The Transaction Cost Problem in International Intellectual Property Exchange and Innovation Markets

Sonia Baldia | January 1, 2013

In recent years, there has been a dramatic surge in cross-border IP exchange transactions driven by globalization, open innovation, and the escalating strategic value of IP to competitive firms, the positive result of which are significantly developed global IP markets. While critical to these global IP markets, international IP exchange remains highly inefficient because parties face excessive transaction costs relative to transaction value, both in transaction design and negotiation and in transaction enforcement. These transaction costs arise from the territoriality of IP laws and low visibility into individual state IP law regimes that IP exchange transactions may implicate, thus imposing on parties the costs and risk of incomplete contracts and unpredictable legal rules that undermine transaction confidence and value. This Article explores the causes of the transaction cost problem in cross-border IP exchange and submits that a normative legal framework based on private rulemaking would mitigate transaction costs and increase transactional efficiency, and thereby enhance continued growth of global IP exchange markets.