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A PURCHASER OF A PRODUCT
V. AN OWNER OF STOLEN
INTELLECTUAL PROPERTY:
THE REVIVAL OF THE
ACCESSION RULE
319
I. INTRODUCTION
A producer produces a product while infringing on another’s
intellectual property rights. A buyer purchases the infringing product.
This case represents a unique situation in which chattel, rights and the
producer’s work have been mixed together with another’s intellectual
property right. The complete product, which contains those elements
in an undistinguishable mixture, has been purchased by a certain buyer.
Who should receive the right of ownership of the infringing product—
the buyer or the intellectual right owner? What rights do both parties
have? Which law should decide the dispute? Apparently, the solution
is simple: The intellectual property owner will sue the producer
demanding that ownership of the infringing products be transferred to
her, receive profits derived from unauthorized use of her rights, and
receive compensation for her damages. However, in many cases such a
legal suit is impractical since the producer is insolvent or impossible, or
too costly to locate.
The first example is F.W. Woolworth Co. v. Contemporary Arts,
1. F. W. Woolworth Co. v. Contemporary Arts Inc., 344 U.S. 228, 229 (1952)
[hereinafter “re Woolworth I”]. In a latter identical case, also involving Woolworth,
(Harms, Inc. v. F. W. Woolworth Co., 163 F. Supp. 484 (1958) [hereinafter re
Woolworth II]), the court relates to re Woolworth I and emphasizes: “I can find no
validity in the argument that a distinction be drawn between the 'manufacturers' cases
and the 'sellers' cases, or that the trial of the 'sellers' cases be deferred until the
'manufacturers' cases are decided.” Id. at 486. For further discussion in those cases,
see infra section III.
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2. Softman Prod. Co., LLC v. Adobe Sys. Inc., 171 F. Supp. 2d 1075, 1090-91
(C.D. Cal. 2001).
3. Raddatz v. Hedgpeth, 35 Cal. Rptr. 855, 858 (1963).
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4. Id.
5. Id.
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1. General
In general, there are two main approaches to justifying the
defense of intellectual property:6 The economic-utilitarian approach
and the natural rights approach.7 According to the economic-
utilitarian approach, exclusive rights should be granted to creators and
inventors in order to serve the public interest in creating, promoting
and distributing inventions, expressions, creations and abstract
6. See Justin Hughes, The Philosophy of Intellectual Property, 77 Geo. L.J. 287
(1988).
7. According to the natural rights approach, intellectual property should be
viewed as the creator’s or inventor’s natural right to his creation, derived from his
moral right to the creation. Some base this approach on Locke's theory of work and
view the creator's right as a natural right to the fruit of his labor. John Locke, Two
Treatises of Government, The First Treatise §§ 138-140 (Peter Laslett ed., Cambridge
U. Press 1988). Many scholars have criticized and applied the theory of work in the
intellectual property context. See generally, regarding copyrights, Stewart E. Sterk,
Rhetoric and Reality in Copyright Law, 94 Mich. L. Rev. 1197 (1996), and regarding
patents, A. Samuel Oddi, Un-Unified Economic Theories of Patents—The Not-Quite-
Holy Grail, 71 Notre Dame L. Rev. 267 (1996). Conversely, others base the natural
rights approach on Hegel's personality theory (George W.F. Hegel, Philosophy of
Right, §§ 41-45 (T.M. Knox trans., Oxford U. Press 1967)) and view the creation as
part of the creator's personality (see generally Margaret Jane Radin, Property and
Personhood, 34 Stan L. Rev. 957 (1982); Justin Hughes, The Personality Interest of
Artists and Inventors in Intellectual Property, 16 Cardozo Arts & Ent. L.J. 81 (1998)).
Apart from the two main approaches, additional approaches can be found, including
distributive justice, communitarianism (sharing and societal responsibility), unjust
enrichment, libertarian theories and even democratic theories. For more on that,
including references on intellectual property theories, see Peter S. Menell, Intellectual
Property: General Theories, Ency. of L. & Econ. 158-61 (Boudewijn Bouckaert &
Gerrit De Geest eds., 1999) (available at http://users.ugent.be/~gdegeest/1600book.pdf
(last accessed Oct. 12, 2006)).
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12. See Smithkline & French Laboratories Limited v. Evans Medical Limited, 1
F.S.R. 513, 518 (1988); McDonald v. Graham, 1 R.P.C. 407, 431 (1994).
13. In re Recombinant DNA Tech. Patent and Contract Litig., 850 F. Supp. 769,
773 (1994).
14. Roche Prod., Inc. v. Bolar Pharm. Co., Inc. 733 F.2d 858, 862 (1984); see also
Barash, supra n. 10, at 701-03.
15. This defense has been recognized in Australia and England, but has yet to be
adopted in the U.S. The Paris Convention left the matter to the decision of each of its
signatories. See Paris Convention for the Protection of Industrial Property, art. 4(B)
(signed June 2, 1934), 53 Stat. 1748; Robert L. Rohrback, Prior User Rights: Roses or
Thorns?, 2 U. Balt. Intell. Prop. L.J. 1 (1993). This defense counterbalances the policy
according to which the patent defense is granted to whoever submitted the registration
request first and was thus the first to reveal the information publicly, rather than to the
first inventor. See Ann Monotti, Balancing the Rights of the Patentee and Prior User
of an Invention: The Australian Experience, 19 E.I.P.R. 351, 351 (1997).
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at Art Stolen During the Third Reich, 9 Tulsa J. Comp. & Intl. L. 355 (2001); Patricia
Youngblood Reyhan, A Chaotic Palette: Conflict of Laws in Litigation Between
Original Owners and Good-Faith Purchasers of Stolen Art, 50 Duke L.J. 955 (2001).
20. For a distinction between the two major schools see Barak Medina, Augmenting
the Value of Ownership by Protecting it Only Partially: The “Market Overt” Rule
Revisited, 19 J. L. Econ. & Org. 343, 344 (2003).
21. See generally Daniel E. Murray, Sale in Market Overt, 9 Intl. & Comp. L. Q. 24
(1960); Curtis Nyquist, A Spectrum Theory of Negotiability, 78 Marquette L. Rev. 897
(1995).
22. Medina, supra n. 20, at 344.
23. See generally Saul Levmore, Variety and Uniformity in the Treatment of the
Good-Faith Purchaser, 16 J. Leg. Stud. 43 (1987); Menachem Mautner, “The Eternal
Triangles of the Law”: Toward a Theory of Priorities in Conflicts Involving Remote
Parties, 90 Mich. L. Rev. 95 (1991); Medina, supra n. 20, at 344; Harold R. Weinberg,
Sales Law, Economics, and the Negotiability of Goods, 9 J. Leg. Stud. 569 (1980).
24. For a presentation of the method of economic analysis of torts, see generally
Robert Cooter & Thomas Ulen, Law & Economics 287-371 (3d ed., Addison Wesley
Longman, Inc., 2000).] See generally William M. Landes & Richard A. Posner, The
Economic Structure of Tort Law (Harvard U. Press 1987); Richard A. Posner,
Economic Analysis of Law 179-235 (5th ed., Aspen L. & Bus. 1998); Steven Shavell,
Economic Analysis of Accident Law (Harvard U. Press 1987).
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chattel at a higher price and to make the vendors easier to sell stolen
goods. Therefore, the rule is expected to promote trade in stolen
property and to make theft more profitable.25
Mautner argued that cases of competition for ownership
between unrelated parties should be analyzed analogously to
accidents.26 Accordingly, in his view, the issue of who should bear the
damage should be decided using the normative considerations relevant
to deciding the case of accidents. These common considerations
justify, discussing the various competition situations within a single
framework. Mautner suggests three main considerations that should
guide the determination of legal rules in situations of competition
between unrelated parties.27 The first refers to minimizing the costs of
preventing the legal accident. According to this ex ante or balance-of-
negligence consideration, liability should be imposed on the party that
could have prevented the accident at a lower cost. Mautner presents
this consideration also in terms of retributive justice: The party whose
behavior has not met the behavioral standard that could have been
expected of it is the punishable one.28 The second refers to minimizing
the losses resulting from the competition. This consideration would
require the courts to determine which party is the one which would
bear a smaller loss should the other party prevail. Imposing the
damages on this party ensures ex post efficiency. Mautner presents this
consideration also in terms of distributive justice: Assets under
competition should be allotted to those parties the damage to which
would be highest should they fail to win them (a balance of
disadvantage). The third and final consideration is minimizing
litigation costs. Litigation reviewing the balance of negligence (the
relative potential for preventing the accident) or of disadvantage (the
relative damage resulting from losing the competition) requires
complex and costly judicial assessment and also increases, due to its
inherent uncertainty, the very need for litigation. These costs may be
reduced by relying on typical-case categories subject to ad hoc review
of each case.
25. For different aspects of this claim see generally Landes & Posner, supra n. 24;
Posner, supra n. 24; Weinberg, supra n. 23, at 574.
26. Mautner, supra n. 23.
27. Id. at 100-02.
28. The essence of the concept of retributive justice is that wrongdoers deserve to
be punished for (and in proportion to) their wrongdoings. Id. at 103-04.
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29. Hanoch Dagan, The Craft of Property, 91 Cal. L. Rev. 1517, 1544-45 (2003).
30. For a review of these values see generally Gregory S. Alexander, Takings and
the Post-Modern Dialectic of Property, 9 Const. Commentary 259, 263, 267-269, 272-
273, 275 (1992); Hegel, supra n. 7; Hughes, supra n. 7; Frank I. Michelman,
Possession vs. Distribution in the Constitutional Idea of Property, 72 Iowa L. Rev.
1319, 1320-1329 (1987); John Stuart Mill, Principles of Political Economy: With Some
of Their Applications (J.M. Robson ed., U. of Toronto Press 1965) (available at
http://olldownload.libertyfund.org/Texts/MillJS0172/Works/Vol02/0223.02.pdf)
(accessed on Oct. 12, 2006)); Radin, supra n. 7; Peter Singer, Animal Liberation: A
New Ethics for Our Treatment of Animals (Random House Inc. 1975); Joseph William
Singer & Jack M. Beermann, The Social Origins of Property, 6 Can. J. L. & Juris. 217,
246-247 (1993); Jeremy Waldron, Homelessness and the Issue of Freedom, in Liberal
Rights: Collected Papers 1981-1991 309 (Cambridge U. Press 1993).
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economic status.31 The reason for that, in his opinion, is that such an
assessment may bring to light the fact that losers and winners belong to
certain societal groups, thus justifying a certain preference for a rule
benefiting disadvantaged groups.32 In his view, the personality value
calls for certain preference for the second party over the first, even
though this value is of relatively lesser weight.33
In addition to these values, which Dagan sees as relevant to all
competition situations, in the specific market overt situation we are
also called upon to consider the existence of third parties—vendors in
the open market. In his opinion, market overt can be justified in terms
of the incentive it gives to buyers to purchase only from vendors whose
involvement may insure the competing parties against future legal
accidents,34 while giving the vendors an incentive to refine their ability
to distinguish between goods of questionable versus legitimate
sources.35
Medina claims that the “least cost damage avoider” approach is
flawed in three respects. The first relates to the assumption that the
behavior of a party to an accident may be directed only by holding her
liable for that accident.36 In his opinion, that party’s behavior may be
directed also by means of exemption from liability (for example,
favoring the buyer in market overt conditions), similar to directing
behavior by means of a negligence rule in torts.37 The second respect
refers to the argument that the legal rule has no effect on commerce.38
Medina argues that the buyer’s willingness to pay for the sold good is
affected by the legal rule, and, in turn, affects the asset’s
negotiability.39 This effect on asset negotiability should be taken into
account in determining the legal rule. The third respect has to do with
viewing the effect of the legal rule on the buyer’s willingness to pay
exclusively through the prism of the incentives of prospective
infringer.40 Medina argues that a rule which reduces the buyer’s
willingness to pay (and thus reduces the risk of right infringement) has
social implications in that it reduces the title’s liquidation value and
may thus prevent efficient transactions from being executed. Medina’s
main argument is that:
the proper measure of the optimal rule must incorporate the rule’s
two effects—on trade and on the magnitude of the risk of right
violation. This goal is achieved by defining the optimal rule as the
one which maximizes the value of the ownership right. This value
is a weighted average of the right’s ‘reservation’ value and its
‘liquidation’ value. The first element is (negatively) correlated
with the magnitude of the risk of losing the right, while the second
resembles a potential buyer’s willingness to pay for it.41
Although Medina’s analysis does not support any rule as a
universally optimal one, it specifies the relevant parameters that define
which rule is optimal in given circumstances and shows that there are
cases in which the value of the ownership right is maximized if the
owner’s right is only partially protected against third parties.
Importantly, the case discussed herein—in which an owner of
an intellectual property right competes with an innocent purchaser for
ownership of an asset in which the former’s right was mixed—differs
from the usual case of open-market chattel sale in the following three
respects: First, ab initio, the buyer in this situation cannot later be
damaged by loss of rights in the same sense in which the owner loses
her own. It may be said that the asset’s value for each party is
different. For the owner, the relevant asset is the intellectual property
right and its value is the value of the right or its exercise; for the buyer,
the relevant asset is the newly mixed asset and its value is the value of
chattel. Second, in the case discussed herein, the value of each of those
42. See Locke, supra n. 7, at § 27. For discussion and criticism regarding Locke’s
theory, see Jeremy Waldron, The Right to Private Property 137-252 (1988).
43. The discussion of the accession issue, in the intellectual property context,
applies to the two basic accession situations: (1) Mixing the asset of one party (rights
to intellectual property) with the work of another; and (2) mixing the asset of one party
(rights to intellectual property) with the asset of another (rights to intellectual property
or a physical asset).
44. See Gopal Sreenivason, The Limits of Lockean Rights in Property 33 (Oxford U.
Press 1995); Waldron, supra n. 42, at 177-194.
45. For a discussion in these terms and the law governing them, see infra section
III.
46. Waldron, supra n. 38, at 147, 331-332.
47. See Locke, supra n. 7, at 286-87.
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48. See Matthew H. Kramer, John Locke and the Origins of Private Property:
Philosophical Explorations of Individualism, Community, and Equality 170-171
(Cambridge U. Press 1997).
49. See generally Garret Hardin, The Tragedy of the Commons, 162 Science 1243
(1968) (available at
http://www.garretthardinsociety.org/articles/art_tragedy_of_the_commons.html) (last
accessed Oct. 12, 2006)).
50. See Harold Demsetz, Toward a Theory of Property Rights, 57 Am. Econ. Rev.
347, 354-356 (1967). Three accumulative reasons are usually suggested for a regime of
common ownership to suppress attempts to prevent non-cooperative conduct: (1) The
monitoring costs such a regime requires are higher than those of a private ownership
regime (information about who should be entitled to use the resource is required); also,
each partner would prefer another to bear these costs while action by another partner
would allow him to enjoy all the benefits of monitoring. (2) Each of the partners would
delay agreement for sharing monitoring costs in an attempt to bear minimal costs and
enjoy maximal benefits. (3) Should the arrangement hold, it would not hold for the next
generations, but only for the parties currently involved. See generally id.
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1. Copyright Law
American copyright law states that as a rule, the question of
whether a copyright has been infringed is independent of intent,52
knowledge53 or malice54 on the part of the infringer. Moreover, a
person would be considered an infringer even if she had acted in good
faith. Thus, in re Woolworth I, the U.S. Supreme Court ruled that
Woolworth was an infringer of copyright despite having acted in good
faith.55 An innocent infringer is not absolved of all liability for
copyright infringement; instead, the finding of innocence allows the
court to exercise its discretion to fashion the proper equitable remedy.
51. See generally e.g., Posner, supra n. 24, at 35-99; Thorstein Veblen, The
Beginning of Ownership, 4 Am. J. Soc. 352 (1898). “In the accepted economic
theories the ground of ownership is commonly conceived to be the productive labor of
the owner.” Id. at 352. (available at
http://socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/veblen/ownersh) (last accessed
Oct. 12, 2006)).
52. See Buck v. Jewell-LaSalle Realty Co., 283 U.S. 191, 198 (1931); Fitzgerald
Pub. Co., Inc. v. Baylor Pub. Co., Inc., 807 F.2d 1110, 1113 (2d Cir. 1986); Ford
Motor Co. v. B & H Supply, Inc., 646 F. Supp. 975, 989 (D. Minn. 1986); 18 C.J.S.
Copyrights § 43 (1990).
53. Fitzgerald, 807 F.2d at 1113; Albert E. Price, Inc. v. Metzner, 574 F. Supp. 281,
288 (E.D. Pa. 1983); Knickerbocker Toy Co., Inc. v. Genie Toys, Inc., 491 F. Supp.
526, 529 (E.D. Mo. 1980).
54. Midway Mfg. Co. v. Dirkschneider, 571 F. Supp. 282, 285 (D. Neb. 1983).
55. See supra n. 1 and accompanying text. See also Pye v. Mitchell, 574 F.2d 476,
481 (9th Cir. 1978); Roy Export Co. Estab. of Vaduz, Liechtenstein, Black Inc., A.G. v.
Columbia Broad. Sys., Inc., 503 F. Supp. 1137, 1151 (S.D.N.Y. 1980), aff’d, 672 F.2d
1095 (2d Cir. 1982), cert. denied, 459 U.S. 826 (1982): “The federal copyright statute
protects copyrighted works against mere copying, even when done in good faith and
even when not done to obtain competitive advantage over the owners of the copyrights
in the infringed works.” 503 F. Supp. at 1151.
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56. See supra n. 1 and accompanying text. See also Boisson v. Banian Ltd., 280 F.
Supp. 2d 10, 15 (E.D.N.Y. 2003). Courts may adjust the amount of such awards to
account for the infringer's culpability. Thus, courts can order a willful infringer to pay
as much as $100,000, or order an innocent infringer to pay as little as $200. The
court’s discretion derives from section 504(c)(2), the “innocent infringer” provision,
which allows reduction of minimum statutory damages to $200 where the infringer
“was not aware, and had no reason to believe that his or her act constituted an
infringement.” See 17 U.S.C.A. § 504(c)(2) (West Supp. 2005). For comparison see:
17 U.S.C.A. §§ 901, 907 (West Supp. 2005). “[A]n ‘innocent purchaser’ is a person
who purchases a semiconductor chip in good faith and without having notice of
protection with respect to the semiconductor chip product.” Id. at § 901(7). “[H]aving
‘notice of protection’ means having actual knowledge that, or reasonable grounds to
believe that, a mask work is protected.” Id. at § 901(8). “[A]n innocent purchaser of
an infringing semiconductor chip product shall or incur no liability under this chapter
with respect to the importation or distribution of units of the infringing semiconductor
chip product that occur before the innocent purchaser has notice of protection with
respect to the mark work embodied in the semiconductor chip product.” Id. at §
907(a)(1). A mask work notice constitutes prima facie evidence of notice of
protection. . . . “These provisions extend to any person who directly or indirectly
purchases an infringing semiconductor chip product from an innocent purchaser, and
apply only with respect to those units that an innocent purchaser purchased before
having notice of protection.” 18 C.J.S. Copyrights § 100 (1990).
57. 17 U.S.C. §§ 501-510 (2000). See also Jeff Toole, Student Author, Campbell v.
Acuff-Rose Music, Inc.: The Rap on Remedies, 29 Ind. L. Rev. 467, 472 (1995).
58. 17 U.S.C. § 504(b) (2000).
59. Id. at § 504(c).
60. Id. at § 502(a). "[A]ny court having jurisdiction of a civil action arising under
this title may . . . grant temporary and final injunctions on such terms as it may deem
reasonable to prevent or restrain infringement of a copyright.” Id.
61. Id. at § 503(a); Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417,
434 (1984).
62. 17 U.S.C.A. § 503(b) (West 2005).
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infringing articles.63 The court may also order the turnover of items to
the plaintiff.64
2. Patent Law
Patent grants to its owner the right to exclude others from
“making, using, or selling” the patented invention for a term of
seventeen years.65 Actions predicated on direct patent infringement do
not require any showing of intent to infringe. An infringement may be
entirely inadvertent and unintentional and without knowledge of the
patent. “[I]nstead, knowledge and intent are considered only with
respect to damages.”66 The court in a patent infringement suit “may
increase the damages up to three times the amount found or
assessed.”67 An award of increased damages is proper for willful,
deliberate and intentional infringement.68
Patents may be enforced in federal court through injunctions
(preliminary or permanent) and awards of money damages.69
“Generally, the goal of patent infringement remedies is both to
compensate a patentee for losses that result from infringing activity,
and to deter future infringement.”70 A patent owner can recover losses
through compensatory damages, which are limited to amounts
“adequate to compensate for the infringement;” and awards of punitive
damages, attorney fees, and injunctions are remedies that are designed
63. Paul S. Owens, Impoundment Procedures Under the Copyright Act: The
Constitutional Infirmities, 14 Hofstra L. Rev. 211, 213 (1985).
64. See Ford Motor Co., Inc. v. B & H Supply, Inc., 646 F. Supp. 975, 997 (D.
Minn. 1986); Natl. Broad. Co. v. Sonneborn, 630 F. Supp. 524, 541 (D. Conn. 1985).
65. 35 U.S.C. § 154 (1982).
66. Fla. Prepaid Postsecondary Educ. Expense Bd. v. College Sav. Bank, 527 U.S.
627, 645 (1999).
67. 35 U.S.C.A. § 284 (West 2001). (“[T]he court shall award the claimant
damages adequate to compensate for the infringement, but in no event less than a
reasonable royalty for the use made of the invention by the infringer, together with
interest and costs as fixed by the court. . . . [T]he court may increase the damages up to
three times the amount found or assessed.”).
68. See Enterprise Mfg. Co. v. Shakespeare Co., 141 F.2d 916, 921 (6th Cir. 1944);
Remington Rand, Inc., v. Art Metal Const. Co., 34 F.2d 693, 698 (W.D.N.Y. 1929).
69. 35 U.S.C.A. §§ 281, 283-285 (West 2001).
70. See Ryan H. Coletti, Student Author, Neither Good Knorr Bad: The Federal
Circuit's Decision to Eliminate the “Adverse Inference” in Willful Infringement
Determinations Does Not Alleviate the Burden on Accused Patent Infringers, 1 Seton
Hall Cir. Rev. 269, 273 (2005).
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76. Am. Stand. Credit, Inc. v. Natl. Cement Co., 643 F.2d 248, 268 (5th Cir. 1981);
Suburban Motors, Inc. v. St. Farm Mut. Auto. Ins. Co., 268 Cal. Rptr. 16, 18 (Cal. App.
3d Dist. 1990); Dan Pilson Auto Center, Inc. v. DeMarco, 509 N.E.2d 159, 162 (Ill.
App. 4th Dist. 1987); Touch of Class Leasing v. Mercedes-Benz Credit of Canada, Inc.,
591 A.2d 661, 666-67 (N.J. App. 1991); Everett v. U.S. Fire Ins. Co., 653 S.W.2d 948,
950 (Tex. App. 2d Dist. 1983); Welch v. Cayton, 395 S.E.2d 496, 500 (W.Va. App.
1990).
77. U.C.C. § 2-403(1) (West 2005). A person with voidable title has power to
transfer a good title to a good faith purchaser for value. If goods have been delivered
under a transaction of purchase, the purchaser has such power even if: (a) The
transferor was deceived as to the identity of the purchaser; (b) the delivery was in
exchange for a check that is later dishonored; (c) it was agreed that the transaction was
to be a 'cash sale;' or (d) the delivery was procured through criminal fraud. Id. See In
re Coast Trading Co., Inc., 744 F.2d 686, 690 (9th Cir. 1984); Am. Stand. Credit Inc.,
643 F.2d at 268 ; In re Wathen's Elevators, Inc., 32 B.R. 912, 919 (W.D. Bankr. Ky.
1983); Ledbetter v. Darwin Dobbs Co., Inc., 473 So. 2d 197, 200 (Ala. App. 1985);
Touch of Class Leasing, 591 A.2d at 667.
78. Charles Evans BMW, Inc. v. Williams, 395 S.E.2d 650, 651 (Ga. App. 1990);
United Road Machinery Co. v. Jasper, 568 S.W.2d 242, 244 (Ky. App. 1978).
79. Brumley Estate v. Iowa Beef Processors, Inc., 704 F.2d 1351, 1362 (5th Cir.
1983).
80. In re Coast Trading Co., Inc., 744 F.2d at 690.
81. Suburban Motors, Inc., 268 Cal. Rptr. at 18.
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C. ACCESSION LAW
82. “The concepts of accession and confusion of goods are legal concepts known to
United States jurisprudence. In other nations (both common law and civil law), these
American concepts of accession and confusion of goods may be embedded
conceptually in what is known as the law of admixture.” Drew L. Kershen, Of Straying
Crops and Patent Rights, 43 Washburn L.J. 575, 610 n. 56 (2004) (emphasis added).
83. Bozeman Mortuary Assn v. Fairchild, 68 S.W.2d 756, 757 (Ky. App. 1934).
The law of accession, or acquisition of property by addition, had
its origin in the civil law or Code of Justinian. From the beginning it
has been regarded as the common law of England and so was
transplanted into our jurisprudence. With the changing conceptions
of justice and the growth of modern conditions, the original arbitrary
rule has been ameliorated and made more varied in its meaning and
application. This applicability to complex conditions renders
hazardous any attempt to give a comprehensive definition.
A pioneer and perhaps the leading case in America is Chief Justice
Robertson's opinion in Lampton's Ex'rs v. Preston's Ex'rs, 24 Ky. (1
J. J. Marsh.) 454, 19 Am. Dec. 104. The facts were that when Preston
recovered possession of Lampton of a certain lot there was in the
yard a quantity of unburnt and burnt bricks. The perplexing question
was as to whom the bricks belonged, whether to Lampton, who did
not own the soil out of which they were made but of which he was
possessed at the time when he made the bricks, or to Preston, who
was the true owner of the soil but who had no hand in making the
bricks. . . . It was held that the unburnt brick belonged to Preston as
the owner of the clay on payment for the molding, for although in the
form of brick, and strictly speaking they could not be called clay, yet
the material was still clay and might be combined in the common
mass and constitute again a substratum for the soil, possessing all its
previous qualities, so that the owner of the soil could identify the clay
in the artificial form of soft brick and could recover it. But the burnt
brick were held to belong to the manufacturer, Lampton, personally,
because there had been an essential and radical change in the quality
of the native clay through his labors. Id.
84. Whether the concepts of accession and confusion of goods should be treated as
one or as separate may best be illustrated by how the two major American legal
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closely linked, and the courts use them to establish the parties’ rights in
situations where their title has been inseparably mixed or merged.
Accession law deals with situations where private ownership of an asset
has been acquired by turning the asset into something new, either
through work or by mixing or merging it with something else.85
Confusion of goods refers to situations where private ownership has
been acquired in an asset composed of two assets inseparably mixed or
merged.86 Importantly, we believe that the cases discussed herein
represent instances of mixing of the accession type, and accordingly,
the discussion will focus on this legal category.
2. Confusion of Goods
According to the applicable law in cases of confusion of goods,
in certain circumstances, a party whose asset has been inseparably
mixed with that of another may receive title to both assets. The parties’
rights in confusion of goods cases are considerably dependent on the
circumstances in which the mixing has taken place. Four basic
situations may be discerned in this context.87 First, the mixture is
made by the parties’ consent—the relationship to the goods, after
confusion, would rest upon the contract between the parties involved in
the consent.88 In this case, the presumption would be that they were
tenants in common, and each party will be entitled to her own
3. Accession Law
The law applying to cases of accession states that the party who
has changed the property through work, or by merging the asset with
another in her possession, is able to acquire title in the newly created
asset with the following provisos: (1) The identity of the original asset
has merged with a new asset, which is significantly different from the
original asset;95 (2) the asset’s value has increased significantly96 (so
that it may be said that the majority portion of the property belongs to
the party causing the change); (3) she is obliged to compensate the
original owner with the value of the changed (original) asset.97
Allowing for title acquisition by the party responsible for the
change is usually subject to an additional judicial distinction: Between
the case where the changes in question have been carried out
inadvertently and, generally speaking, in good faith, and the case where
they have been carried out maliciously or by way of deliberate
trespassing. A malicious converter is completely disentitled to any
right in the new asset, the value of the change being completely
irrelevant, since the fundamental rule is that wrongdoing must not be
rewarded.98 This is the case so long as the original owner can prove
that her own asset has been used to create the new asset, even if the
original asset cannot be precisely identified within the new one.99 On
the other hand, an innocent converter is normally entitled to ownership
of the newly created asset (provided that the new asset has been
fundamentally changed, that its value has increased significantly, and
that the converter will compensate the original owner with her asset’s
value).100
The above distinctions between a malicious and an innocent
converter constitute the basis for the judicial discussion of the question
which is the subject of the present article—What are the parties’ rights
96. 1 Am. Jur. 2d Accession and Confusion § 4 (“The ordinary repairs upon a
chattel by the addition of materials furnished by the person making the repairs or
owned by a third person become accessions to and merge in the article repaired, which,
provided it remains substantially the same thing, belongs, together with the additional
materials, to the owner of the original article. This rule has been applied even though
the materials added in making repairs are of greater value than the original article in its
defective condition. There is, however, authority to the contrary.”).
97. See Mack v. Snell, 35 N.E. 493, 494 (N.Y. 1893); Pulcifer v. Page, 32 Me. 404,
405-06 (Me. 1851); Isle Royal Min. Co. v. Hertin, 37 Mich. 332, 336 (Mich. 1877);
Dunn v. Oneal, 33 Tenn. 106, 111 (Tenn. 1853); Kirby Lumber Co. v. Temple Lumber
Co., 83 S.W.2d 638, 647-48 (Tex. 1935) .
98. See Burroughs v. Garrett, 352 P.2d 644, 648 (N.M. 1960); Kirby Lumber Co.,
83 S.W.2d at 647.
99. See Union Naval Stores Co. v. U.S., 240 U.S. 284, 292 (1916); Bozeman
Mortuary Assn. v. Fairchild, 68 S.W.2d 756, 757 (Ky. 1934); Lamoreaux v. Randall,
208 N.W. 104, 105-07 (N.D. 1926); Blackwood Tire & Vulcanizing Co. v. Auto
Storage Co., 182 S.W. 576 (Tenn. 1915).
100. See Eaton, 47 S.W. at 124; Austrian Motors Ltd., 275 S.E.2d at 705; Lampton's
Executors v. Preston's Executors, 1829 WL 1248, 1248 (Ky. App. 1829); Gaskins, 20
S.E. at 188.
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value of the new asset, deducted for the work and materials added by
the willful converter.106 In this case, the court held that in an action for
the conversion of chattels against an innocent purchaser from a person
who had previously converted the property to his own use and had
afterward added to its value by his own labor, the measure of the
damages is the value of the chattels when first taken from the owner,
whether the first taker was a willful or an involuntary trespasser.107
The court distinguished between the two types of
relationships—that between the original owner and the converter and
that between the original owner and the innocent purchaser.108 In the
first relationship, the original owner has a cause of action against the
willful converter on account of his property rights and on account of
the principle that wrongdoing cannot entitle the wrongdoer.109
Therefore, the original owner is entitled to the newly created asset or,
alternatively, to its equivalent value.110 This rule does not apply,
however, in the second relationship where the wrongdoing was not by
the party claiming title:
It may be that if these owners had found their wood in the
hands of the trespassers, it might have been retaken, or its value as
cord wood recovered; . . . the thief could gain nothing by his own
wrong, and therefore the results of his labor go to the owner of the
property. But this principle can not [sic] apply where an innocent
purchaser, comes into the case, for the simple reason that he has
done no wrong.
It is very true that the willful trespasser or thief can convey no
title to one to whom he sells, however innocent the purchaser may
be. But the question right here is, what does ‘title’ in this
connection mean? The original owner has the ‘title’ to his timber,
106. Railway Co. v. Hutchins, 32 Ohio St. 571, 580-81 (Ohio 1877). The facts in
this case are the following: “Timber was cut from lands of B. by trespassers, who, by
their labor, converted it into cord wood and railroad ties, thus increasing its value three-
fold. It was then sold to an innocent purchaser who was sued by B. for the value of the
wood and ties. Whatever might be the rule of damages, as against innocent purchasers,
B. can not recover the value of the timber as enhanced by the labor of the wrong-doers,
after it was severed from the realty.” Id. at 571-573.
107. Id. at 584-85.
108. See id. at 571.
109. Id. at 575.
110. Id. at 575-76.
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and, as against the thief, the title to the results of the thief’s labor.
The wrong-doer, as it were, being estopped from setting up any
claim by virtue of the wrong he has done. Against the innocent
purchaser from the thief, the original owner still has the ‘title’ to
his timber, but by virtue of what does he now have ‘title’ to the
thief’s labor? The estoppel, so to call it, being created by fraud or
wrong, exists only against the one guilty of that fraud or wrong,
which the purchaser is not, and while it is effectual against the
wrong-doer, the reason of it does not exist as against the innocent
man, as to whom it therefore fails. As Judge Cooley says, it does
not comport with notions of justice and equity, that against those
who have done no wrong, these owners should recover three times
the value of what they have lost. They have never spent one cent
of money, nor one hour of labor, in changing this timber worth
one dollar, into cord wood worth three. All this was done by some
one [sic] else, and why should the owners recover for it? If they
are compensated for what they have lost, and all they have lost,
they are certainly fully paid. . . . And this is all they should be
allowed to recover.111
112. For a description of the IP Rule meaning, see supra section II. For a description
of the law in this field, see supra section III.
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115. One of the ways to describe the adverse selection problem has been suggested
by Kreps: “[A]dverse selection [is] where one party to a transaction knows things
pertaining to the transaction that are relevant to but unknown by the second party.”
David. M. Kreps, A Course in Microeconomic Theory 577 (Princeton U. Press, 1990).
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benefit the examiner should the purchase deal not be concluded or due
to the examination’s effect of increasing the probability for the
intellectual property right owner to be protected in the future against
forfeiting her right. This is a free riding problem,116 which might lead
to underinvestment by the buyers. It is also possible that even if title
examinations are socially inefficient, the buyers will still carry them
out, for various reasons, such as high-risk aversion. Thus, even if a
title examination on their part is relatively expensive, having no
information available to the rest of the public, such as information
about the producer’s financial robustness, causes them to suffer from a
relative disadvantage in terms of examination and analysis capabilities.
The effect on producer behavior. The producers are active both
in the product and in the intellectual property rights markets. When the
probability that the product will be taken away from the consumers is
higher, the additional costs entailed will be divided between the
consumers and the producers. In such a situation, the IP rule could be
advantageous in terms of efficiency, provided that the producers are the
“least cost damage avoiders,” or at least good damage avoiders.
However, it is far from evident that the producers would redouble their
efforts to prevent any unauthorized use of intellectual property rights. It
could be that the cost of title examinations is forbiddingly high, or that
they are ineffective. Thus, it is difficult to ensure that each part of the
production plan developed by the producer’s employee is unprotected
by any intellectual property rights. It may also be possible that despite
thorough title examinations by the producer, the consumers are
incapable of ensuring that they have indeed been executed. This is an
adverse selection, or a moral hazard problem,117 which might affect the
producers’ incentive to perform the title examination in the first place,
efficient though it may be. The reason for that is that in such cases, the
consumers have no efficient tools for verifying the producers’
116. A free riding problem is created when buyers can benefit from others'
investments in title examinations without having to invest themselves. It can also be
viewed as a public goods problem, the public good being such information about the
intellectual property title inherent in the product. For a basic description of the free
riding problem and how it relates to the public goods problem, see Cooter & Ulen,
supra n. 24, at 42-43.
117. One of the ways to describe the moral hazard problem has been suggested by
Kreps: “[M]oral hazard, [is] where one party to a transaction may undertake certain
actions that (a) affect the other party's valuation of the transaction but that (b) the
second party cannot monitor/enforce perfectly.” Kreps, supra n. 115, at 577.
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118. For the distinction in U.S. law between chattel theft which does not allow for
transfer of ownership to whoever purchased it in good faith and for consideration, and
situations where the transferor's title is voidable, for example, the transferor possesses
the original owner's power of attorney to complete the sale and he commits fraud
(situations which allow transferring chattel title to a good-faith and for-consideration
purchaser), see supra section III.
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119. The discussion of and distinction between (first-order) allotment rules and
(second-order) allotment defence rules is based on Calabresi and Melamed (who
classified the rights protection rules to property, liability and inalienability rules); see
generally Guido Calabresi & A. Douglas Melamed, Property Rules, Liability Rules,
and Inalienability: One View of the Cathedral, 85 Harv. L. Rev. 1089 (1972).
120. For a detailed explanation of the GF rule, see supra section II. For a description
of the law in this field, see supra section III.
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121. For a similar approach, regarding the comparison between applying the rule of
favoring the original owner versus market overt, in a situation of open-market sale of
chattel lost to its original owner, suggesting that in most cases, both the original
owner's and the buyer's behavior can be optimally directed, see Medina, supra n. 20, at
354. For the basic tortuous approach, suggesting that both the injurer's and the victim's
behavior can be directed, see Cooter & Ulen, supra n. 24, at 304-08.
122. Supra section IV.
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are good damage avoiders. The GF rule may indeed reduce the costs
of inefficient title examinations by the producers, but at the same time
might prevent them from performing efficient examinations. The fact
that the consumers may retain possession of the product by means of
independent title examinations may cause the producers to avoid a
double investment, which cannot substantially increase the consumers’
chances of winning. In other words, there are situations in which it
would be efficient for the producers to perform title examinations
because the relevant information required for that purpose is obtainable
at a low cost and is within the producers’ area of expertise. Moreover,
in some of those situations, the producers would have performed the
appropriate title examination had the legal rule favored the owner of
intellectual property rights. However, applying the GF rule may cause
the consumers to perform title examinations exempting them from
having to restitute the asset. In such cases, the title examinations that
the producers can perform are either unnecessary or of low utility for
the consumers, so that they are not worth the producers’ while.
The effect on the owners of intellectual property rights. In this
context, we have argued that favoring the owners absolutely might, in
some cases, lead to suboptimal investment in protecting their rights,
and in others, provide them with excessive incentives to reveal
infringements of intellectual property rights and make them over-invest
in infringement suits. On the other hand, applying the GF rule may
lead them, in some cases, to over-invest in defending their rights.
We believe that in some circumstances, the IP rule would impose
the legal accident burden on the “least cost damage avoider” or the
“best risk bearer,” while in others, it is the GF rule that will ensure
such a result.
In our opinion, applying the American good-faith purchase rules,
which are relevant only to cases of voidable title, when for example,
the transferor is the one possessing the original owner’s power of
attorney to complete the sale and he is fraudulent (but not to cases of
void title such as theft124) can allow, in some of the cases, for a
distinction between situations where the owner of intellectual property
rights is the “least cost damage avoider” or the “best risk bearer” and
situations where others, namely the producer and the consumer, are
favorable in those aspects. Nevertheless we believe that in many
125. For a description of the Accession Rule, see supra section II. For a description
of the law in this field, see supra section III.
126. Both the owner of intellectual property rights and the consumer have, in many
cases, additional causes of action against the producer and they will be able to sue for
them as well. Our discussion is focused, however, on situations where the producer
cannot be sued.
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owner is always able to recover the newly mixed product from the
consumers. At any rate, in this case as well, it is difficult to predict the
overall welfare effects of applying the suggested rule.
However, we argue that the accession rule is the most efficient
according to the “least cost damage avoider” or “best risk bearer”
approach, for the following reasons: (1) The effect on consumer
behavior; (2) the effect on producer behavior; and (3) the effect on the
behavior of the intellectual property right owner.
have argued that the producers are often best placed to prevent the
accident, or at least, that they are good damage avoiders. The
accession and GF rules are both preferable to the IP rule, in that they
may reduce the costs of inefficient title examinations by the producers.
The accession rule is superior to the GF rule in that the latter might
prevent efficient title examinations from being performed by the
producers. We have argued that in some situations, title examinations
by the producers, though efficient, will not take place—for example, in
those situations where the consumers can perform low-cost title
examinations that would exempt them from the requirement to forfeit
the asset. In such cases, any title examination by the producers is
unnecessary for, or at least of little use to the consumers, so that they
are not worth the producers’ while. Conversely, the accession rule
does not create such an obstacle dissuading producers from completing
title examinations.
both cases the two parties are expected to negotiate and to agree to a
similar result: The product will remain in the end user’s possession,
who will pay the intellectual property right owner her due, as
determined in their negotiation. The justification for such a value
transfer is not different from the justification in the case where the
consumers win the competition and have to compensate the intellectual
property right owner for the value of using her right. In this case, too,
the damage to the consumers is relatively small and justified in terms
of reimbursing the intellectual property right owner for losing her
potential profits lost as a consequence of not being paid for the
intellectual property right’s monopolistic value. This value has been
invested in the product, in many cases without being represented in the
price paid by the consumer, or at least without being represented fully.
All this is subject to an insignificant increase, in this case, of the
intellectual property right owner’s bargaining power.
To conclude this section, we believe that applying the “least
cost damage avoider” or “best risk bearer” tests demonstrates, that
from the point of view of the legal objective of directing the behavior
of the relevant players’—intellectual property rights owners, producers
and consumers—both efficiency and distributive justice considerations
suggest that the accession rule is the best maximizer of social welfare.
Although there are many cases where these two types of considerations
are in conflict, this is not such a case.
127. For an examination of the social welfare effects of insurance, see e.g. Shavell,
supra n. 24, at 186-281.
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128. Insurance against the legal accident discussed herein may be practicable where
a commercial consumer receives expert opinion regarding the status of intellectual
property rights inherent in the product, through the expert's own liability insurance.
129. See supra section III.
130. Dagan argued that market overt can be justified in that it gives the buyers an
incentive to purchase all of their products from vendors whose involvement may
provide the competing parties with insurance against future legal accidents. See supra
n. 29 and accompanying text.
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137. The consumer's purchase price can be of help, in the appropriate cases—such as
when the purchase has been concluded in market conditions and the producer's
investment value is known—when estimating the value of using the intellectual
property right.
138. See supra section IV.
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various intention levels and the changes in the accession rule required
in each and every case—is beyond the scope of the present article.139
It should be emphasized, for now, that a party’s knowledge of the fact
that product in which an illegally acquired intellectual property right
has been mixed is about to be sold means that the appropriate legal
framework for discussing such a case is no longer that of “accidents.”
An accident is characterized by very high transaction costs. In other
words, the parties to the accident are unable to negotiate, prior to the
accident, in order to discuss its efficient and just avoidance. On the
other hand, once one of the parties is aware of the fact that the product
is about to be sold, the negotiation costs become very low. Although
the parties do not know each other, the owner of an intellectual
property right can contact the producer, at very low cost, and demand
that the sale transaction be concluded through the markets. That is, the
producer will be required—and the courts will protect such a
demand—to purchase the intellectual property right. When the
consumer is aware of an illegally acquired intellectual property right,
she can avoid such a transaction at very low cost, or complete it
through the legitimate markets. This law promotes the conclusion of
transactions through the relevant markets, thus preventing theft of
intellectual property rights.
VII. CONCLUSION
In conclusion, we believe that in order to solve the problem
discussed herein, it is appropriate to adopt the accession rule, a rule
which is similar to that established by the court in Railway Co. v.
Hutchins,140 and which relies on the same mixture rationale. This rule
is preferable to the IP rule, which is similar to that established by the
court in re Woolworth I, and which relies mainly on the rationale of
protecting intellectual property rights, and is also preferable to the GF
rule. The accession rule will best achieve the legal objectives in the
areas of directing the relevant market players’ behavior and damage
distribution and insurance against the legal accident discussed herein,
both for efficiency and for distributive justice considerations.
139. For a review of justifications for intentional torts, see Posner, supra n. 24, at
224-229.
140. Railway Co. v. Hutchins, 32 Ohio St. 571, 580-81 (Ohio 1877).