What’s in a Name? The Value of That Which We Call Attribution

May 14, 2012 Jason Schultz

Jason Schultz

We all like to get credit where credit is due, but how much is it really worth to us? In another installment of their provocative series of IP experiments, Sprigman and Buccafusco team up with Burns to test that question specifically in the context of online photography.

The setup is similar to their past papers – subjects are given the opportunity to sell their chance at winning a prize in a creativity contest. The amount they are willing to sell for stands as a proxy for how much they think their IP might be worth. In the past, these experiments demonstrated a tendency for those who owned IP to fall prey to an “endowment effect” and those who created the IP to a “creativity effect,” both of which artificially inflated subjects’ perceptions of the IP’s value, thus leading to market inefficiencies and higher transaction costs. Sprigman and Buccafusco then argued that this differential supports the use of liability rules over property rules for IP, as liability rules tend to mitigate the costs incurred from such irrational holdouts.

In this paper, the focus is on two experiments investigating how creators value attribution and publication, and how those valuations might affect IP market transactions and policies.  Subjects in the first experiment were casual amateur photographers who submitted nature photos into a contest to win $1000 dollars. They are then randomly given one of three conditions: (1) an offer to buy their right to win the contest; (2) the same offer with an additional opportunity to have their photo published without attribution if the parties are able to reach a deal and the photo also wins the contest; and (3) the same offer but with publication and attribution if the parties are able to reach a deal and the photo wins.

Not surprisingly, the study found that subjects were willing to accept much less money for the possibility of having their photo published with attribution, thus showing the value of the attribution. This was reinforced by the finding that publication without attribution was even less valuable than winning the contest, meaning that many photographers might even forego publication if attribution was unavailable.

The second experiment focused on differentials that might exist between professional and amateur photographers. The contest conditions were the same, but the subject population was more professional than amateur. Here, the response to the attribution condition was even stronger, with professional photographers valuing attribution even more than casual amateurs.

The implications of the paper are quite interesting and timely. With the rise of more and more social economies and reputational systems online, norms for appropriate attribution are becoming a flashpoint. For example, the social image curation site Pinterest recently experienced blowback over its “Pin Etiquette” and Terms of Use which both discouraged self-promotion and posting third-party content without permission (leaving one to wonder what, exactly, users should “pin” to their boards). At the heart of the conflict was copyright and in particular, norms around who gets the credit for producing and “pinning” works of art.

The authors provide a useful framework for helping us understand their data and, by analogy, conflicts such as the Pinterest one by breaking attribution down into three types of value – extrinsic value (promoting additional commercial success), intrinsic value (positive emotional experiences), and moral value (the proper treatment of art and artists). In the Pinterest conflict, complaints ranged along all three lines. Unfortunately, as the authors admit, they were unable to distinguish in their experiments between these different types, so it is unknown which and to what extent each drove the behavior of the photographers they studied.

Still, one wonders if artists were given a choice, which of the three types of value they would prioritize in a given situation. Identifying the appropriate value could allow both online platforms and policy makers to craft appropriate tools to respond to attribution failures. For instance, YouTube’s ContentID provides rightholders with options to monetize, attach attribution, or removal content posted by third parties without permission. While the removal option reinforces the property rights approach that the authors criticize, the attribution and monetization seem to be rational approaches by YouTube to the attribution needs of creators.

So what are we to take from all this? In the end, the paper is less about new information on attribution and more about the accuracy of our intuitions. Attribution is clearly important to artists and to the extent it has become normatively dominant online, it can help mitigate any potential loss of economic value that artist and other creators might feel (however irrationally) when they find their work posted without payment. Thus, it continues to be a smart strategy for those who post, pin, or publish images without permission. However, I agree with the authors that this does not mean we should adopt mandatory attribution or any other form of property-like reputational right as a matter of policy. As their data shows, this would only lead to greater presumptions of irrational economic value and the ability to control content – two concepts which are increasingly problematic in networked economies.

Law in the Books vs. Law in the World: The Case of Copyfraud

Feb 29, 2012 Christopher J. Sprigman3 comments

Christopher J. Sprigman

So what does my frustration with the New York Mets have to do with copyright law?  A surprising amount.  And I say this even though the Mets have done a lot of things to make life difficult for their fans.  Over the years, I’ve watched my ballclub pay insane money to a series of pitchers who could not pitch, hitters who could not hit, managers who could not manage.  I’ve endured a seemingly endless string of Subway Series failures against the hated Yankees. I’ve celebrated the demise of the awful Shea Stadium, only to see it replaced with a new ballpark named for a bank that combined greed, arrogance, and ineptitude at a scale nearly sufficient to destroy the American economy.

And yet, from an IP geek like me, the ways in which the New York Mets have abused the copyright laws of the United States are even worse.

At some point during the telecast of every Met game, we are treated to this announcement:

This copyrighted telecast is presented by authority of Sterling Mets. It may not be reproduced or retransmitted in any form, and the accounts and descriptions of this game may not be disseminated, without the express written consent of Sterling Mets.

Which is a lie.  Or at least a gross overstatement.  And it isn’t just the Mets.  It’s all of Major League Baseball, which inserts a similar warning into the broadcast of every baseball game.

So, what’s the problem?  It’s hard to know where to start.  First off, it’s just wrong to assert that a broadcast of a baseball game “may not be reproduced or retransmitted in any form.” To say this ignores the fact that snippets of the game will appear on all of the local evening newscasts, and on ESPN’s “Baseball Tonight”. Of course Major League Baseball and its teams are probably thrilled to have this coverage, but even if they weren’t, they couldn’t stop these news organizations from using short clips of the telecast to recap the game.  Copyright’s fair use doctrine almost certainly allows the use of short clips from a baseball game for the purpose of news reporting.  But the Mets’ copyright warning acts as if the fair use doctrine doesn’t exist.

Worse is the assertion that “the accounts and descriptions of the game may not be disseminated” without the Mets’ consent.  Let’s say I take to my blog to complain about yet another Mets late-inning collapse.  I angrily bang out a blog post describing the series of mishaps, bad decisions, and plain awfulness that led to the loss.  In doing so, I am certainly “disseminating” “accounts and descriptions of the game.”  Am I violating the copyright law in doing so? Certainly not.  Copyright protects original expression.  It does not allow anyone to assert ownership of facts.  My “accounts and descriptions” of how the Mets lost are cold, hard facts; they are not copyrightable. And, consequently, the Mets’ stern warning against disseminating “accounts and descriptions” of the game is a sort of fraud.  It’s an assertion of copyright rights where none exist.  Or at least an assertion of rights that is far broader than what the law actually provides.

This sort of thing happens a lot, and a few years ago, Brooklyn law professor Jason Mazzone gave the phenomenon a name – “copyfraud”.  Mazzone first limned the term in an article published in the New York University Law Review in 2006.  And he’s now expanded his analysis in a new book, Copyfraud and Other Abuses of Intellectual Property Law (Stanford Law Books, 2011).

According to Mazzone, the clearest example of copyfraud is the act of attaching a copyright notice to a public domain work.  Mazzone gives many examples, including claims of copyright in the U.S. Constitution, sheet music of compositions by Beethoven, Chopin, Handel, and Bach, posters of paintings by Monet, Van Gogh, and Cezanne, the plays of Shakespeare, the Federalist Papers, and the opinions of federal judges.  In all of these instances, property rights are asserted that simply do not exist.  And that, Mazzone argues, is a fraud on the public.  Copyright provides temporary property rights designed as inducements – i.e., as bait to lure creators to produce new works.  Copyright does not need to last forever to do that job – a fact which the Constitution recognizes by restricting copyright to “limited Times”. And this conduct, Mazzone argues, is damaging to all of us:

“Copyfraud stifles creativity and imposes financial costs upon consumers. False copyright claims lead individuals to pay unnecessarily for licenses and to forego entirely projects that make legitimate uses of public domain materials.  Copyfraud is a land grab.  It represents private control over the public domain.  Copyfraud upsets the balance that the law has struck between private rights and the interests of the public in creative works.”

More broadly, Mazzone describes other kinds of copyright overreaching – in particular, dubious claims by copyright owners that are made possible by the law’s lack of clarity, and by the severe consequences that defendants may suffer if they lose in a lawsuit.  The Mets’ copyright warning is an example.  So too is the copyright warning attached by Adobe to its ebook version of Lewis Carroll’s Alice’s Adventures in Wonderland – a work that is in the public domain.  The warning reads like something the Mad Hatter would have come up with:

Permissions on: Alice’s Adventures in Wonderland

Copy – No text selections can be copied from this book to the clipboard.

Print – No printing is permitted on this book.

Lend – This book cannot be lent or given to someone else.

Give – This book cannot be given to someone else.

Read Aloud – This book cannot be read aloud.

Or consider the execrable conduct of the estate of James Joyce, which has repeatedly threatened copyright lawsuits against scholars and others who make use of materials owned by the Joyce estate – even when those uses should obviously fall within the ambit of fair use. The Joyce estate threatened a choral production that used 18 words from a Joyce novel.   And the estate’s copyright threats forced English professor Carol Schloss to cut crucial evidence from her book detailing the important relationship between Joyce and his daughter, Lucia.  Schloss eventually sued the Joyce estate (with the help of lawyers from the Stanford Law School Center for Internet and Society) and prevailed.  But in many other cases, overzealous assertion of copyright has chilled or altered academic projects – in part because academic publishers lack both the stomach and the wallet to fight back hard against dubious copyright claims.

By detailing these examples and many, many others, Mazzone’s book convinced me that copyfraud happens often enough to be worth noticing.  And Mazzone does a great job explaining the many ways in which copyright overclaiming leads to mischief.  If this was its only achievement, Mazzone’s slender and readable book would be worth your time.  But the real value of Mazzone’s book lies in the way in which it links to a broader issue.  The copyright law on the books is not the copyright law we have out in the world.  The rights of copyright owners are both broad and relatively clear, and the remedies available for infringement of those rights are very powerful – indeed, they are purposely designed to be supra-compensatory.  But the rights of users – i.e., of the public at large – are both narrow and poorly defined.  The result of this mismatch is predictable: over-assertion of copyright is unlikely, in the run of cases, successfully to be resisted.  This fact contributes in turn to a slow shift in the real-world content of the copyright law toward broader property claims, and away from the careful balance that copyright law attempts to achieve between private rights and public access to our culture.  And this means that in considering changes to copyright law in the future, Congress should not presume that its understanding of the proper copyright balance will be the rule that governs conduct.  Out in the real world, people take what they can grab, and our current copyright law puts a lot within reach.

So what can we do about it?  Mazzone proposes a number of cures.  He suggests we should treat copyfraud as fraud – and deter it by toughening penalties for false copyright claims and dialing back evidentiary requirements required to impose copyfraud liability.  He also proposes a number of ways in which we could make copyright’s fair use doctrine a more effective shield against copyfraud.  His principal suggestion in this regard is that we gin up a federal agency responsible for developing and enforcing the fair use doctrine.  Oh how I wish this would help, but I fear that Mazzone’s proposal to create a federal Fair Use Agency would more likely make things worse.  Narrowly focused federal agencies are subject to capture, and it’s difficult to imagine a environment more ripe for capture than a federal fair use agency.  What fair use bureaucrat wouldn’t dream of escaping the dreary confines of DC for a job in Hollywood?  More seriously, the content producers would be repeat players before the agency, and the principal source of employment for former federal fair use agency workers.  The likely result is that fair use would come to be exactly what content producers would prefer: fairly useless.

So Mazzone’s book misfires a bit on the proposed solution.  But that is far from a fatal critique.  The book is a good, quick, bracing read, and it details a piece of the copyright debate that no one had properly understood before Mazzone got to it.  In my view, that’s a fair achievement.

The Copyright Law is An Ass: A Brash New Installment in this Fascinating Ongoing Series!

Feb 1, 2012 Ann Bartow1 comment

Ann Bartow

This article is a fine example of smart and accessible copyright scholarship that identifies and clearly describes a perplexing aspect of the current law, and then succinctly proposes sensible solutions.  The somewhat startling problem that Saint Louis University Law Prof Yvette Joy Liebesman identifies is this: A consumer who purchases authorized downloads of musical recordings, intending to behave legally and in consummately copyright law compliant manner, may actually be guilty of copyright infringement if the songs she purchases in digital format turn out to infringe the copyrights of other songs, such as by including unauthorized samples of vocal or instrumental riffs.

Liebesman points out that based on the ways the pertinent statutory provisions of the Copyright Act were written and interpreted, had the same people purchased the same songs, but with the copies embedded in vinyl or written on a compact disk, they would not be vulnerable to liability infringement for owning them.  But the recording industry has been so eager to frighten off prospective unauthorized downloading of music that it persuaded Congress and the courts to construct a legal regime under which even legal downloaders are at risk, facing strict infringement liability for completely innocent acts of (e.g.) purchasing songs from iTunes and loading them on an iPod.  This group of potential defendants includes me, and most of you reading this.

Suing people who had paid for authorized downloads would, of course, make the large music companies look preternaturally nasty and greedy.  While they have not hesitated to aggressively pursue their own customers in the past, the goal of that litigation was to persuade the public to engage in only legal downloading of music. To suddenly signal to the world that not even purchasing songs from mainstream online outlets will keep consumers safe from copyright suits would seem against the rational self-interest of the entire industry.  Consumers would reasonably conclude they might as well engage in illegal downloads if the risks of legal downloads are comparable, or forgo downloading altogether.

So perhaps it seems upon preliminary consideration that Liebesman has simply identified an arcane legal anomaly that while interesting, is unlikely to have significant practical importance.  But in an age of so called “copyright trolls” it would be unwise to be so sanguine. As Liebebsman explains, an individual copyright holder who had won an infringement claim against a commercially successful musician could see a class action as a money machine. A musician who had part of her song non-permissively copied may never have a hit song herself, but could “hit the lottery” by suing the millions of customers who downloaded a hit song that had infringed her copyright. The logistics might be complicated, but a lawyer with free time and a fast Internet connection could plausibly convince a large number of consumers they were better off paying a few hundred dollars to settle quickly than trying to defend against a complicated law suit.

Liebesman ends the piece by proposing several legislative solutions. I’m inclined to endorse her suggestion of express immunity for consumers who made good faith legal downloads because I think it would be the most palatable to the music companies, and therefore the simplest to adopt. I highly recommend this article for its clear and entertaining presentation of what might seem like turgid copyright law geekery in the voice of a less gifted writer.

Trademark Dilution and Corporate Personhood

Dec 16, 2011 Stacey L. Dogan2 comments

Stacey L. Dogan

It’s become almost passé to decry our federal trademark dilution laws.  The laws – first passed in 1995 and amended in 2006 – protect “famous trademarks” against uses that are likely to dilute their distinctiveness, without regard to any confusion among consumers or competition between the parties.  Early critics warned that passage of the anti-dilution statute marked a turning point in trademark law:  by giving famous trademark holders rights against even non-confusing uses of their marks, the law created “property”-like rights in trademarks.  The initial commentary on the statute focused mainly on the costs associated with this increasingly absolutist approach to trademark rights.

After several years of witnessing the dilution laws in action, however, the nature of the commentary has shifted.  Scholars have gone from a state of wary watchfulness to one of bemused head-scratching, as they have unpacked the theoretical underpinnings of the doctrine and observed its treatment in the courts.  Dilution laws, it turns out, are a solution in search of a problem, and have had little practical effect.  We have learned that consumers can handle linguistic clutter, so the supposed harm from dilution – the gradual whittling away of a mark’s distinctiveness – lacks empirical support.  We’ve heard that the fear of famous trademark holders – that third parties have an incentive to adopt their mark in entirely unrelated markets – defies reality, in which businesses have little interest in replicating someone else’s utterly irrelevant mark.  And we’ve been told that the dilution claim has made virtually no difference in the outcome of trademark litigation.  No doubt because good old-fashioned trademark law gives owners rights to prevent uses in widely disparate markets, the owners of famous trademarks didn’t need this new statute to protect them against use of their marks even on unrelated products.

Given all of this, it seems curious that mark owners cling so fiercely to their newly minted legal right.  Why, in the absence of any real economic threat from dilution, do trademark holders view dilution laws as so essential to their IP arsenal?  In this article, Sandra Rierson proposes one possible answer:  that dilution laws have little to do with economics and more to do with corporate “moral rights.”  In Rierson’s view, the dilution laws are part of a broader legal and societal trend that embraces corporate personhood and anthropomorphizes brands.  If corporations are people, and brands project aspects of their personhood, then why not protect them against third-party uses that distort and degrade?  Rierson’s article explores the moral-rights justification for dilution laws, and finds it dangerous and normatively flawed.

While the moral-rights argument may have motivated this project, the value of Rierson’s article lies as much in describing and situating the dilution laws as it does in elaborating her moral rights claim.  The article identifies three distinct objectives:  to establish the illusory nature of the harm that dilution laws purport to address; to identify the costs imposed by dilution protection; and to unmask and appraise the moral rights motivation.  In the course of fulfilling these goals, Rierson offers a comprehensive and readable intellectual and doctrinal history of dilution law in this country.  While she covers a lot of familiar terrain, her narrative does yeoman’s work of compiling and consolidating the work of other scholars and harnessing it to support her normative points.  But her project is not merely descriptive and derivative; she builds on the existing critiques in insightful ways.  In discussing the harms from dilution protection, in particular, she offers a thoughtful account of the value that “word play” can serve in a competitive market.  CHARBUCKS coffee, she argues, reflects the use of word play and humor to call attention to a newcomer to the coffee market – a pro-informational use of language that the trademark laws should welcome rather than condemning.  In this and other ways, Rierson asks us to think outside the box about whether the harms from dilution protection outweigh the theoretical harms from dilution itself.  I’m not sure I fully agree with her moral rights explanation for dilution laws – I think dilution laws resemble corporate rights of publicity as much as they do moral rights claims – but she offers a cogent argument that dilution protection resembles a moral right of integrity for corporate creators.

Even in the crowded field of dilution articles, this one is worth a read.  It offers an engaging account of the history and evolution of dilution laws, a thorough discussion of some of their warts, and a creative new look at why corporations care so deeply about this curious form of legal protection.

Access to Global Media in Middle and Low Income Countries: A Responsible Study

Nov 14, 2011 Michael W. Carroll

Michael W. Carroll

For those of us who study intellectual property law or the relationship between law and the Internet, these are interesting times.  So interesting, in fact, that it is difficult to keep up and to have a real sense for how the activities regulated by intellectual property law are evolving around the world.  Now, thanks to Joseph Karaganis and the team of researchers whose efforts he has coordinated to produce Media Piracy in Emerging Economies (“MPEE”), we have a much clearer picture about how interesting, and puzzling, the times in which we live really are.

A little background.  It is no secret that economic globalization and developments in digital technologies are interrelated but independent forces shaping the character and quality of human life around the globe.  These forces have pulled the industries in the United States, Europe and Japan that produce capital-intensive film, music, software, video games and related media in different directions.  Globalization has led to increased market access for media goods produced by these industries, but the growth of digital networks and related technologies have undermined these industries’ traditional production and distribution practices.  To manage these divergent forces, media industry executives have invested heavily in influencing intellectual property law and policy.

Modern developments started with investments in the “harmonization” agenda, which focused on establishing minimum threshold intellectual property rights around the world without also harmonizing limitations and exceptions to those rights.  This effort successfully produced the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS), appended to the agreement forming the Word Trade Organization.  TRIPS laid the groundwork for media companies to enter emerging markets armed with exclusive rights enforceable against those who would might reproduce or distribute these goods without license.  Achieving “harmony,” however, required compromise by the delegations representing the U.S., E.U., and Japan.  More recently, these delegations have responded to the media industries’ dissatisfaction with this compromise by adopting a two-pronged strategy: (1) demand changes in trading partners’ substantive law to increase rights through bilateral and plurilateral “free trade” agreements; and (2) pressure public officials at home and abroad to invest a greater share of scarce public resources in the enforcement of these exclusive rights to increase these companies’ revenues, or, in some cases, to provide public cover through the criminal law or otherwise for private investments in enforcement.  This latter effort is the centerpiece of the modern media and proprietary software industry enforcement agenda.

One of the most effective ways to shake loose public resources is to scare public officials.  So, it should be no surprise to learn that these industries have invested significantly in a campaign to do just this.  First, they argue that they are one of the few export industries that we have left, an argument with greater purchase in the United States than elsewhere.  (Message: The country is economically vulnerable; you need us, and every lost sale abroad contributes to the U.S. trade deficit.)  Second, we’re losing substantial sales to “piracy”.  (Message: help us out because you need us to increase our sales, particularly exports.)  Third, these pirates are also harming U.S. interests by undermining the rule of law and by supporting terrorists or organized crime. (Message: you wouldn’t want to be accused of turning a blind eye to terrorism, would you?)

Seeking data to support their alarmist rhetoric, these industries have invested substantially in surveys and studies that purport to show — wait for it — that U.S. media and software producers are losing billions of dollars in revenue every year to “piracy”.  Until recently, these data were accepted uncritically and repeated by various public officials ranging from members of Congress, the United States Trade Representative, and the Federal Bureau of Investigation, notwithstanding the obvious concern about bias in industry-sponsored research, exacerbated by industry’s unwillingness to share the data or even the methodology in some cases.  Many of us have been discouraged by this failure to take a responsible look at the claims and the data that purport to support them.  This is finally starting to change.  From the be-careful-what-you-ask-for department, the Government Accountability Office responded to a congressional requirement in the PRO-IP Act that it assess some of these data. GAO did, finding that “[t]hree widely cited U.S. government estimates of economic losses resulting from counterfeiting cannot be substantiated due to the absence of underlying studies.”

This is not to say that claims about the scale of unauthorized reproduction, consumption and reuse of copyrighted media are wholly without substance.  Of course, there are many around the world who avail themselves of the opportunities and power afforded by digital technologies and networks and globalized trade channels to acquire or engage with media goods on terms other than those offered by the copyright owners.  But, what is the extent of these activities?  Does it vary by country and by sector?  Industry-sponsored studies generally paint with a broad brush.

The MPEE, in contrast, digs in provide the reader with a much richer sense for the demand for both imported and local media goods in a number of emerging economies.  This study, funded by the International Development Research Centre and the Ford Foundation, reports the results of considerable quantitative and qualitative research of a type rarely seen.  I will make three general observations and then offer a quick set of highlights from the individual contributions.

First, the study accepts the characterization of “piracy”, at least in its title, to describe the range of unauthorized uses of media goods in countries under study.  While this was understandably done to meet the industry studies on their own terms, the reader may overlook the quick qualification of the term offered in the opening essay and some of the important findings about how there is no real alternative to unauthorized consumption in the countries studied because copyright owners have chosen to price their media products as luxury goods in emerging markets even when these goods are designed for mass consumption in their high-income economies.  As Joe Karaganis writes, “[o]ne person’s piracy has always been someone else’s market opportunity, and the boundary between the two has always been a matter of social and political negotiation.” (P. 3.)

Second, the study importantly disaggregates the data and shows how unauthorized use affects different media industries differently, particularly the software industry.  These real sectoral differences should be taken into account for anyone offering policy proposals that generalize to all works covered by copyright.

Third, the study calls attention to the social and legal diversity in the environments in which copyright law operates on the ground, even among countries that have “harmonized” their laws.    Enforcement initiatives vary depending on the general institutional environments for the rule of law as well as the specific legal environment in which copyright operates, particularly in Russia.  These data not only should inform our understanding of the world as it is, but should also inform our imagining of how the world might be even as digital technologies become more powerful and pervasive and as the scale of globalized trade increases.  Local differences will continue to persist and to matter for how media goods are produced, distributed, and used.

With respect to the individual contributions, Joe Karaganis makes a number of important contributions in the opening chapter, “Rethinking Piracy”.  He carefully and critically reviews the “empirical” studies of piracy done to date, showing how little we reliably know about the breadth and economic effects of unauthorized use of copyrighted mass media works.  He also generalizes from the specific findings to show how intellectual property rights generally are enforced extra-judicially through raids in emerging economies, that this enforcement has little effect in deterring unauthorized uses, and that the relationships between pricing of authorized and unauthorized copies of media goods shape or reflect the markets in the countries studied.

There is not space here to call attention to the many interesting findings in the country studies of India, Brazil, Russia, South Africa, Mexico, and Bolivia, nor in the interesting coda on the book trade and the United States’ role as a “pirate” nation up through the end of the nineteenth century.  Suffice it to say that each supplies its own reward. The reader is grateful for the researchers’ efforts.  By getting an overall, and a street-level view, one appreciates the nuances about the degrees to which the enforcement policy agenda of multinational media and software companies has and has not found local adherents in each place, and finds interesting the varied responses from local media producers and distributors to the workings of the informal market.  As a significant bonus, while at one time a study, this document also offers a range of telling anecdotes to illustrate the human dimension of the market actors and makes for interesting armchair travel!

Copyright’s New Narrative

Oct 10, 2011 Laura A. Heymann

Laura A. Heymann

Copyright law in the United States has traditionally been justified in both economic and property-based terms. In order to incentivize the socially optimal amount of creativity, the story goes, we grant to authors a certain bundle of rights over the work they create for a limited (although significant) period of time. Without this incentive, copyists, who need only to recoup the cost of copying and not the cost of production, would undermine the creator’s opportunity to profit from the work. The story thus assumes that commercial exploitation of creative work is the natural (and desired) end of the creative process and that some form of legal entitlement is needed as a means to that end. The focus thus shifts to the work itself: If the work demonstrates the required originality and modicum of creativity, and is fixed in a tangible medium of expression, it qualifies for copyright protection, regardless of the truth of the incentive narrative.

The longevity of the economic narrative derives, in part, from the identity of the players in the early copyright debates, in which printers and stationers were the primary agitators for increased rights over creative works and individual authors merely useful characters to make more human the arguments. But as various commentators have noted over the years, the economic story can be told only by some creators. We can assume, for example, that if Disney or Random House or Atlantic Records were not able to turn a profit from the creative works they bring to market, they would soon be out of the business. But for others, creativity stories are not tales of buying and selling; they are tales of emotion, passion, and inspiration, of creating without being motivated by commercial exploitation. Such artists are not completely indifferent to how their work is used – they might, for example, very much care about getting credit for their work so as to build their reputational, if not economic, capital. But the traditional copyright narrative, which assumes commercialization, does not map well onto the motivations and interests that these artists demonstrate. We might, therefore, ask whether the Constitution’s goal of “promot[ing] the progress of Science” would be better achieved by focusing less on whether a work is copyrightable and more on the interests of those involved in distributing that work to the public.

In an essay prepared as part of a thought-provoking symposium on intergenerational equity and intellectual property, Julie Cohen engagingly encourages us to rethink the traditional copyright narrative by instead viewing copyright through the lens of corporate property policy. By abandoning the fiction that copyright incentivizes creativity, we can acknowledge that copyright’s primary function is, as Professor Cohen puts it, “to enable the provision of capital and organization so that creative work may be exploited” and thus properly characterize copyright as “industrial policy for the so-called creative industries” (pp. 142-43) – the Disneys and Random Houses who are incentivized by copyright’s benefits. Corporate property policy would view copyright not, as is traditionally done, as a species of real property law – which believes that stewardship is best advanced by a system of exclusive ownership – but as a regulatory tool “designed with the immediate purpose of incentivizing the intermediation and privatization of culture while minimizing cultural obstruction” that would prevent future creators from building on what has come before (p. 149). The corporation is more than simply a fictitious entity that holds assets; rather, it represents a way of coordinating multiple sets of stakeholders and of governing resources through the disaggregation of ownership and management. By talking of managers, employees, and shareholders rather than of owners and users, we can come to recognize copyright as inherently relational and free ourselves from the limited set of regulatory options that property law provides. No longer would an adjudication of the proper scope of copyright law rely on defining the metes and bounds of the property rights at issue; rather, the law would focus on the nature of the relationships between and among copyright’s players.

With the research agenda thus framed, a variety of projects present themselves. One might, for example, as Dan Burk and Catherine Fisk have done, interrogate more closely copyright’s work-for-hire doctrine, investigating whether agreements between employers and employees provide adequate conditions for creativity, including whether appropriate attention is given to employees’ reputational interests. (One starting point might be the language of the Copyright Act itself. Section 201(b), which states that “the employer or other person for whom the work was prepared is considered the author for purpose of this title,” protects corporations’ ownership interests in creative works but does little to acknowledge the noneconomic concerns of the employees putting pen to paper.) Additionally, as Professor Cohen astutely suggests, copyright law might learn from the way corporate law provides oversight of managers by shareholders, thus concerning itself with accountability and intergenerational stewardship in ways that a property-rights regime does not. Corporate law has, the essay also notes, already engaged with various issues, such as social welfare concerns, employment conditions, and collective bargaining, that are not native to property law but that may well become central to copyright law in a modern age. There are, undoubtedly, many more rich connections to be made.

As is to be expected from an article directed at upending the existing framework, however, there are still details to be worked out. If copyright law is still to be about economic incentives, then it seems eminently sensible to retrain copyright’s focus on the corporate intermediaries that are most likely to respond to such incentives rather than to continue to tell a dubious creativity tale. But even if we recount copyright’s new narrative in the context of the traditional “creative industries,” we still must determine who plays which roles in the story and whether the narrative has anything to say about creativity outside the corporate structure. Who are to be the shareholders and who the managers of Mickey Mouse or Harry Potter, to take two oft-used examples? And how should a view of copyright as corporate property policy think about the teenager uploading her guitar composition to YouTube or the fan fiction writer posting a new episode to a fan site? Is such intrinsically motivated creativity simply a byproduct of copyright’s subsidy of the creative industries? Or can copyright as corporate property policy regulate terms of service and other agreements so as to reflect the noneconomic interests of such creators, thereby incentivizing distribution, if not creativity itself?

Professor Cohen concludes her essay with a note of caution, warning that “the corporate-law analogy does not inspire great optimism” as a political matter (p. 164). And it is true that reform is often slow in coming and resistant to implementation, whether at the level of statute or at the level of systems. But reform can’t happen without agenda setting, and significant reform often requires us to rethink our ideological commitments. In a short but very rewarding essay, Professor Cohen’s proposal provides us with a way to do just that.

(Many thanks to Mark Badger and Jessica Silbey for their thoughts on a draft version of this post.)   

Of Gene Sequences and IP’s Ex Post Incentives: An Empirical Measurement of the Effect of “Celera’s IP”

Sep 6, 2011 Kevin E. Collins

Kevin E. Collins

Empirical studies of IP that measure the effect of IP on innovation are difficult to pull off.  The cleanest way to measure the effect of IP on innovation would be to run a controlled experiment in a laboratory setting: take two similarly situated groups of innovators, subject one group to a regime of exclusive rights and the other to a public-domain regime, and then sit back and watch the differences that evolve in the two groups. Unfortunately for economists, innovators cannot be treated like laboratory rats, so actively creating the control group that is required to measure the effect of IP on innovation ranges from the difficult, indirect, and expensive to the impossible. We usually have to make educated guesses about counterfactual scenarios: we just do not know for sure what would have happened if a real-world IP regime had not existed or had existed in a different form.

In her working paper of July, 2010 titled Intellectual Property Rights and Innovation: Evidence from the Human Genome (available as NBER working paper no. 16213), Professor Heidi L. Williams, an economist at MIT, overcomes the inability of scientists to create an experimental control group by identifying a rare natural experiment—a situation in which the real world provides two similarly situated groups, one of which is subject to an IP regime and one of which is not. In Williams’ words, “[t]he contribution of this paper is to identify an empirical context in which there is variation in IP across a relatively large group of ex ante similar technologies, and to trace out the impacts of IP . . . .” (P. 1.)

Williams’ subject is the sequencing of the human genome. In the late 1990s and early 2000s, the human genome was sequenced simultaneously by two different entities: the public Human Genome Project (HGP) and the private firm Celera. Each entity had its own policy concerning IP. The HGP mandated that all of its sequence data be deposited with little delay into a publicly accessible database, and it did not impose any restrictions on the use of the data. In contrast, Celera sought to monetize its database of sequence information with a form of contract-based IP that Williams refers to as “Celera’s IP.”¹ Williams used differences in the progress of the two entities’ efforts to identify two different groups of gene-sequence data. First, there were the gene sequences that had already been produced by the HGP as of 2001 and thus were available in the public domain as of that date, even if they were also available in the Celera database. Second, there were the “Celera genes”—those genes whose sequences were only available in Celera’s private database as of 2001 and thus could only be accessed by those who followed the conditions established by Celera’s IP. By 2003, all Celera-gene sequences had been disclosed by the HGP and were in the public domain, so Celera’s IP was temporally limited to roughly a two-year span.

Williams measures the effect of Celera’s IP on the subsequent innovation on the Celera genes, using the subsequent innovation on the genes whose sequences were available in the HGP database by 2001 as a stand-in for a control group. Looking at both the Celera genes and the remaining genes, she observes the appearance of scientific publications addressing gene function and the development of gene-based diagnostics tests for health-care consumers through 2009. What Williams finds is that Celera’s IP had a significant dampening effect on subsequent innovation on the Celera genes on the order of thirty percent, both in terms of scientific publications and diagnostic tests.

Williams is careful to note that her data should not be interpreted as providing a direct assessment of the overall welfare effects of Celera’s privately funded efforts to sequence the human genome. She is unable to capture data on the social value of the more rapid availability of the sequence data that is attributable to Celera’s efforts or, more generally, to the value of IP’s ex ante incentives to innovate. What she claims to demonstrate is only that Celera’s IP did not serve the ex post function of providing incentives to further investigate the Celera genes or develop their commercial potential. In fact, Celera’s IP seems to have done just the opposite: it seems to have retarded post-discovery innovation on the Celera genes.

Williams’ analysis is not as simple as this short review suggests. At times engaging in statistical analysis that is difficult for a non-economist (like me) to follow, let alone to evaluate, Williams discusses her research design at length, including her extensive efforts to rule out the possibility of selection bias—a non-random initial sorting of genes into the Celera and non-Celera groups based on their promise as a target of academic inquiry or a commercially valuable therapeutic.  Nonetheless, the bulk of the paper is accessible to non-economists, and its lessons for anyone interested in understanding the real-world impact of intellectual property make it a must-read piece for intellectual property scholars.

From the perspective of a scholar of intellectual property, however, there is one important issue on which Williams does not dwell: What precisely is the nature of Celera’s IP? Celera’s IP is an unusually weak form of IP—a fact that makes Williams’ findings even more compelling. As defined by Williams, Celera’s IP had nothing to do with patents. In fact, Williams could not match data about gene patents to her data, leaving her “unable to examine patenting as either an outcome or as a potential mechanism for the observed Celera IP effects.” (P. 11, n. 32.) Nor was Celera’s IP a form of trade secrecy. As of 2001, Celera’s publication of its draft Genome in Science meant that any member of the public could access and view Celera’s database. Rather, Celera’s IP existed principally in two contractual terms to which anyone who accessed Celera’s database had to agree. First, nonprofit researchers could use the data free of charge for research purposes, but anyone interested in using the Celera data for commercial purposes had to negotiate a commercial-user license with Celera. Data on the commercial-user licenses is not public, but Celera is rumored to have required a significant subscription fee that ran in the millions of dollars per year for pharmaceutical companies. Second, to prevent access to the data by commercial users who did not pay the subscription fee, the license generally prohibited redistribution of the data, but Celera would deposit sequence data into a publically available database if such deposition was required for publication of research results. If this relatively weak form of IP had the persistent negative effects on both subsequent scientific research and commercial product development that Williams documents, one can only wonder what effects stronger and more-common forms of IP might have had. Williams’ paper examines a natural experiment to provide valuable insight into the effect of IP on innovation, but, as is perhaps inevitable in the world of empirical research, it only wets our appetite, leaving us to our educated guesses about what might happen in yet other counterfactual scenarios.

1. Williams uses the phrase “Celera’s IP” in an ambiguous fashion to refer both to the set of gene sequences that were only available in Celera’s database (the res) and the set of legal rights that Celera exercised with respect to the gene sequences in the database (the rights). I use the phrase only in the latter sense, and I refer to the former concept as the “Celera genes.”

What Can Roller Derby Girls Teach Us About IP Law? (Answer: More Than You Think)

May 16, 2011 Christopher J. Sprigman8 comments

Christopher J. Sprigman

The orthodox justification for patent and copyright laws, at least in the United States, is utilitarian: that is, both sets of legal rules are premised on the theory that only by rewarding creators with special property rights can we ensure that creations get created.

Viewed in the abstract, who could argue otherwise?  Both technological innovations and artistic works are often difficult to create but easy to copy. Absent strong property rights, copyists will free ride on the efforts of creators. This, in turn, discourages investment in new inventions and creations. In short, copying stifles innovation – and therefore innovation requires legal intervention in the form of property rights.  Right?

Well . . . maybe. Recently, a number of economists and legal scholars have pointed out a number of instances in which significant acts of creativity occur over long periods of time but without, or with comparatively little, IP law. Back in 2005, Kal Raustiala and I wrote a paper about the fashion industry, which produces new apparel designs at a fevered pace with nearly no copyright protection. Jonathan Barnett and Scott Hemphill and Jeannie Suk offer somewhat different explanations for the fashion industry’s longstanding practice of innovating without IP.  The Hemphill/Suk paper argues that perhaps the fashion industry would be better off if we introduced some narrow copyright-like protection against identical or nearly identical copies, but all agree that the best innovation policy is to largely leave the fashion industry free to create the looser “inspired by” derivative works that constitute so much of the industry’s current output and whose existence would be threatened by the introduction of the standard rules of copyright law.

Nor is fashion the only creative community that innovates without IP.  In a study of French chefs, Emanuelle Fauchart and Eric von Hippel showed that innovation in fine cuisine occurs without IP protection for virtually all recipes.  Christopher Buccafusco bolstered this finding with a paper focusing on American chefs. Other academics have studied a variety of smaller communities where creators innovate without – or with little – formal IP.  Jacob Loshin has shown how magicians create new magic tricks without resort to IP law.  A qualitative empirical study I co-authored with Dotan Oliar describes how stand-up comedians protect their investment in new jokes and police joke thievery without the aid of formal IP law.  Comedians turn instead to a set of IP norms that they’ve formulated for themselves, and which they impose, collectively, on the community of stand-ups.

Taken together, the recent scholarship, of which the papers cited above are only a sample, is beginning to sketch out a picture of what many now refer to as “IP’s negative space.”  By this term we mean those creative endeavors which could be covered fully by IP law, but, for some reason (often as the result of a doctrinal quirk or historical accident) are not.  Studying IP’s negative space is important, because if we see creativity thriving without IP’s intervention, we should look more closely to understand the conditions that allow low-IP innovation within that particular creative community.  And once we understand how particular creative forms thrive in a low-IP environment, we might reasonably ask whether the same or similar dynamics might suffice to spark innovation in markets typically characterized by heavy reliance on IP.  This is not to say that the negative space scholarship provides a direct argument for stripping IP protections from music, or motion pictures, or pharmaceuticals.  But understanding the ways in which creativity thrives without IP will at least help us evaluate the next (inevitable) plea from some creative industry or another for more IP protection.  It may also help us to understand how to re-organize creative industries, like music, for which an IP-based response to piracy has not worked.

David Fagundes’ new paper contributes to the “negative space” scholarship.  His subject is an unlikely one: roller derby – an all-female amateur competition mixing sport with spectacle, and set to a punk music soundtrack.  Derby, which has roots as far back as the 1880s, is enjoying something of a present-day renaissance.  There are now many thousands of skaters around the U.S. and the world competing in more than 400 regional roller derby leagues.

Despite its recent growth, derby remains amateur and “alternative”, and its participants are determined (so far) to remain so.  The absence of commercial ambitions may lead one to think that property rights, including IP rights, are not relevant.  But that would be a mistake.  It turns out that derby girls (their preferred moniker) care a lot about a particular form of IP.  Derby girls want exclusive rights in their “skate names,” fanciful tags like Tara Armov, Soylent Mean, Paris Killton, Sparkle Plenty, Fighty Almighty, Tae Kwon Ho, Mila Minute, and Dread Pirate Robyn, that skaters adopt to identify themselves to their fans, sometimes to keep their derby participation secret from disapproving relations or employers, and as a form of self-expression.  Derby girls are attached to their skate names.  So attached that they don’t want to share their name with any other skater, anywhere.  And name exclusivity is indeed the usual rule in derby.  How do the derby girls do it?

One thing they don’t do is resort to trademark law. Derby girls have instead developed a strong private norm of name uniqueness, a norm which is facilitated by the all-important Master Roster, a privately-administered list of skate names and their owners which was first distributed in 2005 and is now available and searchable online – see for yourself at http://www.twoevils.org/rollergirls/.  The Master Roster functions as a sort of private trademark registry, where registrsation gives priority, and priority is equivalent to a right of exclusive use.  And the norms that accompany it allow the Master Roster to stand in for the formal trademark law.  The result is a cheap and efficient system of private IP regulation tailored to the requirements of the derby girls.  Fagundes explains how the system works:

Three core principles govern derby-name regulation. First is a uniqueness requirement: Only one skater can skate under a given name. The second instantiates the idea of priority: Where two names are identical or excessively similar, the skater with the earlier claim to the name has the right to use it. The third creates elemental standards for resolving overlapping name conflicts: Where two names are reasonably similar, the second skater must ask the first skater for permission to use the name. This permission must be in writing and submitted to the Master Roster‘s administrators in order to authenticate it. Names that are very similar to preexisting names but that have been approved via written permission by the senior skater are listed on the Master Roster with the note “(cleared)”.

The system that skaters have developed for themselves is surprisingly complex, and yet apparently effective. New skaters are required to complete a probationary period before they may register a skate name.  The Master Roster contains an automatic name checker that advises if a name sought to be registered is too similar to a registered name.  And the administrator of the Master Roster has discretion to refuse to register a name if she determines it is too similar to a registered name.  When skaters retire, they are asked to inform the Master Roster’s administrator, so that their name can be made available again for use.

Moreover, the Master Roster is backed by a related set of informal but powerful enforcement norms.  Enforcement is done mostly via personal contact between skaters, and is backed with the threat of social disapproval by skaters of those who fail to comply with the naming rules.  As one skater told Fagundes:

Registering with two_evils [i.e., the Master Roster] is voluntary … but there are rules as to what can be registered. It‘s not just a free-for-all [. . .] send your name in and it‘s yours, it has to not conflict with one that‘s already on the list. And while there are no derby police that are going to tell you that you can‘t skate under a certain name, it‘s kinda like bathing. Bathing is voluntary and no one can MAKE you bathe, but if you choose not to bathe, there will be consequences from your community. Similarly, registering your name is voluntary, but there are consequences from the derby community if you choose not to register your name because you‘re using a duplicate name.

As Fagundes explains, membership in the skating community is a central value of derby for most derby girls. The result is widespread compliance, and few notable and persistent naming disputes.  But, in the few cases that reputational sanctions and shaming don’t work, there’s always violence.  Violence is a more credible potential sanction in derby because the sport itself is violent and thus retaliation can be secreted within the normal flow of a derby bout. As one derby girl put it, “there‘s no laws in place – you don‘t even have to register your derby name – it‘s COURTESY. Ref might not see you smash me in the face – but I know, and trust me baby, I‘m comin for ya.”  Added another, “I totally agree with the not stealing/copying of names… Someone once said imitation was the best form of flattery… So flatter me and then let me kick your a$$ (sic).”

One important question remains: Why do derby girls get so bent out of shape about imitation of their skate names?  The names don’t have any market value, and they don’t cost anything to acquire.  The puzzle deepens when we see derby girls objecting to use of a similar skate name even when the later user competes in a derby league hundreds or even thousands of miles away.  Competition in roller derby is regional, so why would a skater in Charlottesville, Virginia care about later use of a similar name in Los Angeles, California?  Fagundes has an answer:

Derby girls care about maintaining the uniqueness of their aliases for three primary reasons. First, names in derby function as trademarks do in the commercial world: they ensure that skaters will not be confused with one another, and that the viewing public can tell skaters apart . . . . Second, and probably more importantly, though, skaters care about the uniqueness of their names despite their lack of discernible market value because skate names are a repository for the identities that skaters work so hard to create in a subculture that is profoundly important to them . . . .  Third, . . . [f]or many skaters, then, the best individual choice from a purely selfish perspective would be to deviate from the name-uniqueness norm and grab whatever name they want (even if it‘s already in use), while everyone else respects the rules (so that there‘s no threat of someone infringing the defecting skater‘s chosen name). But in practical terms, defection tends to be a bad strategy because it threatens a cascade of noncompliance that could lead to countless people sharing your name and to general chaos and dissension in the derby world. Derby girls tempted to defect thus still tend to comply with the derby-name uniqueness norm as a second-best strategy that assures them that while they may not be able to have their ideal name, they can at least be confident that when they find a desirable, unclaimed name, it will be theirs alone.

The result is a (so far) stable system of private norms that provide an effective stand-in for formal trademark law and protect the value that derby girls place on unique skate names.  And although this may sound similar to the story of social norms regulating copying by chefs and stand-up comics, derby is, Fagundes insists, importantly different.  Formal copyright law is, for doctrinal and practical reasons, not available to protect comedians’ jokes or chefs’ recipes.  And yet trademark law, Fagundes argues, could provide effective protection for skate names.  Derby girls turn to private ordering because they choose to, not because they must.  Fagundes says that his account of private ordering in derby is thus unlike the “legal centralist” accounts of norms in stand-up comedy and cuisine.  Those accounts posit that norms arise where law cannot govern.  But in the case of derby, norms have been freely chosen over law.

I’m not sure that this last point is correct, because derby girls who want to use formal trademark law to protect their skate names face at least one potentially important limitation. Under trademark law’s Dawn Donut rule, an owner of a registered mark cannot enjoin a good-faith junior user doing business solely within a market geographically distinct from the senior user’s and which the senior user has no plans to enter. Derby is a regional enterprise, and derby girls would therefore face substantial barriers to achieving more than local protection via formal law.  But derby girls want to own their names, and they want them to be unique not just in their local area, but across the world of derby.  For this reason, formal trademark law cannot give them what they’ve achieved via private ordering.  (There is also a use in commerce issue, but I agree with Fagundes that derby girls can likely figure out a way to satisfy this requirement of trademark law.)

In any event, this is a minor quibble with a very valuable – and fun – paper.  Highly recommended.

The Public Domain Through Property’s Lens

Mar 7, 2011 Michael W. Carroll

Michael W. Carroll

Are patents and copyrights “property,” and does it matter?  While the question is not new in the field, David Fagundes provides a fresh perspective, arguing persuasively that the question should be understood as rhetorical rather than ontological, and that, yes, it does matter.  In Property Rhetoric and the Public Domain, Professor Fagundes aims to build upon the work of scholars working in a tradition he labels the “social discourse of property” to reorient the use of property rhetoric with respect to “intellectual property” away from a solely private rights understanding of property.  By doing so, he argues, advocates for a positive conception of the public domain will be better equipped to blunt the force of property rhetoric deployed to expand the subject matter, scope or duration of copyrights and patents.

This article follows a prior piece, Crystals in the Public Domain, 50 B. C. L. Rev. 139 (2009), in which he argues that ex ante uncertainty about user rights in copyright is a significant problem that could best be addressed by clearer boundaries between private and public rights in copyright law.  While that argument addresses the functional advantages of clearer public rights to use another’s copyrighted expression, this piece argues that there are significant rhetorical advantages to a more clearly defined public domain in copyright law.  In his words, “[b]y framing their concern about the public domain as a concern about preserving public property (rather than simply resisting property), actors concerned about this issue can restore balance to this debate.” (P. 701.)

The argument proceeds in three steps.  First, Professor Fagundes argues that property rhetoric currently is understood through the lens of “ownership” discourse, which understands “property” to mean private rights that are good against the world.  Exhibit A for this thesis is the very different public reactions to the Supreme Court’s rulings in Kelo and Eldred. In each case, the Court held that the constitution did not protect members of the public from elected officials transferring their rights to another private party.  Certain groups were outraged by the Kelo result because, in their view, the Court had fundamentally disregarded specific private owner’s property rights.  By contrast, the Act at issue in Eldred “took not just from the original plaintiff Eric Eldred, but from every member of the public the entitlement to use expired copyrighted materials for another twenty years.”  (P. 655.)  This transfer, however, was greeted with a public yawn because it was not seen as a transfer of public property into private hands.

The second step in the argument is to introduce the “social” discourse of property as a contrasting rhetorical frame in which to understand both public and private entitlements.  He draws attention to four distinctive features of this approach: (1) property is relational and a variety of actors have relevant interests in the resources covered by entitlements; (2) the scope of entitlements deserving the title “property” is broader than private rights against the world, including “new” property entitlements, such as a right to public assistance, as well as public or other forms of commonly-held entitlements; (3) publicly owned resources are valuable in their own right and also contribute to the value of private entitlements; and (4) the values that property ownership, whether public or private, supports include non-market values.

In the final step of the argument, Professor Fagundes seeks to show that this approach is particularly well suited for understanding “intellectual property.”  In his view, current discourse about patent and copyright divides between property romance and property anxiety, with the romantics embracing broad private entitlements and the anxious seeking to curtail the continued expansion of the subject matter, scope and duration of patents and copyrights.  Professor Fagundes argues that if the anxious were to accept that information entitlements appropriately are denominated “property”, they can then rely on the social discourse of property to recast the limiting doctrines in copyright and patent law as not simply limits on privately owned entitlements but also as the border at which publicly owned entitlements begin.

Professor Fagundes makes a nice contribution to the literature by drawing upon the social or relational discourse of property to illuminate a rhetorical path for public domain enthusiasts to follow when engaging with the private rights discourse that dominates popular discussion of patent and copyright law.  I will confess that I am not fully persuaded by the argument, and think that the discourse of liberty may supply greater rhetorical advantages with respect, at least, to limitations and exceptions to the rights under patent or copyright law.  But, Professor Fagundes deserves recognition for the clarity and cogency with which he advances the argument for viewing the public domain through property’s lens.

IP Law and the New Experimental Empiricism

Jan 17, 2011 Christopher J. Sprigman

Christopher J. Sprigman

It is often said that in the late 20^th century, the legal academy took an “empirical” turn with the rise of law and economics.  But the word “empirical” is not quite right as a characterization of the direction in which law and economics has nudged the legal academic literature.

Much of law and economics, especially in its early years, involved the application of (often very basic) economic theory to an expanding list of legal issues.  The aim was to use an abstract form of economics to reform legal doctrine.  That work was more theoretical than empirical, but that isn’t meant as a criticism – many areas of legal doctrine were so badly theorized that even basic economic interventions yielded up valuable insights.

In the last 20 years we have seen a second stage of the law and economics movement, one that has featured the use of continually more sophisticated economic modeling as a way of analyzing legal questions.  Some of this work is a direct outgrowth of the first wave of law and economics – i.e., some second–stage work involves the application of more sophisticated (or at least more complex) economic models to abstract legal problems.  Another branch of this work, however, is more truly empirical, in that it directs its analysis not primarily to a stylized legal problem, but to data.  This form of work suffers from one endemic limitation – the tendency of researchers to pick questions for which data exists or readily can be gathered.  Again, this is not meant as a criticism; it is merely a limitation of this branch of otherwise very valuable legal scholarship.

There is a third type of law and economics work that is largely missing from the law reviews and, until relatively lately, from the legal academy generally.  And that is a very old form of empiricism – the experiment.   What can the experiment offer that the theoretical and data-driven variants of law and economics cannot?  With respect to theoretical work, experiments are a necessary complement and check. A theory can be elegant, brilliant, and align with common sense – and it can nonetheless be wrong.  Theoretical work is well suited to constructing hypotheses about how the world works. Experimental work is well suited to either confirming or exploding those hypotheses.

With respect to data-driven work, experiments are again necessary, not least as a stopgap when the search for data proves fruitless. Experiments allow us to gain knowledge about questions for which there is little ready data, and experiments also generate data that can be adapted to help answer different questions.

The experimental vein of law and economics is relatively impoverished.  One can see this readily in my own primary field, intellectual property.  IP scholars are receptive in general to law and economics thinking – not least because the orthodox justifications in the United States for patent, copyright, and trademark law are all explicitly utilitarian.  But much of the law and economics work in IP comes from the early Chicagoan vein – i.e., it involves the application of rational choice theory, at a high level of abstraction, to analyze IP rules.  This scholarship has been very useful.  It has helped to organize a previously messy field.  It has helped us to understand where IP rules conduce to economic efficiency, and where they do not.  But it’s long past time that we put some of these economic models to the test.

Some in the IP field are beginning that task.  Gregory Mandel has conducted experiments to assess the impact on hindsight bias on several aspects of patent law, including claim construction, enablement, and, perhaps most importantly, the assessment of non-obviousness.  [See Gregory N. Mandel, Patently Non-Obvious: Empirical Demonstration that the Hindsight Bias Renders Patent Decisions Irrational, 67 OHIO ST. L.J. 1391 (2006), available at SSRN.] Christopher Buccafusco and I have conducted experiments to determine whether IP rights-holders are subject to endowment effects in their licensing transactions.  [See Christopher Buccafusco & Christopher Sprigman, Valuing Intellectual Property: An Experiment, 96 Cornell L. Rev. 1 (2010), available at SSRN; Christopher Buccafusco & Christopher Sprigman, The Creativity Effect, forthcoming, Univ. of Chicago L. Rev., available at SSRN].  And Stefan Bechtold of ETH Zurich and a team from the Max Planck Institute have explored how endowment effects impact market transactions driven by group decision-making.  [See Stefan Bechtold, et al, The Endowment Effect in Groups With and Without Strategic Incentives, available at SSRN].

We now have a new and very interesting IP experiment, conducted by Christoph Engel and Michael Kurschilgen of the Max Planck Institute.  Engel and Kurschilgen are interested in an unusual provision of the German copyright law, the so-called “bestseller paragraph,” under which the transferor (whether by license or sale) of a creative work has a legally enforceable right to an “appropriate” bonus in the event that the work turns out to be very valuable.  Here’s the language of the provision, translated from German:

If the owner of a copyright has granted a license such that the fee, in the light of the entire relationship between the parties, is grossly disproportionate with regard to the proceeds from the work, the buyer is obliged to agree, upon the author’s request, to a change in the contract such that the seller receives an additional remuneration, reflecting what is her appropriate share under the given circumstances.

What is the effect of this provision on the behavior of parties to copyright transactions?  Economic theory suggests that because buyers can expect to make lower profits when the law contains the bonus provision, versus a law without one, that they should offer less in the initial transaction.  And, relatedly, sellers should be willing to accept less, because they know that in the event that a work proves very valuable, they can anticipate some additional payment ex post the deal.  But that’s where economic theory runs out.  It suggests that deal prices will be lower, but it does not tell us whether the buyer’s maximum bid and the seller’s minimum ask will diverge or converge.  And this piece of information is, of course, key, because if bid and ask prices diverge there will be fewer transactions and lower gains from trade, compared to a legal regime without the bonus provision.  On the other hand, if buyer and seller valuations converge, then we’ll enjoy a more efficient market, with more deals generating more social surplus.  So which is it?

Not unexpectedly, no one has yet sought an answer.  That’s probably because the German copyright law’s bonus provision is usually justified not in terms of economic efficiency, but “fairness” – i.e., that justice demands that author/transferors should have a right to additional compensation if the work they have transferred turns out to have unanticipated value.  That has always seemed to me an odd view of justice, and one which does not fit with our (or the Germans’) views on the “fairness” of transactions generally.  If I sell my house and two years later the city decides to build a lovely public park, in my neighborhood, then the value of my former house may rise substantially but no one contends that I’m due a bonus payment from the lucky buyer.  The deal is the deal.

So why the German exception for authors?  It is sometimes said that the ultimate market value of creative works is particularly difficult to predict, and so fairness requires some form of ex post adjustment to authors’ compensation when a deal proves particularly rich.  The same justification is often advanced for an analogous provision in U.S. copyright law that permits authors have licensed their rights to terminate that license after 35 years and re-capture those rights.  But that explanation cannot suffice standing alone, because it is equally an argument for ex post adjustment in favor of buyers when deals prove (as they often do) to be valueless, and yet we never see provisions that are not one-sided in favor of sellers.

A much more important justification observes that sellers often face much more competition than buyers – there are, or at least have been traditionally, many more creators than there are publishers – and so publishers enjoy a degree of oligopsony power that forces prices down below a competitive level.  This is a better justification than the first, but it’s still quite weak.  If the effect of provisions like the German bestseller clause and the American termination of transfers clause is to force deal prices down – which almost surely happens by some small increment – then the effect of the provisions is to beggar all authors for the purpose of enriching a few fortunate enough to have produced works of enduring value.  These successful authors are least likely to be the ones is need of aid.  In short, the “fairness” justification for these provisions is less than overwhelming – at least as a matter of abstract economic theorizing.

But abstract theorizing sometimes fails to uncover the truth.  Which leads us back to Engel and Kurschilgen, who have designed a clever experiment to test whether the German bonus provision can be justified on either efficiency or fairness grounds.  They designed two experimental conditions, which they tested with subjects recruited from the University of Bonn.  The first was a baseline condition wherein subjects were randomly assigned to act either as a buyer or a seller.  The subjects were each given an initial endowment of 500 “Talers,” or notional monetary units.  The subjects were told that they would be transacting over an unnamed commodity.  The commodity did not have a certain value, but merely a probabilistic one – there was a 25% chance that it was worth 1700 Talers, but a 75% chance that it was worth only 100 Talers.  With this information in hand, the subjects participated in 8 rounds of a four-stage game.

In the first stage of the experiment, buyers were given the opportunity to make an offer to purchase the commodity, based only on their knowledge of the probabilities attending the commodity’s value.  In the second stage, the seller is given the choice of accepting or rejecting the buyer’s offer.  If the seller rejects, then both buyer and seller keep their initial 500 Talers.  If the seller accepts, then the buyer’s offer price is transferred to the seller.  In the third stage, a random device determines the value of the commodity – either 100 Talers (75%) or 1700 Talers (25%).  The fourth stage is where the experiment gets interesting – in this final stage, each of the parties learn the value of the commodity, and each is given a chance to reduce the other party’s earnings.

Why is this?  Because the experimenters wanted to build into the experiment a way for the parties to indicate that they perceived the results of the transaction as “unfair.”  Punishment in the experiment is costly – it costs a party 3 Talers for each 1 Taler by which they wish to reduce their counterparty’s earnings.  But by giving the parties the power to engage in costly punishment, the experimenters hoped to discover whether the presence of some mechanism – analogous to the German bestseller provision – whereby “unfair” deals can be adjusted ex-post, reduced the rate at which the parties engaged in costly punishment, and thus – by implication – reduced the amount of ex post perceived unfairness.

The second experimental condition built in that ex post adjustment procedure.  The experimenters did so by introducing a third player – the “umpire.”  The umpire was paid a fixed fee to judge the fairness of transactions, and to adjust unfair transactions ex post.  If the value of the commodity in a particular transaction is judged to be 1700 Taler, such that a buyer who paid much less stands to realize a substantial windfall, the possibility of punishment is delayed.  First, the umpire makes a secret re-allocation of the value of the commodity between buyer and seller.  Then, the buyer is encouraged to make a new offer, which the seller can either accept or reject.    If the second offer is rejected, the umpire’s allocation is revealed, and that allocation becomes effective.  The parties are then given the opportunity to engage in the same costly punishment as in the first condition.

So, the results.  As economic theory predicts, the price at which deals are struck declines by a statistically significant amount in the second condition (104 Talers) versus the baseline (129 Talers) – that is, the presence of a proxy for the German bestseller provision leads to substantially lower deal prices.  The number of deals stayed about the same – 98 of 128 rounds resulted in deals in the baseline condition, versus 106 of 128 in the second, or “treatment,” condition.  Importantly, bid and ask prices converged in the treatment condition (seller’s ask price declined more than buyers’ bids), suggesting that the presence of the ex post “fairness” mechanism generated a more efficient market by making low offer prices more acceptable to sellers.  This is an important finding that economic theory alone could not have generated.

The experiment tells us not only about buyers and sellers, but about umpires – i.e., judges.  A large portion of the umpires, who had the same information as the buyers and sellers, appear to have been motivated primarily by ex-post egalitarianism – i.e., they split the profits more or less evenly between buyers and sellers.  Surprisingly, they did this even though from an ex ante perspective such a result clearly favors sellers (because only buyers, ex ante, faced the prospect of a real loss).

Finally, the experiment shows that ex post discontent is reduced when a mechanism exists to remedy “unfair” transactions.  Angry buyers used punishment more frequently in the baseline condition (21% of the time) vs. in the treatment condition (12%), and they spent more on punishment (10 Taler per round vs. 7 in the treatment condition).  Sellers made very little use of punishment in either condition.  So the result of the treatment was to reduce buyers’ ex post perceptions of unfairness, while not affecting sellers, who did not perceive unfairness in the first place.  This is deeply counterintuitive.  It is the sellers who are presumed, in the fairness justification for the German bestseller provision and the analogous American termination provisions, to be the victims of unfairness when transactions prove to be much richer than initially anticipated.  But in this experiment, it’s the buyers, not the sellers, who manifest significant feelings of unfairness, and these feelings are reduced by ex post mechanisms designed to transfer value to sellers when deals prove particularly rich.

Why?  Because anticipating all of this, buyers in the treatment condition lowered their offers.  Because they had accounted for the possibility of value transfer in advance, they discounted what they were willing to pay ex ante.  And this, in the buyers’ perspective, was fair.

These are fascinating findings.  It is important to emphasize, however, that this one experiment is not a basis for changing policy.  The experiment is too stylized, and the data too limited.  But that is not to slight what’s been accomplished here.  We have now a very valuable and surprising set of findings, accomplished via a methodologically careful and replicable study.  It’s time for others to jump in.  This study should be run again, and run in variations – perhaps an American academic would like to run a version which more closely models the termination provision of U.S. copyright law?  And in a few years, we might have results that can begin to shape a more sensible and scientific copyright policy.