Intellectual Liability

Intellectual property is increasingly a misnomer since the right to exclude is the defining characteristic of property and incentives to engage in inventive and creative activity are increasingly being granted in the form of liability rights (which allow the holder of the right to collect a royalty from users) rather than property rights (which allow the holder of the right to exclude others from using the invention or creation). Much of this recent reorientation in the direction of liability rules arises from a concern over holdout or monopoly power in intellectual property. The debate over whether liability rules or property rules are preferable for intellectual property has focused too narrowly on the benefits and costs of allowing the right to exclude, which is only one stick in the potential bundle of rights. Each stick in the bundle interacts with other sticks to affect both the rewards of engaging in inventive and creative activity and the social costs attributable to the grant of the rights. Sometimes, the optimal solution is to allow the exercise of other market-power-conferring rights but to remove the right to exclude. Administrability of a liability-rights-oriented regime should not be a major concern, since liability rules usually result in private bargaining rather than judicial or administrative rate setting