Andrew Blair-Stanek, ‘Just Compensation for Intellectual Property’

Intellectual property creates two serious, seemingly unrelated problems that have vexed scholars and generated significant political and media interest. First, IP creates deadweight losses, because the exclusive rights granted to IP owners allow them to charge higher prices that keep some customers out of the market entirely. Second, multinational corporations avoid taxes on a massive scale by transferring their IP to tax havens.

This Article proposes solving both deadweight losses and tax avoidance simultaneously. The key is eminent domain. Scholars have long recognized that government could eliminate deadweight losses by ‘taking’ IP and making it free for anyone to use. The formidable obstacle has long been determining the ‘just compensation’ required by the Fifth Amendment’s Takings Clause.

This Article solves this conundrum by having government take IP, with the ‘just compensation’ equal to the price used to transfer the IP to a tax haven. This solution passes legal muster, since tax law requires that IP owners attest (under penalties of perjury) that the prices chosen for such transfers meet a standard that is identical to the Taking Clause standard for determining ‘just compensation’. Taking the IP eliminates the deadweight losses, while the threat of taking for transfer prices deters tax avoidance.

In addition to providing a practical solution to two serious problems, this Article also makes two significant theoretical contributions. First, it upends the widespread assumption that allowing property owners to self-assess their potential ‘just compensation’ works only for real property. Second, it challenges the conventional wisdom that transferring IP to tax havens is always socially detrimental. This Article’s proposal harnesses these tax-avoidance strategies to eliminate deadweight losses.

Blair-Stanek, Andrew, Just Compensation for Intellectual Property (April 15, 2016). Arizona Law Review, Vol 58, forthcoming.

First posted 2016-04-19 06:28:36

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