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Debate as Boundary Maintenance

Looking back at last week’s discussions of the Apple iPod with Josh Wright and other TOTMers, I think the debate could be boiled down into two “boundary maintenance” strategies. They wanted to remind me that, before I make “economic arguments,” I need to be aware of certain economic literatures. I responded that a) that what they call “economics” I tend to think of as one kind of economics and b) these economic literatures may not be relevant to the disputes at hand–i.e., that IP expertise was more useful here than economic expertise. Having just attended an IP conference, let me expand that point in a few ways…

1) IP (& health care) as unnatural markets: Perhaps the most important difference between the markets we’ve been discussing, and ordinary markets, is the integral role of government intervention in making the market. About 45% of health care spending is from government. As Mark Lemley argues, IP may be best thought of, not as a property regime, but as a subsidy to a particularly useful group of innovators:

Perhaps the closest legal analogy to intellectual property is a government-created subsidy. Tom Bell analogizes copyright to the welfare system. The point of intellectual property law is to depart from the norm of a competitive marketplace in order for the government to provide a benefit to a private party. This is also the point of the welfare system. The government is not doing so out of largess in either case. Rather, it is acting in order to benefit the public more generally, supporting innovation that might otherwise never occur because the market would undervalue creativity.

Given that the point of IP law is to “depart from the norm of a competitive marketplace,” it’s difficult for me to accept that the government must accept whatever happens to arise out of the monopoly rights it’s given. They may be tweaked a bit–particularly in copyright, where the CARPS and the labyrinthine DMCA of 1998 set forevermore a precedent of intensely tailored regulation. (I’m not saying I like that particular regulation–I’m just saying that, like it or not, we are in the age of what Liu calls Regulatory Copyright.)

2) The Specialization of IP scholarship: One of the most interesting aspects of the IPSC conference was growing recognition among scholars that different industries may need different IP rules. We can see this most dramatically in the clash between the pharmaceutical and software industries over the patent reform bill currently under consideration. But it goes deeper than this. Some industries have received sui generis protections, and some are currently lobbying for them. We may treat the innovation of chefs, fashion designers, scientists, and drug manufacturers very differently, depending on the balance of factors outside law that incentivize innovation in each of these fields, and the social importance of the fields.

3) The Internet Changes Everything: Here I can think of an example even within antitrust where what was once considered a canonically sound, pro-competitive case (BMI v. CBS) is now viewed with some suspicion by a cutting edge scholar. In that case, the Supreme Court refused to label the collective administration of copyrights via blanket licenses by one of three “performing rights organizations” as a per se antitrust violation. The court, and academic commentary, accepted PRO industry structure as something akin to a natural monopoly, and refused to intervene.

As Ariel Katz shows in a pair of articles in the Journal of Competition Law & Economics, “even if the natural monopoly framework has been correctly applied in the past, technological changes, such as the Internet, digital rights management technologies (DRM), and advanced monitoring technologies that can facilitate the online licensing of music undermine the natural monopoly framework even further.” Katz carefully considers the role of technology in facilitating market transactions. He does not condemn extant PRO’s, but he does show quite convincingly that extant economic rationales for them need to be reconsidered now that transaction costs have been reduced so much by fast internet connections and software.

In short, I think I would expand my post on “Cultural Exceptionalism” to include “IP exceptionalism” generally. I will gratefully accept the reading recommendations you have and will give me, and try to inform whatever analysis I do with the great insights past economists have given us. But I think this is just the beginning of a conversation, not its end.