Listening last week to Richard Epstein at the Federalist Society Telecom conference, I was delivered back into a time warp to law school and remembered the importance of defining default rules to facilitate bargains and transactions.

The broad question vis a vis intellectual property rights then would be what default rules would best facilitate the creation and production of optimal amounts of intellectual property? Let's take two extreme versions of possible default rules, assuming again a default background of contract rights.

The first set of default rules would have no IP rights. Nothing would be patentable, nor copyrightable; and, short of physical appropriation, everything would be "free." The alternate universe would have strong IP rights, no "fair use" rights and grant the creator complete control over all the terms, rights and conditions of use.

In the no-IP world, creators of IP will have to rely on contract rights and on maintaining privity of contract with those who purchase creative works in order to extract value. Similarly, the creators would invest heavily to maintain trade secrets, since disclosure would mean loss of the ability to draw value from the innovation or creative work.

By contrast, the strong-IP world would have more limited dissemination of creative works because of the creators' pervasive control. That said, I still imagine that 'fair use' rights would emerge through negotiation away from the stronger default rule. Creators would want some free uses of their product to encourage its use. Indeed, many creators, no doubt, would give away their content -- either because it has no positive market value or because non-pecuniary interests predominate their values. (Hence scholars might abjure IP rights to disseminate their ideas and further the cause of knowledge, or -- in less exalted way -- Sports Illustrated might give me 3 'free' issues to get me to realize the value of their product.)

To be sure, the difficult, real world questions happen short of these extremes and I am missing many subtleties. But I think it's clear that a stronger-IP right default world facilitates more creation and negotiation than its alternate. Moreover, the current default rule "fair use" right held up pretty well in pre-Internet/pre-digital age. Whether its contour needs to change in an digital, Internet age is a paramount question for copyright right now.

posted by Ray Gifford @ 3:41 PM | General

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