Shubha Ghosh: IP Federalism

In his new piece, Short-Circuiting Contract Law: The Federal Circuit's Contract Law Jurisprudence and IP Federalism, Shubha Ghosh discusses what he sees as the Federal Circuit's inappropriate encroachment on state contract laws respecting intellectual property rights, especially patent rights.  In doing so, Ghosh joins many other scholars in addressing the fascinating topic of IP and federalism, including Mark Lemley, Paul Goldstein, Paul Heald, John Shepard Wiley, Douglas Lichtman, Xuan-Thao Nguyen, Jeanne Fromer, Paul Gugliuzza, and myself.  (Notably, Gugliuzza recently made a similar argument to Ghosh that the Federal Circuit has inappropriately impeded state courts from influencing the patent system with their own laws, blogged on here.) 

Ghosh makes several interesting contributions to this scholarship.  I will highlight three of them.

First, Ghosh provides a detailed descriptive account of the Federal Circuit's recent and past jurisprudence relating to four important areas of patent law: assignments, the on sale bar, licenses, and settlement agreements. He characterizes this as a "federal common law" of contract respecting patents created by the Federal Circuit.  

Second, Ghosh makes the normative claim that this development is not necessarily a good thing. Drawing on recent scholarship on the importance of contractual innovations, he argues that generalist courts presented with contractual innovations developed by private actors should defer to those innovations or at least to local rules regarding those innovations. According to Ghosh, the Federal Circuit, which is not a generalist court, has nonetheless "inappropriately assumed the role of generalist courts under the guise of its specialized jurisdiction over patent law."  In order to preserve contractual innovation, Ghosh concludes that rather than "developing its own specialized contract rules for patents, the Federal Circuit should defer to generalist courts, i.e. state courts." He suggests three ways the Federal Circuit can defer to states: deference to state institutions, deference to sources of state law, and deference to private agreements themselves. With respect to preemption, Ghosh concludes that courts should defer to state laws and institutions, and especially to private contractual orderings, so long as "it is consistent with federal [IP] policy."  

Third, Ghosh makes a broader argument about the role of federalism in IP jurisprudence as compared to the role of federalism in either commerce clause jurisprudence (e.g. health care provision) or civil rights jurisprudence. Drawing a loose analogy to civil rights, where states can hinder or protect fundamental rights, Ghosh argues that robust state legislation in the area of patents and IP is a double edged sword.  On the one hand, states can expand federal IP rights beyond the scope allowed by federal law – for instance, by sanctioning contract rules that restrict buyers' use of copyrighted materials (held enforceable in ProCD v. Zeidenberg). On the other hand, states can restrict federal IP rights – for instance, by associating with Google during its project of digitizing library books to endow Google with state immunity from infringement suits. (Apparently thinking along similar lines, Mark Koffsky recently proposed using state immunity from patent damages to preempt patent assertions from PAEs in “How States Can Kill Patent Trolls.”)

Ghosh's willingness to draw out the complexity of the role of federalism in IP law contrasts with the approach of other scholars, who have focused mainly on the way state law expands IP rights – arguing, for instance, that shrink wrap licenses inappropriately extend IP protection beyond the ceiling created by federal policy interests. However, the role of states in limiting patent use was recently brought into the limelight by the new actions by some states challenging "bad faith assertions" of patent infringement, which arguably contributed to subsequent federal reform efforts. (On New York's recent actions, see Tim Lee's and Michael Looney's reporting). As I've discussed, there are various other ways states could theoretically reduce the scope of patent rights.

Ghosh's observations will be useful to scholars writing on various topics in IP federalism, including case law relating to contract laws respecting IP, the role of the Federal Circuit vis a vis other institutional bodies, and the role of states laws and state courts in IP, generally. However, I would have appreciated more discussion of how Ghosh's argument that the Federal Circuit should defer to private contractual orderings fits in with Lemley's and Fromer's views on IP preemption. Also, I would be curious to know more about the policy implications of Ghosh's position for issues such as employee mobility. In her new book Talent Wants to Be Free, Orly Lobel discusses at length the ways allowing employers to restrict employees' use of information in certain states can hinder innovation and growth. (See Kiel Brennan-Marquez' recent interview with Lobel in Balkinization). Does Ghosh disagree with Lobel's argument that "talent wants to be free," or does he simply see deferring to state "laboratories of experimentation" as preferable to top down interference from a federal institution?