GW Law Faculty Publications & Other Works Faculty Scholarship 2004 The Case Against Copyright: A Comparative Institutional Analysis of Intellectual Property Regimes F. Scott Kieff George Washington University Law School, [email protected] Follow this and additional works at: https://scholarship.law.gwu.edu/faculty_publications Part of the Law Commons Recommended Citation Kieff, F. Scott, "The Case Against Copyright: A Comparative Institutional Analysis of Intellectual Property Regimes" (2004). GW Law Faculty Publications & Other Works. 561. https://scholarship.law.gwu.edu/faculty_publications/561 This Article is brought to you for free and open access by the Faculty Scholarship at Scholarly Commons. It has been accepted for inclusion in GW Law Faculty Publications & Other Works by an authorized administrator of Scholarly Commons. For more information, please contact [email protected]. (Working Draft) THE CASE AGAINST COPYRIGHT: A COMPARATIVE INSTITUTIONAL ANALYSIS OF INTELLECTUAL PROPERTY REGIMES F. SCott KiEff * © 2004. F. Scott Kieff. All Rights Reserved. Abstract Contemporary debates over intellectual property (“IP”) generally evidence positions that appear to line up at opposite ends of the same axis, with one side arguing for more rights for IP owners under each major regime – patent, trademark, and copyright – and the other side arguing for fewer. Approaching from what some may see as a “more” IP view, this paper offers the counterintuitive suggestion to consider abolishing one of these IP regimes – copyright, at least with respect to the entertainment industry, which represents one of that regime’s most commercially significant users. This realization is in fact consistent with the underlying view because the view is not accurately seen as even being directed to the “more” or “less” debate; and instead is focused on means as much as ends. In keeping with this means-directed approach, the paper provides the first comprehensive analysis of IP regimes using the set of tools from the field of new institutional economics. In so doing the paper offers the first normative case for IP that connects the path breaking literature on the theory of property rights generally with the seminal theories of the firm, transaction costs, * The author is Associate Professor and 2003-04 Israel Treiman Faculty Research Fellow at Washington University School of Law and 2003-04 & 2004-05 W. Glenn Campbell & Rita Ricardo-Campbell National FEllow and Robert ECkles Swain National Fellow at Stanford University’s Hoover Institution; and, at the timE this article was first drafted, hE was 2001-02 & 2002-03 John M. Olin SEnior REsearch Fellow in Law, EconomiCs, and Business at Harvard Law School. The author gratEfully aCknowledgEs financial support from the Progress & Freedom Foundation, the John M. Olin Foundation, the Hoover Institution, and Washington University School of Law, as wEll as intellectual contributions from participants in the conferences “Promoting Markets in CrEativity: Copyright in the Internet Age” hEld JunE 10, 2003 in Washington, D.C., jointly sponsored by the Progress & Freedom Foundation and the Tech CEnter at GEorgE Mason University School of Law, and “Works-in-ProgrEss in Intellectual Property Colloquium” hEld at Tulane University SChool of Law on OCtober 17-18, 2003, and at Wolfson CollEge, Cambridge UnivErsity, June 28, 2004, in addition to more detailEd comments provided by Michael Abramowicz, William Adkinson, Gregory Aharonian, Terry AndErson, Kenneth Arrow, John Barton, Ronald CoasE, Richard Epstein, Milton FriEdman, WEndy Gordon, Steve Haber, Paul Heald, Edmund Kitch, BruCe Kobayashi, Mark LEmley, Larry LEssig, Stanley Liebowitz, Glynn Lunney, Julia Mahoney, CharlEs MCManis, Michael MEurer, Adam Mosoff, Tom NaChbar, Pauline Newman, Douglass North, Bruce Owen, Troy ParEdEs, Mitch Polinsky, Randall RadEr, Steve Shavell, HEnry Smith, Polk Wagner, and John Witherspoon. JEL Classifications: A12, B15, B25, D23, D29, D61, K11, K20, K29, K39, O31, O33, O34. Correspondence may be sent to [email protected] (pErmanent address). (Printed 10/5/2004) KIEFF NIE & THE CASE AGAINST COPYRIGHT 2 and agency costs. Underlying this paper’s stark departure from both the “more” and “less” bodies of the IP literature is the realization that the institutional structure of the present copyright regime may make the social costs of the present copyright regime too high, for at least the entertainment industry, while at the same time preventing it from providing the coordination benefits an IP regime normatively should provide. Building on this, the paper begins to explore for the first time whether the recent patent and trademark regimes have institutional structures that may allow them to provide these coordination benefits better, and with lower social costs. The paper thereby suggests how the patent and trademark regimes of yesterday may obsolete the copyright system of today. Table of Contents I. Introduction........................................................................................................3 II. A Review of the Problems Explored through NIE .............................................9 A. Problems at the Individual Level ...............................................................12 1. Incentives .............................................................................................12 2. Rent Seeking and Rent Dissipation......................................................14 3. Information Costs ................................................................................16 4. Behavioralism ......................................................................................18 B. Problems at the Inter-Individual Level......................................................22 1. Externalities .........................................................................................22 2. Transaction Costs ................................................................................26 3. Agency Costs........................................................................................30 4. Coordination and Private Ordering ....................................................33 C. Problems at the Institutional Level............................................................37 1. Laws, Norms, and Problems of Enforceability ....................................38 2. Markets and Market Failures ..............................................................41 (a) Ex Ante vs. Ex Post and Dynamic vs. Static Efficiency ............... 42 (b) Monopoly Effects .......................................................................... 45 3. Government, Government Failures, and Public Choice......................47 4. Property Rights and Common Tragedies.............................................54 (a) Public Goods and Commons......................................................... 55 (b) Anticommons, Permit Thickets, and License Raj.......................... 60 D. Wrapping-up Problems Explored through NIE .........................................64 III. Lessons from NIE for Law & Economic Theories of IP ..................................65 A. Problems of Reward Theories and the Incentive Access Paradigm ..........66 1. Imprudent Incentives............................................................................68 2. Ineffective Access.................................................................................71 3. Allocation and Screening.....................................................................76 KIEFF NIE & THE CASE AGAINST COPYRIGHT 3 B. Problems of Prospect and Rent Dissipation Theories ...............................78 1. Extent of the Rent Dissipation..............................................................78 2. Effectiveness of the Tools for Mitigating Dissipation..........................81 C. Commercialization Theory, Coordination, and Social Costs ....................83 1. Overview of the Theory........................................................................84 2. Common Misperceptions on the Theory ..............................................86 3. Some Particularly Salient NIE Lessons on Social Costs for IP...........91 (a) Monopoly Effects .......................................................................... 92 (b) Transaction Costs, Behavioralism, and Anticommons ................. 94 (c) Public Choice.............................................................................. 100 IV. Implications from NIE for Comparing IP Regimes .......................................103 A. The Basics of Positive Law IP Regimes...................................................105 B. Beginning the Case against Copyright ....................................................114 V. Conclusion .....................................................................................................117 I. INTRODUCTION This paper offers the first comprehensive analysis of IP theory and ComparativE outlinE of IP rEgimEs using thE sEt of analytiCal tools from thE fiEld called new institutional economics (“NIE”), whiCh is oftEn associated with the path-breaking work on institutions by Robert Fogel and Douglass North, for which they were awarded the 1993 Nobel Prize in economics, as well as the path- breaking work on transaction costs, agency costs, and the theory of the firm by Ronald Coase, for which he was awarded the 1991 Nobel Prize in economics.1 In so doing, the paper offers the first theory of IP that connECts thE litEraturEs on these seminal theories of the firm, agency costs,