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Wednesday, June 30, 2010

TechDirt Errs Again: Copyrights Are the Definition of "Market Forces" in Action.
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I just read the latest Deep Thought from the editor of the blog TechDirt, Mike Masnick, who must be the only person, other than Her Majesty Queen Elizabeth II, who often uses the royal "we" when expressing a personal opinion. In Pushing for More Stringent Copyright Laws Is the Opposite of Allowing "Market Forces" to Act, Masnick rants that granting legally protected private exclusive rights, (a.k.a., "private property rights"), to private producers of socially valuable resources like expressive works will thwart what Masnick calls "market forces":

[I]t's flat out wrong to say that copyright (or patents, for that matter) are about "allowing market forces" to act. By definition, copyright and patent laws are the opposite of allowing market forces. It's the government stepping up and providing monopoly rights because they believe (rightly or wrongly) that basic market forces don't work in those areas and, thus, the government needs to step in and "correct" some sort of imbalance.

This is all--as Masnick might put it--"flat out wrong...." Economists and the economically literate know that if we want "market forces" to encourage the consumer-driven private production of any resource (including expressive works) then we must grant exclusive rights to private producers of that socially valuable resource. In other words, property rights---government-granted, legally protected exclusive rights--are required to use "market forces" to encourage the production of any resource.

Any, yes, all legally protected private property rights, including copyrights and patents, are thus government-granted "monopoly" rights. By definition, a private-property right is a legally protected "monopoly" right to the exclusive use of some good, service or resource. Economist Milton Friedman made this very point when discussing copyrights and patents in Capitalism and Freedom:

[Copyrights]... can equally be regarded as defining property rights. In a literal sense, if I have a property right to a particular piece of land, I can be said to have a monopoly with respect to that piece of land defined and enforced by the government.

Black's Law Dictionary makes the same point about property/monopoly rights. Consequently, Masnick merely re-confirms that he cannot grasp a basic premise of market economics when he says, "By definition, copyright and patent laws are the opposite of allowing market forces. It's the government stepping up and providing monopoly rights because they believe (rightly or wrongly) that basic market forces don't work in those areas...."

Again, Masnick is not just wrong, he has reality backwards. In real market economies, governments have long been "stepping up and providing monopoly rights" to a vast array of private producers of a vast array of privately produced resources--from computers, to iPads, to music--precisely because they want "basic market forces" to work in such areas. See, e.g., Murray N. Rothbard, Free Market, in THE CONCISE ENCYCLOPEDIA OF ECONOMICS (David R. Henderson, ed. 2002) ("the key to the existence and flourishing of the free market is a society in which the rights and titles of private property are respected, defended, and kept secure"); Robert Sugden, Spontaneous Order in 3 THE NEW PALGRAVE DICTIONARY OF ECONOMICS AND THE LAW 489 (Peter Newman, ed. 1998) (arguing that an economic system with markets "requires an ability to predict one's own property rights"); id at 491 ("a market system is one in which, as far as possible, all goods that people might want are private property"); id. at 492 ("the market cannot be expected to satisfy wants for goods in which private property rights do not exist"); Jack High, Competition, in THE CONCISE ENCYCLOPEDIA OF ECONOMICS (David R. Henderson, ed. 2002) ("The competitive process ... is governed by rules that, taken collectively, we call the market economy or the system of private property"); Armen A. Alchian, Property Rights, in THE CONCISE ENCYCLOPEDIA OF ECONOMICS (David R. Henderson, ed. 2002); Lester Telser, Competition, in THE MCGRAW-HILL ENCYCLOPEDIA OF ECONOMICS 181 (Douglas Greenwald, ed., 2d ed. 1994) ("Property rights are essential for competition."); Hearings on the Home Recording Act Before the Subcomm. on Patents, Copyrights, and Trademarks of the S. Comm. on the Judiciary, 99th Cong. (1983) (testimony of Alan Greenspan) ("For economic incentives to work appropriately, property rights must protect the rights of capital assets.... At present... severe economic damage [is being done to] the property rights of owners of copyrights in sound recordings and musical compositions....").

Moreover, though unbeknownst to Masnick and his benighted readers, governments that grant to private producers of potentially valuable resources these sorts of legally-protected private property/monopoly rights thus generate vast increases in overall social welfare. For example, the World Bank estimates that of the intangible capital that accounts for 80% of the wealth in the developed world, 57% of that intangible capital arises from the rule of law--including all those government-granted monopoly rights that most call "private property rights." The World Bank, Where Is the Wealth of Nations? 20, 87 (2006).

Of course, none of these realities will matter to unhinged copyhaters like Masnick and TechDirt. For example, I once wrote a paper Tragedy and Farce: A Review of the Book Free Culture. In it, I argued that Lessig's later-conceded excessive faith in the power of governmental control was apparent in the parts of his book Code that argued that the dictators of Communist Vietnam had bestowed upon terrorized citizens left with "barely any infrastructure" an "effective freedom" superior to any that we enjoy here in America.

Well. You would have thought that I, like Lessig, had driven a bus over Jesus. My critique of Masnick's own digital God thus inspired the "libertarian" Masnick to explain that I was wrong and Lessig was right; Vietnam's incompetent, terror-using communist dictators really did bestow upon their victims an "effective freedom" superior to any that we enjoy here in America:

The biggest difference in terms of freedom between Vietnam and America is the ability of the government to effectively execute its laws. Vietnam is, no doubt, far less efficient at executing its tyrannical laws than the United States, thus reducing many of them to being little more than bloviating as far as many average Vietnamese need concern themselves with the law.

Yes, that's right: according to the "libertarian" Masnick, the Human Rights Commission of the United Nations High Commissioner for Refugees won a Nobel Peace Prize only because hundreds of thousands of Vietnamese Boat People were abandoning their property and risking their lives to flee in the wrong direction.

I thought that I had refuted such nonsense here and here. But Masnick just could not agree. Eventually, I decided to refute his ceaseless toadying for totalitarianism even conclusively in Copyright-Skeptic Hypocrisy: A Belated Reply. Perhaps readers familiar with Masnick's TechDirt blog posts may join me in sensing something familiar in the voice of the first commenter on this post, "Jonny," who merely spouts conclusory nonsense--after somehow managing to mis-spell his own first name....

NB: To be clear, I realize that the higher transaction costs associated with intangible property rights like copyrights and patents merit special attention. I also realize that we can also use indirect or non-market-based means to encourage the production of expressive works. For example, like Masnick, I realize that creators could cross-subsidize their work by giving away copies and hoping to recoup costs by selling advertising or T-shirts. Fine: but in such cases, we are using "market forces" to encourage the private production of advertisements or T-shirts, and expressive works are just one of many means to that end. And if expressive works ever become a means to that end less efficient than all others, then "market forces" will collapse the cross-subsidization scheme. Those unsure about what that means can consult any newspaper or magazine journalist, editor or shareholder. Their misfortunes explain why copyright laws deliberately support a vast and diverse array of "business models," including both cross-subsidization schemes and actual sales or licensing of copies of works or access to copies of works.

posted by Thomas Sydnor @ 11:10 AM | Capitalism , Copyright , IP , Innovation , Internet , Mass Media , Philosophy / Cyber-Libertarianism , Trademark

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I think that what Masnick may be pointing out is that without government regulation, IP doesn't exist. I.e., IP is a creation of a regulated marketplace, not an inherent property that exists/arises solely through the private actions of individual market actors.

Btw, while Masnick's argument is new to me, I am fairly familiar with the arguments against further strengthening copyright along the lines being proposed internationally today. I agree with them (1) unduly long periods for copyright (it's virtually perpetual now) + narrow fair use provisions stifle creative innovation. (2) current industry proposals around electronic devices deny individual copyright holders the power to control how their works are used and distributed and instead force all works into paradigms that serve the business models of media conglomerates.

Posted by: Jason Marks at July 6, 2010 7:27 PM

Jason, thanks for your comment, but here is the problem: no legally enforceable property right "arises solely throught the private actions of individual market actors."

If you have a property right enforceable in a court of law, that is because a government chose to give you the legal right to enforce it. Nevertheless, legally enforceable property rights are an indispensible predicate to the use of what economists would call "market competition" to produce socially valuable resources. In this respect, copyrights do not differ materially from other property rights.

As for copyright term, suffice it to say, it is largely irrelevant. You will find few modern debates--from Grokster, to Tenenbaum to YouTube, that fail to involve works that would have been protected even under the Copyright Act of 1790. Term has little or nothing to do with any of our truly important challenges except, perhaps, orphan works legislation, which I support.

Next, you mention "narrow fair use provisions." The U.S. fair use doctrine is quite broad, and I doubt that it should be broadened or that it could be substantially broadened without violating the WTO's three-step test for permissible limitations and exceptions.

Finally, I'm not sure what you mean when you claim that "current industry proposals around electronic devices deny individual copyright owners the power to control how their works are used or distributed." I do not think that is true, but I may not understand your point. Can you clarify it? Thanks for your time. --Tom

Posted by: Tom Sydnor at July 7, 2010 10:22 PM


with respect to term, I start with the Constitution, which gives Congress the power "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;" I believe we need to give meaning to the words of the constitution, and "limited times" needs to be limited and can't be the practical equivalent of perpetual.

When it comes to all IP, be it patents or copyrights, there's a trade-off between granting a sufficient monopoly to incentivize invention, and limiting that monopoly so that the invention can become part of society's collective IP. With creative works, all really lengthy terms (lifetime +) unnecessarily restrict the creation of derivative works.

With respect to the last point, I am referring to DMCA and its ilk that make it illegal for someone who actually holds a right to duplicate a work (e.g., the author) from doing so.

Posted by: Jason Marks at July 12, 2010 4:05 PM

Jason, thanks for your thoughts. Here are some others.

First, Professor Lawrence Lessig, in Eldred v. Ashcroft, conceded that the present term of copyright protection (life of the author +70 years) is a non-perpetual "limited time" within the meaning of the Constitution's Copyright Clause. By the time that you are arguing that Lessig is just too irrationally pro-copyright, you are skating on thin ice, rhetorically. That said, I agree that such a term can result in high search costs that we should reduce by enacting reasonable orphan-works legislation.

Second, the DMCA does not make it illegal for the an author holding the right to duplicate a work to do so. It simply has no such effect, and that is not a debatable matter.

Third, the "trade-off" that you propose exists as to all property rights, not just copyrights. Do you really think that we need to (or could) limit the personal property rights that we grant to Apple to the bare minimum that some bureaucrat perceives to have been required to adequately incentivize the creation of the iPad?

I cannot help perceiving the potential for something to go very wrong were we to take that course. I perceive even greater threats in the context of expression, even though I would be the first to agree that intangible property rights (like mortgages or copyrights) do heighten concerns about transaction costs that are always relevant whenever we define any sort of legally enforceable property right.

Thanks for your observations. --Tom

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