Tuesday, June 5, 2012

Michael Burstein: Exchanging Information without Intellectual Property

Are intellectual property rights necessary for robust innovation? In his article, Exchanging Information Without Intellectual Property (forthcoming Texas Law Review), Professor Michael Burstein analyzes the role of intellectual property in information exchange. The article explores the range of potential strategies parties may use to enable commercially significant exchange and the ways in which those strategies interact within complex business, cultural, and legal environments.

Professor Burstein begins by introducing the disclosure paradox, a concept first identified by Kenneth Arrow. When two parties meet to exchange information, the buyer must be able to place a value on the information. Yet once the seller discloses her idea, the buyer can take it without paying. This disclosure paradox is an oft-cited rationale for strong intellectual property rights for the purpose of facilitating commercialization. But as Professor Burstein argues, the disclosure paradox suffers from two unfounded beliefs: (1) that once information is revealed, it is impossible to prevent others from using it (excludability); and (2) information can only be revealed or concealed in its entirety (heterogeneity).

Excludability of information depends on the "artifact" in which it is contained. For self-disclosing inventions, the value of the device may become apparent once the invention is disclosed. Alternatively, for more complex ideas, the value of the invention may be in the knowledge behind the product’s development. Recognizing that certain information is excludable allows parties to divulge a prototype while withholding the tacit knowledge behind the invention. Parties are constrained to some extent by the nature of their valuable information, but they often have choices about how to structure that information to enable disclosure without misappropriation.

The second fallacy is that information is discrete – that the holder of the information can either disclose it or not. Burstein instead argues that information is multilayered and diverse; it is heterogeneous. This principle can be illustrated by a set of concentric circles. The inner most circle contains the "core" asset, the information that the holder does not want released to the public. Outside of the inner circle is the "second order" information that describes the asset’s relevant characteristics. Furthest from the core is information tangentially related to the asset. When thought of this way, information holders can choose the level of disclosure they make when negotiating licenses or investment contracts.

Once the discrepancies of the disclosure paradox are understood, alternatives to intellectual property can be used to facilitate meaningful communication. For instance, contracts that resemble governance mechanisms allow parties to contract for the manner in which they will interact during the information exchange. Parties can establish channels for dispute resolution and limit opportunism. Additionally, the rules and customs of a given industry will often determine the level of information disclosure. Concepts like reciprocity of information, attribution of ideas, and industry reputation all facilitate information sharing based on their ability to limit opportunism.

Professor Burstein’s article offers an intriguing view into the proper role of intellectual property in information exchange. Yet even when intellectual property is the proper avenue for protection, there still exists disclosure incongruities. Patents often under protect inventions by allowing parties to design around disclosed information. In response, many patents leave out important design information, providing only the bare minimum required by the written description requirement. But there may be ways to improve the technical content of patent disclosures while minimizing the loss of innovation incentives. See Lisa Larrimore Ouellette, Do Patents Disclose Useful Information?, 25 Harv. J.L. & Tech. (2012) (identifying ways to improve patent disclosures). Additionally, there may be ways to improve a patent’s contextual information to help third parties better understand the patent’s commercialization potential. See Colleeen Chien, Rethinking Patent Disclosure (abstract and slides May 11, 2012) (explaining that contextual information, such as the number of continuations a patent has spurred or if a maintenance fee has been paid, may help reveal the commercial benefits of a patent). The growing literature on information disclosure will hopefully improve both the intellectual property system as well as other mechanisms for innovation protection.

Drafted by Bryan Parrish (bparrish@smu.edu), a registered patent agent, research assistant to Sarah Tran, and a 2014 Juris Doctor candidate at SMU Dedman School of Law.

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