Property: Review

• How to define the bundle – By what rights go together • Meaning that the owner of right A is probably • The person who most values right B – By the potential for rebundling • If you might have the initial definitions wrong • Try to pick ones such that changing them • Has low transaction costs • The choice between property and commons – Property gives efficient incentives to • Produce what is worth producing • Consume only units worth consuming • By the person who most values them – At the cost of • Costs of defining, creating and enforcing property rights • And transacting over them – If property is worth its costs depends on the size of costs and benefits

How to rebundle anything?

• Land can be rebundled, so … – Put a non-land right into the bundle – Then rebundle as desired • Touch and concern doctrine in common law – The bundle labeled ownership of this piece of land – Can only contain rights that have something to do with this piece of land • Recent courts shift to a rule of – Enforce if reasonable (efficient?) – Otherwise don’t – A shift from “rule designed to produce the efficient outcome” – To “Court decides whether the outcome is efficient.”

Intellectual Property

• Our intuitions are a lot less clear – Some see it as the morally purest form of property • I created this book/invention/song out of my own head • With no use of any material provided by anyone • So nobody else has any claim on it • It’s mine, mine, mine – Others as a direct violation of property rights • I own my copy of your book • So should be able to use my Xerox machine to make copies of it – Economists perhaps as a substitute for a contract that cannot be enforced • The buyer of the book agrees not to make copies • How about the person he sells it to?

• Back with the bundling issue • Copyright means I can sell the book with the right to copy pulled out of the bundle – But economists also note that • Marginal cost on the margin of additional uses of IP is zero • Hence the efficient allocation is to everyone who values it • Which is an argument for an I.P. commons

Puzzle: Why are Patent and Copyright so different?

• 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; • Copyright – Given for the asking--even without asking – Lasts practically forever • Patent – Requires an elaborate process to get – Must satisfy many conditions – Lasts for a relatively short time • Why the difference?

The law: Copyright

• What is protected: Expression not idea.

• Protected against – copying – derivative works (translation, decompilation??) – but not independent creation • How could you prove it was independent?

• By doing it on purpose: Clean room technique for software – Exception for

Scenes a Faire

• Protection on demand, or without, and … • For a long period of time.

• With a fuzzy exception for "fair use"

The Law: Patent

• Idea, not machine.

• Must be – Novel – Non-obvious – Useful • You define what ideas you are claiming when drawing up the claims.

– The narrower it is, the less valuable, but … – The broader, the more likely that it won't satisfy the requirements, because … – Some part of it has been done before, or is obvious, or … – And you must describe the best way known to you of implementing the idea.

– Reduction to practice. Constructive reduction. "What I invented?" – Morse's sixth claim • Denied as overbroad • But could have been as non-novel.

Software as I.P.

• Controversy over copyrightability

– Problem--machine language programs in chips – Arguments--player piano roll – Resolved by Congress

• Controversy over "look and feel"

– What is expression and what is idea?

– Consider the Lotus Menu Tree – And the Mac interface.

• Controversy over patentability

– "Mental Steps Doctrine" – Gradually abandoned.

Economic Analysis : Copyright

• Copyright covers things where – Property lines can be sharply drawn – Trespass can be easily observed (except for small scale copying) – No depleting the commons problem • Because writing the same book by chance vanishingly unlikely • Scenes a faire take care of the special case • And independent invention not covered takes care of the other special case • Thus incentive is not too high.

• Author is rewarded for what he added--writing his book--not what he took--the possibility of writing a particular book • So we have long lasting property rights easily acquired • Fair use exception covers – Uses where transaction cost of buying permission is large – Cost imposed on the owner is small – Hence a commons is better than property

Economic Analysis: Patent

• Patent covers things where – Property lines are very fuzzy – Trespass not always easy to observe--even by the trespasser – Consider the problem of a patent search after you invent something – Depleting the commons a problem • Consider the logic of a patent race • A week earlier gives you all of the rights • Giving an incentive to invent too fast.

• What we want is not an incentive but the right incentive • So rights are short and only for major ideas – i.e. not likely to be immediately invented by someone else anytime soon – Think about the "skilled in the art" rule.

– Alias “the lightbulb going off over your head in the cartoon” • And ideas that we want invented now – Consider the modern definition of “useful” – Vs the 19th century definition: Rikard v Du Bon – From the standpoint of depleting the commons

What about software copyright?

• Software has the same features as writing, wrt literal copying – So the economic analysis says Congress was right, – some of the courts were wrong, – at least for literal copying • The question is not – Is machine language software burned into a ROM a writing?

– But – “ Does it, like a writing, have the characteristics that make copyright a sensible way of protecting it?

” – Which is also an argument for plug mold statutes • Copyright on look and feel an intermediate case – Looks rather like using copyright – For something more suited to patent

Does software need IP Protection?

• Again the property vs commons question.

• For literal copying, book or program – If copying is cheap compared to producing • Then without legal protection it is hard to get paid • Modern software, photocopying, but … • Less true in the days of hand set type • When you could have protection w/o law via a first mover advantage – If enforcement is not too expensive • With really easy copying, enforcement against individual infringers is impractical: Cassette tapes, VCR • And with really easy distribution, enforcement against mass infringers is impossible. Internet – We may be approaching a period when • Protection of IP in digital form is often impossible • And producers have to find other ways of getting paid

Rudyard Kipling on First Mover Advantages

“They asked me how I did it and I gave them the scripture text You keep your light so shining a little ahead of the next They copied all they could copy, but they couldn’t copy my mind And I left them, sweating and stealing, a year and a half behind.” (The Mary Gloster)

Software patent, look and feel copyright • Much more problematic because

– Lines are fuzzy – Cost of knowing if you are trespassing high – It’s a new field and judges at high levels • Are old men • Unlikely to understand it very well

• Some programmers oppose patenting • And the Open Source movement demonstrates

– What can be done without protection. – At least of the usual sort

Trade Secret

• What it protects – Information whose value depends on its secrecy – Demonstrated in part by acting to protect it.

• Notice to other people, also … • Evidence, to an economist, that you are telling the truth.

• What it protects it against – Wrongful appropriation – Exception: DuPont v Christopher • How: – Damages for loss to victim, gain to thief, or what would be bargained.

– Injunction except for innocent third party sunk cost case

Why not more protection--or less?

• Why not have full property rights for trade secrets?

– That would be patent without examination, we know why not.

– Rent seeking as people try to claim the commons prematurely • Why isn't trade secret preempted by patent?

– If it isn't patentable, why protect it?

• Maybe PTO was wrong – It is non-obvious and – By keeping it secret I will prove it was • Or maybe it is too short lived to qualify • Or more long lived than patent law assumes • Filling gaps in a one size fits all system.

– Also, legal protection reduces the costs of private protection • I am going to try to keep it secret, and doing so is less expensive • If I have trade secret law to help

The Death of Copyright

• Arguably, copyright protection is becoming unenforceable for digital IP • One alternative is technological protection – Copy protected disks – CD required to play a game – DRM for music etc.

• It is ultimately unworkable for any work fully revealed in one use – Because someone who has bought one use – Can record the song he is listening to … – Copy and sell • But consider sorts of IP that can be protected – Lexis and Westlaw, but not my book – Not movies, but World of Warcraft • Another alternative is indirect sources of income – Write a book, collect lecture fees – Write a program, sell support services – Produce a movie, sell toys