveisgoodThetugboatdidn’tgetyouintotheproblemAndyouwantittobetheretogetyououtWhichismorelikelythemoreitcanchargeAswiththewaterinthedesertcaseWhatistheefficientpriceforsavingtheship?CoaseatSeaWhatistheefficientpriceforsavingtheship?Thepricethatgivesthetugboattherightincentivetobeoutthere?Thepricethatgivesyoutherightincentivenottogooutinbadweather?Onepricecan’tbeoptimalforbothmarginsThisisCoase’sdualcausationproblemTheshipownercankeeptheshipfromsinkingbynotgoingoutinastormThetugboatownercankeeptheshipfromsinkingbygoingoutinthestormEithermight,inaparticularsituation,betheleastcostavoiderBargainingoveranenforceablecontractonasinkingshipIsabilateralmonopolygameBargainingbreakdownmeanstheshipsinksWhichisanargumentagainstanenforceablecontractEitherhavethesalvagepricesetbytheadmiraltycourtorBargainedinadvancebetweentheshipownerandthetugownerContractsofAdhesionOnesidesetstheterms,theotherstakesitorleavesitAslongasoneorthetermsbeingsetisthepricethecontractisstillefficientSoconstraintsonwhatthecourtwillenforcemakebothpartiesworseoffWhydoesAvisnotbargainovereachcontract?ThatwouldincreasetransactioncostsAndmakeiteasierfortheiremployeestocheatthem,acceptbribesforbettertermsIsthereacontract?FormalitiessoweandthecourtknowifthereisThedoctrineofconsiderationMyrichuncleofferstopaymyexpensesatHarvard,thenchangeshismindNoconsideration,sonocontract?ButthedoctrineofdetrimentalreliancemightsavemeLostcatsIpostarewardoffer,youfindthecatandreturnit,notknowingoftherewardWhenyoufindout,canyoucollectit?Ifyoucan,Iwillbelesslikelytopostareward,but…Ifyouseealostcatyouwillbemorelikelytotrytolocatetheowner,becausetheremightbearewardMedicalservicesforanunconsciousvictimChargingforthemisanegativePigouviantaxWedon’tusuallyhavethoseforservices,becauseapropertyruleworksbetterButifIamunconsciousIcan’tagreetohireyouHowshouldacourtfillinmissingterms?FigureoutwhatthepartieswouldhaveagreedtoBecausethosearetheefficientterms,andDoingitthatwayreducestheneedtowriteamoredetailedcontractAllocatingRiskIfsomethinggoeswrongdevelopingmyfilmMakeWalgreen’sliableforlosingmyfilmBecausetheycanspreadtheriskovermanytransactionsAndIamriskaverseWhatifthephotographerknowsthesefilmsareunusuallyvaluable?MakethephotographerliableSinceheknowsthesefilmsareespeciallyvaluableAndsoneedtobetreatedwithspecialcareFurther,ifWalgreen’sisliableandknew,theywouldn’tagreesaveatahigherpriceSinceitiscostlytothemtotakespecialcarewithonebatchoffilmOrtopayyourhundredthousanddollardamageawardAspecialistlabcouldhandlethisbatchatlowercostLetthepartywhoknowstheriskbeliableTheneachpartyknowswhetherthecontractisworthsigningEconomicsofinsurance:RiskAversion,MoralHazard,AdverseSelectionNoteformillenials”Film”isadeviceforstoringgraphicinformationAsortofanalogflashdisk

RulesforBreachSomecontractsshouldbebreachedWhencircumstanceschange,suchthatPerformancenowresultsinanetlossWhatrulesgivetherightincentivesTobreachwhenperformingisanetnegativeTosignacontractwhendoingsoisanetpositiveFordecisionsduringperformanceDoIbearcoststhatareawasteifthecontractgetsbreached?Thatdependsonwho,incaseofbreach,paysforthemIntheusualcontextofindividualsactingintheirowninterestWhichdependsonwhathappensifthereisabreachAndpossiblyonbargainingAlternativeRulesNodamages:Ifprofitgoesnegativeforme,Ibreach,evenifnetprofitforbothofusisstillpositiveThatmightbeavoidedbyrenegotiatingthecontractButthatopensupthepossibilityofcontinuousexpensiverenegotiationsSpecificperformance:NobreachwithoutpermissionNowyoudon’tbreachevenwhendoingsoisefficientBut…againbargainingcansolvethatproblemExpectationdamages:Makethevictimaswelloffasifyouhadn’tbreachedGivesefficientbreachSinceitonlypaysmetobreachifmygainislargerthanyourlossReliancedamages:Makethevictimaswelloffasifhehadn’tsignedthecontractGivesefficientsigningwhenonepartyknowsmoreabouttheriskofhavingtobreachButinefficientreliance.Ibuildthenewfact