This being All Hallows Day, Google is resuming scanning copyrighted books under its Library program, as it said it would. So one can expect a new spate of commentary.

Not from Patrick, though, who has sworn off blogging on the topic (Hah! We'll see how long that resolution lasts when we waft under his nose the tempting aroma of the ink from some new outrageous comment!)

He has a point, though. The volume of verbiage is so large that keeping up, let alone reacting, is a serious timesuck. But that in itself raises one of the most interesting parts of the debate -- why the issue is triggering such passions.

The controversy highlights one of the most important dimensions of property rights, in both theory and practice, which is that property rights regimes are not cast in stone. They are established under a particular set of technological and institutional conditions, and as these change some rethinking and evolution is required and inevitable.

Such change is tricky business, because any concession that property rights are malleable turns into a handy excuse for massive rent-seeking. One road to riches is to persuade governments to redefine property rights so as to take what other people had and give it to you, pleading the need for adaptation to new circumstances.

Risks of political entrepreneurship also abound. Once one accepts that every jot of property law is not a product of natural right, then one is on a slippery slope to a situation in which the right and power of the state to cut and trim property definitions as it chooses is paramount. Given the central planning assumptions that have dominated American law since the New Deal, and the statist impulses that dominate much of contemporary legal academia, the slope can quickly turn into a toboggan run.

Nonetheless, despite these serious risks of distortions that undermine the basic institution of property rights, to say that property rights morph with technical and institutional change -- and that this must be so -- is simply to state a historical truism.

It happened with the draining of the English fens in the 17th century and the enclosures of the commons in the 18th. Historians still argue over these events. Were they acts of blatant theft, or were the losers adequately compensated? What was the proper standard of compensation – the value of the right in the commons in its original state, or a share of the value as increased by the draining or enclosure and application of improved farming methods?

These same issues are at the root of the recent Kelo case and its ilk. In theory, the local government can use its powers of eminent domain to create unified parcels for development that could not be created by a private party because of the frictions of transaction costs and the problems of hold-outs and irrationality. Thus, in theory, the old holders can be compensated for what they lost and the enhancement in value captured by the community as a whole through the resale of the property and increased tax revenues. Everyone can be made better off through intelligent use of eminent domain.

The big problem in Kelo is that, in practice, too many contemporary uses of public domain are value-destroying. The costs of compensating the existing holders plus land clearance actually exceed the value of the newly-pristine parcel, and the community eats the loss to subsidize the friends of the city council or to capture the reputed gains of snagging a new big box store or auto assembly plant. Eminent domain becomes not a solution to a problem of irrationality or hold-out or transaction costs, but a way of doing deals that no rational private market would undertake.

A the Supreme Court of Michigan noted in County of Wayne v. Hathcock, 471 Mich. 445, 684 N.W. 2d 765 (2004);

[T]he landscape of our country is flecked with shopping centers, office parks, clusters of hotels, and centers of entertainment and commerce. We do not believe . . . that these constellations required the exercise of eminent domain or any other form of collective public action for their formation.

Again, though, to recognize the traps does not mean that there is not a core value to adjusting property rights, at some times. There can be clear gains to be had, usually in the context of networks or infrastructure.

Economic historian J. B. DeLong notes:

Doug North has made a career out of talking about how parliamentary government and independent courts established secure property rights in Britain, and arbitrary royal government and dependent intendants created insecure property rights in France, hence the English economy boomed while the French economy stagnated in the century and a half before the coming of the Industrial Revolution. . . . . [I]t is not at all clear to me that disrespect for private property rights is the root cause of the fact that France was several steps behind Britain in economic development.

Consider Jean-Laurent Rosenthal's work on Provencal canals. [The Fruits of Revolution: Property Rights, Litigation and French Agriculture, 1700-1860. Available through the magic of Google Scholar]. If you wanted to build a canal in eighteenth-century Provence, you had to get the active cooperation of--and suffer a potential holdup by--each individual jurisdiction along the canal's route. In England, by contrast, the King-in-Parliament would help you: eminent domain was there if you were politically well-connected and if you couldn't reach a satisfactory bargain for a right-of-way on your own. It is overscrupulous respect for "property rights"--the fact that that absolute monarch, that enlightened despot Louis King of France could or would not seize land for canals--that played a key role in hindering the development of commercial infrastructure.

You see the same conceptual problem at work earlier. The problem with medieval commerce along the Rhine was not that private property rights were not respected: part of the Rhine barons' property was that their permission was needed to pass through their jurisdiction, and so they could levy whatever tolls they wished on river traffic. The problem was that there was no central authority to expropriate the Rhine barons' property right to levy tolls on passing traffic.

So I want to see a detailed institutional history drawing the line between property rights that are good for commerce and growth--property rights that merchants and craftsmen like--and property rights that are bad for commerce and growth.

So, obviously, there was a massive transfer of property rights in the heavenly sphere away from landowners to the nascent aviation industry. You can say that property rights were simply redefined so as to recognize the reality that you do not really own all the way to the sky, or you can say that pre-existing rights were indeed taken, a la eminent domain, and that compensation was due, but that the value of the right to the landowner was zero, so the compensation due was zero. But there is still a redefinition involved because, obviously, the right to extract ransom from airplanes, once they have been invented, is not zero. (Help! I am trapped in an endless loop!)

Continuing the airplane example is also interesting, because landowners were not stripped of all air rights. They retained the right to reasonable use, as shown by the continuing litigation at the edges over the question where, exactly, do the rights of the landholder end and those of the air user begin? Causby involved a stream of heavy bombers flying over a chicken farm at 100 feet. The issue was whether this constituted a taking of part of the farm by the government for which compensation must be paid, and the answer was "yes."

Nor can the owner of an airport stint on the acquisition of the land underneath its approach lanes:

The glide path for the northeast runway is as necessary for the operation of the airport as is a surface right of way for operation of a bridge, or as is the land for the operation of a dam. . . . ". . . Without the "approach areas," an airport is indeed not operable. Respondent in designing it had to acquire some private property. Our conclusion is that by constitutional standards it did not acquire enough. Griggs v. Allegheny County, 369 U.S. 84, 90 (1962)

Nor can it demand that neighboring landowners cut down their trees to provide a better flight path:

[T]he County's interest is of little weight because the County acquired and operates an airport without having secured the property rights necessary to the desired level of operation." (County of Westchester v. Town of Greenwich, __ F. 3d __ (2d Cir. 1995).)

This still does not solve the Rhine castle question, where the technology is not new. Perhaps the principle can be cast as being that we will not give property owners the right to extract a ransom for not blocking networks when they do not contribute value to those networks, prospectively or retroactively.

Under the airplane cases, though, where the new technology causes harm to the values that existed before, the owner will be compensated. BUT, even this principle is not solid if the harm is small enough and the transaction costs large enough. The Supreme Court once ruled that landowners must eat the smoke damage caused by the ordinary operation of railroad, though they are entitled to compensation for the damage caused when the smoke is collected in a tunnel and then blown out on one spot. Richards v. Washington Terminal Co., 233 U.S. 546 (1914):

That the constitutional inhibition against the taking of private property for public use without compensation does not confer a right to compensation upon a landowner, no part of whose property has been actually appropriated, and who has sustained only those consequential damages that are necessarily incident to proximity to the railroad, has been . . . generally recognized . . . .

The immunity from liability for incidental injuries is attended with a considerable degree of hardship to the private landowner, and has not been adopted without some judicial protest. But, as pointed out by Chief Justice Beasley in the Beseman Case, 50 N. J. L. at p. 238, if railroad companies were liable to suit for such damages upon the theory that with respect to them the company is a tort feasor, the practical result would be to bring the operation of railroads to a standstill. And, on the whole, the doctrine has become so well established that it amounts to a rule of property, and should be modified, if at all, only by the lawmaking power.

But the doctrine, being founded upon necessity, is limited accordingly.

This is not an easy case. Surely one owns one's own organs. On the other hand, a used spleen, disconnected from its one-time user, is devoid of value, except to someone with the technical skill to use it as raw material for transformation into something valuable, so perhaps the property rights should be assigned to whoever can exercise that skill.

(Actually, if the value is known ahead of time, then the patient gets it because he can bargain with the doctors over the right of removal. But if only one in a great many spleens has value, and if that is known only after removal, then maybe both efficiency and justice are served by assigning the property right to the medical technicians to give them an incentive to sift through spleens.)

Finally, consider the recent Tasini case (2001) in which authors argued that their contracts with newspapers did not allow the papers to put the articles into computerized databases, such as Lexis. The U.S. Supreme Court found for the authors, but it took a pretty crabbed view of the matter; the whole thing turned on the details of the definitions in the copyright law. Only Justice Breyer, in dissent, had a broader context:

Nor is it clear that [an author] will gain any prospective benefits from a victory in this case. As counsel for petitioners represented at oral argument, since 1995, the New York Times has required freelance authors to grant the Times "electronic rights" to articles. . . . . And the inclusion of such a term has had no effect on the compensation authors receive. . . . This is understandable because, even if one accepts the majority's characterization of the Electronic Databases as collections of freestanding articles, demand for databases like NEXIS probably does not reflect a "demand for a freelance article standing alone," ante, at 11, to which the publishers are greedily helping themselves. Cf. Ryan v. Carl Corp., 23 F. Supp. 2d 1146, 1150-1151 (ND Cal. 1998) ("[T]he value added by the publisher to a reproduced article is significant").

Thinking about Google Print in the light of this history provides no quick answers, but it does introduce some useful considerations. Primarily:

+ One should not assume that the correct answer can be quickly found by dissecting the entrails of existing copyright cases. The principles are important, but the details are not.

+ Reasonable people can differ. For example, Patrick tends toward the publishers side; I tend toward Google's, though with profound reservations because I cannot solve the problem of what to do when others demand the same privilege. Google is special, but that is hardly a legal doctrine.

+ It is true that Google is relying on the value of the underlying property to make its network valuable, but that is always true of networks. If the authors are not contributing to the creation of additional value, then their claim on it is weak. "It's mine" is not a convincing argument in a time of technological change. We want property rights regimes that favor doers rather than rentiers.

+ The point about "property rights that merchants and craftsmen like" and that are good for economic activity is crucial. See the continuing discussions here of The Not So Wild, Wild West.

As a side note, the complexities of the technological change issue explain why IPCentral.Info rarely argues by saying "that's the law." We always like to go back to the first principles of why property is a good thing.

posted by James DeLong @ 10:59 AM | Books

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