Judge Richard Posner.
Date: November 19, 2002.
Title: The Economic Structure of Intellectual Property Law.
Location: American Enterprise Institute, Washington DC.
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Thank you very much Chris and Bob, that is a very generous introduction. The problem with generous introductions is they raise the expectations, which are quickly shattered by the speaker.
I am proud to be commended for my interest in facts. And in fact the high point in my career as a judge of intellectual property came in a case involving Beanie Babies. I am sure you are all familiar with them. I have actually written opinions in three cases involving Beanie Babies, and I regard that as my area of expertise in intellectual property. But, in one, in one of the cases, the infringer claimed that the reason that his bean bag stuffed animal resembled the, Ty's, Beanie Baby pig, was that both had been copied from nature. And, I refuted this by displaying a photograph of a pig, a real pig from a barn yard. So, so that's the power of fact.
Now, what I am going to talk about is the political economy of intellectual property law -- that is, the effort to explain the law using, basically, tools of economics. And, what particularly calls for explanation is the fact that beginning in 1976, with the overhaul of the copyright law in that year, there has been an enormous expansion in the scope of intellectual property rights. And the question is, why has this happened. I don't think that I have a conclusive answer by any means, and I am really looking forward to the question period, and hope to get help on moving this forward.
The talk is based on a part of a book that Bill Landes and I are working on called The Economics of Intellectual Property -- The Economic Structure of Intellectual Property Law. Landes is an economist at the University of Chicago, and we have done a lot of work together, including a previous book on the Economic Structure of Tort Law.
And, as you know, and this becomes the first bit of background to my talk, throughout the 1970s, and well into the 1980s, and even into the 1990s, and here I quote an absurd book by Lester Thurow, called Head to Head. Because, I love, I love quoting Lester Thurow because throughout the 70s and the 80s and sort of belatedly into the 90s he was extremely pessimistic about the economic prospects of the United States relative to Germany and Japan. And, with really amazing adroitness, and a real skill that I admire, he turned on a dime in the middle 90s, and without any acknowledgement of previous error, explained that if Germany and Japan did not imitate the United States, they were doomed. And even said, and I like economists who make bold predictions, he said that, he predicted that in the year 3000 economists would look back and say that, you know, the third millennium, or whatever it was, had been the millennium of the United States. Japan and Germany have fallen into the dust.
But anyway, certainly, as I say, throughout the 70s and well in to the 80s, there was a widespread belief in the United States, and I suspect, abroad as well, that the United States was in decline. It was being outcompeted by many foreign nations, but particularly Japan, and that the decline could only be turned around only by renewed emphasis on technological innovation as a stimulus to economic growth. And there certainly has been that renewed emphasis in this period, last 25 years, and, you know, it has borne fruits. I will give you a few numbers. Between 1985 and 2001 the annual number of patents issued by the U.S. Patent and Trademark Office more than doubled from 111,000 to 269,000. The percentage of federal civil cases that involved disputes over intellectual property doubled. Membership in the intellectual property section of the American Bar Association -- that is always a, a bell weather, the number of lawyers in an area. That number grew from 5,500 to almost 22,000. That is enormous growth. And just in the last five years, the number of lawyers in the ABA's intellectual property section has grown by about 40%. The number of law journals specializing in intellectual property and related areas has risen from two in 1980 to 26 -- you know, 13 fold.
In 1981 the University of Chicago Law School offered a seven courses or seminars in tax law, and one in intellectual property. And it offers five in each. And this is a surprising number. The economic journals published only five articles in 1982 whose titles contained terms indicative of intellectual property. And that annual number is now 235.
And scientific and engineering employment in the United States has grown very rapidly. The number of authors, and designers -- and receipts from foreign trade in intellectual property rose from ten billion dollars to 37 billion dollars in a short period of years, and it greatly exceeds the, our payments for foreign intellectual property.
And in addition, of course, our exports of high technology products, not just license fees, but the actual products embodying intellectual property, computers and the like, are an enormous factor in our foreign trade. So there is no question that intellectual property is a large and growing part of the U.S. economy, and of U.S. foreign trade.
And during this period of growth of intellectual property, intellectual rights have undergone a -- [a technician adjusted a microphone] Am I audible now. You haven't missed much. It is just the windup. But intellectual property rights have greatly expanded. As I say, the real beginning is the Copyright Act of 1976. Before then, there was an initial term of 28 years for copyright. And you could renew once for 47 more years. Then in 1976 it became life of the author, plus 50 years. And, you know, later, of course, 1998, the Sony Bono Copyright Term Expansion Act, expanded the 50 years to 70 years.
And I will give other examples. And now, economists, as most people here know, have an approach they call public choice, to try to explain the structure of government and political process, and to address specific issues, like, you know, why does a particular area of law or policy expand. And, the emphasis in the public choice literature has been particularly on the role of interest groups in overcoming free rider problems that bedevil efforts at political organization, just like other types of organizations. You know, a person or a firm can enjoy the full benefit of a statute or regulation without paying anything for the benefits of the statute. It applies to everyone within its scope, even if you didn't contribute to the lobbying activities that brought it about. This is a problem very similar to that that plaques cartels, because a firm that does not join a cartel, remains outside, but sells at a price only slightly below what the cartel price is can actually obtain disproportionate efforts from the cartel price, without having contributed anything to the formation, the maintenance, the legal risks, or cartelization.
And in fact, the public choice theory in the form in which it has been most influential -- there are other forms -- has really just been an adaptation of cartel theory to efforts to obtain political benefits. And often the political benefits sought are very much like the sort of thing that cartelists seek -- that is, the effort to maintain price above the competitive level, while somehow dealing with the entry that such pricing attracts.
Now, public choice, especially this interest group version of public choice, has had its successes in explaining large areas of public policy, in particular, common carrier and public utility regulation, tariffs, occupational licensure, certain other labor market regulations, including some safety and health regulations. But, its successes have been limited. It hasn't, for example, explained -- this is very much, very germane to an effort to explain the expansion of intellectual property rights -- it hasn't explained what forces actually bring into being the system of property rights that is fundamental to a capitalist economy. And, it is against this background that I am asking, can it say anything about this expansion of intellectual property in the last quarter century.
Now, I am going to approach the question by first considering another trend that happens to coincide in time approximately with the expansion of intellectual property rights, and that is the deregulation movement. Beginning towards the end of the 70s, actually the Carter administration, and continuing almost to the present day, almost continuous deregulation, a number of important industries, in transportation, communications, financial institutions, broadcasting, energy, industries that had long been subject, either to actually comprehensive public utility or common carrier regulation, or various less pervasive forms of regulation as in the case of banks and broadcasting stations. These industries were wholly or entirely deregulated. In addition, there has been significant partial deregulation in a number of other industries, such as legal services, where advertising has become common. And there are various restrictions on practice of law have either been formally, or informally been removed.
And, the greatest success of public choice theory had been in explaining, not the deregulation, but the regulation that was deregulated, the pattern of regulation that existed before deregulation took hold. The public choice theorists show that the principle effect of such regulation was, as I have already suggested, was to create or reinforce a producer's cartels. And this, of course, at a time when economists started writing in this vein in the 60s, this was heretical because these forms of regulation were generally regarded as necessary to deal with various types of market failure, monopoly primarily, but also excessive competition.
So public choice theorists first identified this regulation as an actual form of cartelization, of shoring up, or enabling private cartels, and then showing, exploring the conditions that enabled this regulatory, regulatory cartelization, explaining that the more concentrated the cartelists market is, the more diffuse the people, the consumers, who are going to be adversely affected by monopoly pricing, are, is, the easier it will be for the cartelist to overcome the free rider problems. And actually, the sort of best position to be in is a, as a cartelist, is to be a member of a very small group, compact, which can obtain significant monopoly rents for -- significant relative to the incomes of the members of the cartel -- but small in the overall economy, and can diffuse these costs, which are not great, over a very large number of consumers, who do not notice that they are being mulcted for monopoly rents.
And so, with these cartelists, who can impose costs, more or less imperceptibly on a large community, and who have a lot to gain from their cartelizing, and who are small, you know, group, compact, they will be able to organize to make the lobbying and other expenditures that procure this legislation. So, as I say, the triumph of public choice theory was to explain this pattern of regulation, and no sooner had they succeeded in explaining it than it began to disintegrate, and they haven't had the same success in explaining deregulation. But, I think they, I think public choice does provide important clues, and they will be helpful, you know, when I, to try to answer the question, which I, which I began about this rise in intellectual property rights.
Now, I mentioned at the outset the economic malaise of the 1970s, this malaise of course famous Jimmy Carter word that helped to doom his political chances, but it certainly was descriptive of how many people felt, if not about national morale in general, about the American economy, an era of stagflation. And this created demand for economic reform. And, this malaise also produced, and was one of the important factors, producing the election of Ronald Reagan. Was an economic liberal in the 19th Century sense, free market person. And, a magnet for other free market believers, devotes. And, some, a number of whom received executive or judicial appointments. And actually, even before that, back with the election of Nixon back in 1968 free market thinking had begun to take hold in the government. Nixon was not himself an economic liberal, or particularly interested in economic issues, but some of appointees were, including to a lesser or greater degree, lesser generally, but you know, significant, his, several of his Supreme Court appointees, Burger and Rehnquist and Powell. And they had a major effect on antitrust policy in their decisions in the 1970s.
Another factor was the rise of the Chicago school of economic analysis. The most influential figure in which was Milton Friedman, and his prestige and influence rose with the apparent failure of Keynesian economics, of which he had been the leading critic. So, these economic disappointments of the 1970s really did fuel a change in ideology that had certainly some effect the deregulation movement. But, probably not, we who are influenced by economics, tend to doubt that ideological factors alone are likely alone to have big economic consequences, and so, you know, we would emphasize other factors, important of which the regulated firms themselves were becoming restive under regulation. Actually, Chris and I have first hand knowledge of this because we did consulting for AT&T in the 1970s, and at the end of that period, partly of course because of the travails of the antitrust case against it, they decided their life would be better without the kind of regulation they had experience happily for many decades.
One reason for the regulated firms becoming restive under regulation was the inflation of the 70s was step and it interacted with regulatory control over rates. In fact, you had to get permission to raise rates, to impede pricing flexibility that these regulated firms needed. So, all of a sudden, regulation -- they liked the idea that you have to go to the regulator to change prices -- that inhibited price competition, price cutting -- but with inflation, these controls began to bite hard on them.
And a more basic factor is the tendency of cartelization, including cartelization by regulation, to transform cartel profits into costs. And Chris mentioned an article that I wrote in the 70s about monopoly and regulation that was about that theme. That, if you create a situation in which there are economic rents, pure profits available, firms will compete to obtain those profits. And eventually their competition may transform all or most of the profits into costs, at which point, they are no longer -- the pot of gold at the end of the rainbow has disappeared when you reached it.
And, I remember funny examples of this from the 1970s in the airline industry. The extravagant service competition that blossomed as the airlines, which were protected by the Civil Aeronautics Board from new entry, competed to, for customers, for whom, to whom they charged high prices. So, load factors, the number of passengers were very low, and I remember meeting the President of American Airlines in the 1970s, whose proudest moment as a businessman was the introduction of a piano bar into this American Airlines 747. I never actually saw it -- a grand piano in the plane. And, the CAB, I think it was the International, the IATA, took measures against this, they actually had a rule that for certain meal service, an airline couldn't serve more than a sandwich. So, the sandwiches became these enormous quadruple decker meals in themselves. So, eventually, eventually, as the monopoly rents from a regulatory cartel become dissipated as costs, some of the regulated firms figure they might actually -- if they are more efficient say -- than the other firms -- they might actually be better off in a competitive arena. Apparently, this is a judgment that United Airlines made at some point.
And so, this is to say that there was a dissatisfaction with the economy in general in the 70s, but also also specific exhaustion of the benefits of regulation to a regulated firm.
Well, how do you explain that at the same time that regulation was diminishing that intellectual property rights were blossoming. And it depends partly, the answer depends partly on how we want to classify intellectual property law. Do we want to think of it as a form of deregulation -- I am sorry -- as a form of -- do we want to think of intellectual property law as a form of regulation. If you think of it as a form of regulation, then we have these opposite trends bucking each other. Deregulation in transportation, communications, financial institutions, and so on, and then this opposite trend of increased regulation of the intellectual property sector, drug companies, and movies, and publishers. And in the case of broadcast, you have, really, on the one hand, broadcasting becoming deregulated. On the other hand, producers of programs that are broadcasted obtaining a more and more legal protection.
Now, it wouldn't be a unique phenomenon to have simultaneous regulation and deregulation trends, because we have seen a lot of that in areas like safety and health and the environment, and discrimination, labor market regulation, where there has generally been an increase in regulation. So, but those forms of regulation -- health and safety and so on -- had been growing for a long time. There weren't just an emanation of something special in the 1970s.
But intellectual property law, although it had been around for many centuries, really took an upward turn in 1976, and let me give you some examples. So, the original act, the 76 act increased the length of the copyright term dramatically.
Then in 1982 the U.S. Court of Appeals for the Federal Circuit was created and given a monopoly of appellate adjudication in patent cases. And the intentions of expectations that were expressed about doing this was, involved, trying to increase patent protection, because there was an extraordinarily high percentage, something like two thirds, of all patents that were challenged in court were held to be invalid. And this was thought to be in part because of a certain circuits that were very hostile to patent rights. So, they thought, I think realistically, and I will come back to this, that if you made a court sort of responsible for formulating patent law, within the bounds of the statute, it would, it would have, it would sort of encourage patenting, invention, validity and so on. It would be pro patent. And it has proved to be pro patent.
Then we, we come into the 1990s. We have things like the Visual Artists Rights Act, creating moral rights protection -- certain indefeasible protections for visual artists. It entitles them, even if they have, you know, assigned away their copyright, they can still prevent the mutilation of their, of their work, and certain forms of misattribution of the work, and even sometimes destruction of the work.
And then their is the Sony Bono Copyright Term Extension Act, one of the, I think absurd statutes in history. Nothing for what it did. It extended already this enormous copyright term of life plus fifty years -- extended to life plus seventy years. And also, added, I think, twenty, maybe twenty five years to the work for hire term, which is also very long. And, in part it was a kind of sentimental tribute to Sony Bono, who had died, what, in a skiing accident. Premature death, greatly lamented. And his widow said that Sony Bono had said that copyrights should be forever. So, how could you fail unanimously to extend the term a measly twenty years. I know, forever could be a billion years.
So, and then there is the Digital Millennium Copyright Act, a number of other statutes. And yet, and this complicates the analysis, it is not the case that the Congress' interventions, which have really been very frequent in intellectual property law, in this 25 year period have all been in the direction of expanding property rights. That is the general movement, the general direction. But, it is not uniform.
For example, the Second Circuit had unfortunate decisions, particularly in the J.D. Salinger letter case, where a biographer of J.D. Salinger had quoted from some letters that Salinger had written. He had not stolen the letters or anything. You get a letter from a famous person. Maybe you deposit it in a library, and then the biographer goes to the library, reads, copies some of the letters. And the Second Circuit held that this could not, even though, it wasn't, not that the biographer was publishing the letters. He was including excerpts from the letters to give his biography more, you know, verisimilitude, and authority, and so on. And the Second Circuit essentially said that you can't have a fair use defense for unpublished materials. The common law copyright, as it used to be called, was sacrosanct, you couldn't even take a word an unpublished article. Then Congress essentially reversed that by providing that the same standard should govern, it is not entirely clear, the statutory language, but the implication is the same standard should govern in published and unpublished works.
In 1989 the Congress restored to the Lanham Act a requirement to get a trademark you have to have commercially meaningful sales of the product, the copyright, the trademark is attached to. You can't just have a token sale. The problem with the token sales, a problem of banking trademarks. You just trademark everything in sight, and then force people to license it from you. That is an example of wasteful rent seeking activity. And that went completely, became completely out of hand with the advent of the web. And the cyber squatters as they were called began taking out domain names in the names of companies, and named products, and then the company or the seller of the product would have to negotiate a license from the cyber squatter. And, Congress passed an anti cyber squatting statute that discourages this practice, not completely.
And Congress also passed a statute creating a limited antitrust immunity for patent tie ins, sort of striking a blow for economic freedom against a long series of silly Supreme Court patent tie in cases.
You know, the Hatch Waxman Act.
The early 80s expanded the experimental use defense to patent infringement.
So, these all seem, and this is all something Landes and I discuss in our book, these all seem to have been economically efficient legislative interventions into the existing body of intellectual property law. But, nevertheless, the general trend, as I have said, has been toward expanding intellectual property rights.
And so, might there be a public choice explanation for this? So, abstracting the question of whether it is form of regulation, whether it is good or bad, is there some, you know, without taking a position, on whether this is in the public interest or not, can this be explained in terms of demand and supply as regulation has been explained by public choice theorists?
One possibility is that there is inherent asymmetry between the value that the creators of intellectual property place upon having property rights, and the value that would be copiers place on freedom to copy without having to obtain a license. The, you know, if you get an exclusive right to a piece of intellectual property, whether it is an invention or a book, or a movie, or what have. That may shower economic rents on you. But copiers can only hope to obtain a competitive return. It is a feature of intellectual property. It differs from physical property. Physical property -- if property is abandoned or forfeited in some way it is available for appropriation by someone else. So, there is a lively interest in abandoned property, because if you perceive it to have value, you can reclaim it, make it yours, and obtain the value of it. But you can't do that with abandoned intellectual property. Once intellectual property enters the public domain, with really minute exceptions, it is there forever. Anyone can use it. But, no one can establish rights in it. And that makes it very difficult to make a lot of money from the public domain, the sort of money that would enable the formation of a compact interest group, with a really big stake in knocking out existing copyrights or patents, and contributing to the Congressmen, and so on, and getting their, your law passed.
So, it looks as though it is much easier to organize a coalition of people who want to expand property rights, than to organize a copiers' interest group. And, on that theory, one might expect continuous inexorable political pressure for expansion of intellectual property rights.
But there is something tugging the other way, and further complicating the analysis. And that is that most creators of intellectual property are actually using existing intellectual property as inputs into their works. You don't really have creation ex nihilo. You are building. It is a cumulative process, whether technological or artistic. And any law that strengthens rights to intellectual property beyond the level of, beyond some unknown level, may increase the input costs, fouling their own nest, by making it impossible for them to find public domain material on which to build their new work. So this prospect, presumably, retards efforts by producers of intellectual property to press for expanding legal protection.
I mean, even Sony Bono's widow doesn't suggest that we go back and grant copyright retroactively to Homer and Shakespeare, and all of these good people. Find their heirs. Their heirs will have the intellectual property. Since clearly that would greatly complicate efforts by modern people. You know, you want to do things like the movie Shakespeare in Love, and so on. And now they would have to negotiate with some person in England.
Or think, for example, is it true? Ask yourself this question. Would even the businesses that value patent protection really strongly, would they like the Patent and Trademark Office, would they prefer that it be lax in its review of patent applications, or strict? It is really not obvious, because if the Patent and Trademark Office is known to be lax , then courts will give less weight to the presumption of validity that an issued patent is supposed to carry. In addition, if the PTO is very lax and issue patents at the drop of a hat, the whole of kind of technology space becomes crowded with patents. And people who have serious inventive projects may find themselves impeded by the existence of a huge number patents. They may be, you know, probably invalid, and not worth much, but nevertheless, you know, they may have some hold up value. They extract modest fees and you would rather pay the license fees. People who own patents really do not like to litigate, because their is always a potential that the patent will be declared invalid. Even in the era of the Court of, the Court of Appeals for the Federal Circuit, a quite significant fraction of the -- still, still, I think, it is actually somewhat more than half of patents challenged in litigation are held invalid. Now, that's, there is a selection going on there. Most patents are not involved in litigation at all. But it is a curiosity that should you sue someone for patent infringement, you are in danger of not only losing you suit, but losing your patent, and that must discourage people, and make them pay off sort of nuisance patentees with license fees.
But still, as I say, despite all of these eddies and countercurrents, I think there is a persisting asymmetry in, because intellectual property rights generate rents for the owners, and the public domain does not generate rents for anyone. And we see that in the absence of any serious opposition to the Sony Bono Act.
And in a difficulty that my former law clerk, and the great cyber space guru, Larry Lessig, encountered in finding a plaintiff to challenge the Constitutionality of the Sony Bono Act. If there were a big public domain lobby, public domain coalition, you would think that it would be easy for him to find a plaintiff. But, he looked around. This is based upon an article about Lessig in Wired magazine. He did a lot of looking, and kind of -- there are plenty of eccentrics who were willing to step forward. You know, there is this whole movement, people who were the free mickey mouse t-shirts and so on. But he wanted someone who seemed commercially substantial. Someone who had a real interest in maximizing the public domain. I guess, he found Eldred. I do not know much about Eldred. But, he is not -- it is not as if he could find a big company that wanted to knock Mickey Mouse into the public domain.
One implication of this is that the public domain isn't really worth that much. But I don't think that is true. I think the social value of the public domain in intellectual property is great. But the private values are limited because of this impossibility of appropriating it.
There is also a mercantilist angle in this expansion of intellectual property rights. The United States is a big net exporter of intellectual property, and of physical products, that are, you know, intellectual property intensive. And so, this was emphasized in the legislative history of the Sony Bono Act that here are these foreigners, because most foreign countries have life plus seventy years. These foreigners were getting royalties on their ancient copyrights from us, and if only we, we would only extend our copyright commensurately, we would be sucking in more foreign royalty payments.
In an effort to get a little more concrete about this -- this is a desperate effort at quantification -- I thought it might be interesting to examine the amicus curiae briefs that are filing in the Supreme Court in intellectual property cases. Although an amicus curiae brief can be filed by an individual, most are filed either by organizations, or by individuals who are representatives of organizations. They may be pretending to be real flesh and blood human beings. So, I think amicus curiae brief practice provides some clue to the roll of interest groups in the area of law. And since 1980 the Supreme Court has decided 30 intellectual property cases in which amicus curiae briefs were filed, and which there was an issue of, a substantive issue of intellectual property, rather than a procedural or jurisdictional issue that would be peripheral to, of peripheral interest to the intellectual property. And now, there is a 31st case, the Eldred case, which is pending in the Supreme Court. And in these 31 cases, including Eldred, a total of 276 amicus curiae briefs supporting or opposing intellectual property protection were filed, and a pretty healthy majority, 154 out of the 276, almost 60 percent, support intellectual property rights. But it turns out that this imbalance in favor of intellectual property, which you would sort of expect from this asymmetry of appropriability that I have been emphasizing, is actually due entirely to the 11 patent cases in my 31 case sample, where 82 briefs were filed in support of validity, or other claim of the patentee, and only 48 against. In the other cases the score is 72 in support of intellectual property rights, and 74 against. So, basically, 50 50. And, in the Eldred case itself, despite the enormous majority by which the Sony Bono Act, the Act challenged in the case, passed Congress, 36 amicus curiae briefs were filed, and 18 are in support of the constitutionality of the Bono Act, and the other 18 are opposed.
So, this is a puzzle.
Well. One thing to fall back on -- a little disappointing if you are interested in public choice, is that maybe there is a public interest component in intellectual property laws' expansion in recent years. I think not even the most dyed in the wool public choice theorist would deny that many public laws do serve the public interest, or a conception, maybe an erroneous conception, of the public interest, rather than the interest of some narrow interest group. And, it doesn't seem -- I think they would also concede that interest group pressure is not always necessary to get legislation passed. It is certainly not necessary to get judges to adopt a particular position. And, another thing that Chris mentioned in his introduction was my interest in tort law as a system of efficient regulation of dangerous activity. And, tort law is largely judge created. And, there is a fair amount of evidence, at least evidence that I find persuasive, that it is basically a public interested body of law. It has its excesses that, you know, AEI likes to stress -- punitive damages and so on. But, on the whole it seems to be a regulatory system that has public interest, that more or, that serves, best explains, in public interest, rather than in interest group terms.
And, the reason is if the benefit cost ratio is of a regulation is high enough, then the obstacles to ___ are overcome. We sort of see this with criminal law. It is not that some narrow interest group is pressing for a law against murder. It serves the general interest. No one benefits. No one has a strong incentive to contribute money to a lobbying campaign for the death penalty, say. But nevertheless, there is such a groundswell of public recognition of the importance to all of us of having strong criminal laws that these laws get enacted despite inability __.
And back in 1967 Harold Demsetz, an economist distinctly unsympathetic to public interest ___ legislation, argued that the rise of property rights, we are talking about physical, not intellectual property, rise of property rights had been based not on the machination of interest groups, but on rising scarcity that increases the social value of property, relative to a commons, common property, public domain regime, more of physical things. He didn't propose a causal mechanism -- perceived in crease in social benefits through actual creation of a system of regulation to achieve these benefits. But, there are such theories. One that I have become interested in recently ...
[Here, there is a short gap in the recording when cassette tape was flipped.]
... is Joseph Schumpeter's theory of democracy. Schumpeter, of course, a great economist, who also dabbled, but I think very very creatively, in political science. And he said said, that, it's very simple, he said that politicians vie for office by offering voters attractive policies, in much the same way that sellers vie for consumer patronage by offering consumers ____. If these politicians fail to deliver, the goods that people want, and they thought that the politicians provided, then they get voted out. And, we have seen that policies that don't have strong interest group pressures behind them, can nevertheless emerge from the democratic process because of the competition of politicians. So, the inability of the Democratic party, as it seemed in the 70s to cope with the rising crime became an argument in favor of a Republican President. So, if property rights, or crime suppression are important, to enough voters, and it is possible the politicians to explain, or convince voters, that there are benefits that can be achieved, then these goods will be supplied without the prompting or the pressures of interest groups.
Now, we think about the history of intellectual property along the lines of Demsetz's theory of the emergence of physical property rights, we can tell a kind of Whiggish, history as a progressive story, in which the growth of intellectual property rights is explained by reference to material and social changes, the increase in social value of such rights.
When copying is very costly, relative to the cost of expression, or when duplicating ___ is very costly relative to making ___ in the first place, the social value of intellectual property rights be limited, because copying will be ___. And that was certainly true say, expressive works, verbal works, before there was a printing press. It is costly to reproduce a book _____.
So, as copying becomes cheaper, the dramatic example is uploading music CDs to hard drives, the efficiency argument for intellectual property increases.
In fact, by the time the Constitution, 12 of the 13, this is 1787, 12 of 13 states had adopted copyright rights, and common law patents were being recognized, and the Constitution granted power to Congress to issue and authorize copyrights and patents. It was an uncontroversial provision in the Constitution. So, in a very general way, to save time, the physical, the value of exclusive property rights in physical things, land, for example, at the same time, roughly the same time, maybe a lag, intellectual property rights were being recognized as having such ___.
The problem is that this doesn't explain why in 1976 there should be this sudden ___ uptick in intellectual property rights protection. What happened in 1976? And, I am driven back again to the ideological concerns. And I think, I think that the clue here, the central clue is that the free market ideology, which had a new lease on life in the 70s with the failure of Keynesian ___ policies, is very friendly to property rights. Property rights are the foundation of the free market system. It is the basis for contract, and it is an essential economizing measure. And so, you know, in some versions of free market ideology, the goal of policy is for everything to be commodified. And, everything of economic value, tangible or intangible, should be owned by someone. And I have been accused of wanting to commodify babies. It is inaccurate. But, short, short of total commodification, the deregulation movement is basically an effort to substitute a system of deregulation, a system of allocation of resources based on property rights, for the system of direct regulation. So, you can see with free market environmentalism proposing that, you know, conservation of scare natural resources could be achieved by broader propertization. Pollution could be best controlled by market oriented rights based measures in trade of (emissions?).
The natural for free market supporters to favor an expansion of intellectual property rights. And I think that probably is a factor ___. It is natural, and would be right, if intellectual property rights had identical economic properties to physical property rights. But, I don't think so. This is something that I can't explain, is, what our book is, is about. But, it is actually difficult to give a convincing economic defense of the increase in intellectual property rights since 1976.
I think what happened -- suppose in 1976, instead of there being a patent system or a copyright system -- suppose we had a system in which, if you wrote a book, or you invented something, you applied to the government for a reward. And the government would give you your reward, or maybe it would allow you to charge royalties, but it would tell what royalties you could charge. Suppose that prices of goods embodying intellectual property had been fixed by the government. If these things had been true, then you can see how substituting a copyright and patent system would be a step towards greater economic freedom and efficiency.
But, I think what may not have been recognized is that we had already, we had already gotten out of that at the end of the middle ages, we already had a free market in intellectual property, with well defined delimited property rights. And, it isn't clear that we had much to gain from actually expanding these rights given that, as I say, every time you shrink the public domain, you increase the input costs of ___, you increase transactions costs, licensing costs, ___. Um.
But, I get back finally -- last point -- that, remember, this, economic malaise of the 70s had been attributed to America's losing its technological edge. And it must have seemed natural to try to restore the technological edge by increasing the scope of intellectual property rights. But, it is precisely because, I keep emphasizing, very much emphasis on this in my book, that intellectual property is both the input and the output of the intellectual property industry. The relentless expansion of intellectual property rights can be assumed to have economizing properties. And we have seen this very much in this enormous increase in patenting. A large part of the increase it appears is defensive or strategic patenting. That is, many firms don't want patents. They don't need patents. The head start gives them a chance move down a learning curve and lower their costs of production. Maybe they are making products that don't have a long expected life anyway. So, they don't want to have to bother with patents. But, they have to worry that someone else will get a patent, that will prevent them from developing this product, _______. You get a patent because someone else patent it. Or you get a patent because you would like to block a competitor. You are not interested in that technology, but it doesn't really fit what you do. But you want to block it for someone else. There is a lot of evidence that much patenting activity is of this, is of this character.
So, there is a possibility that some sort of confusion between the desirability of commodification in general, and the belief that relentless expansion of intellectual property rights in particular, are the routes to economic progress, are responsible for this development.
What complicates it, finally, is that we now have a situation which intellectual property is being formulated in a decentralized system. I mean, of course there are advantages ___. You have the patent and trademark office, which has its own ideas. We have the Court of Appeals for the Federal Circuit, which has its ideas, and has played a very important role. A specialized court tends to see itself, I think, as a booster of the specialty industry. I have to believe that patents is the most difficult and important part of the jurisdiction -- adjudicating patents. And there is Congress, which is subject to these asymmetric pressures by the owners of intellectual property ________. And, there, of course, is the Supreme Court and other federal courts.
So, a decentralized, somewhat confusing, system, bringing us ever greater commodification of intellectual property, but not necessarily ___.
[Judge Posner also took numerous questions from the audience. That portion of program is not transcribed. Below are some excerpts from Judge Posner's responses.]
So far as declining costs of copying, I don't, I don't know how ___ that is. I mean, clearly there are some areas, like music ____. Imagine a world in which, a music company managed to sell one CD, which is immediately uploaded into a computer and disseminated to one hundred million people. But that's a very, that's a very special case. Much of the duplication -- actually, much of the duplication, really, that began in the 1970s, or late, with Xeroxing, they were duplication of these commercially worthless academic and scientific materials.
One of the things that convinces me -- I should say persuade -- this is too strong -- that intellectual property law may be somewhat out of control is the extraordinary paper flow over the licensing of essentially worthless material. I get e-mails and letters from these overly scrupulous professors who say could they make ten copies of an article, or something, a paragraph, from classroom use only. Would I please let them do that? And what is my fee? My fee is zero. The academics, or anybody who is not a best selling writer, wants his stuff to be widely disseminated.
Academics often pay to get their articles published. And the academic and scientific system is essentially a kind of seventeenth century patronage system. Academics are paid salaries to write, and writers now, almost all writers, and many artists and musicians, there are on the faculties of colleges and universities, paid salaries for part time teaching, the rest of the time being entitled to property. So we have vast other means of compensating people that don't involve extensive regulation, compulsory licensing, and things like that.
If you look at the trend in patent applications, it doesn't actually hold up, particularly, in the late 70s and the 80s, where there has been very steady growth. You know, in many many years. And, many of these new patents are the very questionable business method patents issued by the patent office, with the approval of the, of the, Federal Circuit. These business method patents are kind of clogging retail commerce on the Internet. And software copyrights, in particular, apparently, impediments to software development. So, you know, we can't, I guess the real, the real puzzle is, it wasn't clear in the 70s, that, we know, there are all of these little things we need to correct and maybe have to deal with something like music uploading. But, it, this, there hasn't been a point in the last 25 or 30 years where it was clear that intellectual property rights were too narrowly defined by Congress. And, we don't really know today whether we have too much in the way of intellectual property protection, or too little. But, since we don't know whether we too much, it is hard to make the kind of strong defense that Demsetz would make for having property rights in scare physical resources, rather than, rather than a commons.
They'd say the public domain, they don't think anything of the physical public domain ___. We don't, we don't think a lot of it. We don't think it is a major source of social wealth. But the intellectual property -- intellectual public domain may be an extremely important resource. And, making, as I say, mechanical analogies between physical and intellectual property rights [mumbled out].
And, these surveys show that in some industries, particularly drugs, the drug manufacturers are really avid for patents. But in many industries, they are not, for the reasons that I have mentioned, the head start, the learning curve, the short life, shelf life of particular products. And, the alternative, the trade secrecy, which is terribly important. Many manufacturers are not interested in patents.
These rights keep expanding without any solid information about whether the expansion is socially beneficial.