Bargaining Failure and Failure to Bargain

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Boston University School of Law




In this talk I want to do four things. First, I’m going to present a motivating example, and second I will discuss what causes IP litigation. I want to distinguish between bargaining failure and failure to bargain ex ante. This is the descriptive portion of my project, and the message is really pretty simple. In law and economics, we think a lot about why people who have a dispute, who sit cross from each other at a table, fail to do the efficient thing, which is to stay out of the courtroom and avoid incurring litigation costs. Law and economics scholars have a lot of explanations about why that kind of bargaining failure occurs, but actually quite little thought has gone into the questions of: When do these people find each other? How do they find each other? Will they get to the bargaining table? Coase, in his transaction cost paper, actually described this as “discovery cost.”1 He had little to say about it in that paper, and not many scholars subsequently have picked that up. That’s where I’m entering the academic literature—trying to think more about failure to bargain, especially failure to bargain early. What explains when and how people get together, at an early date, to deal with an IP dispute? Third, in a normative vein, I will talk about whether we should reform IP law to encourage early bargaining. I want to talk about the gains to ex ante bargains, and the incentives to search out partners, match with them, and then actually bargain. How can the law affect those incentives? To conclude, I will briefly describe policy levers that might be used to address failure to bargain.

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