Wednesday, July 11, 2007

Interesting Paper

Worth checking out:
Should Property or Liability Rules Govern Information?

Stanford Law School
University of Colorado Law School

Stanford Law and Economics Olin Working Paper No. 341
U of Colorado Law Legal Studies Research Paper No. 07-18
Texas Law Review, Vol. 85, p. 783, 2007

This Article focuses on an unappreciated and significant aspect of the debate over property rules in the technology law context. In particular, it argues that the classic justification for legal entitlements protected by a property rule - i.e., a right to injunctive relief - depends on the ability to define and enforce property rights effectively. In the case of many technology markets, the inability to tailor injunctive relief so that it protects only the underlying right rather than also enjoining noninfringing conduct provides a powerful basis for using a liability rule (i.e., awarding the relevant damages to the plaintiff) instead of a property rule. Notably, where injunctive relief cannot be confined to protecting the underlying right, the availability of such relief can give rise to a “holdup strategy,” whereby a firm threatens or uses litigation to obtain a settlement significantly in excess of any harm it suffers. Such strategies, as the Article explains, arise in a variety of technology law contexts, including patent law, digital copyright cases, and spectrum regulation. Depending on the particulars of the context, either courts or agencies should superintend the relevant liability regime and, in some cases, the administrative challenges may undermine the case for a liability rule at all. Unfortunately, legal scholars have generally focused on the substantive debate as to the proper scope of property rights - often arguing for an all or nothing solution - at the expense of evaluating the institutional considerations as to whether and when courts or agencies can superintend a liability regime in lieu of a property right.


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