Critically Analyse The Extent To Which Intellectual Property Law Appropriately Balances The Needs Of Consumers, Creators / Innovators And The Public Interest.
This paper will begin by defining intellectual property law and analysing its objectives in protecting the consumer, protecting the commercial interests of creators and innovators and serving the public interest. The paper will then look in turn at the law relating to protecting innovation considering how the law of breach of confidence protects ideas and then how, once those ideas have been realised, how statute law protects a new innovation, focusing particularly on the law of patents, finally it will consider how the tort of passing off protects an established product or brand identity. The advantage of this broad approach is that it not only allows for analysis of the law at all stages of the innovative process but that it also spans common law, statute law and equity allowing for full consideration of the question which would be impossible if a narrower, simpler, approach were to be adopted. Having described the current legal position, evaluating its key strengths and weaknesses, the essay will evaluate the competing arguments about the law should be from both the ‘general welfare perspective’ and the ‘free market ideal’. Having analysed all these areas the paper will conclude considering whether intellectual property law has achieved its objectives.
Intellectual property law is that area of law that deals with: “A category of intangible rights protecting commercially valuable products of the human intellect.” The objectives of intellectual property law are to incentivise creativity and serve the public interest by facilitating economic growth. It aims to protect the property rights of owners of intellectual property so that they may reap the benefits of their creativity, it is argued that this provides a financial incentive for creating intellectual property and encourages investment in research and development, although not all commentators agree that financial incentive encourages creativity: “The wasteful effort to suppress competition and obtain special privileges is referred to by economists as rent-seeking behaviour. History and common sense show it to be a poisoned fruit of legal monopoly.” It is also argued that intellectual property intensive industries promote economic growth, in the United States it is estimated that employees working in intellectual property intensive industries are 72% more productive than those in other industries. By considering three areas of intellectual property law this paper will assess whether or not these objectives are satisfactorily achieved and how this balances the needs of consumers, creators and the public.
Confidence is protected by the law of equity, Lord Woolf explained this obligation as:
A duty of confidence would arise whenever the party subject to the duty was in a situation where he either knew or ought to know that the other party could reasonably expect his privacy to be respected.
This equitable remedy was extended in Douglas v Hello! Ltd (No. 1) to give effect to Article 8 of the Human Rights Act (1998) before the courts took a novel approach in Campbell v MGN and recognised a common law right in the law of tort preventing the misuse of private information. The courts seem to have demonstrated a preference for using the equitable remedy for breach of confidence as far as is practicable but are willing to recognise a tortious action when it is necessary: “the court should, in so far as it can, develop the action for breach of confidence in such a manner as will give effect to both article 8 and article 10 rights.” The law of confidence covers a broad spectrum of information: “A wide variety of types of information is protected, ranging from industrial and trade secrets to details of a personal nature to secrets about the government or defences of the realm.” The intellectual property lawyer is interested in the law of confidence as regards trade and industrial secrets, this would usually fall within the auspices of the equitable remedy as the common law remedy relates solely to the disclosure of private information and so far the courts have limited this to compromising photographs, medical records and information of a sexual nature. The importance of this form of action is that it offers protection in the early stages of development, before designs can be registered: “being the only form of protection when the subject matter is still in the embryonic stage.” This clearly serves the needs of creators or innovators as it allows for the development of ideas with the reassurance that the financial benefits of development will come to them. In order to adequately afford protection to the interests of any parties though the law must be clear and precise and the law regarding breach of confidence has been criticised for its breadth in that it conflates intellectual property law with concerns for personal privacy. However this lends the law an element of flexibility that risks being lost if these areas are distinguished:
There can be no doubt that absorbing modern concerns with privacy has required some development of the law of confidence. It seems doubtful, however, whether it should fairly be characterized as ‘impermissible violence’. The developments have not involved fundamental change, but rather somewhat increased flexibility in areas where there was already a fairly high degree of flexibility.
The flexibility afforded by equitable remedies should be cherished but the lack of clarity does lead to uncertainty and some commentators have called for codification by the legislature: “Only legislation can reverse the entirely historical and outdated classification of the action”. The law certainly does go some way to protecting the confidential commercial information of claimants but it could go further, whilst legislating in this area would serve to clarify the law some commentators have suggested that completing the process of recognising breach of confidence as an action in tort law would be satisfactory. The background assumption to the breach of confidence, and the majority of commentators writing in this area, is that secrecy at the stage of design and creation is essential. Whilst this may serve the commercial interests of creators and innovators it reduces competition which may not serve the public interest and, Bodrin and Levine argue, stifles creativity and stalls technological advancement. Citing open source software as a positive example that has facilitated advancement through publicly sharing and developing resources they make a strong argument that transparency advances consumer and public interests. Google’s experiments with open source software such as their Android mobile phone platform and Mozilla’s successes with their Firefox web browser demonstrate that commercial reward can be achieved without monopolising the research and development of innovations. As Hansen explains:
a 19 year-old Stanford sophomore and 24 year old New Zealander working in an open-source community for free, starting from both ends of the world and without having ever met, produced a browser that took 15% of the browser market in about 3 years. This raises the question whether any analysis of Microsoft’s market power as a vertical silo of innovation would be accurate today without taking into consideration peer produced alternatives such as Firefox.
Once an innovation has been developed it can be placed in the public domain and protected by the laws of copyright, trademark and patents. Copyright law grants a property right in authorship similar to the protection afforded inventions and innovations by trademark and patent law: “The development of copyright law in England was shaped by the efforts of mercantile interests to obtain monopoly control of the publishing industry – similar to those of the guilds who were instrumental in shaping patent and trademark law.” The law of trademarks protects a graphic symbol such as a logo, word or phrase from being used by another:
A trademark functions on three different levels: as an indication of origin or ownership, as a guarantee of constancy of the quality or other characteristics of a product or service, and as a medium of advertisement. Thus, a trademark, guarantees, identifies, and sells the product to which it refers.
This paper though will focus on considering the protection afforded to innovations by patent law. Patent law is a product of statute, the Copyright, Designs and Patents Act (1988) protects the work of authors, artists and musicians whilst the Patents Act (1977) protects scientific and technological inventions: “A patent right, because it gives the owner a monopoly in an invention, is the form of intellectual property par excellence.” To be able to be afforded this very strong form of protection under these statutes the creator or inventor, termed patentee, must register their interest with the patentor and the process of application requires considerable time and effort as well as some financial outlay. To satisfy the requirements to be registerable as a patent an invention or innovation must be recognised as pioneering and unprecedented. The monopoly afforded under patent law is not absolute though, a requirement for compulsory licenses may be imposed and domestic and European Community (EC) competition law will intervene where a patent is being abused to artificially inflate prices or unfairly restrict competition preventing abuses of dominant positions within the market.
Whilst patent law affords considerable protection to the work protected by the patent the patent is not necessarily held by the creator or innovator. Whilst section 7 of the 1977 Act means that a patent is usually owned by the inventor where patents are created in the course of employment section 39 provides that any resulting patentable invention or innovation would be the property of the employer. This potential financial disincentive to would-be creators and innovators is off-set by patent compensation orders which compensate inventors whose work enriches their employers beyond what would be reasonably expected in the course of employment law. Patent law then provides a financial incentive to creators and innovators and protects economic investments made into research and development, promoting economic growth.
Patent law though is open to abuses and historically its use and abuse have stifled innovation, harming consumer interests and the public good and creating economic stagnation where there would otherwise have been growth. Bodrin and Levine cite James Watt’s abuse of patent laws when developing his steam engine as an example. Watt’s business partner and Parliamentarian Boulton worked hard to ensure that the legislature afforded full legal protection to Watt’s invention and the subsequent royalties made them both wealthy, this justly rewarding Watt for his creative endeavors yet the social costs were considerable even if – as Selgrin and Turner argue – Levine and Boldrin have exaggerated the effects of patent law on the development of the steam engine it is undeniable that: “Boulton and Watt’s refusal to issue licenses allowing other engine makers to employ the separate-condenser principle clearly retarded the development and introduction of improvements.” Boulton and Watt’s argue that we only need to look to the history of innovation prior to the introduction of patent protection to appreciate that innovation and creation was not stifled by its absence: “The list of industries that were born and grew in the absence of intellectual property protection is almost boundless.” These arguments regarding regulation stifling innovation are dealt with in relation to all areas of intellectual property law below.
In response to early abuses and to reflect the international nature of product development and retail the law on patents has developed dramatically since its inception. The global market has necessitated international agreement on patent law. The World Trade Organisation (WTO) has been proactive in promoting harmonisation of domestic patent laws and TRIPS agreements provide an effective framework for protecting intellectual property rights. By making the acceptance of TRIPS agreements a condition of membership and establishing an effective system of dispute resolution the WTO has ensured near universal acceptance of TRIPS. TRIPS agreements however do limit trade liberalisation and have had some undesirable side effects, such as restricting access to medicines in developing countries, enhancing poverty and failing to address issues of child labour and the subjugation of women. International patent law is certainly complicated by the need “to strike a balance between the incentive to innovate, on the one hand, and the need to secure access to existing proprietary products, on the other hand.”
Patent law now provides a means for innovations to be shared in the public realm whilst protecting the intellectual property of creators and innovators which fuels, rather than stifles, innovation serving the interests of all. By protecting intellectual property whilst encouraging the sharing of ideas patent law encourages innovation, facilitates disclosure, protects investment and creates an arena in which others can improve upon an invention.
Whilst patent law affords protection to innovations brought to the market it requires registration and only protects innovations for a specified period of time. The tort of passing off affords protection, regardless of registration, to established goods and brand identities. The tort of passing off provides a remedy in common law when a trader has misrepresented goods with the effect of deceiving the consumer in a way that damages, or is likely to damage, the business or goodwill of another trader. The tort traditionally required that the tripartite requirements of misrepresentation; damage; and goodwill were satisfied and whilst Lord Diplock identified five necessary characteristics this ‘classic trinity’ described by Lord Oliver is still preferred by the courts: “the tripartite framework of the tort that has regained popularity … [that] of misrepresentation, goodwill and damage.”
Misrepresentation may take many forms, and whilst the courts have identified many types of misrepresentation they have also made it clear that the list is not exhaustive. Describing the many different forms of misrepresentation the courts have identified is not relevant to the purpose of this essay, it is sufficient to identify that that the representations must have occurred in the course of a trade and are likely to deceive consumers, or potential consumers, of the goods or services provided by the claimant whilst being mindful that any concrete definition is complicated: “In seeking to formulate general propositions of English law, however, one must be particularly careful to beware of the logical fallacy of the undistributed middle.”
Lord Parker describes goodwill not merely as passing off products as the claimants but as: “the attractive force that brings in custom” and this has been broadly interpreted by the courts to include descriptions as to areas of origins, such as champagne, or even the use of names that would infer a certain origin to the consumer, such as Advocaat.
Damage does not have to be proved for an action to be brought, the courts simply require that the claimant demonstrates the likelihood of damage: “The crucial test is whether a false representation has been made, fraudulently or otherwise, and whether this will foreseeably result in consumers being misled.”
The courts have allowed the tort of passing off to develop separately from other economic torts, extending it to a broad tort which includes damage to a competitor’s goodwill, however Carty holds that this: “does not undermine the abstentionist policy of common law.” This abstentionist or non-interventionist policy represented a reluctance of the courts to regulate bargaining because of the limitation this would have on the autonomous right to contract regardless of whether the bargain appeared, objectively, to be a good bargain or a bad bargain, this position being highlighted by the prevalence of the maxim caveat emptor. The courts have steadily developed the tort of passing off in to a broader action that prohibits unfair trading practices and justified this interventionist approach on the grounds that it mirrored Parliamentary intervention in this area:
Parliament, however, beginning in the 19th century has progressively intervened in the interests of consumers to impose on traders a higher standard of commercial candour than the legal maxim caveat emptor calls for, by prohibiting under penal sanctions misleading descriptions of the character or quality of goods.
The courts have adopted a consumer welfarist approach in developing the tort of passing off but they have been cautious, recognising that the tort protects monopolies and discourages competition which is not in the public interest and it is clear in Lord Bridge’s judgment in Reckitt & Colman products Ltd v Borden Inc that the courts are resistant to allowing the tort to be used to protect monopolies: “it seems to me utterly repugnant to the law’s philosophy with respect to commercial monopolies to permit any trader to acquire a de jure monopoly in the container as such.” The Gowers Report though is critical of the tort for precisely the opposite reasons, holding that it doesn’t adequately protect the intellectual property of those who have yet to establish a brand identity: “the Review believes that passing off does not go far enough to protect many brands and designs from misappropriation” although patents, breach of confidence, copyright, and trademarks – all discussed above – do afford protection to products and brands that are new to the market.
The development of the tort of passing off clearly demonstrates the difficulties of protecting intellectual property and consumer interests whilst not restricting competition or creating monopolies which would not be in the public interest. The courts however have proceeded with caution, resisting the temptation to develop broad “competition torts” which would stifle competition.
Intellectual property law is a complex arrangement of common law, statute law, international and EU law and equitable principles. In order to adequately address the question this paper focused on three areas of intellectual property law that bridge these areas. Patents are controlled by statute, international and EU law; passing off is a common law action in tort; and breach of confidence is an equitable remedy which is arguably becoming tortious in nature. Having surveyed these areas this paper can now consider how intellectual property law balances the interests of creators, consumers and the wider public from both the “general welfare perspective” and the “free market ideal” perspectives before reaching some conclusions.
Traditional academic literature in this area focuses on the social dimension of policy-making, considering the net advantages and disadvantages to society. This ‘general welfare perspective’ is based on the social contract theory; society allows creators to enjoy monopolies on the rewards generated by their innovations in exchange for which the innovation is placed in the marketplace for the general benefit of society. This model is based on the two aims of intellectual property law identified in the introduction: incentivising creativity and innovation; and making the innovation accessible so that it stimulates economic growth. Incentivising innovation and creativity is vital, as Jeremy Bentham argued: ““he who has no hope that he shall reap will not take the trouble to sow”. Further accessibility is important because by allowing access to proprietary technologies facilities further innovation which is economically and socially desirable. However achieving this balance is complicated, the two ends are not mutually compatible: “the establishment of private property rights in these cases artificially creates the symptoms of scarcity; they do not derive from it.”
The ‘free market ideal’ looks to market liberalisation and laissez faire economics rather than social welfare. Whilst regulation may promote the interests of society it is arguable that regulation is unattractive to business and ultimately will force companies to move to countries with less restrictive regulations, costing domestic jobs and investment, although this is countered by arguments that businesses do not transplant well between different cultures: “there is surely a case for asking whether thriving companies from one jurisdiction would in fact be as successful if transplanted into a very different set of regulation and expectations.” Further, as introduced above, Bodrin and Levine argue that regulation stifles innovation to the detriment of the public good. Their ideas are not novel, as they are keen to point out citing the work of George Stigler writing in 1956:
When the new industry did not have such barriers [patents and other contrived restrictions on entry], there were an eager host of new firms – even in the face of the greatest uncertainties. One may cite automobiles, frozen foods, various electrical appliances and equipment, petroleum refining, incandescent lamps, radio, and (it is said) uranium mining.
Whilst it may be true that the system pre-regulation worked it does not necessary follow from this premise that it is sound to conclude that regulation, or any other alternative, will not work. There may be several ways of achieving the same end and some will be better than others.
Market liberalisation reduces product cost arguably benefiting consumers by: “maximising value for money for citizens” although vulnerable consumers are better protected by consumer welfarist driven legislative interventions and on an international scale this “dog eat dog” model benefits developed economies at the detriment of developing economies. Whilst it is obvious that restricting the use of innovation stifles development as Bodrin and Levine demonstrate and that restricting the freedom to contract to protect consumer interests may deter investment this is not sufficient justification to dispense with regulation but is akin to throwing the baby out with the bath water. Bodrin and Levine’s analogy of the innovative process with the act of sexual intercourse seems more of a tactic to shock than to educate:
If intellectual property is the Viagra of innovation, then it has been prescribed on the basis of the wrong diagnosis to a patient who is not impotent. It may occasionally provide an initial spurt of innovational enthusiasm. Unfortunately, this subsides rather rapidly and is replaced by a rapacious desire to obtain economic satisfaction through the exclusion of as many people as possible from fruitful intellectual intercourse.
This approach is not only distasteful but also erroneous, no one is arguing that innovators and creators are impotent without the protection of intellectual property law. Intellectual property law is not about legislating for a satisfying creative experience rather it is about ensuring the fecundity of the fruits of that experience. What is needed is a balancing of interests and this paper now goes on to consider how intellectual property law succeeds (or not) in balancing those interests.
In conclusion the three areas of intellectual property law discussed above demonstrate the tensions between the conflicting interests. The tort of passing off protects consumer welfare as well as the intellectual property of innovators by preventing deception and protecting goodwill. The limitation of the tort is that it does not adequately protect innovations or brands that are new to the market but this deficiency is in part addressed by equity and statute law. The rules on breach of confidence allow innovators to protect their intellectual property whilst they prepare to bring a product to the marketplace, whilst patent law and trademarks protects registered innovations and copyright law protects creative authorship once they are in the public domain. Of the three areas of intellectual property law explored in detail above it is patent law that best achieves balance between competing interests – permitting temporary monopolies to incentivise innovation whilst facilitating innovations being brought into the public domain which benefits consumers, serves the public good and ultimately benefits innovators by allowing others to improve upon their inventions or innovations without the need to surrender the original creator or innovators intellectual property. This balance of conflicting interests identified in the question is one of the most complex challenges to policy-makers:
Consequently, the structural trade-off built into the IP system – that in order to increase the amount of available knowledge in the future, the efficient use of existing and available knowledge is inhibited in the present – is its most problematic aspect.
The ‘free market ideal’ cannot hope to achieve this balance, its Darwinian approach may appeal to the fittest but the market has a responsibility to protect those who might otherwise not survive, this is especially true of a global market full of inequity due to historical abuses. The ‘general welfare perspective’ however strikes a balance, recognising social contracts formulated on a realistic appreciation of the need to compromise in order to reward innovation without the public good suffering. Whilst historically the law hasn’t achieved this balance and the system of protection has been abused to stifle competition these anti-competitive practices have now been legislated for on a domestic, EU and international level and the law now serves to afford adequate protection to the interests of all concerned parties and the public good.
Table Of Cases
A v B plc (a company)  EMLR 371
Ashworth Security Hospital v MGN  FSR 559
Boehringer Ingleheim KG v Swingward Ltd  EWCA Civ 129
Campbell v MGN  2 AC 457
Douglas v Hello! Ltd (No. 6)  QB 125
Douglas v Hello! Ltd (No. 1)  QB 967
Dudgeon v UK (1981) 4 EHRR 149
Erven Warnink BV v J Townsend & Sons (Hull)  2 All ER 927
Hodgkinson and Corby Ltd v Wards Mobility Ltd  FSR 169
HP Bulmer Ltd v Showerings Ltd v J Bollinger SA  RPC 79
Illustrated Newspapers Ltd v Publicity Services (London) Ltd  Ch 414
IRC v Muller &Co’s Margarine Ltd  AC 217
J Bollinger v Costa Brava Wine Co  Ch 262
Kelly and Chiu v GE Healthcare Ltd  EWHC 181
Reckitt & Colman Products Ltd v Borden Inc.  1 All ER 873
Mishawaka Rubber and Woolen Mfg. Co. v S.S. Kresge Co. (1942) 316 U.S. 203, 205, 62 S.Ct. 1022
Table Of Legislation
Copyright, Designs and Patents Act (1988)
Human Rights Act (1998)
Patents Act (1977)
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Bently and Sherman, Intellectual Property (3rd Ed.), (2008, Oxford University Press, Oxford)
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Carty, An Analysis of Economic Torts, (2001, Oxford University Press, Oxford)
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Phillipson, ‘Transforming Breach of Confidence? Towards a Common Law Right of Privacy under the Human Rights Act’ (2003) 66 Modern Law Review 726
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Anderson and Kovacic, ‘Competition policy and international trade liberalisation: essential complements to ensure good performance in public procurement’ (2009) 2 Public Procurement Law Review 67-101
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Bureau of Economic Research, The Rate and Direction of Inventive Activity: Economic and Social Factors (1962, Princeton University Press, Princeton:NJ)
Gowers Review of Intellectual Property (2006, TSO, Norwich) [online] http://webarchive.nationalarchives.gov.uk/+/http://www.hm-treasury.gov.uk/media/6/E/pbr06_gowers_report_755.pdf, para. 5.84