Dilution and Competition Norms- The Case of Federal Trademark Dil

FOUR COMPETITION NORMS IN INTELLECTUAL PROPERTYIntellectual property is often understood in opposition to antitrustand competition policy.5 Trademarks, copyrights, and patents aresometi

Santa Clara High Technology Law Journal

2008

Dilution and Competition Norms: The Case of

Federal Trademark Dilution Claims against Direct Competitors

Shubha Ghosh

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Recommended Citation

Shubha Ghosh, Dilution and Competition Norms: The Case of Federal Trademark Dilution Claims against Direct Competitors, 24 Santa

Clara High Tech L.J 571 (2012).

Available at: http://digitalcommons.law.scu.edu/chtlj/vol24/iss3/7

CLAIMS AGAINST DIRECT COMPETITORS

Shubha Ghosht

Abstract The field of intellectual property can be understood as a system of regulation governing the competitive process A study of recent trademark dilution cases suggests that competition norms inform the dilution analysis Thus, this article uses the example of trademark dilution to demonstrate that intellectual property can truly be viewed

as competition policy.

t Professor of Law, The University of Wisconsin Law School (starting Fall 2008); currently Professor of Law, Southern Methodist University Dedman School of Law.

572 SANTA CLARA COMPUTER & HIGH TECH L.J [Vol 24

I INTELLECTUAL PROPERTY AS COMPETITION POLICY

What is in a name? When it comes to legal categories, perhapseverything In 1998, Foundation Press published the Fifth Edition ofProfessors Kitch and Perlman's casebook for a survey course onintellectual property entitled "Intellectual Property and UnfairCompetition."' Notably, the title of the Fifth Edition had beenchanged from "Legal Regulation of the Competitive Process,"2 thename the book bore since the First Edition published in 1972 Thestructure of the book, however, remained the same The content hadbeen updated, but the new title marked a watershed in how the field ofcopyrights, patents, trademarks, and related doctrines would belabeled and packaged

A large point of this article is that the title of the first foureditions of Professor Kitch and Perlman's book was accurate.3 Thefield we call intellectual property is more appropriately understood as

a system of regulation governing the competitive process The details

of this article, part of a larger project on intellectual property ascompetition policy, demonstrate why that assertion is true and why itmatters, with a focus on the doctrine of dilution.4 The structure of myargument is as follows Part II identifies four competition norms thatinform the field of intellectual property Part III applies these norms

to trademark law with a specific focus on the dilution cause of action.Part IV, finally, applies the theory to the case law to show howthinking of trademark law in terms of the identified competitionnorms helps to assess trademark policy Part V concludes with asummary of the major points of my article My goal in this paper isnot to change the name of the field, but to inform the label with adeeper understanding of what is at stake in the doctrinal and policybattles over copyright, patent, trademark, and the rest

1 EDMUND W KITCH & HARVEY S PERLMAN, INTELLECTUAL PROPERTY AND UNFAIR

COMPETITION (5th ed 1998) [hereinafter KITCH & PERLMAN, INTELLECTUAL PROPERTY AND UNFAIR COMPETITION].

2 EDMUND W KITCH & HARVEY S PERLMAN, LEGAL REGULATION OF THE

COMPETITIVE PROCESS (1972) [hereinafter KITCH & PERLMAN, LEGAL REGULATION OF THE COMPETITIVE PROCESS].

3 Id.

4 See generally 15 U.S.C.A § 1125(c) (West Supp 2007) (codifying the Trademark Dilution Revision Act of 2006).

II FOUR COMPETITION NORMS IN INTELLECTUAL PROPERTY

Intellectual property is often understood in opposition to antitrustand competition policy.5 Trademarks, copyrights, and patents aresometimes described as monopolies, exceptions to the norm ofcompetition and free trade.6 Conceptually, antitrust and competitionpolicies are viewed as fields outside of intellectual property, arising tolimit the protections of intellectual property when they interfereinappropriately with free markets.7 In Bonito Boats v Thundercraft, 8

the United States Supreme Court addressed the preemptive effect ofintellectual property on state statutes that prohibited certain moldingprocesses for copying boat hulls The Court, in ruling that such statestatutes were preempted, repeatedly referred to intellectual property,specifically patents and copyrights, as Congressionally definedlimitations to free trade and free competition in ideas.9 The Court'slanguage, read narrowly, reinforces the polarization of competitionand intellectual property.10

But to view intellectual property as the opposite of competition

is misleading This view creates a binary opposition that confuses andignores the realities of intellectual property law in action, andmisleads the formulation of intellectual property and antitrust policy.Intellectual property is as much about competition as antitrust law.While antitrust law, for the most part, deals with traditional pricecompetition, where firms fight over market share through offeringcustomers the best collection of goods or services, quality, and price,intellectual property deals with different types of competition There

is competition, as recognized and criticized in the literature, in theform of the race to be the first to invent or create a novel or originalwork There is competition in the form of the race to be the first tomarket the work There is also competition over uses of a giventechnology or markets for products or services enabled by the

5 See generally id.

6 See, e.g., U.S DEP'T OF JUSTICE & FED TRADE COMM'N, ANTITRUST GUIDELINES

FOR THE LICENSING OF INTELLECTUAL PROPERTY 4 (1995), http://www.usdoj.gov/atr/ public/guidelines/0558.pdf; Glynn S Lunney, Trademark Monopolies, 48 EMORY L J 367 (1999) (providing an academic discussion of intellectual property and monopolies, specifically trademark and monopolies).

7 See, e.g., In re Indep Serv Orgs Antitrust Litig., 203 F.3d 1322, 1325 (Fed Cir 2000) (noting that intellectual proper rights do not confer a privilege to violate antitrust laws).

8 Bonito Boats, Inc., v Thunder Craft Boats, Inc., 489 U.S 141 (1989).

9 Id at 156-57 (noting that the efficient operation of the patent system depends upon free trade in ideas and unpatented inventions).

10 Id.

574 SANTA CLARA COMPUTER & HIGH TECH L.J [Vol 24

technology In short, to juxtapose intellectual property against freetrade and free competition is to ignore both the ways in whichcompetition informs intellectual property law and the different formsthat competition can take

One way to remedy this mischaracterization is to focus onmarket structure This has been the tactic of some scholars,

economics literature on industrial organization." Professor Yoo'sstrategy is to recognize that markets defined by intellectual propertyrights (such as copyright) tend to have a structure distinct from that ofperfect competition, which is defined by the entry and exit of firmsresponding to price signals.'2 For example, Professor Yoo has shownthat a monopolistic competition market structure can be fitted tocopyright-based markets for information products.13 This marketstructure is useful in rationalizing intellectual property rights andassessing the policy of intellectual property reform.14 Professor Yoohas also argued that the literature on impure public goods shows thatalternative market structures can be used to define and organizemarkets for different types of products and services protected byintellectual property law.15 This strand of scholarship recognizes thatintellectual property is about competition, but defines competitions interms of canonical forms of market structure 16

Understanding competition in terms of market structure ishelpful, but also potentially limiting Professor Yoo's scholarshipshows that it is possible to construct an intellectual property basedmarket that resolves the appropriability problem created by the non-rivalry and non-excludability of information and yields close toefficient allocation of resources.'7 But just because something istheoretically possible, does not mean that it is implementable or evendesirable from the perspective of social policy Furthermore, what isshown to be possible can also be conceptually misleading To think interms of a particular market structure is to ignore the realities ofactual business transactions and social interactions There is a danger

11 See Christopher S Yoo, Copyright and Product Differentiation, 79 N.Y.U L REV.

212 (2004).

12 ld at 236-41.

13 Id at 264-66.

14 Id at 267-71.

15 See Christopher S Yoo, Copyright and Public Good Economics: A Misunderstood

Relation, 155 U PA L REV 635, 635 (2007).

16 See generally id.

17 See Yoo, supra note 11, at 272-76.

that a model, useful in analyzing reality, may inadvertently distort thatreality In fact, one can criticize the market structure approach tocompetition on the same grounds as criticism of the structure-conduct-performance school (SCP) of antitrust law, the paradigm thatguided antitrust policy by appeal to canonical market forms.18 TheSCP school ignored business realities and actual market transactions

in favor of a formalistic model of markets and competition.'9

However, even if the market structure approach fails to provide adefinition of competition, it is helpful in acknowledging thatintellectual property is a species of competition law We are left,however, with the vexing question of what is competition? ProfessorsKaplow and Shapiro raise this question as well in their analysis of the

"rule of reason" in antitrust law.20

As is well known, the "rule ofreason" assesses business transactions under the antitrust laws based

on a comparison of their pro-competitive and anti-competitiveeffects.21 As Kaplow and Shapiro point out, whether a transaction ispro-competitive or anti-competitive depends on how one definescompetition In antitrust law, competition is legally understood interms of process:

The view seems to be that competition consists of buyers and

sellers each deciding for themselves with whom they will deal

and on what terms Independent decisions are a central feature ofcompetition, whereas groups (typically of sellers) who attempt toimpose some regime regarding the proper terms of dealing aresubverting the process Put another way, what is right isessentially taken to be whatever is the outcome of the competitive

22

process

What Kaplow and Shapiro describe can be labeled the Friedman" view of competition after the economists Friedrich Hayek,who viewed the market as an efficient means of sorting andaggregating information of atomistic actors,23 and Milton Friedman,

"Hayek-18 See Shubha Ghosh, The Market as Instrument: A Response to Professor Harrison, 59

SMU L REV 1717, 1721-23 (2006) (critiquing the SCP approach and citing to literature).

19 See, e.g., William E Kovacic & Carl Shapiro, Antitrust Policy: A Century of Economic and Legal Thinking, 14 J ECON PERSP 43, 52 (2000).

20 Id at 54-58.

21 See e.g., Leegin Creative Leather Prods., Inc v PSKS, Inc., 127 S Ct 2705, 2720

(2007) (describing the rule of reason).

22 Louis Kaplow & Carl Shapiro, Antitrust 55 (John M Olin Center for Law,

Economics, and Business, Discussion Paper No 575, 2007), available at

http://www.law.harvard.edu/programs/olincenter/.

23

576 SANTA CLARA COMPUTER & HIGH TECH L.J [Vol 24

who defined market competition in terms of freedom of choice.24 AsKaplow and Shapiro point out, however, this is not the only view ofcompetition studied by economists that would be applicable toantitrust.25 Much economic study of markets focuses on behavior andstructural constraints on the demand and supply of the market thatresult from the structure of information and production andconsumption decisions.2 6 Consequently, economists care less aboutthe meaning of competition than the interactions of individual firmsand consumers behaving under constraints.27

As applied to the field of intellectual property, this discussion ofcompetition might suggest that the Supreme Court is misguided increating an opposition between intellectual property and freetrade/free competition Perhaps more to the point, intellectualproperty, like other areas of law, governs the behaviors of individuals

by affecting the set of constraints under which individuals act But theprevalence of usage of the word competition in the case law suggeststhat the concept cannot be so readily discarded.28 Furthermore, therole of intellectual property in regulating certain industries as acomplement to antitrust law mandates that the concept of competitionneeds to be confronted This point is made stronger when werecognize a commitment to competition as a normative matter,whether in the form of advocating for freedom in the marketplace andcivil society more broadly or, at the international level, in the form of

a commitment to the free movement of goods and people, regulatedonly for the pursuit of broader societal interests, such as health orsafety

If competition cannot be satisfactorily defined, a workablesolution is to identify certain norms that inform meaningful andrecognizable competition For example, one could define competition

as a free-for-all, the "all's fair" approach.2 9 Such an anarchic view ofcompetition, however, does not lend itself to legal or policy analysis,

24 See MILTON FRIEDMAN, CAPITALISM AND FREEDOM 133 (1962).

25 See Kaplow & Shapiro, supra note 22, at 56.

26 See id

27 See id

28 See, e.g., William Kovacic, The Importance of History to the Design of Competition

Policy Strategy: The Federal Trade Commission and Intellectual Property Law, 30 SEATrLE U.

L REV 319, 332-35 (2007) (tracing the history of competition in intellectual property law and policy).

29 See, e.g., Larry Alexander & Maimon Schwarzschild, Subversive Thoughts on Freedom and the Common Good, 97 MICH L REV 1813, 1819 n.14 (1999) (discussing market

anarchy).

unless one adopts the view that policymakers should simply defer tothe outcome of unregulated competition Such deference has typicallybeen avoided in the law, with very narrow exceptions.30 Anotherpossibility is to define competition in terms of responses by potentialbuyers and sellers of goods and services to price signals This iscompetition as experienced in the stock or commodities market, or in

a more refined way, at art auctions.3 1 We can think of this form ofcompetition as the "pit" model While many markets are obviouslydesigned quite successfully along these lines, it would be misleading

to view competition solely in this way Sometimes, competition mayoccur with respect to quality or quantity, rather than price, such asmight occur in a market where prices are capped or prices are set bysome outside force, such as the global market for a particular preciouscommodity like gold This exercise, however, of analyzing differentforms of competition is helpful in identifying the different norms ofcompetition and in creating a general typology

In a broader project of which this Article is a small part,32 I havestarted to analyze the different types of competition that arerecognized in markets defined largely by intellectual property Increating this typology, I focus on competition among several groups.First, there is rivalry among existing firms in a market as they vie for

a customer base and market share Second, there is rivalry betweenincumbent firms and potential entrants into a market Finally, there isrivalry between sellers and buyers of a product and service over terms

of the contract, such as price, quantity, quality, and the ability to usethe product or service that is the subject of negotiation With theserivalries in mind, I was able to identify several types of competitionnorms that are often appealed to by courts For the purposes of thisArticle, I will simply appeal to this typology and will more fullydevelop the links to the case law in subsequent research I refer tothese four types as competition norms in order to emphasize that eachdefine a set of accepted rules about how competition is allowed to

30 See Paul M Schwartz & William Michael Treanor, Eldred and Lochner: Copyright

Term Extension and Intellectual Property as Constitutional Property, 112 YALE L J 2331,

2391-95 (2003) (describing Lochner as a response to economic change and the accommodation

of law to regulation).

31 See Gideon Parchomovsky, On Trademarks, Domain Names, and Internal Auctions,

2001 U ILL L REV 211, 216 (2001) (describing an auction as an example of competition over

578 SANTA CLARA COMPUTER & HIGH TECH L.J [Vol 24

occur As I explain in the rest of the Article, the challenge forintellectual property is to understand when each norm or combination

of norms might be applicable to a particular problem The four typesare labeled as follows:

A First Mover Norm

The first competitive norm is familiar from the common lawmisappropriation cause of action The idea is that the first toappropriate an idea or the embodiment of that idea in a concrete form

is given the right to exclude others from access for some period oftime In common law misappropriation actions, this right to exclude islimited, in most instances, to "hot news," or information whose value

is time limited and requires costly effort to acquire In intellectualproperty law, the first mover norm arises in many forms Copyrightlaw protects the author who fixes an original work of authorshipwithout copying from some other protected source Patent law, in theUnited States, protects the first inventor of a novel, nonobvious,useful, and enabled invention Trademark law, in the United States,protects the first to use a distinctive mark in commerce that is able toobtain registration More broadly, property law recognizes many firstmovers through appropriation and priority rules.33

For some scholars, the first mover norm is the dominant norm inintellectual property law.34 The norm justifies broad prohibitionsagainst free riding and unauthorized access to works protected byintellectual property.3 5 Often, the first mover norm is stated in terms

of rent dissipation.3 6 While the first mover is given strongexclusionary rights in the marketplace, the argument is that the

33 See, e.g., Leo Raskind, The Misappropriation Doctrine as a Competitve Norm of Intellectual Property Law, 75 MINN L REV 875 (1991).

34 See, e.g., Mark A Lemley, Property, Intellectual Property and Free Riding, 83 TEX.

L REV 1031 (2005).

35 See id at 1040-46.

36 See, e.g., Mark F Grady & Jay 1 Alexander, Patent Law and Rent Dissipation, 78

VA L REV 305, 307-08 (1992).

competition is over the acquisition of the right The race to acquirethe strong exclusionary rights dissipates any rents generated bymarket exclusion and therefore the resulting allocation of resourcesthrough the first mover norm is efficient.3 7 The rent dissipationargument, as is well known, has been criticized because the race toacquire rights as a first mover itself creates its own rents that may not

be dissipated and may in fact be captured by parties to the race.Furthermore, the ex post exclusionary rights may create furtherinefficiencies by preventing efficient uses of the protected asset byfollow-on inventors or consumers.38 These inefficiencies areparticularly likely in environments that are undergoing rapidtechnological change These arguments against rent dissipation callinto question the treatment of the first mover norm as a dominantnorm.3 9

While the first mover norm may not be dominant, it serves animportant role in defining competition under some circumstances.When property rights need to be defined in order to avoid thecommons problem, the first mover norm regulates competition overwho obtains initial entitlements The first mover norm can also serve

to alleviate the anti-commons problem by concentrating ownership inone individual or set of individuals with whom exchange can occur.4 0The success of the first mover norm, however, rests on how theentitlement over which the race occurs is defined ex ante and how therights acquired are enforced ex post If the rights are defined toobroadly, then too many individuals may participate in the race and thewinner may be given too broad a right to exclude in themarketplace.4' Similarly, too narrow a definition may not attractenough participants in the race and can lead to an inefficientallocation of the right.42 Finally, enforcement of the rights onceacquired is necessary to adequately define the boundaries of the right.Too strong or too weak enforcement is as troubling as defining theright too broadly or too narrowly.43

37 See id.

38 SUZANNE SCOTCHMER, INNOVATION AND INCENTIVES 133-34 (2004).

39 Id.

40 See Ghosh, supra note 32, at 795.

41 See Grady & Alexander, supra note 36, at 318.

42 See, e.g., id.

580 SANTA CL1ARA COMPUTER & HIGH TECH L [Vol 24

B Controlled Entry Norm

Although the first mover norm has become for many scholarsand intellectual property policy makers the dominant norm ofcompetition, it is only one of four norms that can be identified in theintellectual property case law Under the first mover norm, entry islargely at the behest of the owner of the intellectual property right.Those who want to produce or use the protected product or servicehave to do so with the permission of the rights holder 4 Alternatively,potential entrants into the market have to work around the rightsholder's entitlement, often with the threat of a law suit to determinewhether the rights have been transgressed A strict application of thefirst mover norm would tightly control the scope and extent of marketentry

A controlled entry norm recognizes that some degree of marketentry should be permitted independent of the control of the rightsholder At the extreme, the controlled entry norm would allow anyone

to enter the market for the intellectual property protected product withonly the lead time of the rights holder as offering a means to collectrents.45 This extreme, of course, is the case made by Justice StephenBreyer in his famous article, "The Uneasy Case for Copyright.'A6According to Justice Breyer, publishers and authors can make theirmoney from books without copyright protection by selling advancecopies of the work and through product differentiation A similarargument could be made in the patent context with appeal to tradesecret protection, which for processes and for some products canallow the rights holder to earn rents that can compensate forinvestments in research and development A more moderate version

of the controlled entry norm would allow entry only after the rightsholder has earned enough rents to adequately compensate for theinvestments in' creating the protected work For example, acompulsory licensing scheme would be an example of this version ofthe controlled entry norm Finally, another version of controlled entrywould allow entry only to satisfy certain critical needs in themarketplace, such as created by a medical or other emergency

44 See, e.g., UMG Recordings, Inc v MP3.COM, Inc., 92 F Supp.2d 349, 352

(S.D.N.Y 2000) ("[F]or a copyrighterholder's 'exclusive' rights, derived from the Constitution and the Copyright Act, include the right, within broad limits, to curb the development of such a derivative market by refusing to license a copyrighted work or by doing so only on terms the copyright owner finds acceptable.").

45 See Stephen Breyer, The Uneasy Case for Copyright: A Study of Copyright in Books, Photocopies, and Computer Programs, 84 HARv L REV 281 (1970).

46

The norm of controlled entry recognizes two critical issues incompetition The first is that entry, or at least the threat of entry, is theessence of the competitive process As analyzed by economistsWilliam Baumol, Stephen Panzer, and Robert Willig, contestablemarkets, ones in which, among other factors, entry costs are low, can

be as competitive as the perfectly competitive markets of economicstextbooks.4 7 But entry also cannot be unlimited without creatingproblems for the competitive process Excessive entry can bedestructive for the market, lowering prices to the point whereotherwise viable firms are driven out of the marketplace In addition

to such destructive competition, excessive entry can lead to too muchdiversity of choices for consumers and trivial variations in theproduction and marketing of products and services The norm ofcontrolled entry addresses the problems of excessive entry by limitingthe manner in which entry can occur without giving the rights ownercomplete discretion in determining when entry occurs

C Consumer Centered Norm

The third norm of competition is a broader version of what issometimes referred to as consumer sovereignty, the view that theconsumers' values determine the efficacy of a market While theconcept of consumer sovereignty is often based on the assumption of

a rationally acting consumer, the consumer centered norm recognizesthat the consumer may play different roles from that of a passivepurchaser of products and services Perhaps a better description would

be user centered norm, but I will stick to the term adopted herebecause of the connections with the important scholarly literature onthe consumer in intellectual property

At the outset, this norm is distinguishable from the previous two,which focused on the behavior of market participants, particularlyfirms The consumer centered norm seems to be result oriented,describing a norm that would favor competitive processes that benefitconsumers over producers in the market That conclusion is in partmisleading and stems from the view of the consumer as passive Tothe extent that the passive consumer is an accurate assessment, theconsumer centered norm would favor competitive processes thatwould tend to lower prices for products and services protected byintellectual property That interpretation of the norm would have

47 See WILLIAM J BAUMOL, JOHN C PANZAR, & ROBERT D WILLIG, CONTESTABLE

43-44 (1982).

582 SANTA CLARA COMPUTER & HIGH TECH L.J [Vol 24

implications for how one analyzed parallel imports, for example, with

a price focused consumer centered norm allowing parallel importseven if they infringed on intellectual property rights Even within theframework of the passive consumer, however, the consumer centerednorm would in many instances also have to consider the quality of theproduct or service, in addition to the price and the availability of theproduct or service, absent adequate intellectual property protection.One way to understand the consumer centered norm is to conceive ofthe consumer as an agent who acts in the marketplace through voice,exit and loyalty responding to the package of price, quality, andquantity that the intellectual property owner provides A consumercentered norm would assess competition on its ability to meet theneeds of consumers as they express these needs through marketmechanisms

Recognizing consumers as more than mere passive recipients ofgoods who voice their wants through purchasing decisions, expandsthe set of needs addressed by the consumer centered norm Forexample, suppose the consumer is also an inventor or creator who inconsuming products or services also produces new products orservices in the form of criticism or commentary or by tinkering withexisting devices or processes to generate improvements Under thisview of the consumer, the consumer centered norm would design therules of competition to meet these needs which may result inincreased prices, but expanded dimensions of access When theconsumer is conceptualized more broadly, the consumer centerednorm is not simply result oriented The norm facilitates behavior that

is analogous to the entry of new firms A consumer centered normconstructs the consumer, determining what she is allowed to dowithin the scheme of intellectual property

Trademark law provides one example of consumer centerednorm, especially this norm in conflict with the first mover norm, as Iwill elaborate in Section Three.48 Another salient example of theconsumer centered norm is the doctrine of fair use in copyright, whichallows consumers to infringe copyrighted works when the use isproductive and does not conflict greatly with the interests of thecopyright owner in potential markets for the work.4 9

While fair usecan be understood in some instances as an example of the controlledentry norm, in situations involving new technologies (such as in the

48 See Jospeh P Liu, Copyright Law's Theory of the Consumer, 44 B.C L REV 397

(2003).

SONY or Grokster case) it is the consumer centered norm that is atstake.50 Recognizing copyright fair use as a type of consumer centerednorm helps to understand why there is no analogous doctrine in patentlaw, emphasizing the first mover and controlled entry norms bygranting the patent owner strong exclusionary rights with narrowexceptions for repair and for experimental uses.51 Furthermore,copyright fair use is very different from trademark fair use, which inits traditional and nominative forms is an example of the controlledentry norm, allowing the use of trademarked words for descriptivepurposes in the marketplace for language.

In conclusion, the consumer centered norm recognizes thatcompetition in the marketplace also exists between producers andconsumers Any transaction involves the generation of surplus as thepurchaser must value the product or service at least as much as theseller The question is how this surplus is divided between thepurchaser and consumer through the terms of the transaction Aconsumer centered norm would favor competitive processes thatweigh in favor of consumers and would design rules that protect theinterest of consumers in market transactions

D Wealth Maximization Norm

The norm of wealth maximization would favor competitiveprocesses that maximize the aggregate wealth in society Like theconsumer centered norm, this last norm seems result oriented Butimplicit in the norm is the transactional behavior of individuals in themarketplace, each of which, if successfully completed, wouldgenerate surplus as low valued products and services are transferred

to those who value them most The wealth maximization norm seeks

to design competition so as to maximize the set of successfultransactions in the economy Viewed simplistically, the fourth normmight support creating a marketplace with many middlemen, eachgenerating some value and adding to the costs of transactions Butsuch a simplistic conclusion would ignore that increasing the number

of intermediary transactions also would increase the costs oftransacting resulting in the possible shrinkage or even breakdown ofthe marketplace The norm then must be understood in terms of the

50 See Shubha Ghosh, The Fable of the Commons: Exclusivity and the Construction of

Intellectual Property Markets, 40 U.C DAVIS L REV 855 (2007).

51 See Metro-Goidwyn-Mayer Studios, Inc v Grokster, Ltd., 545 U.S 913 (2005);

Sony Computer Entm't, Inc.v Connectix Corp., 203 F 3d 596 (9th Cir 2000).

584 SANTA CLARA COMPUTER & HIGH TECH _ [Vol 24

aggregate market rather than in terms of the interests of one group,such as intermediaries or producers

Perfect price discrimination provides an example of the wealthmaximization norm and contrasts with the other three norms When afirm is able, through the existence of market power, to charge eachcustomer in the marketplace the most he is willing to pay for aproduct or service, the firm is engaging perfect price discrimination.Perfect price discrimination maximizes wealth because the firm isable to sell the product or service to anyone willing to pay and collectthe maximum amount the customer is willing to pay Therefore,perfect price discrimination would satisfy the wealth maximizationnorm of competition since the maximum possible voluntarytransactions in a marketplace can take place However, perfect pricediscrimination does not satisfy the consumer centered norm Althoughevery consumer willing to pay is able to obtain the product or service,the entire consumer surplus in the market is captured by the sellingfirm Furthermore, the controlled entry norm is not satisfied sincefirms that may promote innovation in the marketplace are deterredfrom entry However, perfect price discrimination would satisfy thefirst mover norm since the firm is able to capture rents in themarketplace which can be used for additional investments ininnovation

The wealth maximization norm in intellectual property is oftenframed in terms of dynamic efficiency by structuring rules to generatethe creation of new products and services that are disseminated to awide range of consumers This fourth norm overlaps with howcompetition is viewed in antitrust law, which currently is guided bygoals of wealth maximization.53 In fact, when one thinks of thetensions between intellectual property and antitrust law, the conflictstems from how to apply the wealth maximization norm to marketswhere exclusionary rights might interfere with the benefits of accessand potential transactions.54 For example, in cases involvingexclusionary conduct, where an intellectual property owner cuts offaccess to products protected by intellectual property, courts are splitbetween creating an immunity for the intellectual property ownerfrom antitrust law and assessing on a case by case basis the

52 See U.S DEP'TOF JUSTICE & FED TRADE COMM'N, supra note 6, at 1-2.

53 See id.

54 See In re Indep Serv Orgs Antitrust Litig., 203 F.3d 1322, 1325 (Fed Cir 2000).