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"... The existence of a tradeoff between the use of ideas and the incentives for their creation is both a central and recurring theme in the legal and economic analysis of intellectual property rights. It is the primary issue in legal and economic analyses that attempt to define the proper scope of legal ..."
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The existence of a tradeoff between the use of ideas and the incentives for their creation is both a central and recurring theme in the legal and economic analysis of intellectual property rights. It is the primary issue in legal and economic analyses that attempt to define the proper scope of legal protection for intellectual property (Arrow (1960); Easterbrook (1982)). This inquiry is not limited to the scope of property rights contained in federal or state statutory or common law. An integral part of the inquiry into the proper scope of intellectual property laws is how related contracts affect the usecreation tradeoff. Contracts based on use of intellectual property rights are an indispensable complement to intellectual property (Nimmer (1998); Kobayashi and Ribstein (1999); Ginsburg (1997)). However, the scope of contracting over intellectual property rights is limited by law in important ways. First, the intellectual property laws impose limits on contracts. Contracts can be held unenforceable because they are preempted by the federal intellectual property laws. The primary inquiry is one of use versus creation, with preemption resulting if the contract upsets the system of “uniform federal standards &quot; that are &quot;carefully used to promote invention while at the same time preserving free competition. ” 2 Second, provisions of the Copyright Law, such as the first-sale and fair use doctrines, directly limit copyright holders ' ability to control use of their works Enforcement of contracts that do not conflict with federal intellectual property laws can be limited by other policy concerns. For example, general contract principles can lead to invalidation of contracts. And use of valid contracts judged to be anticompetitive can be curtailed through application of the 1 We acknowledge helpful comments from Luke Froeb, Bruce Johnsen, Robert Raben, Greg Werden, and participants at the Mercatus Center Symposium on Dynamic Competition and Public Policy Kobayashi would like to thank the Law and Economics Center at George Mason University for generous support. Any remaining errors are the authors'.