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Creativity at the Workplace The Law and Economics of Creativity at the Workplace ISSN 1045-6333 THE LAW AND ECONOMICS OF CREATIVITY IN THE WORKPLACE Barak Y. Orbach Discussion Paper No. 356 03/2002 Harvard Law School Cambridge, MA 02138 The Center for Law, Economics, and Business is supported by a grant from the John M. Olin Foundation. This paper can be downloaded without charge from: The Harvard John M. Olin Discussion Paper Series: http://www.law.harvard.edu/programs/olin_center/ The Law and Economics of Creativity at the Workplace JEL Classes K11, K19, P1 THE LAW AND ECONOMICS OF CREATIVITY AT THE WORKPLACE Barak Y. Orbach* (February, 2002) Abstract Technological and legal developments led to the rise of employed creativity in the last quarter of the nineteenth century. The new class of employers claimed the rights in the creative products produced by artists and inventors employed by it and after a short struggle its demands were satisfied: by and large the law acknowledges the rights of employers in creative products produced by workers (employees and contractors), just as it acknowledges the rights of employers in any other products. This legal victory, although took place almost a century ago, is still fiercely debated among scholars and participants in creative industries. In the past century, thousands of disputes between employers and workers over rights in creative products were brought before the courts and inspired voluminous commentary on the topic. Nonetheless, the study of the nature and structure of the law that allocates the rights between employers and workers has generally been neglected. This paper studies the organization of creativity at the workplace, presents a general framework for understanding the present allocation rules, evaluates these rules, and offers simple guidelines for designing better rules, when needed. The paper also examines the myths of the starving artist and the hero inventor and their inputs into the production of creative products. The paper concludes that the differences between the production of creative products and non-creative products do not call for unique allocation rules for the creative production. More specifically, I argue that the distinctive properties of creative workers and the characteristics of their employment do not justify workers’ ownership. * SJD Candidate and John M. Olin Fellow in Law, Economics & Business, Harvard Law School. For comments, conversations, and criticism I wish to thank Gabriella Blum, Louis Kaplow, Christine Jolls, and Manuel Trajtenberg. The financial support of the John M. Olin Center for Law, Economics & Business at Harvard Law School is gratefully acknowledged. The Law and Economics of Creativity at the Workplace I. Introduction......................................................................................................... 1 II. A Concise Overview of the History of Employed Creativity............................. 6 A. The First Reign of Employed Creativity ....................................................7 B. The Rise of Independent Creative Individuals ...........................................7 C. The (Second) Rise of Employed Creativity................................................9 III. The Legal Framework: A New Look at the Intellectual-Property Allocation Rules ................................................................................................................. 16 A. Generalizing Allocation Rules for the Different Branches of the Law .......16 B. The Allocation Rules and the Rule of Relative Contributions ...................17 1. Copyrights, Patents, and Trade Secrets .................................................................. 17 a) Bilateral Relations.............................................................................................18 b) Multilateral Relations.......................................................................................21 2. Trademarks, Trade Names, and Publicity Rights.................................................. 23 a) The Nature of the Protected Information......................................................23 b) The Allocation Rule...........................................................................................25 C. Copyright Law......................................................................................26 1. Overview...................................................................................................................... 26 2. The Basic Allocation Rules ...................................................................................... 28 3. Who is Considered an Employee?........................................................................... 35 4. Exceptions.................................................................................................................... 40 D. Patent Law............................................................................................43 1. The Basic Allocation Rules ...................................................................................... 43 2. The Rule of Relative Contributions......................................................................... 48 E. Trade Secret Law ..................................................................................50 F. Allocation Rules in Practice: Summary and Comparison ..........................55 1. Comparative Summary of the Allocation Rules ................................................... 55 2. Copyright vs. Patent and Trade-Secret Rules ........................................................ 56 3. The Unique Properties of Trade Secrets................................................................. 59 4. Open Questions........................................................................................................... 59 IV. The Organization of Creative Activities........................................................... 60 A. Creative Activities and Creative Products ...............................................61 B. The Players...........................................................................................63 1. Effort Suppliers ........................................................................................................... 63 a) Independent Individuals...................................................................................63 b) Employees and Contractors.............................................................................64 c) Humdrum and Creative Workers ....................................................................68 d) Desirable Legal Implications..........................................................................70 2. Capital Suppliers......................................................................................................... 73 a) Employers ...........................................................................................................73 b) Financiers...........................................................................................................76 c) Desirable Legal Implications...........................................................................78 C. Limited Specifiability, Discretionary Inputs, and Personhood ...................79 D. Creating by Learning.............................................................................86 1. The Humdrum Facet of Learning by Doing........................................................... 87 2. The Creative Facet of Learning by Doing.............................................................. 89 The Law and Economics of Creativity at the Workplace E. Incentives and the Progress of Science and Useful Arts............................92 1. Do Incentives Matter?................................................................................................ 93 a) The Question ......................................................................................................93 b) Incentives vs. Inner Necessity and Their Legal Implications.....................94 (1) Anecdotal Comments.................................................................................94 (2) Legal and Other Implications of Motivational Diversity....................97 c) Evidence..............................................................................................................99 (1) Arts ............................................................................................................ 100 (2) Science...................................................................................................... 106 2. Do Employers Provide Workers with Incentives?..............................................113 a) The Incentive Problem in Collaborative Production............................... 113 b) The Role of Market Forces in Assuring Good Incentive Systems .......... 115 V. Conclusions..................................................................................................... 118 The Law and Economics of Creativity at the Workplace 1 The Law and Economics of Creativity at the Workplace Barak Y. Orbach © 2002 Barak Y. Orbach. All Rights Reserved “Behold the turtle. He makes progress only when his neck is out. Let the creative employee stick out his neck.”1 I. Introduction Christopher Lydon was a longtime host of the popular radio talk show, The Connection, aired by the Boston public station WBUR-FM. Mr. Lydon sought to own equity in the show he developed and popularized and consequently lost his job as he agreed to nothing else, including fat salary increases.2 The fate of Petr
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