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Georgetown University Law Center Scholarship @ GEORGETOWN LAW 1998 Lochner in Cyberspace: The New Economic Orthodoxy of "Rights Management" Julie E. Cohen Georgetown University Law Center, [email protected] This paper can be downloaded free of charge from: https://scholarship.law.georgetown.edu/facpub/811 97 Mich. L. Rev. 462-563 (1998) This open-access article is brought to you by the Georgetown Law Library. Posted with permission of the author. Follow this and additional works at: https://scholarship.law.georgetown.edu/facpub Part of the Intellectual Property Law Commons, Internet Law Commons, and the Law and Economics Commons LOCHNER IN CYBERSPACE: THE NEW ECONOMIC ORTHODOXY OF "RIGHTS MANAGEMENT" JULIE E. COHEN * Originally published 97 Mich. L. Rev. 462 (1998). TABLE OF CONTENTS I. THE CONVERGENCE OF ECONOMIC IMPERATIVES AND NATURAL RIGHTS..........6 II. THE NEW CONCEPTUALISM.....................................................18 A. Constructing Consent ......................................................18 B. Manufacturing Scarcity.....................................................32 1. Transaction Costs and Common Resources................................33 2. Incentives and Redistribution..........................................40 III. ON MODELING INFORMATION MARKETS........................................50 A. Bargaining Power and Choice in Information Markets.............................52 1. Contested Exchange and the Power to Switch.............................52 2. Collective Action, "Rent-Seeking," and Public Choice.......................67 B. Information and Social Welfare...............................................71 1. Externalities in Information Markets.....................................72 2. Defining Social Welfare..............................................83 IV. CODA: OF MARKET FAILURES AND TECHNOLOGICAL IMPERATIVES..............91 * 1998, Julie E. Cohen. Visiting Assistant Professor, Georgetown University Law Center (Fall 1998); Visiting Assistant Professor, University of Michigan Law School (Winter 1999); Assistant Professor, University of Pittsburgh School of Law. A.B. 1986, Harvard-Radcliffe. J.D. 1991, Harvard. - Ed. Internet: [email protected]. I thank Phil Agre, Ed Baker, Jack Balkin, Torn Bell, Dan Burk, Richard Chused, Karen Clay, Susan Freiwald, Dennis Karjala, Arthur Hellman, Mark Lemley, Larry Lessig, Michael Madison, Henry Monaghan, Neil Netanel, Maureen O'Rourke, John Parry, Pamela Samuelson, M. Douglas Scott, Lu-in Wang, Rhonda Wasserman, and participants in a faculty workshop at Georgetown University Law Center for their helpful comments and Steven Serdikoff, Richard DeCristofaro, and especially Will Martin for research assistance. An earlier version of this Article was presented at the Twenty-Fifth Telecommunications Policy Research Conference, held September 27-29, 1997 in Alexandria, Virginia. I thank the conference organizers, particularly Jessica Litman, for giving me the opportunity to test and refine the ideas discussed here. This Article was prepared in part with the assistance of a Dean's Summer Schol- arship Grant from the University of Pittsburgh School of Law. 1 Ninety-three years ago, in Lochner v. New York,1 the Supreme Court struck down a maximum-working-hours law for bakers as an impermissible invasion of employer-employee liberty of contract and, by implication, of the employer's property rights in his business. Lochner came to symbolize, and was vilified for, a vision of state power as rigidly circumscribed by the operation of judicially-determined laws of social ordering.2 By the late 1930s, the Court had changed course and accepted that the states' police power — or, in the case of Congress, the commerce power — encompassed even protective regulation of the parameters of the private employment contract.3 Within the modern legal academy, "Lochner" has become an epithet used to characterize an outmoded, over-narrow way of thinking about state and federal economic regulation; it goes without saying that hardly anybody takes the doctrine it represents seriously.4 In fact, however, the economic vision embodied in Lochner is alive and well on the digital frontier. Its premises — the sanctity of private property and freedom of contract, the sharply delimited role of public policy in shaping private transactions, and the illegitimacy of 1 198 U.S. 45 (1905). 2 See, e.g., OWEN M. FISS, TROUBLED BEGINNINGS OF THE MODERN STATE, 1888-1910, at 4-7, 157-65 (1993); Stephen A. Siegel, Lochner Era Jurisprudence and the American Constitutional Tradition, 70 N.C. L. REV. 1, 2-4 (1991); Cass R. Sunstein, Lochner's Legacy, 87 COLUM. L. REV. 873, 873-74 (1987). Historians of Lochner- era jurisprudence have differed as to the precise origin of perceived limits on state power. Compare, e.g., FISS, supra, at 46-49, 158-59 (arguing that the state's limited powers derived from its limited purposes under Lockean social contract theory) with, e.g., Siegel, supra, at 78-90 (arguing that Lochner-era jurists viewed state power as constrained by traditional common-law principles derived initially from natural law) with, e.g., Michael Les Benedict, Laissez-Faire and Liberty: A Re-Evaluation of the Meaning and Origins of Laissez-Faire Constitutionalism, 3 L. & HIST. REV. 293, 298 (1985) (arguing that perceived limits on state power were grounded in classical economic notions of "liberty" and prohibited only "class" or interest-group legislation) with, e.g., ARNOLD M. PAUL, CONSERVATIVE CRISIS AND THE RULE OF LAW (1960) (arguing that Lochner represented naked judicial activism on behalf of the propertied elites). For purposes of this Article, however, it is sufficient to note that all four explanations rest, ultimately, on a belief in the primacy of private property and private ordering, and in the illegitimacy of social actions that appeared to redistribute property or wealth. 3 See NLRB v. Jones & Laughlin Steel Corp., 301 U.S. 1 (1937); West Coast Hotel Co. v. Parrish, 300 U.S. 379 (1937); see also FISS, supra note 2, at 6-8, 181; Benedict, supra note 2, at 305-14. 4 See, e.g., LAURENCE H. TRIBE, AMERICAN CONSTITUTIONAL LAW §§ 8-5 to -7 (2d ed. 1988) (describing the doctrinal and political reasons for the Lochner doctrine's demise). But see RICHARD EPSTEIN, TAKINGS: PRIVATE PROPERTY AND THE LAW OF EMINENT DOMAIN 277-82 (1985); BERNARD H. SIEGAN, ECONOMIC LIBERTIES AND THE CONSTITUTION 23, 11025 (1980) [hereinafter SIEGAN, ECONOMIC LIBERTIES]; Norman Karlin, Back to the Future: From Nollan to Lochner, 17 SW. U. L. REV. 627 (1988); Bernard H. Siegan, Rehabilitating Lochner, 22 SAN DIEGO L. REV. 453 (1985) [hereinafter Siegan, Rehabilitating Lochner]; Christopher T. Wonnell, Economic Due Process and the Preservation of Competition, 11 HASTINGS CONST. L.Q. 91 (1983); Note, Resurrecting Economic Rights: The Doctrine of Economic Due Process Reconsidered, 103 HARV. L. REV. 1363 (1990); see also Anthony S. McCaskey, Comment, Thesis and Antithesis of Liberty of Contract: Excess in Lochner and Johnson Controls, 3 SETON HALL CONST. L.J. 409 (1993) (advocating an intermediate level of economic due process protection). Cass Sunstein has argued, however, that central elements of the Lochner Court's analytic framework underlie much current thinking about individual rights. See Sunstein, supra note 2, at 875. 2 laws that have redistributive effects — undergird a growing body of argument and scholarship concerning the relative superiority (as compared with copyright) of common law property and contract rules for protecting and disseminating digital works.5 In their contemporary incarnation, these premises are embedded in the rhetoric of economic efficiency. In place of social contract theory, their proponents argue from purportedly neutral, scientific truths about the way markets in general, and information markets in particular, operate. These truths, I shall argue, are nothing of the sort. Rather, they are "just-so stories" that mask the need for first-order social welfare choices about the sort of information society we want to have. Their proponents, whom I christen the "cybereconomists," argue that the most efficient legal regime, measured by its success at inducing the creation of digital works and increasing consumers' access to information, is that which permits copyright owners to maximize control over the terms and conditions of use of their digital property.6 However, the economic case they build is anything but convincing. It is based on an essentialism about the nature of "contract" and "market" that is manifestly unsuited to mass-market transactions, on a reflexive and unsubstantiated distrust of the legislative process as compared with the market, and on assumptions about the nature of "property" and the best ways of managing it that are 5 See CHRISTOPHER BURNS, INC., COPYRIGHT MANAGEMENT AND THE NII: REPORT TO THE ENABLING TECHNOLOGIES COMMITTEE OF THE ASSOCIATION OF AMERICAN PUBLISHERS 17-21, 29-36 (1996); Tom W. Bell, Fair Use vs. Fared Use: The Impact of Automated Rights Management on Copyright's Fair Use Doctrine, 76 N.C. L. REV. 557 (1998); Charles Clark, The Publisher in the Digital World, in INTELLECTUAL PROPERTY RIGHTS AND NEW TECHNOLOGIES: PROCEEDINGS OF THE KNOWRIGHT ‘95 CONFERENCE 85, 99 (Klaus Brunnstein & Peter Paul Sint eds., 1995); I. Trotter Hardy, Property (and Copyright) in Cyberspace, 1996 U. CHI. LEGAL F. 217; Robert P. Merges, Contracting into Liability Rules: Intellectual Property Rights and Collective Rights Organizations, 84 CAL. L. REV. 1293 (1996) [hereinafter