[1]With apologies to William Shakespeare.

[2]In the context of patent law, the classical reward function theorists are those who use natural law as a basis of describing the function of intellectual property rights, and argue that patent rights serve as incentives for inventive activity. Although there were some early criticisms of the natural rights/incentives theories, the reward function became entrenched as the predominant view of patent rights. For a historical review, see EDITH TILTON PENROSE, THE ECONOMICS OF THE INTERNATIONAL PATENT SYSTEM (1951); Fritz Machlup & Edith Penrose, The Patent Controversy in the Nineteenth Century, 10 J. Econ. Hist. 1 (1950). Neo-classical reward theory relies on classical theory, but focuses on the type and means of granting rewards. Prospect theory largely developed as a critical response to reward theory. For a discussion of the various theories, see Samuel Oddi, Un-Unified Economic Theory of Patents -- The Not-Quite Holy-Grail, 71 NOTRE DAME L. REV. 267 (1996).

[3]See U. S. CONST. art I, § 8, cl. 8; see also Kenneth W. Dam, The Economic Underpinnings of Patent Law, 23 J. LEGAL STUD. 247, 248 (1994).

[4]See generally, Mark F. Grady & Jay I. Alexander, Patent Law and Rent Dissipation, 78 VA. L. REV. 305, 310-316 (1992).

[5]See, e.g., WARD S. BOWMAN, JR., PATENT AND ANTITRUST LAW: A LEGAL AND ECONOMIC APPRAISAL (1973); Edmund W. Kitch, The Nature and Function of the Patent System, 20 J.L. & Econ. 265 (1977).

[6]See Grady & Alexander, supra note 4, at 310. See also SENATE SUBCOMM. ON PATENTS, TRADEMARKS AND COPYRIGHTS, COMM. ON THE JUDICIARY, 85th Cong., 2d Sess., An Economic Review of the Patent System (Comm. Print 1958, Study No. 15, Fritz Machlup).

[7]See Dam supra note 3, at 270-71.

[8]See id. at 247.

[9]See Grady & Alexander supra note 4, at 312-13.

[10]See Bowman, supra note 5, at 21-28.

[11]See A. Samuel Oddi, Beyond Obviousness: Inventive Protection in the Twenty-First Century, 38 AM. U. L. REV. 1097 (1989); see also Frederic M. Scherer, INDUSTRIAL MARKET STRUCTURE AND ECONOMIC PERFORMANCE 440-58 (2d ed. 1980).

[12]See Grady & Alexander, supra note 4, at 308-310; 316-21. Rent dissipation theory holds that the difference between an innovation's development costs and the price society will pay for the innovation is a form of rent, an economic reward which is created by the innovation. Proponents of the theory argue that the rent should be awarded to the inventor as a property right, in order to provide incentives for innovation. Rent dissipation occurs when conduct reduces the value of the rent which is awarded, thus limiting the incentives. Dissipation may occur by redundant innovative development, redundant development of improvements, and excessive investment in protecting the secrecy of the innovation. These forms of dissipation adversely affect the incentives for innovation, thus creating the need to limit rent dissipating activity. See id.

[13]See Kitch, supra note 5, at 245-80.

[14]Id. at 267.

[15]See id.

[16]See id. at 271-75.

[17]See id. at 285-86.

[18]See id.

[19]See Grady & Alexander, supra note 4, at 314-16. See also infra notes 84-87 and accompanying text.

[20]See Dam, supra note 3, at 264.

[21]This efficiency-based approach largely sprouted from the writings of the Chicago School of economics. See John P. Henderson, The History of Thought in the Development of the Chicago Paradigm, THE CHICAGO SCHOOL OF POLITICAL ECONOMY 341 (Warren J. Samuels ed., 1976); Warren J. Samuels, The Chicago School of Political Economy: A Constructive Critique, THE CHICAGO SCHOOL OF POLITICAL ECONOMY 1 (Warren J. Samuels ed., 1976).

[22]See Ezra J. Mishan, The Folklore of the Market: An Inquiry into the Economic Doctrines of the Chicago School, THE CHICAGO SCHOOL OF POLITICAL ECONOMY 95 (Warren J. Samuels ed., 1976).

[23]See id. at 100-105.

[24]See generally MARK R. TOOL, ESSAYS IN SOCIAL VALUE THEORY 33-51 (1986). This concern has been shared by several other economic commentators. See, e.g., Howard F. Chang, Patent Scope, Antitrust Policy, and Cumulative Invention, 26 RAND J. ECON 34 (1995); Suzanne Scotchmer, Standing on the Shoulders of Giants: Cumulative Research and the Patent Law, 5 J. ECON. PERSP. 29 (1991).

[25]Although improvements of technology are also products of the inventive pool, this paper does not address the economics of improvement incentives, nor their market implications. Unlike pioneer inventions, improvements are predicated on a pre-developed invention which carries with it different incentives than pioneer efforts. Consequently, reviewing both of the inventive efforts together would fail to properly distinguish their independent economic significance. For an overview of the issues related to inventive improvements, see Mark A. Lemley, The Economics of Improvement in Intellectual Property Law, 75 TEX. L. REV. 989 (1997).

[26]See William Kingston, The Thesis Chapters, DIRECT PROTECTION OF INNOVATION 1, 2 (William Kingston ed., 1987).

[27]See Jerry Green & Suzanne Scotchmer, On the Division of Profit in Sequential Innovation, 26 RAND J. ECON. 20 (1995).

[28]See Scotchmer, supra note 24, at 31-35.

[29]In the context of this paper, a "second-comer" is a subsequent pioneer innovator and not an improver. Whereas an improver bases his inventive efforts on developing a pre-existing invention, a second-comer bases his efforts on the development of an alternative invention that competes with other pioneer inventions. Although a second-comer may use pre-existing scientific developments, the key distinction between a second-comer and improver is the relative purpose of the inventive efforts. Therefore, if the innovation is meant to improve upon a prior product rather than supplant it altogether, that innovation is not the work of a second-comer.

[30]See Robert P. Merges & Richard R. Nelson, On the Complex Economics of Patent Scope, 90 COLUM. L. REV. 839, 868-871 (1990). For a discussion of how some unintended consequences are manifested in relation to patenting behavior, see Josh Lerner, Patenting in the Shadow of Competitors, 38 J.L. & ECON. 463 (1995).

[31]See Merges & Nelson, supra note 30, at 882.

[32]See id.

[33]See Graver Tank & Mfg. Co. v. Linde Air Prods. Co., 339 U.S. 605 (1950); Warner-Jenkinson Co. v. Hilton Davis Chem. Co., 520 U.S. 17 (1997).

[34]See Merges & Nelson, supra note 30, at 853-60.

[35]Professors Merges and Nelson term this type of inventive behavior as the "discrete invention model." They write: [The discrete invention model] assumes that an invention is discrete and well-defined, created through the inventors insight and hard work. In the standard discussions it may be recognized that the original invention can be improved, or even that improvement of complementary advances may need to be made if the invention is to be of much use. The basic invention may be amenable to tailoring for different uses or customers. But it is implicit that the invention does not point the way to wide ranging subsequent technical advances. It does not define any broad prospect. See Merges & Nelson, supra note 30, at 880.

[36]See W. Brian Arthur, Competing Technologies, Increasing Returns, and Lock-In by Historical Events, 99 ECON J. 116, 123 (1989).

[37]See id. at 116.

[38]See William E. Cohen, Competition and Foreclosure in the Context of Installed Base and Compatibility Effects, 64 ANTITRUST L.J. 535, 537 (1996) (citing A. Michael Spence, Competition, Entry, and Antitrust Policy, in STRATEGY PREDATION, AND ANTITRUST ANALYSIS 45, 65-66 (Steven C. Salop ed., 1981).

[39]See Cohen, supra note 38; Cf. Spence, supra note 38, at 537.

[40]See Cohen supra note 38, at 537-38.

[41]See id.

[42]See id. at 538.

[43]See generally Joseph Farrell & Carl Shapiro, Dynamic Competition with Switching Costs, 19 RAND J. ECON. 123 (1988); Michael L. Katz. & Carl Shapiro, Systems Competition and Network Effects, J. ECON. PERSP., Spring 1994 at 93.

[44]An example of this is the Betamax/VHS competition in the video-taping machine market. See S.J. Liebowitz & Stephen E. Margolis, Should Technology Choice Be a Concern of Antitrust Policy?, 9 HARV. J.L. & TECH. 283, 314-316 (1996) (hereinafter referred to as Technology Choice).

[45]Technologies which are prevalent in network industries such as telecommunications and computer related industries typically reflect the networks externalities. Although there are numerous technologies which don't have high network externalities, these technologies are usually the basis for products which do not involve product compatibility components. See S.J. Liebowitz & Stephen E. Margolis, Network Externality: An Uncommon Tragedy, J. ECON. PERSP., Spring 1994 at 135. See also Dennis W. Carlton & J. Mark Klamer, The Need for Coordination Among Firms, with Special Reference to Network Industries, 50 U. CHI. L. REV. 446, 450 (1983).

[46]Michael L. Katz & Carl Shapiro, Network Externalities, Competition, and Compatibility, 75 AM. ECON. REV. 424, at 424 (1985).

[47]See generally, S.J. Liebowitz & Stephen E. Margolis, Are Network Externalities a New Source of Market Failure?, 17 RES. L. & ECON. 1 (1995). Cf. Liebowitz & Margolis, Technology Choice, supra note 44, at 283, 287.

[48]See Liebowitz & Margolis, Technology Choice, supra note 44, at 288.

[49]See id. at 291.

[50]See Cohen, supra note 38, at 551.

[51]See id. See also Richard J. Gilbert, Symposium on Compatibility: Incentives and Market Structure, 40 J. INDUS. ECON. 1 (1992); Carmen Matutes & Pierre Regibeau, "Mix and Match": Product Compatibility Without Network Externalities, 19 RAND J. ECON. 221 (1988).

[52]See Liebowitz & Margolis, Technology Choice, supra note 44, at 289, 307. The reluctance to innovate may create adverse consequences which result from path dependence. It has been argued that path dependence is created when one technological product's advantages in a particular market has significant ramifications for the development of the economies of that market. See Arthur, supra note 36, at 126; See generally, S.J. Liebowitz & Stephen E. Margolis, Path Dependence, Lock-In, and History, 11 J.L. ECON. & ORG. 205 (1995).

[53]In the context of this discussion, primary products are those technological developments which are used to enable other compatible products or technologies. A primary product may possess some individual functionality, but is best thought of as an enabling product. Secondary products are those which are dependent upon a primary product for implementation or execution. Without a primary product, secondary products would have no independent use.

[54]See Merges & Nelson, supra note 30, at 873.

[55]See id. at 874-75.

[56]See Janusz A. Ordover, Economic Foundations and Considerations in Protecting Industrial and Intellectual Property, 53 ANTITRUST L.J. 503, 510 (1985).

[57]Although members of the inventive pool possess baseline scientific information and know-how this information is functionally different from the information attendant to a baseline product. Although the aggregate of the scientific information may help the innovator in the development of the invention, the information only creates a scientific framework for the development of the innovations as opposed to the design framework which is provided by a baseline product.

[58]See infra notes 84 -87 and accompanying text.

[59]See supra note 52. Professors Liebowitz and Margolis refer to this market occurrence as "getting stuck." See Technology Choice, supra note 44, at 309. One of the most well known examples of locked-in sub-optimal innovation is the QWERTY keyboard. See Paul A. David, Clio and the Economics of QWERTY, 75 AM. ECON. REV. 332 (1985). But see Technology Choice, supra note 44, at 312; S. J. Liebowitz & Stephen E. Margolis, The Fable of the Keys, 33 J. L. ECON. 1 (1990) (arguing that it is possible to get 'unstuck').

[60]See Richard J. Gilbert & David Newbery, Pre-emptive Patenting and the Persistence of Monopoly, 72 AM. ECON. REV. 514, 515 (1982).

[61]See Ordover, supra note 56, at 510-11.

[62]See Cohen, supra note 38, at 550.

[63]See Mark A. Lemley & David McGowan, Legal Implications of Network Economic Effects, 86 CAL. L. REV. 479 (1998).

[64]See id. at 496-97.

[65]See id.

[66]See David McGowan, Regulating Competition in the Information Age: Computer Software as an Essential Facility Under the Sherman Act, 18 HASTINGS COMM. & ENT. L.J. 771, 841-43 (1996).

[67]See Cohen, supra note 38, at 541-42.

[68]See id. See also, David Friedman, Standards as Intellectual Property: An Economic Approach, 19 U. DAYTON L. REV. 1109, 1119-29 (1994).

[69]See Liebowitz & Margolis, Technology Choice, supra note 44, at 314-16.

[70]See id.

[71]See id at 295.

[72]See id.

[73]See id. See also Katz & Shapiro, supra note 46, at 424.

[74]See 35 U.S.C. §§ 101-103 (1994). See also Dam, supra note 3, at 257-261.

[75]U. S. CONST. art. I, § 8, cl. 8.

[76]See Margaret Chon, Postmodern "Progress": Reconsidering the Copyright and Patent Power, 43 DEPAUL L. REV. 97, 134-44 (1993).

[77]See 35 U.S.C. § 101 (1994).

[78]See supra notes 63 to 73 and accompanying text. Cf. Joseph F. Brodley, The Economic Goals of Antitrust: Efficiency, Consumer Welfare, and Technological Progress, 62 N.Y.U. L. REV. 1020 (1987) (consumer choice in the secondary product market will likely not be limited if inventive tipping has occurred).

[79]See Michael L. Katz & Carl Shapiro, Product Introduction with Network Externalities, 40 J. INDUS. ECON 55, (1992) [hereinafter Product Introduction].

[80]See id. But see Liebowitz & Margolis, Technology Choice, supra note 44, at 317 (arguing that an apparently inefficient alternative selection process may still be efficient when considering consumer choice); Joseph Farrell & Garth Soloner, Standardization & Variety, 20 ECON. LETTERS 71 (1986).

[81]See Product Introduction, supra note 79, at 72-74.

[82]See Brodley, supra note 78, at 1032-35.

[83]See Merges & Nelson, supra note 30, at 872.

[84]See id.

[85]See id. at 871-75.

[86]See id. at 884-915.

[87]See Cohen, supra note 38, at 551-53 (discussing complementary components).

[88]See Kitch, supra note 5, at 285-86. Although Kitch argues that two unrelated claims may be more efficiently developed under unified control, he does not posit any other substantial interrelation.

[89]See Grady & Alexander, supra note 4, at 313-16. For historical and economic summaries of the California Gold Rush, one of the most famous periods of mineralization activity in U.S. history, see PAULA MITCHELL MARKS, PRECIOUS DUST: THE AMERICAN GOLD RUSH ERA, 1848-1900 (1994); JOHN R. UMBECK, A THEORY OF PROPERTY RIGHTS WITH APPLICATION TO THE CALIFORNIA GOLD RUSH (1981).

[90]Railroads provided much of the ability to coordinate mineralization exploitation by developing the regional networking of mineral prospects. See generally, ROBERT WILLIAM FOGEL, RAILROADS AND AMERICAN ECONOMIC GROWTH: ESSAYS IN ECONOMETRIC HISTORY (1964); SARAH H. GORDON, PASSAGE TO UNION: HOW THE RAILROADS TRANSFORMED AMERICAN LIFE, 1829-1929 (1996); GEORGE ROGERS TAYLOR & IRENE D. NEU, THE AMERICAN RAILROAD NETWORK, 1861-1890 (1956).

[91]See Grady & Alexander, supra note 4, at 315-16.

[92]See Merges & Nelson, supra note 30, at 873-74.

[93]See id. at 873.

[94]See generally Oddi, supra note 11.

[95]See 35 U.S.C. § 112 (1994).

[96]See supra notes 30-52 and accompanying text.

[97]See Merges & Nelson, supra note 30, at 881.

[98]See id.

[99]See id. See also F. M. Scherer, Nordhaus's Theory of Optimal Patent Life: A Geometric Reinterpretation, 62 AM. ECON. REV. 422 (1972).

[100]See generally Cole M. Fauver, Comment, Compulsory Patent Licensing in the United States: An Idea Whose Time Has Come, 8 NW. J. INT'L L. & BUS. 666 (1988). See also Ralph Oman, The Compulsory License Redux: Will It Survive in a Changing Marketplace?, 5 CARDOZO ARTS & ENT. L.J. 37 (1986).

[101]See discussion supra Parts III.A-B.

[102]See Dam, supra note 3, at 264. See also Harry S. Gerla, Restoring Rivalry as a Central Concept in Antitrust Law, 75 NEB. L. REV. 209, 210 (1996).

[103]See Gerla, supra note 102, at 211.

[104]See id. For a definition of X-inefficiencies see infra notes 105-109 and accompanying text.

[105]See ROGER S. FRANTZ, X-EFFICIENCY: THEORY, EVIDENCE AND APPLICATIONS 2-3 (1988).

[106]See Gerla, supra note 102 at 228.

[107]See id. at 238-39.

[108]See id. at 227-28.

[109]See id. See also Merges & Nelson, supra note 30, at 873 n. 143. See generally, F.M. SCHERER & DAVID ROSS, INDUSTRIAL MARKET STRUCTURE AND ECONOMIC PERFORMANCE 668-72 (3d ed. 1990).

[110]See Brodley, supra note 78, at 1020, 1032.

[111]See id.

[112]See generally Merges & Nelson, supra note 30.

[113]See Gerla, supra note 102, at 229-30. See also Brodley, supra note 78, at 1027-33.

[114]See Brodley, supra note 78, at 1033.

[115]See generally Merges & Nelson, supra note 30.

[116]See Brodley, supra note 78, at 1027.

[117]See Merges & Nelson, supra note 30, at 883.

[118]For an overview of computer technology and the relevant market attributes, see Peter S. Menell, Tailoring Legal Protection for Computer Software, 39 STAN. L. REV. 1329, 1334 (1987) [hereinafter Computer Software] (discussing computer technology in general as well as the relevant market attributes).

[119]Although this paper reviews the traditional distinctions between operating systems and applications, recent action by the Department of Justice and the litigation which has ensued has challenged the definition of an operation system.

[120]See Computer Software, supra note 118, at 1334.

[121]See PC Webopedia, Operating System (visited October 1, 1998) <http://webopedia.internet.com/Operating_Systems/operatingsystem.html>.

[122]See id.

[123]See PC Webopedia, Platform (visited October 1, 1998) <http://webopedia.internet.com/TERM/p/platform.html>.

[124]See id.

[125]See PC Webopedia, API (visited October 1, 1998) < http://webopedia.internet.com/TERM/A/API.html>.

[126]See Computer Software, supra note 118, at 1334. See also Peter S. Menell, An Analysis of the Scope of Copyright Protection for Application Programs, 41 STAN. L. REV. 1045, 1050-57 (1989) [hereinafter Application Programs]; PC Webopedia, Application, (visited October 1, 1998) <http://webopedia.internet.com/TERM/A/Application.html>.

[127]See Application Programs, supra note 126, at 1051.

[128]Recent technological developments have led to the creation of cross-platform functionality by means of the Java language. Java essentially creates another thin software platform over all other platforms, and allows for applications written in Java to run across any platform supporting Java. The cross-platform quality allows application designers to "write once, run everywhere." Although this technology has been extremely popular in the application industry, it has not been without controversy. For review of the Java controversy and the related legal issues, see Lemley & McGowan, supra note 63.

[129]See Computer Software, supra note 118, at 1341-42.

[130]See id. at 1341.

[131]See Computer Software, supra note 118, at 1342-43.

[132]See id.

[133]See id. at 1341-43. See also Friedman, supra note 68, at 1120.

[134]The following framework for altering the protection of software platforms does not cure the present platform monopoly, rather it provides forward-looking analysis. If the following framework would have been adopted, it would likely have prevented the high concentration of competitors currently existing in the operating system market.

[135]The user interface consists of both the look and feel of the computer as well as the user/computer interaction. The interface of a software program may include the way the program is displayed, the way the program is prompted by commands, as well as the means by which the user can alter or customize the program.

[136]See Parker v. Flook, 437 U.S. 584, 594-96 (1978) (holding that granting a patent to Flook would have the result of patenting a mathematical formula). But see Donald S. Chisum, The Patentability of Algorithms, 47 U. PITT. L. REV. 959 (1986).

[137]See Parker, 436 U.S. at 591-92.

[138]See Pamela Samuelson, Benson Revisited: The Case Against Patent Protection for Algorithms and Other Computer-Related Inventions, 39 EMORY L.J. 1025 (1990).

[139]Such a distinction has been analogized to the idea-expression dichotomy in copyright law. See Maximilian R. Peterson, Note, Now You See It, Now You Don't: Was it a Patentable Machine or an Unpatentable "Algorithm"? On Principle and Expediency in Current Patent Law Doctrines Relating to Compute-Implemented Inventions, 64 GEO. WASH. L. REV. 90, 122 (1995). Analogizing the machine-computer dichotomy to the idea expression dichotomy, Peterson suggests the application of an abstractions-like test. See id. at 123-124. Similar reasoning could be used in supporting an Altai-like test in relation to the distinctions between compatibility and interface components.

[140]Software platform components may be standardized by industry participants through licensing or other means. See generally, Friedman, supra note 68, at 1123 to 24; Mark A. Lemley, Antitrust and the Internet Standardization Problem, 28 CONN. L. REV. 1041, 1043-54 (1996).

[141]See generally Application Programs, supra note 126; Computer Software, supra note 118; J.H. Reichman, Legal Hybrids Between the Patent and Copyright Paradigms, 94 COLUM. L. REV. 2432 (1992); Pamela Samuelson et al., A Manifesto Concerning the Legal Protection of Computer Programs, 94 COLUM. L. REV. 2308 (1994).

[142]See Reichman, supra note 141, at 2502-503.

[143]See Samuelson et al., supra note 141, at 2414-15.

[144]See id. at 2426-29.

[145]See The GNU Project and the Free Software Foundation (FSF) (visited Nov. 19, 1998) <http://www.gnu.org/home.html>.

[146]See GNU Library General Public License (visited Nov. 19, 1998) <http://www.gnu.org/copyleft/lgpl.html>.

[147]See discussion supra Part IV.A.

[148]Since the nature of the reward function is different under the GPL, coordinated development as opposed to rivalrous innovation would be a more preferable dynamic for the innovation market.