Still on copyrights

In respectful response to Wannabe Lawyer Han's post (which, obviously, should be read in full first):

First, not being Lockean, I don't believe in a natural right to property. In fact, I am in complete agreement with the economic justification for property rights as put forward by Han:

We ask ourselves, what system of ownership of property is the most beneficial and least destructive to people and property... Furthermore, individuals are best able to calculate the costs and benefits that accrue to themselves in relation to usage of property, hence private property rights also allow for the most efficient usage and allocation of property.

So far so good. Not only that, I also agree that, as a corollary, property rights are not absolutes--they are not an end in itself but means to an end. (There are significant Rawlsian tendencies in my own thinking...) And from this, it follows as a matter of course that Intellectual Property Rights (IPRs) are not absolute or excluded from limitations.

But this is where the dispute begins, isn't it? From the mere fact that property rights in general are potentially subject to limitation, it does not follow that IPRs are subject to specific sorts of limitations, and where IPRs are subject to limitations, we need to know what the relevant grounds of those limitations are going to be. This is not even unique to IPRs--the same questions can be asked for every specie of property rights.

And here's the rub: it is entirely possible that two persons who agrees with each other on everything until this point may nevertheless fail to agree on the specific limitations that are appropriate to IPRs, a specific specie of property rights in general. They may agree--as in fact I do with Han--that limitations are appropriate to IPRs, but nevertheless disagree on the degree of those limitations--which is also the case, I suspect, between Han and myself. I do not think that the present copyright regime is perfect--it can sure do with a lot of improvements--but that's not the same as a critique of copyrights tout court.

Why might two persons (who are already agreed on so much) disagree on this? Perhaps because they have different takes on the larger economic consequences of the different possible degrees of limitations being proposed. So perhaps one thinks that an overly aggressive limitation of IPRs will dampen certain sorts of innovation by X degree (which can be lived with, all things being equal) while the other think that it will do much worse. That's certainly one possibility.

But I suspect that often enough, it's because deep down they disagree ideologically, or philosophically on the underlying grounds that justify those said limitations, on how rights when in conflict are to be balanced against each other, on what makes for an 'acceptable' level of this or that. Han's own formulation of the relevant ground confirms my own reading of the issue:

In fact, I would argue that ‘intellectual property’ rights should be even more aggressively constrained, for the simple reason that the ownership of ideas and expression of ideas fundamentally infringe on the human right to freedom of expression.

In other words, the issue is not purely economic, but an ideological or philosophical commitment to a "human right to freedom of expression", which (the ideological or philosophical dimension of the dispute), by the way, was exactly the lesson I learned from Henninger.

Unfortunately, this crucial point is not really developed by Han--I would certainly loved to see more it it. The rest of the argument are somewhat more economic in nature. Perhaps I'll say more about it in a future post. But for now, since I mentioned the bugbear himself, let me go on to a specific argument he made. Henninger close his column with this paragraph:

Some who will spend hundreds of dollars for iPods and home theater systems won’t pay one thin dime for a song or movie. So Steve Jobs and the Silicon Valley geeks get richer while the new-music artists sweating through three sets in dim clubs get to live on Red Bull.

Han replies:

This statement is so devoid of economic reasoning that I find it laughable Henninger writes for a supposed business newspaper. Comparing iPods to music and movie is like comparing Henninger to an economist.

Consider:

While production of iPods and music/movies both have initial startup costs (fixed costs), where both diverge is at the point of production. The marginal cost of producing 1 more unit of iPod is X, while the marginal cost of producing 1 more unit of song/movie is zero. Yes, that’s right, it costs zero to replicate a song or a movie file.

This is the fundamental difference between a physical object, and an idea/expression of an idea. And this is the precise reason why the fact that “information and data can essentially be replicated infinitely” is relevant. It is not possible to give iPods away for free because of marginal costs of production. Producers of music and movies bear no such costs to produce an additional unit of music or movie. That they have chosen to confine their product to a physical medium (CDs, DVDs, Cinema) is irrelevant.

But has he answered Henninger's implied argument? I am not persuaded. Let's see what Han and Henniger might agree on first. They would agree that the production of iPods and music/movies both have initial startup costs (fixed costs). They would also agree that while the marginal cost of producing 1 more unit of iPod is X, the marginal cost of producing 1 more unit of song/movie is zero (well, I'll put it at 0.000000X, but that's not essential).

Han says that while it is not possible to give iPods away for free because of marginal costs of production, producers of music and movies bear no such costs to produce an additional unit of music or movie. Yes...so?

First, it is not possible to give iPods away free not only because of the marginal cost of production--if I'm in the business of making mp3 players to feed my family, then I'd jolly well better make sure that the revenues cover both fixed and marginal costs. Otherwise, I am not in the business--even if I might still be producing mp3 players for other reasons, say, for the love of mankind, or just for the fun of it. If Han agrees that there are fixed costs to the production of music and movies--and books, and articles, and software, and so on--then why isn't the recovery of these costs a legitimate issue?

This is what I think Henninger is driving at: there are costs to the production of both iPods and the music they play. If it is right for makers of the one to charge such and such so as to recover those cost, why isn't it kosher for the makers of the other to do likewise. That in one case, the costs is a combination of fixed and marginal, while in the other case, it's all or almost all fixed doesn't seem to be enough of a relevant difference.

[I think this is Henninger's take: People who buy the iPods but download the music for free do the inconsistent only because it is just so easy to do the latter without penalty, and not because they would not have paid anyway. At one point he said:

I suspect most nonpaying downloaders acquired the habit because the opportunity came up so fast and was just so darn easy. Other than life itself, nothing in history that is so pleasurable has been available in such quantity, so easily for nothing or next to nothing, without health effects. If this were not true, half the nation wouldn't have white earphones grafted into their ears.

It is interesting to contrast this with something Matt Yglesias said that I will cite below.]

In fact, I made a similar argument in the comments to Han's original post using patents as my case example. (As another commenter pointed out, patents are not the same as copyrights--but--he also concedes, the cited consideration also apply.) And essentially the same argument is made in my earlier post.

But I'll let Han continue:

If consumers wish to buy the physical product, it is their choice. But where marginal costs of production is zero, how is it justified for them to force consumers to pay (via civil and criminal provisions)?

First, a minor point. The point of copyright enforcement is presumably not to "force consumers to pay". I don't download, I don't pay. I download, I pay. Those who do not want to pay could consider doing without--just as most of us do without expensive private jets. We don't think that someone without a private jet and couldn't and wouldn't pay for one is thereby entitled to one--even as we think that if there are those who would (and could) pay for such items--"it's their choice". So what exactly is the difference? Again, it's all supposed to be in the marginal cost.

Earlier, Han cites an argument by Matt Yglesias (Han's highlighting):

With rivalrous goods, theft can never be a Pareto-optimal exchange (i.e., it always makes the property owner worse off)… Intellectual property isn’t like that at all… with intellectual property, unlike with physical property, the socially optimal amount of infringing is non-zero.

Pareto-optimal instances of infringing use — which is to say instances that make some people better off, and no people worse off, than they would have been had the infringing not taken place People “steal” a file that, had they been unable to “pirate” it, they simply wouldn’t have bought. In a case like this, the infringer is made better off, and the copyright holder is no worse off than he would have been had the infringement not taken place. Indeed, the copyright holder may benefit through, e.g., higher concert ticket or merchandise sales or because the infringer exposes the work to a broader audience, some proportion of which winds up paying for the work. But — and it’s important to keep this in mind — the case for infringement in these cases where there’s no crowding out of purchases does not depend on the notion that the holder may reap some spillover benefits. The infringement itself, as long as it’s not a crowding infringement, is a benefit to society just on its own.

What this argument at best shows is that for those who would not have paid for the product anyway, their "pirating" does not hurt (and might even possibly benefit) the producer--as long as those who would have paid for the product continue to do so.

Think of it this way: suppose I as a producer spent millions of dollars producing a movie. Now, I am doing this to make a financial return. If ordinary cinema goers pay for tickets to watch the movie, I can still make a financial return on my initial investment (I'm simplifying--no action hero figures and other merchandizing, etc). And if, on top of that, those who in any case would not pay to watch the movie "pirate" it as a VCD, then I might arguably end up with a broader audience, etc.

So far so good...but what if before my movie even hit the box office it is "pirated" in the best DVD quality and as a result even those who would have bought tickets did not--then I'm in trouble. Let's skip the moralizing--calling what they do "stealing" does not help anyone (least of all me, the producer who has sunk millions of dollars in a project and will see little return for it). And if this becomes a regular occurrence, you can bet that I would get out of the movie industry and become a "pirate" myself--since that's where the money is.

The cogency of the Han/Yglesias argument depends on two interlocking claims about the relevant buyers and "pirates". That the "pirates" would not have purchased the product ("at full price") anyway; but more importantly, that there will continue to be people who could and would pay for the product so that the fixed costs of production (not to mention R&D) can be covered--even if IPRs are not enforced. I am especially not optimistic about the second.

I think what the argument as a whole points to is that the smart producer will find ways to ensure that while those who would and could continue to pay for the product, those who couldn't or wouldn't are given special deals. I take it that that's part of the point of student editions of popular software packages. Better still, lower the price of the product so that it becomes pointless to "pirate", so that even would be "pirates" find it worthwhile to become "legit" buyers. That's not a fundamental critique of IPRs as much as it is a critique of the business practices of certain corporations whatever the issue is with IPRs.

Secondly, I don't think the issue is about whether piracy is "stealing" at all. Rather, it is about the economic incentive structure of an IPR regime--both to buyers and producers. If IPRs are not enforced, why is it economically rational for those who used to be willing to pay full price to continue to do so? ("Because it's right" just doesn't cut it, for obvious reasons.) And why would it be economically rational for me, the movie producer, to sink millions of dollars into producing the movie when the chance of a return is so low? [See below for UPDATE--turns out that Yglesias did discuss the problem I mentioned.]

As Han himself would admit

No one is saying that the profit motive no longer matters.

That's right. On this score, let me also quote this bit that actually comes earlier:

Will people stop making music if they cannot sell through the labels? Will bloggers stop blogging because they don’t get paid per article? Do we despair of human ingenuity such that we cannot imagine new and alternative ways of monetizing our talents?

The real question we must ask ourselves, is whether stronger copyright laws truly benefit the real providers of creative fuel for artistic works, the musicians, the songwriters, the singers etc. Keep in mind, who the true copyright owners are. I provide the evidence, you be the judge.

The answers to the first question is: "Of course no"; the second: "We probably shouldn't". As for the real question: "By all means any IPR regime had better benefit the real providers of creative fuel for artistic works, the musicians, the songwriters, the singers, etc., and not the evil corporation, etc.--and that's a problem with the way the present IPR regime is applied, not with the fundamental idea underlying it (at least those ideas I alluded to above)."

Let me emphasise again: I do not believe in the unicorn of natural property rights and ipso facto, natural rights to intellectual property. IPRs are justified (at least partly) by their economic effects and can be limited by other considerations (e.g., rights and liberties). I agree precisely with Han (citing Matt Yglesias) that:

the issue in play here is that the purpose of intellectual property laws is "to encourage innovation and creativity, and not to create and preserve asset titles for corporations and individuals".

I would add: "Amen!" followed by: "How else could it be?" [Further question: how do we balance the right to freedom of expression with the social benefits of innovation and creativity?]

I do not think that the present IPR regime should be strengthened (or weakened, or whatever)--I have no particular take on such matters. My gut feeling is that it should probably be weakened in some areas, more flexibly applied in others, but I'll have to trust to the lawyers and economists to work out the details; my bone is with the broader philosophical picture.

Furthermore, I believe that anyone who wants to be in the ideas business not for profit should be allowed, nay, encouraged to do exactly that. And even if there are no IPRs, people will still continue to be creative--the human race did fine for a long time before the coming of IPRs.

My main contention: IPRs make it possible for someone to make a financial return on his investment into coming up with something the production of which involves high fixed costs, but the reduplication of which involves negligible costs. In other words, IPRs created financial incentives of a certain specific sort where none existed before. The corollary is that weakening IPRs will obviously not dampen creativity across the board--it will only dampen creativity in a very specific realm, i.e., those who would have gone into the ideas with high fixed costs business expecting a financial return looses their financial incentive to do so. Now it is entirely debatable how important is this specific realm in the total economic picture, and I am certainly open to arguments, though my gut feeling is that it is probably more important--to the modern global economy and to the present rate of improvements to our standard of living--than might appear at first sight.

That said, I hope it is amply clear that it is not as if I disagree with everything that Han wrote. In fact, I wonder if any disagreement is due to the fact that while I think his strongest case is for a more nuanced, more flexible application of IPRs, something I could wholeheartedly support, he presents his arguments as if against the very notion of an IPR itself.

Furthermore, like him, I have no illusions about present copyright holders. All successful enterprises want the market to be stacked in their favor while all still trying to capture a market share want the market to be as free as possible. So, it is not surprising that present copyright holders would have protectionist tendencies and would desire to hold on to their monopolistic powers for as long as possible.

But, again, this is not a problem with the notion of an IPR itself even if it calls for a better, more socially responsible implementation of such rights.

UPDATE: Ivan, who left various comments on both Han's and my posts on this matter has made a few interesting points that I though should be cited here.

First, in a comment (left for my previous post on this matter), Ivan also points to a suggestion that has been floated, "to champion the dissolution of music/media distribution giants like bmi, emi, sony warner etc, and establishing smaller individual distributions that are more connected to the artiste". This relocates the IPRs to the artistes from the big corporations. Would that help?

Second--he didn't quite say this--as suggested by his comment to Han's post, I wonder if most (if not all) of his concerns would be met by a stronger, better defined legal framework for fair use?

UPDATE 2: My comments on the Han/Yglesias argument turns out to have been anticipated in Yglesias' original post--in his discussion of "crowding":

Which isn't to say that willy-nilly infringement is a good idea. Obviously some -- and perhaps most -- infringement really does crowd out purchases. But not only is it the case that much file sharing is non-infringing, much infringing doesn't crowd out, and eliminating non-crowding infringement would be bad. The purpose of the copyright system is "To promote the Progress of Science and useful Arts" and the total elimination of infringement is not a policy goal that serves this end. Curbing infringement to some extent does, but even this needs to be weighed against the other costs. It's also important to note that the balance is different from medium to medium. There really would be very few films made without the possibility of generating windfall profits, and certainly many films that exist now would be totally impossible to make without such a possibility, because the fixed costs are too high. Music, I think, isn't really like this. The industry would be very different if it somehow became totally impossible to make money by selling recordings, but people would still write and play rock songs even if live shows and merchandizing became the only way to generate income.

Note to Han: should have included this bit because it makes your argument much more sensible. In other words, the claim is not that all IPRs in general are such that infringement does not crowd out purchases and is hence socially optimal; rather, that in the specific case of a particular industry--music--most instances of infringements (i.e., via filesharing) do not crowd, and furthermore, and eliminating non-crowding infringement would be bad. I wouldn't know enough about the music industry (or the practices of filesharers) to really agree or disagree, but my gut feeling is that this does sound right--at least to some degree. A residual worry remains, however, as to how a legal framework can be nuanced enough to tell the difference between the good vs. the bad sorts of infringements (and whether any sort of enforcement will of necessity have to ignore the analytical distinction between them). But I'll leave that issue to others.