An Introduction to Intellectual Property & Economics Class Notes: January 17, 2003 Law 507 | Intellectual Property | Spring 2003 Professor Wagner

Today’s Agenda The Basic Economics of Intellectual Property Intellectual Property & the Information Economy Thoughts on Economic analysis of IP 1/17/03 Law 507 | Spring 2003

The Economic Basis of IP U.S. Constitution, article I, § 8, cl. 8: [to] promote the Progress of Science and useful Arts by securing for limited Times to Authors and Inventors the exclusive right to their respective Writings and Discoveries. Ours is a Utilitarian approach: granting rights as a means to achieve social benefits. 1/17/03 Law 507 | Spring 2003

The Economic Basis of IP But why give rights in information, invention, or expression? IP is intended to solve a public goods problem INS v AP, 248 U.S. 215 (1918) [ Note: technological change interferes with established proprietary rights ] Protection of “hot news” as quasi-property (why?) Hot news as a public good: Non-rival Non-extinguishable 1/17/03 Law 507 | Spring 2003

The Economic Basis of IP INS v AP, 248 U.S. 215 What are the benefits of granting a property right in hot news? What are the costs? What is the “net”? (Benefits - costs = Net) What else would you want to know? What are the boundaries of the right established by the majority? Can you read the early paper and call the West Coast to discuss the news? Can you read the early paper and follow-up on the story? Consider institutions: is the judiciary the best institution (or an adequate one) to conduct this analysis? 1/17/03 Law 507 | Spring 2003

Intellectual Property and the Information Economy Barlow: The Economy of Ideas, Wired, Mar. 1994 Why is the shift from tangible ‘containers’ to intangible ones critical to Barlow? (What changes, exactly?) Does the justification/need for IP rights increase or decrease with: Lower costs of distribution and communication Increasing velocity of information diffusion How does Barlow suggest artists/inventors get paid? (Hint, think about his experience?) Will it work systematically, or only under certain conditions? In Barlow’s regime, who is vulnerable? 1/17/03 Law 507 | Spring 2003

Intellectual Property and the Information Economy Barlow: The Economy of Ideas, Wired, Mar. 1994 What does Barlow suggest will (and should) replace intellectual property law? Encryption: law? Or something else? Anything ironic about this? Is he right: are IP laws a “sinking ship” in the Internet context? 1/17/03 Law 507 | Spring 2003

Economic Analysis of Intellectual Property The Economic mechanism: IP rights => rights to exclude others Allows price to be set above marginal cost Note that marginal cost of information = 0 Returns allow recovery of investments, incentives Economic costs: Deadweight loss (reduced production) Less diffusion of information Races and rent-seeking Note that IP rights are not often “monopolies” In some circumstances, perhaps 1/17/03 Law 507 | Spring 2003

Economic Analysis of Intellectual Property The Basic Economic Challenge: Balancing Benefits vs Costs 1/17/03 Law 507 | Spring 2003

Requirements for Copyrightability Next Class Copyright I Copyright Basics Requirements for Copyrightability Reading Notes: Page proofs, not book 1/17/03 Law 507 | Spring 2003