An Economic Analysis of Damages Rules in Intellectual Property Law

Article excerpt

I. INTRODUCTION

In 1987, an architect named Lebbeus Woods created a graphite pencil drawing entitled "Neomechanical Tower (Upper) Chamber," which depicts an ominous-looking chamber containing a chair mounted high upon one wall by means of a vertical rail, and a sphere suspended in front of the chair at face level.(1) Eight years later, Universal City Studios, Inc. ("Universal") released the film 12 Monkeys, a dystopian adventure involving a future world in which human beings have taken to living underground following an outbreak of a mysterious virus that kills five billion people beginning in the year 1996.(2) Near the beginning of the film, the rulers of this world bring the lead character, played by Bruce Willis,

into a room where he is told to sit in a chair which is attached

to a vertical rail on a wall. The chair slides up the rail

to a horizontal ledge on the wall so that the chair is several

yards above the ground. A sphere supported by a metal-frame

armature descending from above is suspended directly in

front of (Willis]. On three occasions, [Willis] returns to this

chair.(3)

A few weeks after the film was released, Woods filed suit in the United States District Court for the Southern District of New York, alleging that Universal and the film's director and production designer had infringed his copyright in the drawing by reproducing the work in the scene described above (albeit in another medium, film), and by distributing and exhibiting the reproduction to the public without permission.(4) Concluding that the defendants had access to Woods's work and that the scene was strikingly similar to that work, the court granted Woods's motion for a preliminary injunction.(5) Shortly thereafter, the parties agreed to a settlement pursuant to which Woods agreed to allow the continued exhibition of the film in return for an undisclosed sum of money.(6)

Had the case proceeded all the way to trial and resulted in a judgment in Woods's favor, Woods presumably would have been entitled to a permanent injunction against the exhibition of the film,(7) and also to monetary damages for the defendants' unauthorized use of the drawing.(8) But what would those damages be? In answering this question, a policymaker with the authority to award whatever damages she believes to be appropriate would face several different, and difficult, choices; and although this example involves the law of copyright, one can easily imagine similar examples involving other types of intellectual property such as patents, trade secrets, and trademarks. One option would be to award Woods his lost profits from the sale of authorized copies of his drawing;(9) on the facts described above, however, this amount probably would be zero, because it is unlikely that the film would be a close enough substitute for, say, a book of authorized Woods reproductions so as to displace sales of the latter.(10) A second option would be to award Woods a royalty for the unauthorized use of his drawing, but this option raises the question of how to determine the amount of the royalty. Should the policymaker simply award the amount she believes to be "just"? Should she refer the decision to some expert tribunal? Or should she try to reconstruct the amount the parties themselves would have agreed upon ex ante (and if so, how)?(11) A third option would be to forgo compensation altogether and to order the defendants instead to disgorge their profit from the exhibition of the film--though surely not their entire profit, but only that portion that is attributable to the use of Woods's drawing (and how, exactly, would you go about measuring that)? Perhaps one could sympathize with a policymaker who, upon consideration of the above choices, simply throws up her hands and awards some arbitrary amount--as, arguably, the concept of presumed damages allows the trier of fact to do in some types of defamation cases. …