Patents, tax shelters, and the firm.

(41) ALAN HYDE, WORKING IN SILICON VALLEY: ECONOMIC AND LEGAL ANALYSIS OF A HIGH-VELOCITY LABOR MARKET (2003); ANNALEE SAXENIAN, REGIONAL ADVANTAGE: CULTURE AND COMPETITION IN SILICON VALLEY AND ROUTE 128 (1994); Ronald J. Gilson, The Legal Infrastructure of High Technology Industrial Districts: Silicon Valley, Route 128, and Covenants Not to Compete, 74 N.Y.U. L. REV. 575 (1999).

(42) Note that patents do not necessarily confer monopoly power. They do so only to the extent that there are no close substitutes for a particular patented good or service. See Edmund W. Kitch, Patents: Monopolies or Property Rights?, 8 RES. L. & ECON. 31 (1986). Thus, the argument in the text applies only to patented tax planning strategies which are unique and valuable enough that users are willing to pay a premium for that strategy over competing possibilities.

(43) Daniel A. Farber & Brett H. McDonnell, Why (and How) Fairness Matters at the IP/Antitrust Interface, 87 MINN. L. REV. 1817, 1867 (2003).

(44) See Michael A. Heller, The Tragedy of the Anticommons: Property in the Transition from Marx to Markets, 111 HARV. L. REV. 621 (1998). The original "tragedy of the commons" referred to the over-exploitation of a common resource. See Garrett Hardin, The Tragedy of the Commons, 162 SCI. 1243 (1968).

(45) Michael A. Heller & Rebecca S. Eisenberg, Can Patents Deter Innovation? The Anticommons in Biomedical Research, 280 SCI. 698 (1998).

(46) The effect of patents on market informational efficiency that we discussed above may also complicate the analysis of innovation diffusion. Insofar as the basis for a strategy's profitability is identifying anomalies and exploiting them before the market corrects, then the inventors of such strategies are unlikely to license or allow their use by others, because use by others will inherently destroy the profitability of such a strategy.

(47) See Burk & McDonnell, supra note 7, at 617.

(48) Id. at 617-25.

(49) For further discussion of this and of the subtle implications it may have for tax policy, see Philip A. Curry, Claire A. Hill & Francesco Parisi, Creating Failures in the Market for Tax Planning, 26 VA. TAX REV. 943 (2007).

(50) See HANDBOOK OF PUBLIC FINANCE (J. Backhaus & Richard E. Wagner, eds., 2004).

(51) See 35 U.S.C. [section][section] 102(a), 103(a) (2006).

(52) For an overview of the theory of the second best, see Richard S. Markovits, Second-Best Theory and Law & Economics: An Introduction, 73 CHI.-KENT L. REV. 3, 3-10 (1998).

(53) See supra notes 12-20 and accompanying text.

(54) See ROGER D. BLAIR & THOMAS F. COTTER, INTELLECTUAL PROPERTY: ECONOMIC AND LEGAL DIMENSIONS OF RIGHTS AND REMEDIES 17 (2005).

(55) See supra notes 44-47 and accompanying text.

(56) See supra notes 12-20 and accompanying text.

(57) Julie E. Cohen & Mark A. Lemley, Patent Scope and Innovation in the Software Industry, 89 CAL. L. REV. 1 (2001).

(58) See Burk, supra note 12, at 226.

(59) See e.g., Editorial, Pay to Obey, N.Y. TIMES, Oct. 31, 2006, at 24.

(60) See Burk, supra note 12, at 232.

(61) See, e.g., Rebecca Dresser, Ethical and Legal Issues in Patenting New Animal Life, 28 JURIMETRICS J. 399 (1988) (discussing opposition to animal patents); Rebecca S. Eisenberg, How Can You Patent Genes?, in WHO OWNS LIFE? 117 (David Magnus et al. eds., 2002) (discussing opposition to gene patents); Cynthia M. Ho, Patents, Patients, and Public Policy: An Incomplete Intersection at 35 U.S.C. [section] 287(c), 33 U.C. DAVIS L. REV. 601 (2000) (discussing opposition to medical process patents); Allen Newell, The Models are Broken, The Models are Broken!, 47 U. PITT. L. REV. 1023 (1986) (discussing opposition to software patents).

(62) See Dan L. Burk & Mark A. Lemley, Policy Levers in Patent Law, 89 VA. L. REV. 1575, 1630-38 (2003).

(63) 35 U.S.C. [section] 287(c) (2006).

(64) 35 U.S.C. [section] 273 (2006).

(65) See Mark A. Lemley, Rational Ignorance at the Patent Office, 95 Nw. U. L. REV. 1495, 1501 (2001).