Intellectual Property Rights and Compulsory Licensing: A First Principles Approach to Reform

Abstract

In 1909, Congress for the first time subjected intellectual property protections to compulsory licensing and rate regulation. A compulsory or statutory license is a legal requirement that mandates that the owner of the intellectual property allow third parties to make reproductions of the protected property, provided the third party pays royalties to the owner. Government sets the prices or royalty amounts to be paid by the third party to the intellectual property owner. When it comes to intellectual property rights secured by the Constitution, only copyright protections have been subjected to pervasive compulsory licensing and rate regulation schemes. Congress has not broadly imposed compulsory licensing and royalty rate regulation on patent rights. This paper therefore focuses primarily on compulsory licensing and rate regulation of musical compositions and sound recordings. As a matter of constitutional principle, imposing compulsory licenses and rate controls on copyrights or patent rights is highly problematic. Compulsory licensing and rate controls are at odds with the Constitution’s philosophic premises regarding the origin of property and the proper role of government. The Founding Fathers and early American constitutionalism regarded intellectual property as arising out of human nature and created through human creative and inventive labor, independently of government. It was the role of government to secure and protect property rights and, when appropriate, to clarify property boundaries. This paper has a special focus on the role of compulsory licensing in the contexts of current proposals relating to music and video programming. It concludes that Congress or agencies should not expand compulsory licensing and rate regulation of copyrighted music and video programming. As new technologies, services, and products emerge in the market, Congress and agencies should respect the exclusive rights of copyright holders in these areas rather than pare back those rights by subjecting them to new restrictions.