The Cost of Personal Property Servitudes: Lessons for the Internet of Things

Mulligan, Christina

doi:10.2139/ssrn.2465651

Cited by 5 publications

(12 citation statements)

References 11 publications

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“…First, our findings confirm the proposition of Mulligan (2013Mulligan ( , 2016) that exhaustion may reduce rent dissipation when the transaction costs of licensing are high. Specifically, absolute exhaustion prevents the patentee from "burning up" large amounts of surplus via downstream licensing transaction costs, which occurs when the patent holder can require direct licenses from downstream consumers.…”

Section: Resultssupporting

confidence: 86%

“…Perzanowski and Schultz (2011) argue that exhaustion can reduce situations of consumer "lock in" and diminish switching costs, by allowing users to more easily switch to competing technologies. Mulligan (2016) argues that exhaustion can reduce the rent dissipation that may occur when the transaction costs of licensing are high. A counterargument is that absolute exhaustion can reduce overall efficiency by precluding the typically efficiency-enhancing effects of freedom of contract, particularly when the contractual restraints are vertical in nature (Kieff, 2008;Hovenkamp, 2011;Katz, 2016).…”

Section: Previous Scholarship On Patent Exhaustionmentioning

confidence: 99%

“…Note that the optimal marginal consumer type under the mixed-licensing scheme, given by (19), exceeds the optimal marginal consumer type under the pure consumer-licensing scheme, which is given by (11). This implies that the patent holder will negotiate a license with fewer consumers (i.e., a narrower range of consumer types) when the exhaustion regime also allows for manufacturer sublicensing of consumers.…”

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confidence: 99%

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An Economic Model of Patent Exhaustion

2017

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in An Economic Model of Patent Exhaustion AbstractThe doctrine of "patent exhaustion" implies that the authorized sale of patented goods "exhausts" the patent rights in the goods sold and precludes additional license fees from downstream buyers. This paper offers the first formal economic model of domestic patent exhaustion that incorporates transaction costs in consumer licensing, and examines how a shift in patent policy from absolute to presumptive exhaustion, in which the patent owner can opt-out of exhaustion via contract, affects social welfare. The results show that when transaction costs are low, presumptive exhaustion is socially optimal, because it allows welfare-enhancing price discrimination via downstream licensing. Conversely, when transaction costs are high, the regime of presumptive patent exhaustion leads to a greater loss of static efficiency, because transaction cost frictions offset the benefits of price discrimination, but dynamic benefits in promoting ex ante investment in product quality may outweigh any static inefficiencies. JEL-Codes: F100, O310.

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Section: Resultssupporting

confidence: 86%

Section: Previous Scholarship On Patent Exhaustionmentioning

confidence: 99%

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confidence: 99%

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An Economic Model of Patent Exhaustion

2017

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“…Our findings confirm and expand upon qualitative results in the literature. First, we confirm the proposition in Mulligan (2013, 2016) that absolute exhaustion may reduce rent dissipation when the transaction cost of licensing is high, because it prevents the patentee from “burning up” large amounts of surplus via transaction costs in individualized licensing. We also show that absolute exhaustion can reduce product prices for buyers with high willingness to pay (Katz, 2016).…”

Section: Resultssupporting

confidence: 78%

“…Perzanowski and Schultz (2011) argues that exhaustion can reduce situations of buyer “lock in” and diminish switching costs, by allowing users to more easily switch to competing technologies. Exhaustion can also reduce the rent dissipation that may occur when the transaction costs of licensing are high (Mulligan, 2016) and prevent anticompetitive practices (e.g., tying, resale price maintenance, and exclusive dealing), which can be imposed on downstream licensees via contract and may not survive antitrust scrutiny (Hovenkamp, 2016). 12 A counterargument is that absolute exhaustion can reduce overall efficiency by precluding the typically efficiency‐enhancing effects of freedom of contract, particularly when the contractual restraints are vertical in nature (Hovenkamp, 2011; Katz, 2016; Kieff, 2008).…”

Section: Background On the Doctrine Of Exhaustionmentioning

confidence: 99%

An economic model of patent exhaustion

Ivus

Lai

Sichelman

2020

Economics Manag Strategy

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The doctrine of patent exhaustion implies that the authorized sale of patented goods "exhausts" the patent rights in the goods sold and precludes additional license fees from downstream buyers. Courts have considered absolute exhaustion, in which the patent owner forfeits all rights upon an authorized sale, and presumptive exhaustion, in which the patent owner may opt-out of exhaustion via contract. This paper offers the first economic model of domestic patent exhaustion that incorporates transaction costs in licensing downstream buyers and considers how the shift from absolute to presumptive exhaustion affects social welfare. We show that when transaction costs are high, the patent owner has no incentive to individually license downstream users, and absolute and presumptive exhaustion regimes are equivalent. But when transaction costs are at the intermediate level, the patent owner engages in mixed licensing, individually licensing high-valuation buyers and uniformly licensing low-valuation buyers. Presumptive exhaustion is socially optimal when social benefits from buyer-specific pricing outweigh social costs from transaction cost frictions in individualized licensing, which requires sufficiently low transaction costs.

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A numerus clausus rationale for the privity of contract: the protective function

Bucaria

Gottardo

2022

Eur J Law Econ

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We analyse the legal and economic background and implications of the destandardisation of digital contracts, with a focus on consumer protection and overall efficiency. We argue that firms can exploit destandardisation paired with asymmetric information to extract rents. We propose the introduction of a numerus clausus principle in the digital licensing realm (a limit to the contractual freedom of parties to create proprietary rights) as a way of reducing rent extraction by firms and increasing consumer surplus. With a simple economic model, we account for the tradeoff between the benefit from reduced market power and the social cost of legally enforced standardisation, and show that some degree of enforced standardisation can be optimal.

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The Cost of Personal Property Servitudes: Lessons for the Internet of Things

Cited by 5 publications

References 11 publications

An Economic Model of Patent Exhaustion

An Economic Model of Patent Exhaustion

An economic model of patent exhaustion

A numerus clausus rationale for the privity of contract: the protective function

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