11-Nov-2005
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| Economic and Game Theory Property Rights and Intellectual Monopoly |
by Michele Boldrin and David K. Levine |
| "There has grown up in the minds of certain groups in this country the notion that because a man or corporation has made a profit out of the public for a number of years, the government and the courts are charged with the duty of guaranteeing such profit in the future, even in the face of changing circumstances and contrary public interest." Robert Heinlein |
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"Why have property? Property feels right to many of us because of
a sense that each of us should own the fruit of our labor. But this is at least not the whole story, because some
property - such as land - wasn't created by its owners. Say
there's a large stretch of land that's commonly owned, such as the West
of the U.S. once was. The government decided to open the land for
private ownership. It didn't have to do it; it could have kept it as a
giant park, and no-one's property rights would have been harmed. But
it gave or sold the land to people who didn't create it, thus limiting
the freedom of action of all others. The reason for this
was incentive: If people have the right to exclude others from their
land, they'll have more incentive to invest effort in improving the
land - build homes, plant crops, and so on...So far, the argument tracks copyright and patent law quite well. The
theory of intellectual property is likewise that giving people the
right to exclude others from new works or inventions will give people
an incentive to invest effort in creating and inventing." [Eugene Volokh] This is an articulate presentation of a widely held point of view - that property rights in ideas are no different than the ownership of houses, cars and other forms of private property. The rhetoric it builds upon seems convincing at first: you ought to be the exclusive owner of your idea to have the incentive to develop it, the very same way you ought to be the exclusive owner of your land to have incentive to develop it. Unfortunately, the analogy between "idea" and "land" is false. The argument exploits an ambiguity in the common usage of the world "idea" to incorrectly equate the usual meaning of the word "property" and its specific meaning in "intellectual property." This might seem like a small semantic quibble. It is not. This point of view leads to erroneous conclusions about the social value intellectual property laws. The argument tries to portray intellectual property as nothing else but standard private property adapted to the case of ideas. It is a misleading view, completely divorced from the reality of intellectual property law. It stems from a simple confusion, a confusion that happens to be convenient for rent-seekers with a vested interest in the existing law. It is a view that fails to distinguish between the abstract notion of an idea and the concrete implementation or embodiment of that idea. Take for example, the idea of the law of gravity. Imagine that you have just discovered this law. An embodiment of the abstract law now exists in your mind. It has economic value: you can use it to construct flying saucepans or you can teach it to other people interested in travelling to Mars. It is clearly rivalrous: you alone can use your embodiment of the law of gravity, while the other cannot. That is why they are taking your physics class. And it is also excludable: if you do not choose to reveal it, everybody else is easily excluded from using your embodiment of the law of gravity. From an economic viewpoint it is as much a private good as the chair upon which you are sitting. In fact, it is even more rivalrous and excludable than your chair. If you died without writing down or telling anyone of your idea - it would be as if the idea had never existed, while your chair will probably survive you. If on the other hand, you communicate your idea to me, then my copy of your idea leads an existence entirely independent of your copy. You teaching me the law is a production process through which at least three private, rivalrous, and excludable inputs (your idea, your time, and my time) generate a private, rivalrous, and excludable output: my knowledge of the law of gravity. If you were to die, my copy of the idea of the law of gravity would continue to exist, and would be at least just as useful as it would have been had you remained alive. My copy of the law of gravity possesses, therefore, economic value. Similarly, your copy of the law of gravity also possesses economic value. By way of contrast abstract disembodied ideas have no value. Borges makes this point clear in his short story The Library of Babel. "When it was proclaimed that the Library contained all books, the first impression was one of extravagant happiness." But of course it is the embodied copies of ideas that have economic value, not their abstract existence, so "As was natural, this inordinate hope was followed by an excessive depression. The certitude that some shelf in some hexagon held precious books and that these precious books were inaccessible, seemed almost intolerable." The law of gravity as an abstract idea has no value because it is inaccessible. It is the concrete embodiment that is accessible and so has value. So my working knowledge of the law of gravity or the law of gravity as explained in a physics textbook has economic value, while the abstract idea has no value. Once we recognize that the relevant economic entities are copies of ideas, our perspective on "intellectual property" changes. When you convey your idea to me, it is an act of production - a new good - my copy of your idea - is created. Once you have conveyed your idea to me, I can use this idea without interfering with your use of you original copy of your idea. Confusing abstract with embodied ideas, some economists and lawyers would say that this means that ideas are "nonrivalrous" or a "public good." But, as we have seen, this is not true of embodied ideas, which are the only ones to have economic value. Your copy of your idea and my copy of your idea are distinct economic entities. They are not public goods. To put this in perspective, it is true that my drinking from my cup of coffee does not affect your use of your cup of coffee. No one would go on to suggest from this fact that coffee is "nonrivalrous" or a "public good" and that special laws and subsidies are needed in the coffee market. It is true that there is legal protection for cups of coffee - if you drink my cup of coffee without my permission, this would be an act of theft, and you would be subject to various civil and criminal penalties. Economists regard these "property rights" in the manner suggested by Eugene Volokh as securing the fruits of labor, and providing incentive to care for property. But notice that less legal protection is needed for your copy of your idea than is needed for your cup of coffee - while it may be relatively easy for me to steal your cup of coffee by threat or when you are not looking, it is fairly difficult for me to learn your idea without your active assistance. Indeed, it would seem that the legal protection needed would be no more than the legal right not to be subject of physical torture or coercion - a right that we enjoy regardless of the state of copyright and patent law. Be this as it may, there is no serious challenge to intellectual property in the sense of your right to determine to whom, under what circumstances and at what price you will transfer copies of your idea. All of this brings us to what intellectual property law is really about - a reality that is simply obscured by analogies to other types of property. Intellectual property law is not about your right to control your copy of your idea - this is a right that we have just pointed out, does not need a great deal of protection. What intellectual property law is really about is about your right to control my copy of your idea. This is not a right ordinarily or automatically granted to the owners of other types of property. If I produce a cup of coffee, I have the right to choose whether or not to sell it to you or drink it myself. But my property right is not an automatic right both to sell you the cup of coffee and to tell you how to drink it. It is important to distinguish between property rights and contractual agreements. You could sell me the delicious cup of coffee you just made, and have me sign a contract agreeing not to drink the coffee after 4 pm. But if I were to violate this agreement it would not be theft. As a matter of law, you could not send the police after me. You could sue me for breach of contract - and the courts might or might not decide the contract was valid. But there would be no question of theft or violation of property rights. So what is the contractual arrangement in current intellectual property law? The most significant feature is the agreement not to sell copies of the idea in competition with the person who sold you the idea. Outside of the area of "intellectual property" such an agreement would be called anti-competitive, and a violation of the anti-trust law. If you reach an agreement with someone else not to compete with them, not only would the courts refuse to enforce such a contract, but you would be subject to substantial civil and criminal penalties. "Intellectual property" in other words, is not about property at all, it is about legal monopoly. Some economists would argue that any contracts voluntarily entered into should be enforced. That is what lead them to argue that, if I agree not to redistribute your book, then I should be bound by that agreement. In this view, the copyright law simply codifies the contract that sellers of embodied ideas would wish to bind their buyers to, and so saves on private transaction costs. While this argument is substantially different, and more coherent, than the one equating intellectual monopoly with private property, it is equally faulty from an economic standpoint. In fact such intellectual property "contracts" create substantial and difficult transactional problems - and in our view this is one of the most important reasons for eliminating both copyright law and private contractual arrangements that limit the downstream rights of buyers of ideas. Let us see why. The closest case is that of slavery. That is, the courts will not enforce a contract in which you sell yourself into slavery. In the case of slavery, as in the case of intellectual "property" we believe that the economic and moral arguments point in the same direction for the same reason. Your labor is irrevocably bound to your person. To enforce a contract in which you sell yourself to someone else requires them to enforce the contract by intrusive, expensive, and morally offensive measures. Hence we allow you to rent your labor, but not sell yourself. This is not only a "morally just" prohibition, as many economists have argued, it is also an economically efficient one. Just as your labor is bound to your person, so is your knowledge of ideas, regardless of whether such knowledge may have been acquired directly or by learning from someone else. Once the ideas have been voluntarily transmitted to you, and the established market price paid, those ideas are bound to your person as much as your labor is. Preventing you from freely using such knowledge is logically equivalent to forcing your mind into slavery. Even in the case of objects you voluntarily purchased in the market at the asked price, such as books, CDs or computer files, these typically reside in your house, your office or some other space which belongs to you. They are your private property very much in the same way that the cup of coffee you are drinking is your private property. To enforce an intellectual monopoly restriction on the usage of those objects requires intrusive, expensive and morally offensive measures. It is no coincidence that intellectual property law is everywhere the enemy of privacy and freedom. Contrary to the rhetoric of those who advocate the current law, it is not theft to make copies of a book legally acquired. On the other hand, the measures used and proposed for preventing the owners of those books from making copies are akin to breaking and entering. To enforce a patent over a particular way of writing a software program, for example, requires a great deal of intrusion into my thought process - did I in fact develop my ideas by making use of your idea? Intellectual property law is full of considerations like these. In the case of Bright Tunes Music Corp. v. Harrisongs Music, Ltd. [420 F.Supp. 177 (1976)], the court ruled that "His subconscious knew it already had worked in a song his conscious did not remember... That is, under the law, infringement of copyright, and is no less so even though subconsciously accomplished." From which we may presume that if the Court in its wisdom had divined that neither his subconcious nor concious mind did remember, no copyright violation would have occured? Would the same court rule that Liebniz "subconsciously" stole Newton's differential calculus, or the other way round? It is no coincidence that the battle over intellectual property is so closely tied to debate over freedom and privacy. For you to control my use of my copy of your idea necessarily requires intrusive measures. So to prevent "piracy" the media industry wants more or less complete control over your personal computer. To prevent "piracy" software producers conduct elaborate "audits" of licensees - poking around in their computers and data to see if there are any "unauthorized" software products. What is worse - not only is it expensive to enforce these kinds of contracts - but the "intellectual property industry" has with surprising success been able to force other people to bear the enforcement costs. So in FBI investigations of "piracy" it is the taxpayer that picks up the bill. In the case of the internet, it is the network provider who is to bear the cost of policing the network for "illegal material." In the case of computer hardware it is the computer manufactors who are to bear the cost of the "Fritz chip." Which bring us the final point about voluntary contracts. We agree that in general these are a good thing. But we would distinguish between those people that are a party to the contract and those who are not. That is, if you and I agree to an exchange, we may presume that we expect to derive mutual benefit from it. If you and a friend enter into an agreement to take advantage of me, there is no reason to presume that the benefit to the two of you exceeds the cost to me. This is why collusive agreements (let's agree not to compete with each other and charge our customers a higher price) are not usually enforceable. In "intellectual property" law, not only does the purchaser implicitly agree not to compete with the seller, but this agreement is binding on third parties. That is if the purchaser violates their agreement, and sells the their copy of your idea to me, I am still bound by the original agreement. If a purchaser violates their agreement using my network, I am liable for violating a contract I never agreed to in the first place. No sane person can look at the laws on intellectual property as they exist and are argued in court and reach any conclusion other than that on the face of it they are absurd. Clearly, if we are to have such laws, the rationale must be a compelling one indeed. There is in fact an economic argument in favor of the monopolization of ideas - that without the extra benefit of government granted monopoly power, there would be inadequate incentive to innovate. Ordinarily, however, we do not consider monopoly power necessary to provide adequate incentives for economic activity. So how are ideas different than coffee, potatoes or factories? Ideas are like factories in the sense that they can be used to produce useful things. If ideas were also like factories in the sense that we could build either larger or smaller ideas then abolishing intellectual monopoly would lead to all the considerable benefits of a private market free-enterprise system. People would produce all socially desirable ideas and would be able to cover their costs of producing them. There would be no more economic benefit in having copyright or patent protection than there would in passing a law allowing the producers of wheat control over how that wheat was consumed. The economic problem in intellectual property lies in the fact that ideas are not like factories in the sense that while two small factories may be the equivalent to a larger factory, two half-ideas are rarely the equivalent of a complete idea. So the question arises whether the profit that will be generated by selling the idea without any monopoly power will be sufficient to cover the cost of production. Whether this is true or not depends on a variety of economic factors. Let's examine the size of the indivisibility involved in creating music. "A good argument for copyright in music You've just earned a $250,000 advance for your rock band, and you don't
see any real profit from it...without copyright income the artists
would be deeply, deeply in debt, or more realistically would never have
the chance to record in the first place." [Tyler Cowen]
Which exactly misses the point. Since the creative effort takes place and yet is poorly rewarded, the indivisibility is small - and so the case for intellectual monopoly weak. Also of great significance in the music industry is the fact that the basic indivisibility - the cost of producing the first copy - has decreased enormously due to the same computer technology that makes it so easy to copy music. So modern technology, rather than strenthening the case for intellectual monopoly in music, weakens it. Indeed, with modern computers there are a great many creative innovators - lacking perhaps the physical skills and training to play an instrument - or even to read sheet music - who could modify, edit and create great new music on their home computers at trivial cost. The greatest bar to this outpouring of wonderful new innovative music...if you haven't guessed already...is the copyright system. We can't create great new music by modifying wonderful old music because all the wonderful old music is under copyright at least until the 22nd century. If we were to abolish copyright today we are confident that the most important effect would be a vast increase in the quantity and quality of music available. Which brings us to what the RIAA and the debate over "intellectual property" is all about. It is not about the right to the fruits of one's own labor. It is not about the incentive to create, innovate or improve. It is about the "right" to preserve an existing way of doing business. In this we agree with Robert Heinlein's fictitious judge: "There has grown up in the minds
of certain groups in this country the notion that because a man or
corporation has made a profit out of the public for a number of years,
the government and the courts are charged with the duty of guaranteeing
such profit in the future, even in the face of changing circumstances
and contrary to public interest. This strange doctrine is not supported
by statute or common law. Neither individuals nor corporations have any
right to come into court and ask that the clock of history be stopped,
or turned back."
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The views and opinions expressed in this page are strictly those of the page author. |