In class on Tuesday, we discussed whether it is necessary to give intellectual property similar rights to those of tangible property. In doing so, the issue was raised as to whether an alternative model should replace the current copyright regime. Some of the reasons for distinguishing intellectual property from tangible property were raised in Mark Lemley’s paper, Property, Intellectual Property, and Free Riding, as well as on Prof. Solum’s Legal Theory blog. Essentially, the major difference results from their consumption; where the consumption of tangible property is rivalrous, that of intellectual property is nonrivalrous, although under current law there is a right to exclude in both. Further, as Prof. Solum’s blog explains, some tangible property may initially be nonrivalrous (e.g. movie theater) but if overconsumption occurs, the utility of the good will be reduced by overcrowding. This type of good is known as a “club good.” On the other hand, intellectual property is a “toll good” because it is not subject to overconsumption.
All of the above gives one reason to think that further expansion of intellectual property rights is not necessary and may be detrimental, and with this I agree. However, some have even argued that there should not be any private property right in intellectual property.
With this, I disagree. I would argue that recognizing a right to exclude others from one’s non-tangible “property” is essential because it yields efficient markets. The class discussion on Tuesday reminded me of a short lecture my torts professor gave on why the Soviet Union crumbled. He literally gave this lecture in about 3 minutes. Basically, the argument goes something like this: the USSR did not have private property and markets to determine prices, and without prices it did not know which resources were becoming scarce and should be used more sparingly. If no one owns the right to a certain resource (e.g. wood), overconsumption occurs. The government could respond by artificially setting a price, but the pricing information which tells us how much the resource is worth, or how much value people place in the resource, is not available. This leads to inefficient markets.
Of course, as discussed above, intellectual property is not really subject to overconsumption. But an analogy can be made nonetheless. With toll goods, if their price is set at zero, there will be no private supply, or at most very little. If the government does not give the right of exclusion in the toll good then essentially all incentives to create are destroyed. But even if some IP works are created, there is no way to determine what there value is. With overconsumption not an issue, perhaps one might say that it is not necessary to determine a value. But if we assume the IP works will be still be utilized, without knowing what the value of it is, there will be a great deal of uncertainty in how much one should invest in its utilization. For instance, for works like Lawrence Lessig’s book and Linux, if they were created under a regime that recognizes no IP rights, there would be no way to determine their value or how much should be spent in their utilization. Even now, as was mentioned in class, it is difficult to know their actual value; but, we can still estimate their value only because we have works with a market-determined value with which to compare. Without any pricing information, we don’t know what value people attach to the works and it becomes impossible to know their value. This may lead to an inefficient market, much like what happened in the USSR.
On the other hand, with toll goods, if their price is set at anything above zero, underconsumption begins to take place. But this may not be a bad thing because the goods (or IP works, in this case) now have a value attached to them and this leads to a more efficient market.