An Organizational Approach to the Design of Patent Law

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2012] AN ORGANIZATIONAL APPROACH 233
D. USING NEW INSTITUTIONAL ECONOMICS TO REORIENT PATENT
POLICY
The questions asked by NIE scholars, including work done
on incomplete contracts, decisions about vertical integration,
and theories of the firm, arise with particular force in the context
of situations where intellectual property rules come into
play. 98 NIE theories explore the impact of alternative rules,
particularly property rights, in addressing the challenges of coordination,
such as reducing information costs, increasing certainty
in transactions, reducing the costs of bargaining and exchange,
preventing free riding, and controlling negative
externalities. 99 There is a growing body of theoretical and applied
work in the patent literature suggesting that patent
rights, along with other formal rules, play important roles in
determining the existing structures within which innovation
occurs and the performance of these structures. 100 Applied
98. See Burk, supra note 9, at 3 (“In a so-called information age, where
the most important assets of firms increasingly are intangible assets, one
might expect that property-based theories of the firm would be readily applied
to intellectual property.”); Kieff, supra note 9, at 330 (“The tools NIE uses to
conduct comparative institutional analyses have played a central role in the
scholarly debate within property theory about the shifts that occur over time
among property regimes. . . . [But] the basic case for or against formal property
rights for IP backed up by property rules has largely escaped the attention
of the NIE literature.”) (footnote omitted); Merges, supra note 9, at 1877
(2000) (“Property rights, firms, institutions, governments: all of these are the
subject of extensive study by social scientists operating within the [New Institutional
Economics] framework. It is time to integrate the study of IPRs into
this framework.”).
99. The NIE research agenda is focused on how institutions (such as the
laws governing property rights) matter and how they change over time. See
e.g., Coase, supra note 58.
100. For important work at the intersection of patents and NIE see Anton
& Yao, supra note 41, at 190–192 (analyzing the ability of independent inventors
to negotiate with firms in the absence of patent protection); Barnett, Intellectual
Property as a Law of Organization, supra note 9, at 3; Jonathan M.
Barnett, Sharing in the Shadow of Property: Rational Cooperation in Innovation
Markets 1 (Univ. S. Cal. Center in Law, Econ., & Org. Research Paper No.
C08–22, 2008), available at http://ssrn.com/abstract=1287283 (to access article,
select One-Click Download) (explaining that sharing of intellectual property
can lower transaction costs, but requires a framework to operate within);
Burk, supra note 9, at 3 (2004) (examining intellectual property laws in light
of theories of the firm); John F. Duffy, The Marginal Cost Controversy in Intellectual
Property, 71 U. CHI. L. REV. 37, 37–39 (2004) (drawing analogies between
IP and public utility regulation, and revisiting Coase’s critique of proposals
for public subsidies to reduce costs to marginal cost in the context of
IP); Gallini & Winter, supra note 41, at 238 (exploring the role of patents in
opening markets for trade in technological innovation); Paul J. Heald, Trans-