by Dennis Crouch
This semester at Mizzou, I am teaching two first year (1L) law school classes — Property and Civil Procedure. These classes are intended as fundamental foundation courses applicable in some way to all areas of law — even patent law. I’m planning a series of posts titled “this week in property” and “this week in civil procedure” that will tie-in what we’re learning in class and relate it to patent law.
The first case that my students read in Property is Jacque v. Steenberg Homes, 209 Wis. 2d 605 (1997). The defendant in the case – Steenberg Homes – was delivering a mobile home to a third-party pursuant to a contract. The problem was that the road was under 7 feet of snow. Steenburg asked Harvey Jacque for permission to cross his field, which Jacque denied. Steenburg then went ahead and buldozed a path across the frozen field and satisfied its contract. The manager had instructed the movers as follows: “I don’t give [a F___] what he said, just get that home in there any way you can.” At trial, Jacque was thus easily able to prove willful trespass. The problem came with damages.
At trial, Jacque proved about $200 in damages to the land (extra plowing time in the spring), but those damages were suffered by his tenant (Jacque’s son) and thus not awarded to Jacque. Steenburg Homes argued that this is a case of efficient infringement. Although it was trespass, the company should only have to pay for the harm it caused. Recognize here that the company’s only other choices at the time were to (1) breach its delivery contract; or (2) deliver in a more unsafe (and costly) manner over the alternative route. Apart from the $200 in damage, everyone was better off (or at least not worse off) after the infringement.
Although it awarded only $1 in nominal damages, the jury also awarded $100,000 in punitive damages (no actual damages). On appeal, the Wisconsin Supreme Court upheld the verdict – overturning a prior rule that punitive damages are only available if actual damages are awarded.
The court explained its reasoning:
[The old rule] sends the wrong message to Steenberg Homes and any others who contemplate trespassing on the land of another. It implicitly tells them that they are free to go where they please, regardless of the landowner’s wishes. As long as they cause no compensable harm, the only deterrent intentional trespassers face is the nominal damage award of $1, the modern equivalent of Merest’s halfpenny, and the possibility of a Class B forfeiture under Wis. Stat. § 943.13. We conclude that both the private landowner and society have much more than a nominal interest in excluding others from private land. Intentional trespass to land causes actual harm to the individual, regardless of whether that harm can be measured in mere dollars.
Id. The court’s reference to Merest’s halfpenny comes from an 1814 English decision Merest v. Harvey, where a jury awarded 500£ in exemplary damages (~$50,000 today) against a banker (and Member of Parliament) who joined a hunting party on the plaintiff’s land after being told no.
GIBBS CJ: I wish to know in a case where a man disregards every principle which actuates the conduct of gentlemen what is to restrain him except large damages. … Suppose a gentleman has a paved walk in his paddock before his window, and that a man intrudes and walks up and down before the window of his house, and looks in while the owner is at dinner, is the trespasser to be permitted to say “here is a halfpenny for you which is the full extent of all the mischief I have done?” Would that be a compensation? I cannot say that it would be.
Heath J: I remember a case where a jury gave 500 damages for merely knocking a man’s hat off and the Court refused a new trial. . . . It goes to prevent the practice of duelling if juries are permitted to punish insult by exemplary damages.
Merest v. Harvey, 128 Eng.Rep. 761 (C.P. 1814). The approach in Steenburg and Merest follows the “property rule” for protecting entitlements. The alternative approach – a liability rule – is seen in negligence and contract law. The patent system used to fit fairly squarely within the property rule schema as Blair & Cotter explained in a pre-ebay paper:
U.S. law protects patent entitlements by means of a property rule, which entitles the owner to enjoin infringing behavior, rather than by means of a liability rule, which would allow one to infringe and pay damages indefinitely.
Roger D. Blair & Thomas F. Cotter, Rethinking Patent Damages, 10 Tex. Intell. Prop. L.J. 1, 48 (2001). 20 years later, patent law has transformed into a liability rule that largely allows for an “efficient infringement” setup. Prof. Mossof explained this in his recent article:
The result of the weakening of the ability to obtain an injunction–the backstop for all market-based negotiations of conveyances of property rights– and the further limiting of damages awarded to patent owners below market-set rates has led to an increasingly common commercial practice referred to as “efficient infringement.” This occurs when a company decides that it “economically gains from deliberately infringing [on a] patent” because it knows the patent owner will not receive an injunction and thus it will pay less in legal fees and in court-ordered damages than it would have paid in a license obtained from the patent owner.
Adam Mossoff, Institutional Design in Patent Law: Private Property Rights or Regulatory Entitlements, 92 S. Cal. L. Rev. 921, 939 (2019) (quoting his own prior essay). But, efficiency is good — others have written that a liability rule is the best approach even if it reduces innovation incentives — because it raises incentives to commercialize and can avoid transaction costs in the marketplace. See Ian Ayres & Paul Klemperer, Limiting Patentees’ Market Power Without Reducing Innovation Incentives: The Perverse Benefits of Uncertainty and Non-Injunctive Remedies, 97 Mich. L. Rev. 985, 987 n.2 (1999); Julie Turner, Note, The Nonmanufacturing Patent Owner: Toward a Theory of Efficient Infringement, 86 Cal. L. Rev. 179 (1998).
In this debate, the courts have largely made their statements: Real property is protected with a property rule; Patent rights are protected with a liability rule. Any change this generation will come from the legislature.