Private Law Theory

ABSTRACT
This chapter focuses on solutions to a second-order problem that arises with the creation of intellectual property (IP) rights – the problem of uniformity cost. The incentives created by one-size-fits-all patents and copyrights often are misaligned with those necessary to attract the optimal level of investment of capital and creative labor. Uniformity cost is the social cost attributable to this uniform approach to institutional design. Licensing and other forms of private ordering minimize some uniformity cost. Current intellectual property law also deploys a range of strategies to minimize residual uniformity cost: (1) defining rights through adaptable standards; (2) some use of real options instead of direct entitlement grants; and (3) selective use of tailored exclusive rights. After brief discussion of these first two strategies, the remainder of this chapter focuses on the last.

Carroll, Michael W, Tailoring Intellectual Property Rights to Reduce Uniformity Cost (April 3, 2018), in Research Handbook on the Economics of Intellectual Property Law (volume 1: Theory, volume 2: Analytical Methods) (Ben Depoorter and Peter Menell, eds, 2019).