More, and More on IP and Physical Property

Here’s a few thoughts on Jim Harper’s splendid post of a few days ago on the nature and origins of IP as compared to physical property. I can’t find much to disagree with in it, but apparently I was expected to? So I will clarify where I think points of controversy might arise starting off from there.

A) One of the assertions that seems to be made with some frequency about the enterprise at IPcentral of which I am a part is that we think that IP and physical property are just the same. As far as I know, neither myself nor any of my colleagues think that (I don’t speak for them ordinarily but I think I can safely venture to do so on this point). But we’ll tend to emphasize the similarities rather than the differences when we think the differences are not as relevant as they are sometimes thought to be:

An example: It is sometimes pointed out that the marginal cost of sharing IP is zero or nearly zero. This is sometimes taken as an argument by people who know a little economics (and no Austrian economics) that this is what the price of IP should be as well–zero or nearly zero. But the argument proves too much; it turns into an attack on physical property as well. The marginal cost of an alarming amount of *phsyical property* is nearly zero as well (stamping out another pill once the drug has been researched and is in production, for example, or another silicon chip, or what have you). Furthermore as the physical property economy evolves and production becomes more efficient, we should expect the production of more and more physical property to near marginal cost–if you are in the business of producing physical property, one of your aims is quite likely to be to drive the cost of production lower and lower. Furthermore in order to sustain incentives for production both IP and physical property need to be priced above marginal cost, especially when marginal cost is zero or near zero. (I need to add a link here to the conference a few years back on marginal costs, but I can’t find it now. Ah, here it is.).

What I just said, in a nutshell: I think the differences between physical property and IP are extremely significant, but not necessarily in the ways that IP critics commonly think they are (here’s an article I wrote on the significance of some differences a while back). For the most part my colleagues at IPcentral think along similar lines. We might use physical property examples as analogies, but an analogy is well, an analogy, not intended to be taken too literally.

If it makes IP critics happier, I could call “intellectual property” something else. Say, “intellectual schmoperty,” or more seriously, as I experimented with a few years back, a set of special default rules for contract (that happen not to require privity). But whether one calls it property or not, the substance of the debate about its merits remains the same, and one can still make analogies.

B) The second point where I suspect we ultimately differ is in the nature of the fences that Jim talks about and the sort of fences that I would describe. Fences are definitely important. Physical fences are the most basic, and then there are also legal fences, either contractual or statutory. But did Jim mean there could be only physical fences? (I don’t think he meant that, that would be Hobbes not Locke).

Either way, fences have costs; keeping the costs of the fences low is important. Physical ones are nice because they are relatively self-enforcing and therefore cheaper–even after development costs (which are internalized by the fencer and so kept in check). For legal bounds, they can’t usually be self-enforcing, but it is better if they are somehow enforceable. Contracts that make a simple trade are best; you give me money, pretty much simultaneously I give you an apple, done. Then comes contracts that involve relations that are more remote in time in place… they get awfully complicated. And then finally comes statutes, which are the most complicated of all, and start involving rent-seeking risks and a load of other stuff. Last-resort rules and last-resort enforcement institutions that have not evolved nearly as fast the private economy (a government failure, if you would, rather than a market failure).

So what do we do in an environment where fences of any kind have suddenly become almost impossible to maintain? We could just . . . let it go. But I think that this ends up in a world that is a little too close to Hobbes for my taste, or for investor’s tastes. So where I ultimately differ with Jim is in thinking that it is all right to tinker a bit at the margins with the substantive ground rules to help the fences take shape and maintain some semblance of integrity. Nor do I think the burden of bearing the costs of the fencing needs to be entirely on the owners of the property being fenced, just so long as most of it is.

But it is really a small difference. To make an analogy, Jim (Harper) would not like, I take it, legal rules restricting the proliferation of specialized tools for opening locked car doors. I think that such rules are preferable to the alternative. But note that for me this is essentially an empirical question about the circumstances under which everyone is better off!!!! A very hard call to make on the basis of a priori arguments. Which is why I have booted IP into my mental category of hard problems.

Jim, go ahead and make your argument now about malum prohibitum, etc., if you want, I thought you were going to make that and I wanted to respond to that, too.

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