Thursday, January 10, 2013

Peter DiCola on Laws of Creation

Posted by Peter DiCola

Laws of Creation is an intervention. Authors Ronald Cass and Keith Hylton approach the subject of intellectual property (IP) law as outsiders. They are sophisticated and highly informed outsiders, to be sure, applying their collective expertise in fields like constitutional law, law and economics, tort law, antitrust law, and international trade. They have even published articles in IP and consulted on IP matters. But they come to IP as self-styled outsiders because they have a message for the insiders. Laws of Creation argues that most IP professors have gone too far in their criticisms of existing IP law. The authors make an “impassioned plea” (p. 220) that IP profs will come to see reason: IP law in the United Status is basically sensible and works well on the ground in the creative industries.

The authors’ persuasive goal, however, does not mean that the book is a polemic. Instead, the authors seek to demonstrate how a cost-benefit approach, implemented in as rigorous a way as practicality will allow, can rationalize most of the core doctrines of patent, trade secret, copyright, and trademark. Thus, the authors spend the bulk of the book outlining their particular methodology for analyzing IP and then showing readers what that methodology can do when applied to IP.

Cass and Hylton provide a clear explanation of the economics of IP in Chapter 3. This forms the backbone of the analysis to come. During their tour of various IP fields, the authors add other essential economic concepts, such as sequential innovation (in Chapter 4) and spillovers (in Chapter 6). The style of economic exposition is not technical. Even though the authors employ chalkboard economics (a.k.a. “applied theory”), there is no algebra. Instead, the authors describe the most relevant economic concepts and categorize them as either static or dynamic effects. The categorization is not novel, but the clarity of exposition is. And therein lies great value. In my teaching experience, other books on this topic have produced confusion and frustration. I would assign the basic law-and-economics passages of Laws of Creation to my students, particularly those who are new to law and economics, new to IP, or both. The discussion is even-handed between economic effects that reflect the benefits of IP protection and those that represent costs of IP protection. And because the authors are consistent in applying the categories of static effects and dynamic effects throughout the entire book, they have provided students with a good opportunity to understand the economic logic of how static and dynamic effects might fit together.

Four methodological or philosophical propositions form the intellectual core of the book. First, the authors argue (in Chapter 2) that cost-benefit analysis is superior to natural-law or rights-based approaches rooted in Locke or Kant. As a corollary, the authors note that cost-benefit analysis is most amenable to empirical analysis. Second, the authors acknowledge the relative dearth of empirical studies of IP, suggesting that it may result from the inherent limitations on social-science methods. Third, the authors advocate filling the empirical vacuum by applying cost-benefit analysis to whatever facts can be known about the creative industries. Fourth, the authors point to the economic and political success of the United States and the efficiency of the common law process as justifications for a policy presumption in favor of the legal status quo, which includes existing IP law and its core doctrines. Taken together, these four propositions lead the authors to engage in an extended exercise of rationalizing existing IP law. That is, the authors do not start from core principles and deduce the efficient legal doctrines for IP. Instead, the authors proceed inductively to justify many of the doctrines that exist. Occasionally, the authors criticize aspects of existing law, but in most such cases the provisions they criticize came from Congress rather than the courts.

The four propositions generate different points of departure for certain sets of readers. The Lockeans and Kantians might get off the bus at the first stop. Skeptics of cost-benefit analysis—those concerned with the problems of incommensurability across different values and different individuals—might stay on the bus for a while, but keep their coats on during the ride. Some readers might exit after the fourth proposition about the efficiency of free markets and the common law process. But I hope that all readers will stick with the book. My point is that the authors make their philosophical positions plain, but many of their positions will be controversial, as with any law-and-economics book.

To me, the core methodological question is whether the jump from the second proposition to the third—from the absence of conclusive empirical evidence to proceeding with cost-benefit analysis anyway—can be justified. I agree with the authors that one great attribute of cost-benefit analysis is that it calls for empirically based policy judgments. But Cass and Hylton sound a pessimistic note about empirical studies. They discuss the difficulty of even measuring many of the key economic variables (p. 45). So for them the shortage of empirical studies on IP presents a chronic problem, perhaps an impossible one. I don’t think the state of empirical IP is as bad as the authors suggest, whether in terms of existing studies or in terms of future prospects. Many researchers are trying to develop new empirical studies of IP, with various methods both quantitative and qualitative. But I take the authors’ point that empirical studies take time. And reaching a consensus on policy-relevant facts may take much longer, or never occur.

Cass and Hylton want to inform current policy and scholarly debates. They propose to forge ahead by applying cost-benefit analysis to basic facts about the creative industries, as opposed to measured quantities, survey evidence, or estimated relationships. For example, the authors assert that the courts’ secondary liability doctrine in Sony, Napster, and Grokster strikes an efficient balance between copyright owners and technology firms (pp. 118-121). The authors always explain that they’re just evaluating the broad strokes of the doctrine, not asserting perfect efficiency. But even this weaker claim cries out for evidence. How do we know that copyright’s secondary liability doctrines have not deterred socially desirable investments by Internet companies? On the other side, how do we know that Grokster’s inducement doctrine doesn’t leave copyright owners with insufficient enforcement tools?

In the case of secondary liability doctrine, courts usually do balance the goals of copyright enforcement and technological innovation. Thus, court opinions offer a way to rationalize them as seeking efficiency. But just because some attempt at balancing has occurred does not show that the balance is anywhere near optimal. Moreover, some of the philosophical force behind cost-benefit analysis is lost without an empirical foundation. If cost-benefit analysis amounts to tallying up impressions about whether a particular benefit seems large and a particular cost seems small, the method forfeits its advantages over the rights-based theories, no matter how careful the discussion.

Nonetheless, I found Chapter 6 on copyright law and the other chapters on particular areas of IP law to be challenging and engaging. The authors do not aim to provide a comprehensive review of every copyright doctrine; they just want to demonstrate the value of their methods. But they also provide a fresh perspective on well-traveled territory. I should emphasize that Cass and Hylton are not just taking the part of IP interests here. The authors are “pro-IP” in the sense that they think IP should exist. But their advocacy for the reasonableness of existing IP doctrine means that the authors support exceptions and limitations along with the rights, such as the public domain status of mathematical and physical formulas or the fair use doctrine.

I think the authors overestimate the distance between their policy preferences and those of most IP profs. Most of IP’s critics admire the wisdom of the traditional doctrines that Cass and Hylton defend—the rights and the limitations. Today’s debates are about perceived expansions from this accepted core. The authors take comfort whenever common law judges make new policy decisions. Their anti-alarmist view has some merit. I would point to the last decade’s cases on the DMCA safe harbor, in which many courts interpreted the statute broadly to protect companies from YouTube to Visa from secondary liability for online activities of users. But the heated debate among IP profs often concerns legislation or administrative action by the FCC, DOJ, Copyright Office, U.S. Trade Representative, or the executive branch’s “copyright czar.” Cass and Hylton actually seem to share most IP professors’ skepticism about congressional interventions into IP. They express skepticism about antitrust law’s contribution, although they don’t address other agencies. So the authors’ decision to portray most IP profs as dramatically wrongheaded puzzled me a bit. Why not just identify their differences with IP profs as one of emphasis—a glass-half-empty/glass-half-full problem? Laws of Creation could remind us of the wisdom of the core IP doctrines as a counterweight to despair, but still acknowledge the dangers presented by expanding IP too far or too little.

I think IP scholars will benefit from considering the strengths and weaknesses of Cass and Hylton’s cost-benefit methodolgy and from reconsidering whether the status quo. I found the authors’ critique from the outside of IP very interesting. Still, one could apply their own methodology to note that both outsider and insider perspectives have their costs and benefits. Even after reading and learning from Laws of Creation, I still think the insider perspective has the advantage and I remain concerned that IP law does not strike the correct balance.

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