Copyright Unbalanced: From Incentive to Excess

Edited by Jerry Brito

ARLINGTON, VIRGINIA

ABOUT THE MERCATUS CENTER AT GEORGE MASON UNIVERSITY

The Mercatus Center at George Mason University is the world’s premier university source for market-oriented ideas—bridging the gap between academic ideas and real-world problems.

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Copyright © 2012 by Jerry Brito, Tom W. Bell, Eli Dourado, Timothy B. Lee, Christina Mulligan, David G. Post, Patrick Ruffini, and Reihan Salam

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Library of Congress Cataloging-in-Publication Data

Copyright unbalanced : from incentive to excess / edited by Jerry Brito.

      pages cm

  Includes bibliographical references and index.

  ISBN 978-0-9836077-5-5 (pbk.) -- ISBN 978-0-9836077-6-2 (ebook)

  1. Copyright--United States. I. Brito, Jerry.

  KF2994.C645 2012

  346.7304′82--dc23

2012045998

First printing, December 2012

Printed in the United States of America

1
    
Why Conservatives and Libertarians Should Be Skeptical of Congress’s Copyright Regime

by Jerry Brito

2
    
The Internet and Its Enemies

by Reihan Salam & Patrick Ruffini

3
    
SOPA and the Future of the Internet

by David G. Post

4
    
How the Criminalization of Copyright Threatens Innovation and the Rule of Law

by Timothy B. Lee

5
    
Free Expression under the DMCA

by Christina Mulligan

6
    
The Times, They Are A-Changin’: The New Economics of Weak Copyright Enforcement

by Eli Dourado

7
    
Five Reforms for Copyright

by Tom W. Bell

Acknowledgments

About the Editor and Contributors

Jerry Brito

C
OPYRIGHT HAS LONG
been a source of division among libertarians and conservatives. On one extreme are thinkers like Lysander Spooner, who believe authors and inventors should have perpetual property in their ideas. On the other are those like Tom Palmer, who reject intellectual property on the grounds that it conflicts with fundamental natural rights, including self-ownership. In between are those who accept some limited form of copyright, on both practical and moral grounds.

These are important philosophical distinctions. However, they often distract us from the political reality of our existing copyright regime. Whatever your philosophical position, if you are skeptical of government power, you should likewise be skeptical of the copyright system that has developed over the last century. That is, not necessarily skeptical of copyright in theory, but of the actual system that Congress has created and that it continues to expand.

You should be skeptical of Congress’s ability to develop a rational policy given the knowledge problem copyright presents and the public choice pressures at work. You should be skeptical of the seemingly unlimited economic benefits we’re told stronger copyright protection can produce, and you should instead be concerned about its effects on innovation. You should be skeptical of the recent trend toward criminal prosecution of even minor infringements of copyright law. You should be skeptical of the growing use of civil asset forfeiture in copyright enforcement. What follows in this book is not a moral case for or against copyright; it is a pragmatic look at the excesses of the present copyright regime and of proposals to further expand it.

Ayn Rand, a staunch proponent of copyright’s morality, nevertheless noted that a “right to intellectual property cannot be exercised in perpetuity.”
¹
While she believed copyright is a moral imperative, she acknowledged that it must have limits or else “it would lead to the opposite of the very principle on which it is based: it would lead not to the earned reward of achievement, but to the unearned support of parasitism.” Unfortunately, the exact contours of those limits cannot be divined through philosophical study, and are necessarily set down in law through a political process. And political processes, as any advocate of limited government knows, can be hijacked by the very “parasites” that so concerned Rand.

It is possible to have a deep respect for copyright—on moral or philosophical grounds, on the basis of economic efficiency, or for both reasons—and still recognize that a particular implementation of the idea of copyright can be flawed. Our current copyright regime should give conservatives and libertarians pause, if not make them shudder.

Whatever else you think about copyright, you must acknowledge that copyright is very different from traditional forms of property.

Traditional property rights, often associated with John Locke’s theory of rights, include rights to real property, personal property, and property in one’s self. The legitimacy of these rights is not just uncontroversial among libertarians and conservatives, it is foundational to their respective political ideologies.

Traditional property rights predate the Constitution, and their contours were developed over centuries in customary law and the iterative and evolutionary process that is the common law.
²
The main text of the Constitution doesn’t even mention a right to property, signaling that the Framers took it for granted. Adding the Fifth Amendment, which says that one may not “be deprived of … property, without due process of law” and “nor shall private property be taken for public use without just compensation,” the Framers again did not define property. That is because the Constitution was not
creating
a right to property; it already existed. The Constitution was merely recognizing it, and courts deciding cases under the Fifth Amendment would look to the common law for its definition.

Copyright is a very different animal. In contrast to traditional property, copyright was created by the Constitution; it did not exist in the common law. Without the Constitution’s copyright clause, there would be no preexisting right in creative works. What’s more, the copyright clause does not recognize an inalienable right to copyright, but instead merely grants to Congress the power to establish copyrights. Copyright therefore stands in contrast to traditional property in that the legislature has complete discretion whether to grant the right or not.
³

The final and perhaps most peculiar difference between copyright and traditional notions of property can be found in their respective durations. The copyright clause allows Congress to establish copyrights for “limited times” only. This means that unlike traditional property, copyrights must cease to belong to their owners at a certain point. All this makes copyright a very different kind of property indeed.

Why is copyright so different from traditional property? One way to think about property in general is that it develops as a dispute-resolution mechanism. When a resource, such as land or game, is scarce or can be put to conflicting uses, disputes will result. Property rights emerge to settle these disputes.

For example, as economist Harold Demsetz pointed out in a seminal paper on property, Native Americans who hunted solely to feed and clothe their families had no need for property rights.
⁴
Game was sufficiently abundant so that it was not meaningfully scarce. However, once Europeans introduced the fur trade, the value of game increased and the scale of hunting rose sharply. The new relative scarcity of game gave rise to disputes about the allocation of game. Soon tribes developed property rights, which settled those disputes.

As Demsetz explained, property emerges as it becomes more worthwhile to internalize an externality. For example, before property rights, hunters could freely take as much game as they could kill. If they had done so, they would have overhunted and depleted the resource, making everyone worse off. Their individual actions would have imposed harm on others—a classic externality. Property rights address externalities by allowing an owner to take into account the harmful effects of an activity. That is to say, it is in an owner’s interest not to overhunt, and indeed to invest in maximizing the sustainable stock of game.

Yet because they had no incentive to take as much as possible before the introduction of the fur trade, the Native American hunters could safely ignore the externality in their midst. Expending the resources necessary to establish and enforce property rights made no sense. Once the fur trade was introduced, however, the value of game increased and with it the incentive to overhunt—and the consequent disputes. Only then did it make sense for Native Americans to bear the costs of creating property rights, and that is indeed when they emerged. It became worthwhile to internalize the externality.

It is scarcity, or the possibility of conflicting uses, that leads to the spontaneous emergence of property rights. Informational goods, however, are not subject to such constraints.
⁵
If I write a song and you hear me sing it, you can later sing that song as much as you want without affecting my ability to sing it as well. Because the song can be sung by as many persons as want to sing it, without depleting anyone else’s ability to do the same, there is no scarcity, and no possibility of conflicting use. As a result, property rights in information do not emerge spontaneously, and no common law develops.

The fact that copyright does not emerge spontaneously does not mean it is illegitimate, or even unwise. What it does mean is that we should be cautious about how we create such a property right and how we define that right.

As F. A. Hayek showed, created orders are handicapped by the limited knowledge of their planners. This is in contrast to emergent orders, like customary or common law, which evolve slowly through trial and error. Such bottom-up processes are the product of human action, but not human design. As a result they incorporate dispersed knowledge and tend to match economic efficiency.

Copyright is a created order. Not only did it not emerge spontaneously, it is in fact a tool to
create
scarcity through state action. But why would we want to introduce scarcity where there is none? And why would we want to limit use where there is no conflict?

Like all other forms of property, copyright exists to address an externality problem. Because the author of a creative work, such as a song, cannot exclude others from the benefits her work creates, authors who publish works are creating a positive externality. The problem is that if authors can’t internalize at least some of the positive externality they produce, then they will have only a weak incentive to create and publish works. Put another way, if authors have no way to exclude others from enjoying their works, and therefore can’t charge users for access, then they won’t produce as many works as they otherwise would, making everyone worse off. Copyright addresses this externality problem by creating a legal right to exclude others from enjoying the work without the author’s permission. If authors can sell permission for money, they can capture a higher proportion of the benefits they create, and their incentive to produce creative works in the first place will increase.

By assigning authors property rights to their works, copyright allows authors to internalize some of the positive externality. Everyone is made better off. Certainly authors are, but so is the public, because it will enjoy an increase in the production of expressive works.

We can see in the copyright clause that addressing an externality is exactly what the Framers had in mind. The power the Constitution grants Congress is not the power to create copyright for the sake of copyright, or to give authors their just deserts, but specifically “to promote the Progress of Science and useful Arts.” This is why the Supreme Court has said that “the copyright law, like the patent statutes, makes reward to the owner a secondary consideration.”
⁶
Its main concern is ensuring that expressive works are available to the public.

In many ways copyright is similar to emissions trading, also known as cap-and-trade. Like copyright, emissions trading addresses an externality problem, namely pollution. It does so by introducing scarcity where there was none before—the cap in cap-and-trade—and then leveraging markets to reach an efficient allocation of the newly limited “resource.” Like copyrights, tradable emissions permits are a form of statutorily created property, which allow polluters to internalize the effects of their actions.

However, designing a new property right is a delicate balancing act. In the case of emissions, setting the cap too high may not reduce pollution by much. Setting the cap too low may reduce emissions by more than is necessary to address the environmental problem. What would be so bad about that? The answer is that there would be economic waste because you’d forgo more valuable emissions-producing activities, such as manufacturing, than necessary to protect the environment. (If the cap is set low enough, you might do away with manufacturing altogether.)

The same applies to copyright. If copyright is weak, then it will provide little incentive to create. But if it is too strong, then it will limit the public’s ability to enjoy and build on creative works, which after all is the reason why we have copyright in the first place.

In either case there is a trade-off. Between clean air and cheap manufactured goods; between free access to creative expressions and providing an incentive to create. And not only is it possible to make the wrong trade, it’s possible to make the wrong trade in either direction. That is, it’s just as possible to trade away too much manufacturing for cleaner air as it is to trade away too much clean air for manufacturing. The trick is getting the right amount of each by striking the right balance. Get it wrong, and the result is waste and inefficiency.

The knowledge problem inherent in legislatively created rights is one reason why a delicate balance is difficult to reach. Not only are the contours of copyright centrally planned, but as Richard Epstein has noted, “There are in fact no ‘natural’ boundaries here, similar to the metes and bounds of land” to guide policy makers.
⁷

Conservatives and libertarians tend to easily recognize the knowledge problems in other government programs. For example, consider subsidies for renewable energy, which are also arguably meant to promote the production of a public good.
⁸

How does Congress know that the market is not already providing the right amount of investment in renewable energy? Without a government subsidy, there would still be investment in renewable energy technologies. By creating a subsidy, Congress is saying it doesn’t think it’s enough, but it has no way of truly knowing that.

Putting aside how Congress can know that there should be more investment in renewable energy, the other question is, how much investment is optimal? Without a market process to guide such investment, Congress can’t know how much is enough. So when Congress offers a certain amount of subsidy, it’s guessing. It’s likely offering too little or too much, with each error introducing its own inefficiencies.