Liability rules solve, compete, and avoid innovation failings from a lack of competition

[*2031] The second element is a liability rule5 (also known as a "take-and-pay rule").6 The liability rule envisioned in this Article would be used to protect subpatentable innovation under a uniquely designed regime, also known as a sui generis regime. The proposed liability regime would thus build upon the second of two categories of entitlements initially identified by (then) legal scholars Guido Calabresi and Douglas Melamed,7 rather than relying on the first category - exclusive property rights - as both classical and contemporary intellectual property regimes have repeatedly done.8

[*2032] This Article contends that risky investments in subpatentable innovations - defined as technical innovations that fail to meet the non-obviousness test of patent law9 - would greatly benefit from a carefully constructed sui generis regime of intellectual property protection. Such a regime should not deter competition by dint of an exclusive property right, like that of patent law.10 It would, instead, offset the risky investment (and likely possibility of failure) in subpatentable innovation at the outset by subjecting qualifying innovations11 to a liability rule for a short period of time,12 rather than an exclusive property right.13 Under this approach, competitors would remain virtually free to copy or duplicate the qualifying subpatentable innovation once put on the market, as occurs at present but such competitors would also be required to pay a small royalty from their sales to the originator, for a relatively short period of time.14 Free market [*2033] success of such subpatentable innovations would thus reward the innovators' risky initial investments with a small percentage of the competitors' sales.

We note that, already under both international15 and domestic16 patent law, an approach that makes use of liability rules is available in certain circumstances: this happens in the case of compulsory licenses, which may be issued in situations of need for pharmaceuticals and other products without the consent of the patent holder, and which require the licensee to remunerate the patent holder.17 Liability is also a structuring principle in other areas of intellectual property: U.S. copyright law, for example, has codified a compulsory license for making and distributing phonorecords.18 However, in addition to being limited to certain products, current legal embodiments of liability approaches are only available as a last resort.19 By contrast, the regime proposed in this Article would be based on a codified compulsory license from the outset.20 As further discussed below, this would reduce both uncertainty [*2034] and transaction costs.21 Moreover, and once again unlike existing approaches, our proposal would apply to any products qualifying as subpatentable innovation, irrespective of the field of technology.22