Laws of Creation

Ronald A. Cass, Keith N. Hylton

• Publisher: Harvard University Press
• Year: 2013
• ISBN:
  9780674070554
• Topic: Law
• Subtopic: Intellectual Property Law
• Index: Law

While innovative ideas and creative works increasingly drive economic success, the historic approach to encouraging innovation and creativity by granting property rights has come under attack by a growing number of legal theorists and technologists. In Laws of Creation, Ronald Cass and Keith Hylton take on these critics with a vigorous defense of intellectual property law. The authors look closely at the IP doctrines that have been developed over many years in patent, copyright, trademark, and trade secret law. In each area, legislatures and courts have weighed the benefits that come from preserving incentives to innovate against the costs of granting innovators a degree of control over specific markets. Over time, the authors show, a set of rules has emerged that supports wealth-creating innovation while generally avoiding overly expansive, growth-retarding licensing regimes.These rules are now under pressure from detractors who claim that changing technology undermines the case for intellectual property rights. But Cass and Hylton explain how technological advances only strengthen that case. In their view, the easier it becomes to copy innovations, the harder to detect copies and to stop copying, the greater the disincentive to invest time and money in inventions and creative works. The authors argue convincingly that intellectual property laws help create a society that is wealthier and inspires more innovation than those of alternative legal systems. Ignoring the social value of intellectual property rights and making what others create and nurture "free" would be a costly mistake indeed.

1

Ideas, Property, and Prosperity

Ideas

Ideas are the engines of progress and prosperity. The first man to realize how to make fire and to use it to cook and provide warmth, the first to domesticate animals, the first to use a wheel to move loads across space, gave their societies an advantage in the race to survive.

Hoary examples make ready reminders of the power of ideas, but modern life abounds in illustrations of the way ideas change our world. Consider, for example, that life expectancy at the end of the twentieth century was more than one-and-a-half times what it was at that century’s outset.¹ Why? In no small measure, that change reflects the contributions of penicillin and other antibiotics; vaccines to combat smallpox, measles, mumps, polio, and a myriad of other diseases; and advances in agriculture, food preservation, and transportation. Along with the sea change in medical care, better understanding of hygiene, better tools for controlling insects that carry malaria and encephalitis, widespread pasteurization of milk, and refrigeration of food took us from a U.S. childhood mortality rate of thirty per thousand in 1900 to a childhood mortality rate of less than two per thousand in 2000.²

Progress hasn’t been limited to matters of health. Another example is the revolution in the way we communicate, in its speed, cost, and reliability. Communication that was uncertain a century ago has become reliable and instantaneous, allowing people to work together across great distances, the cornerstone on which much of international commerce rests. Where letters traveling by ship and train or pony once took weeks or months to arrive (frequently reaching their destination after the events they were addressing had passed), now discussions can be had across the globe in “real time.”

The ability to speak at a distance in real time, of course, isn’t so new. Alexander Graham Bell spoke to his assistant, Thomas Watson, over his invention, the telephone, and filed his patent in February 1876.³ Yet this nineteenth-century invention still was a rare item for most of the world’s population three-quarters of the way through the twentieth century. Even though satellites and undersea cables provided connections across long distances, the high cost of stringing wires to end-users kept basic telephone service from more than half the people on the planet as late as the 1980s.⁴ But the development and diffusion of cellular telephone technologies and of Internet telephony (along with the more common keyboard communication over the Internet) at the end of the twentieth and beginning of the twenty-first century dramatically altered the landscape. Today, people in China can talk over the Internet to people in Chartres or Chicago, whenever they want and at virtually no cost.

Promoting Ideas

The ideas that tacked an extra thirty years onto our lives in the past one hundred years, that have made it possible to get more goods and services more cheaply and to share information and experiences instantly, did not come to everyone on equal terms. Some societies generate more ideas and receive the fruits of those ideas more readily than others. Legal origins and existing legal institutions may have played a role in this.

The role of law in encouraging development, diffusion, and exploitation of ideas is the core focus of this book. How legal institutions (i.e., law and its enforcement) encourage the development of ideas, their dissemination, and their best use are topics that could each take an entire volume. Our goal is not to provide an exhaustive treatment of any one of these matters, but to give readers an overview of the field. In the short compass we have, we describe the basic understanding on these issues, the legal rules that exist, the arguments about them, and the policies we think best serve society’s interests.

Property Rights

We start with a concept that is implicated in almost any endeavor that involves an investment of ingenuity, time, and energy in creating something or in regulating its use. It is the concept of property. As we explain later, this is a controversial starting point for the world of ideas.

Property has been part of the bedrock of civilization from ancient times. Respect for property is demanded by ancient religious commandments, social compacts, and constitutions. Its importance to our lives and to progress is expounded by philosophers, economists, and social historians. John Locke famously proposed a theory of property as a natural right that has given rise to a cottage industry in scholarly discourse.⁵

The case for property rights also has an instrumental base. Casual observers of the human condition long have noted the difference secure property rights make in motivating individual initiative. Contemporaneous with the drafting of the American Constitution, an Englishman, Arthur Young, reflecting on his travels in France declared:

Give a man the secure possession of a bleak rock, and he will turn it into a garden; give him a nine years’ lease of a garden, and he will convert it into a desert. . . . The magic of property turns sand into gold.⁶

Yet recognition of the central role of property in our lives has coexisted with ongoing skepticism about the value and even the legitimacy of the concept of private property. The most extreme example of that skepticism was Proudhon’s assertion that “property is theft.”⁷ That sentiment in some measure is shared by an array of academicians and pundits.⁸ Although virtually everyone in Western democracies—and most other societies as well—today acknowledges the central role of property, academic and public policy discourse typically makes the acknowledgment a qualified one.

Three distinct themes run through the skepticism about private property: moral desert, egalitarianism, and socialist or welfarist instrumentalism. The first of these themes urges that possessors of property often have no moral claim to the property, having inherited it through no work of their own or having gained it by virtue of luck rather than because the possessor was especially clever or industrious.⁹ The second theme is that, no matter what explains how people obtain property in the first place, there is a substantial value to be served by distributing it equally across a population.¹⁰ The third theme is that as a practical matter centralized institutions can develop resources and direct them to their best—socially preferred—uses better than the market forces that are corollaries of private property rights.¹¹

While these themes reflect personal value judgments, they also build on empirical assumptions. That is especially true of the third, instrumentalist, theme, which runs headlong into the instrumentalist case for property rights. One of the arguments for property rights is the assertion that the complex of activities associated with property—giving individuals control over property, letting them determine what uses are best, letting individuals exchange rights to use and control property in line with their own estimations of value—increases society’s overall wealth and individuals’ overall well-being. That is an empirical assertion, and it is at odds with assumptions behind the instrumentalist objection to property rights.

The empirical assumptions entwined in the instrumentalist challenge to private property rights encompass the supposition that central planning, scientifically informed, can avoid the costly errors that markets generate.¹² Evidence of such market errors is found in stock market crashes and “wasteful competition” that spends resources on production that cannot be sold for what it costs and that brings about frequent bankruptcy of businesses. The stock market crash of 2008 has generated a fresh round of arguments that markets driven by individual decisions typically fail.¹³ For some writers, this evidence points to the superiority of a system in which the government would direct resources to their best uses instead of relying on individual decision-making.

The claim that central planning enjoys an instrumental advantage over private property and individual decision-making can be supported by references to deep-seated human inclinations to advance self-interest. One key concept in the litany of behaviors motivated by self-interest is “free riding,” the instinct to get something for nothing by taking advantage of the investments of others, or by not investing where investment is necessary to maintain a resource.¹⁴ Some of the best-known illustrations of the free-riding phenomenon travel under the label “the tragedy of the commons.” These writings explore the ways in which commonly held resources—resources without well-defined individual property rights—tend to be overexploited.¹⁵ Consider two prototypical examples: overgrazing and overfishing. Allowing cattle to roam freely across pastures provides no incentive to replenish the pastures and thereby ensure a sufficient food supply to sustain the population of cattle. Similarly, overfishing depletes stocks of fish in oceans and rivers beyond the point where the fish population is self-sustaining, ultimately putting all the fishermen out of business. Although everyone knows that failure to curb overgrazing or overfishing inevitably kills the proverbial golden goose, it happens repeatedly in settings where no one owns the goose.

Property Rights versus Collective Control

Different legal institutions offer the theoretical possibility of correcting problems such as overfishing. Perhaps no one institution is provably best, a priori, in all settings. That said, in an array of circumstances the property rights system (and market interactions based on those rights) dominates its primary alternative of collective decision-making through centralized authority.

The skeptical view¹⁶ toward allocations generated under free markets and property rights often builds on visions of unbiased government decision-making and evidence that markets are imperfect. It downplays the evidence that casts doubt on the capacity of centralized institutions to access the information necessary to harness individuals’ interests.¹⁷

After the fall of the Soviet Union, however, the consensus at the most abstract level is that private property rights and individual judgments executed through markets prove superior to central decision-making at promoting the development and preservation of property. Although there were many examples of the different incentives created by collective and private ownership, probably the single best illustration was a striking disparity in agricultural productivity: toward the end of the Soviet era, the small amount of land available for individual farmers to produce goods for their own account—less than three percent of the land used for agriculture—generated more than half the produce consumed in the nation.¹⁸

Of course, the conclusion that centralized ownership of resources is generally inferior to a system of private property and markets does not end the debate over property rights. Many writers who acknowledge some role for private property also see in numerous arenas a benefit to government regulation that has the hallmarks of central planning.¹⁹ Commentators, for example, point to the plight of America’s “unregulated” (by which they mean more open to competitive entry than was historically the case) passenger airline industry as an example of the problems that come with reliance on markets rather than regulation.²⁰ More recently, the standard reference for the risks of unregulated markets has been the financial industry, despite the fact that virtually all aspects of the industry are heavily regulated—and much of the responsibility for the 2008–09 financial crisis traces to regulation-induced mismatches in information and incentives.²¹

The more fine-grained arguments for government regulation in particular instances cannot be rejected on the same basis as the broader contentions in support of general collective ownership and control of property. As we explain in Chapter 2, instrumentalist arguments for private property rights do not establish any distinct set of rights as best for all circumstances, nor do they prove that no central authority can improve a society’s lot by means that limit individual property owners’ rights to do as they wish. Yet, in looking for starting points, not all-or-nothing conclusions, the basic case for property rights provides a presumptive origin or default position for analysis of specific interventions.

Intellectual Property

Among their other benefits, property rights provide the standard mechanism for aligning individual interests and incentives with social value. Because of this, some scholars and commentators assume that the same system that works for tangible property should provide the template for the world of ideas. We view this as a reasonable starting point, but it has become increasingly controversial.

Authors and inventors long have enjoyed property rights in their works, rights against the rest of the world to control the reproduction of creative expression and useful inventions. Although there are different histories for these rights and varied explanations for them, for at least two and a quarter centuries rights to control the fruits of an idea have been explained as serving the same instrumental ends as other property rights. Thus, for example, the U.S. Constitution expressly grounds these rights in the goal of promoting creative expression and invention. Article I, Section 8 of the Constitution empowers Congress “to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive right to their respective Writings and Discoveries.”

The intuition behind the grant of such rights in the United States and other common-law nations²² is simple: if property rights generally increase incentives to invest in discovering, caring for, and exploiting things, they should also increase the incentives to invest in discovering and using ideas. Admittedly, there is not a lot of rigorous learning about what prompts discoveries, especially the most important discoveries, or the creation of expressive works. Some scholars opine that money is not a prime motivation for creative energy, and some even suggest the possibility that the prospect of financial gain can reduce such investment.²³

Acknowledging the limited state of our knowledge does not imply doubt about the soundness of the intuition behind intellectual property rights. Surely, money does not explain everything. The eccentric inventor, driven to invent and never thinking of personal gain, may have a “Eureka” moment, providing grist for storytelling. But the common human experience is that the prospect of increased wealth does, indeed, generate investment of time, energy, and creative thought. The pharmaceutical industry, which pours millions of dollars into research to produce new drugs, would not make the same inv...

Table of contents

• Cover
• Title Page
• Copyright
• Dedication
• Contents
• 1. Ideas, Property, and Prosperity
• 2. Rights to Property
• 3. Intellectual Property
• 4. Patent Law
• 5. Trade Secrets
• 6. Copyright Law
• 7. Trademark Law
• 8. Making IP Rights Work—Or Not
• 9. Antitrust and Intellectual Property
• 10. Understanding Intellectual Property Law
• Notes
• Acknowledgments
• Index