An Organizational Approach to the Design of Patent Law

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and North are considered to be the founders of NIE, and their
work informs our understanding of the core concepts of NIE.
The focus of NIE, to the extent there is a single focus for a
loosely grouped set of analytical approaches, is on coordination
of economic activities through formal and informal rules, and
on the alternative governance structures within an institutional
environment that are a product of political, historical, economic
and social forces. 64 Property rights and patent rights are
formal institutions designed to describe the boundaries of, and
allocate control rights over, the disposition and use of resources.
Formal rules interact with informal rules, such as
norms and customs regarding fairness and business attitudes,
to create the “institutional environment,” or set of background
constraints, that guide transactions. 65 North draws an analogy
between the institutional environment and the rules of a game,
with institutions defining and limiting the set of choices available
to individuals. 66 Individuals or individual entities enter into
agreements to govern their specific relationships in light of
the background rules. 67 These arrangements are often referred
to as governance structures, and include the use of contracts
and different types of public and private bureaucracy as alternative
ways to organize economic activities. 68 Governance involves
the interaction of public and private orderings; public
ordering can be viewed as the “rules of the game,” while private
ordering can be viewed as the “play of the game.” 69 Organizations
can be understood as groups of people and the arrangements
those people create to coordinate their collective actions,
and include firms, government entities, universities, families,
64. NIE provides multiple methodologies for studying economic behavior,
including a combination of mathematical modeling, case studies, econometric
modeling, and experiments to test alternative theories. See Joskow, supra note
59, at xxxix-xli (exploring the methodologies of NIE). NIE encompasses diverse
work on transaction costs, agency costs, property rights, incomplete contracts,
social costs, collective action, and hierarchy and organization. See, e.g., Brian
Dollery, New Institutional Economics and the Analysis of the Public Sector, 18
REV. POL’Y RES. 185 passim (2001).
65. See North, supra note 60.
66. Id. at Part III.
67. See, e.g., OLIVER E. WILLIAMSON, THE MECHANISMS OF GOVERNANCE
4–5 (1996).
68. See, e.g., id. at 5.
69. See Oliver E. Williamson, The Lens of Contract: Private Ordering, 92
AM. ECON. REV. 438, 438 (2002).