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Friday, 31 May 2013

IP licensing--it's the analogy, stupid, or is it?

This Kat was affiliated for over a decade with a general practice law firm. Despite the passage of time, he remembers the first question asked by the first person whom he met on his first day at the firm. I was speaking with a corporate partner and our discussion drifted to IP licensing. Her comment was to the effect that, from her point of view, IP licensing was more or less like a real estate lease, with a little mutatis mutandis thrown in (the Latin is courtesy of your Kat). And then she continued—"Is there anything wrong with that?" This question is as relevant today as it was then. I suspect that many Kat readers have encountered a judgment or have been involved in a negotiation where the analogy is made. And so-- what's wrong with treating IP licensing as analogous to a real estate lease?

Analogical thinking, from case to case and even from statute to statute, was an early and central part of my law school education. But hard-and-fast rules remain elusive. Accordingly, permit me to approach the issue by considering two fundamental aspects of IP licensing and to ask the question—can we learn about them by analogy to real estate leases?

The first aspect is the notion of a non-exclusive licence. Within the context of an IP licence, the notion of non-exclusivity is clear enough. A licensor can grant either an exclusive licence (usually excluding use of the right of the IP right by the licensor as well as all other third parties) or a non-exclusive licence. In the latter case, more than one person has the right to use the same IP right. The analogy between an exclusive licence and a real estate lease seems possible, until one begins to consider how to treat a non-exclusive licence. This Kat's son rents a flat with three other roommates. Are the four tenants of the flat analogous to four non-exclusive licensees of a patent, trade mark or copyright? If the answer is "yes", then there may be a reasonable basis to recognize an analogy between real estate leases, on the one hand, and both exclusive and non-exclusive licences, on the other. But if the answer is "no", the analogy certainly breaks down with respect to a non-exclusive licence. Does this then invalidate the analogy between a lease and an exclusive licence as well, or are we permitted to limit the scope of the analogy to an exclusive licence only?

The second aspect is the grant of use of an IP right for less than the full right. An author can grant to Party X a licence for the right to publish her book in hard-back only, while granting to Party Y a licence to publish her book in paperback and digital form. Or a patentee can grant to Party X the right to use the invention for military applications only, while granting to Party Y the right to use the invention for civilian purposes. Is a grant of this type analogous to a lease that restricts the licensee, e.g., to non-commercial uses of the property (even if the zoning and other requirements of the particular jurisdiction do not dictate such a restriction)? The focus of the question is sharpened when we consider that the lease for residential use only does not allow the lessor to lease the same real estate to another person for commercial purposes. From this point of view, an analogy between a real estate lease and an IP licence that specifies a field of use of the right by the licensee seems more difficult to sustain.

Economists are wont to view an IP right, especially as part of a licence, as a form of public good. As such, the grant of an IP licence is both non-excludable (one cannot exclude others from use of the IP right) and non-rivalrous (the use of the IP right by one person doss not reduce the availability of the right to other persons). Viewing IP generally, and an IP licence specifically, as a form of public good (or is this also simply by way of analogy?) may help explain the apparent lack of a complete analogy between a lease and an IP license. Indeed, at least with respect to non-exclusive licensees and field of use restrictions, the ability to analogize to the law of real estate leases seems highly uncertain, if it exists at all.

The foregoing analysis leads this Kat back to the question that was asked of him on his first day on the new job more than a decade ago. How far, if at all, can one analogize between a lease and IP licence? Indeed, one wonders whether the apparent absence of a settled answer is a failure of legal scholars and commentators to come up with a satisfactory answer, or whether the uncertainty is built into the question itself, whereby the answer will always be tied to the particular circumstances.

More on legal reasoning by analogy per Edward Levi, "An Introduction to Legal Reasoning", here.
More on public goods, non-excludability and non-rivalrous, here.


Anonymous said...

Interesting post, but I'm not sure I see any problem with the comparisons highlighted. For example, you could easily rent out the ground floor of a property for commercial use, and the 1st floor for residential use. Similarly, there's no issue with leasing the left wing of a property for one type of commercial activity, and the right wing for a different type of commercial activity. A property can be subdivided in a very similar way to that of IP rights.
Regarding non-exclusive licenses, if you've ever lived in a shared house where the residents pass each other like ships in the night, then the analogy can be quite apt. Similarly, non-exclusive licensees often do collide in the marketplace, creating analogous tensions to that of housemates..

Adam Gamsa said...

It's hard to offer the following thought without sounding waggish: isn't an IP licence closer to a real estate licence than a lease?

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