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From Goods to a Good Life

YALE UNIVERSITY PRESS

Chapter One

MORE THAN A QUARTER-CENTURY AGO, property scholars interrupted the hegemony of a law and economics discourse focused exclusively on efficiency to introduce broader theories about property and social relations. As the New Jersey Supreme Court declared in 1971 in the historic case of State v. Shack, "[p]roperty rights serve human values." Modern property law was to balance plural values beyond efficiency to consider personhood, health, dignity, liberty, equality, and distributive justice.

In contrast, at the start of the twenty-first century intellectual property scholarship remains moored to a singular economic account. In the modern day, intellectual property is understood almost exclusively as being about incentives. Its theory is utilitarian, but with the maximand simply creative output: law's goal is to promote the invention of more machines, from the Blackberry to the iPod, and more intellectual products, from Mickey Mouse to R2D2. Scholars and legislators struggle to calibrate the optimal length of copyright and patent terms to promote efficient innovation. Even critiques of the recent expansion of intellectual property law's breadth, scope, and duration adopt the same language. Progressive law and economics scholars argue that too much intellectual property law can impede innovation, locking up the building blocks necessary for further innovation.

We did not always understand copyrights, patents, trademarks, and trade secrets this way. Copyright law emerged out of the Enlightenment in England in the early eighteenth century, when the granting of limited rights to authors broke the perpetual monopoly in intellectual works held by printers, encouraging the creation of new works and their broad dissemination to a more democratically engaged public. Patent law has always sought to encourage access to knowledge, requiring owners to share knowledge of their inventions in exchange for limited monopoly rights, rather than protecting the knowledge as a trade secret. And trademark law originated in theories of unfair competition and consumer protection, not property law.

But over the last few decades law and economics scholars have reimagined intellectual property law, portraying it as solely an instrumental mechanism to incentivize creativity (copyright), invention (patents), and industry (trademarks). Because information is assumed by its nature to be nonrivalrous and nonexcludable, the concern is that free-riding will eliminate any incentive to produce information. The insertion of property rights, the theory goes, incentivizes the production of information, which will then inure to society's benefit through the market mechanism, with those willing and able to pay being permitted to consume the information. Others might free ride, but only where high transaction costs would make marketplace exchanges unlikely. In short, market failure is cited as the raison d'être for intellectual property, explaining copyright, patent, and even trademark.

But intellectual property today is more than simply a tool for incentivizing creative production in the form of more things, from Bratz dolls to PCs. Intellectual property laws bear considerably on the ability of humankind to flourish, affecting everything from the developing world's access to food, textbooks, and essential medicines, to the ability of citizens everywhere to democratically participate in political and cultural discourse, to the equal opportunity to earn a livelihood from one's intellectual contributions toward making a better world. Today, the legal regime of intellectual property has inserted itself more deeply into our lives and more deeply into the framework of international law.

Despite these real-world changes, intellectual property scholars continue to understand intellectual property solely as a tool to solve an economic "public goods" problem: nonrivalrous and nonexcludable goods such as music and scientific knowledge will be too easy to copy and share—thus wiping out any incentive to create them in the first place—unless a monopoly right in the ideas is provided for a limited period of time. The dominance of this singular, narrow economic discourse has rarely been challenged.

Yet in case after case today, we see that traditional law and economic analyses fail to capture fully the struggles at the heart of local and global intellectual property law conflicts. In the handful of cases that follow—ranging from high technology to low, from first world to third—we will see that the proponents of that school have failed to persuade the U.S. Supreme Court, let alone activists in the developing world. Indeed perhaps one of the most remarkable facts about William Landes's and Richard Posner's seminal text The Economic Structure of Intellectual Property Law, hailed as "the most important book ever written about intellectual property," is that it finds that much of intellectual property law's expansion at the end of the last century cannot be justified by economic reasoning. They conclude devastatingly that "no public-interest explanation for the evolution of intellectual property law over this period seems plausible." Their book is as much of a wake-up call for reform of intellectual property law as it is a massive undertaking to rationalize this law within an economic framework.

But where Posner and Landes would correct the descriptive disconnect by mooring intellectual property law more firmly to economic analysis, I argue that a more multidimensional account of this law is necessary. Pundits declare that "[i]ntellectual property has come of age," but it is increasingly apparent that current intellectual property law is not mature enough to face the diverse and changing world in which we now live. I offer three critiques of the narrow intellectual-property-as-incentives understanding: (1) it fails descriptively as a comprehensive account of extant legal doctrine, (2) it fails prescriptively as the exclusive basis for deciding the important intellectual property conflicts of the day, and (3) it fails to capture fully the dynamics of cultural creation and circulation.

One prominent example of the disconnect between intellectual property theory and practice is Eldred v. Ashcroft, the first copyright case to go before the Supreme Court in the new century. At issue in Eldred was the constitutionality of the Sonny Bono Copyright Term Extension Act of 1998, in which Congress extended the already lengthy copyright term by another twenty years. The first copyright term established in 1790 lasted fourteen years from the time of publication, with the option to renew for another fourteen years. In contrast, with the 1998 extension, the copyright term was extended to last for the life of the author plus seventy years. Thus today copyright in a work will often last well over a century. Consumer rights advocates argued that the extension was unconstitutional, violating the U.S. Copyright Clause's provision that copyrights last "for limited times," and that the extension trampled on First Amendment rights to use cultural works in speech. But the Supreme Court approved the extension over these objections. Notably, the Court reached this conclusion despite the objections of illustrious economists, including five Nobel laureates, who wrote as amici curiae that "[t]he term extension for existing works makes no significant contribution to an author's economic incentive to create." The Court upheld the act nonetheless, citing fairness and cultural restoration explanations.

Economic analysis also did not fare well in the other recent, landmark copyright case to come before the Court, Metro-Goldwyn-Mayer Studios Inc. v. Grokster. In that case, the Court considered whether the makers of a peer-to-peer file-sharing software could be held secondarily liable for copyright infringement. Again, the Supreme Court refused an invitation to rewrite copyright law according to popular law and economic rationales. Consider the backdrop against which the Court decided the case: a brief of illustrious law professors and economists—including, in a rare moment of agreement, Nobel laureates Kenneth Arrow and Gary Becker—urged a purely economic approach. In answering whether peer-to-peer file-sharing services such as Grokster should be secondarily liable for copyright infringement committed by users of its software, amici sought to make trial courts economic cost accountants, imposing liability on the basis of whether the intellectual property holder or the alleged secondary infringer is the cheaper enforcer of the intellectual property holder's rights. Arrow and company urged that the Court adopt a test inquiring "whether the indirectly liable party at low cost could have discouraged the infringing uses, and whether the complaining copyright holder at low cost could have pursued the direct infringers rather than litigating on indirect liability theories."

But where the law and economics scholars argued in favor of imposing liability on Grokster on the basis of efficiency, the Supreme Court chose to impose liability for what it saw as moral wrongdoing. Justice Souter's opinion for a unanimous Court adopted the common law approach to fault-based liability, which turns not on cost-benefit analysis but on the basic principle of fair business practices. The Court ultimately held that Grokster could be accountable because it had demonstrated a bad intent to encourage and profit from illicit copying by users. The Court cited common law precedent, concluding that "[t]here is a definite tendency to impose greater responsibility upon a defendant whose conduct was intended to do harm, or was morally wrong." The Court adopted an inducement theory that ultimately premised liability on "purposeful, culpable expression and conduct." Where an economic approach might predicate liability on least-cost avoiders or on the effects of infringement on creators' incentives—but certainly not on the bad mind of the actors—the Court focused on moral culpability.

A brief in favor of Grokster written by Harvard law professors would have simply reaffirmed the prevailing secondary liability approach articulated in Sony Corp. of America v. Universal City Studios, Inc. In Sony, the Court refused to impose secondary liability on the makers of the VCR, worried that liability would harm the incentives for innovation. That standard, the Harvard professors argued, "has proven to be an effective means of balancing the interests of copyright owners with the equally important need to preserve incentives for technological innovation." The Harvard brief pressed the Court to conclude that since Grokster's technology permitted "substantial non-infringing uses," it should be immune from secondary liability.

But the Court declined to ground its ruling on either economic theory. It acknowledged the validity of both economic approaches, recognizing indirect liability as a practical option when direct enforcement is infeasible and recognizing the need to limit liability so as to not thwart future innovation. But the Court decided this momentous case on other grounds, invoking morality and fairness. To be sure, the Court in Grokster ignored many other cultural values at stake in the case. Lacking a language for recognizing participatory culture, for example, the Court failed to note the social benefits of peer-to-peer file-sharing technology, which allows individuals to share information widely without paying for server space or high bandwidth connections. But simply by embracing basic values of morality and fairness, the Court offers an analysis that suggests that for all of its uniqueness, intellectual property law is also common law, teeming with plural values including, but not limited to, incentives. Indeed, a recent article in the Harvard Law Review puts further into question the centrality of the incentives rationale in copyright law. In the article, Shyam Balganesh shows that despite copyright's lip service to incentives, not a single doctrine in this law actually focuses on the way in which market incentives influence creators.

The problem of overreaching rights is by no means limited to copyright. In the patent field there has been uproar over the introduction of patents on methods for doing business in cyberspace—for example, Amazon.com's infamous "One-Click" patent. For decades courts had been reluctant to recognize patents in "business methods" such as the use of grocery carts at supermarkets; the natural competitive advantage of introducing better business methods was considered enough incentive —a patent, overkill. But in 1998 in the case of State Street Bank v. Signature Financial Group, the U.S. Court of Appeals for the Federal Circuit clearly embraced such patents, opening the floodgates to business-method patents related to e-commerce in particular. These patents are controversial, because many find it hard to justify a twenty-year exclusive monopoly as necessary to incentivize improvements in means for servicing e-commerce consumers. Yet as recently as 2010 the Supreme Court affirmed the continued availability of business method patents in Bilski v. Kappos.

Another important patent case of the twenty-first century, eBay v. MercExchange, involved the question of whether injunctions should automatically issue in the face of patent infringement. The main argument for automatic injunctions turned on the idea of "patent exceptionalism"; although injunctions are equitable remedies that generally require careful weighing of the equities, some argued that this familiar consideration was not required in patent cases. The Court in eBay rejected this notion, not merely on grounds of efficiency but rather, by acknowledging the need to take the basic value of fairness into consideration in patent cases. The Court affirmed that the equitable standards that apply elsewhere in the law apply in patent law, too. In short, despite its preeminent position in legal scholarship, the narrow understanding of intellectual property as incentives is not, in fact, driving the most important legal decisions in the field.

Meanwhile, rapid-fire technological advances and new forms of creative output, from YouTube and MySpace to the advent of open-source collaborative networks, garage bands, remix culture, and the World Wide Web itself, undermine utilitarian intellectual property law's very premise: that intellectual property rights are necessary to incentivize creation. Indeed, there is a growing body of literature focused on explaining the existence of "IP without IP"—that is, intellectual production in the absence of intellectual property rights, from the innovation of French chefs to the creativity of stand-up comedians and fashion houses.

There are normative concerns as well. The dominant law-and-economics approach in this field would rely on the market to spur creation—but this leads to the appalling conclusion that drugs for baldness must be more important than drugs for malaria because the former enjoy a multi-billion-dollar market, while those who need the latter are too poor to offer much to save their own lives. Understanding intellectual property as incentive-to-create reduces to the claim that the ability to pay, as evidenced in the marketplace, should determine the production and distribution of knowledge and culture. A central feature of this account as it has taken hold in intellectual property law is its focus on the market as the vehicle for solving distributional problems. Willingness to pay determines access to the fruits of this information regime. After the property right is established, the government's role is limited to protecting that property right, and to intervening only in cases of further market failures.

A central failure of intellectual property as incentives is its neglect of distribution. As I have argued, utility in the intellectual property context is defined simply as the maximization of creative output. The goal then becomes creating the greatest number of cultural artifacts to be trickled down to the greatest number of people. The utilitarian approach to intellectual property does not ask: Who makes the goods? Who profits, and at whose expense? Is high-tech production up in India but without significant benefit to women or the poor? Martha Nussbaum describes this as "the problem of respect for the separate person." A utilitarian calculus that presumes overall welfare in the aggregate "doesn't tell us where the top and the bottom are," Nussbaum observes. "[I]t doesn't tell us 'who has got the money, and whether any of it is mine.'" Analyses based on the well-being of the aggregate do not confront distinctions between the developed and developing worlds, the urban and the rural, and women and men, or among blacks, Asians, Latinos, and whites.

To be sure, this account in legal scholarship differs from the understanding of utilitarianism among moral philosophers and even among economists themselves. Rather than presuming the goodness of maximizing creative output, utilitarians would begin with individual preferences and build the theory from there. Focusing on individual preferences would require us to consider impacts on people who have no ability to pay for intellectual goods. But given that my goal is to reinterpret intellectual property law, I will concentrate my energies on the utilitarianism expressed by today's intellectual property scholars.

(Continues...)

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Excerpted from From Goods to a Good Life by MADHAVI SUNDER Copyright © 2012 by Madhavi Sunder. Excerpted by permission of YALE UNIVERSITY PRESS. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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