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Socially Optimal Piracy

As Atrios says, "You can get much better IP law discussion elsewhere, which is why I mostly stay away from it." But lately I've been thinking that this is a bad policy to adhere to. The issue is a very important one, and leaving in ghettoized in communities with specific interests in technology or in the law is a mistake -- the broad public of people with a general interest in politics and policy ought to be engaged with this, and that's the audience that blogs like Eschaton and this site serve. I'm not an expert in the matter, but I'm not a real expert in anything, and you wind up learning a lot by blogging about something consistently, since you get valuable feedback, disagreement, correspondence, etc. As Duncan says, 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'm all for innovators and artists being able to profit from their works, but the ability to do so is a means to an end, not the end itself. The end itself is supposed to be a benefit to consumers in the form of more new gadgets and more and better chick lit." Two important things follow from keeping your gaze where it should be, on the public's interest in innovation rather than the author's interest in income-maximization.

One -- and this is the main point made by the respondents in the Grokster case -- is that some efforts to curb infringing use will have sufficiently bad spillover effects as to make them undesirable. Shutting down peer-to-peer file sharing networks will, of course, reduce the quantity of infringing copying of music and other content. But it will also reduce people's ability to distribute public domain works or to engage in authorized distribution of content (as with the "16 Military Wives" video). Moreover, the rule that the petitioners want to create will have a stifling impact on innovation in a broad sphere of activities, including software development, consumer electronics, and the provision of internet services. The public's interest in creating strong financial incentives for the creation of new works of film and music is real, but it's not so overwhelmingly real that we should sacrifice everything else on the table in an effort to minimize infringing uses.

There is, however, a secondary point that is in some ways even more important, though the respondents don't like to make the argument for legal purposes. This point is that with intellectual property, unlike with physical property, the socially optimal amount of infringing is non-zero. With rivalrous goods, theft can never be a Pareto-optimal exchange (i.e., it always makes the property owner worse off) and while there are probably occassional instances of theft that help improve social welfare (the proverbial man who steals a loaf of bread to feed his starving familty) this sort of thing is, in fact, exceedingly rare, especially in a developed country where, though poor people face a lot of very serious difficulties, nobody actually needs to steal to avoid starvation.

Intellectual property isn't like that at all. 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 -- are exceedingly common. Indeed, it seems to me that most copyright infringement is like that. 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.

In cases of real property, of course, we need to balance the undesirability of theft against the costs of enforcement. No big city tries seriously to bring the rate of theft and burglary to zero because the costs of doing so would outweigh the benefits. But if there were a cost-free mechanism of accomplishing this goal, any sensible mayor would implement it. The stealing, as such, is always a bad thing. Intellectual property is different. Establishing the death penalty for copyright infringement would probably bring its incidence to almost nothing. But not only would this be grossly disproportionate to the scale of the wrongdoing, eliminating infringement would actually be a bad thing, over and above the issue of negative externalities the Grokster respondents are raising.

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.

And lest I be accused of writing a merely self-justifying post, note that I am a professional intellectual property creator myself and I think the argument applies to my work very strongly. The idea that people would stop producing works of punditry (actual reporting is different, but an increasingly small proportion of aggregate journalistic activity) if it became impossible to make a large sum of money doing so is clearly absurd. Note the large number of people blogging for free, as well as the widespread eagerness to appear uncompensated on cable television or talk radio. Protecting our works from infringement should be a very low social priority, though developing an operationalization of the reporting/opinionating distinction workable enough to completely eliminating IP propections for opinion writing is probably impossible.

March 28, 2005 | Permalink

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» IANAL from Begging To Differ
...although everyone else here probably is. But I'm still getting excited for this week's high-stakes high-court action: MGM v. Grokster. Arguments begin tomorrow, and nobody knows how the P2P industry will fare. Everyone seems to agree that the most r... [Read More]

Tracked on Mar 28, 2005 4:26:55 PM

» A-listers on the Copyfight from Copyfight
Via Cory comes the news that a few "A-list" political bloggers are (finally) discussing the need for balance in intellectual property law and policy. Check 'em out: Atrios @ Eschaton: "Once upon a time it seems we had a better... [Read More]

Tracked on Mar 28, 2005 7:06:28 PM

» Matthew Yglesias: Socially Optimal Piracy from Jake Savage
Matthew Yglesias posts on the social benefits of music piracy. Interesting discussion in the comments. [Read More]

Tracked on Mar 29, 2005 10:47:38 PM

» What copyright is. from Electrolite
Responding to a Washington Post editorial about MGM v. Grokster, Matthew Yglesias makes the necessary point: [T]he editorial suggests a... [Read More]

Tracked on Mar 30, 2005 11:55:21 AM

» What He Said from Copyfight
Matthew Yglesias was evidently quite serious when he pledged to start writing about the copyfight (see Socially Optimal Piracy): The idea that intellectual property law should have the protection of intellectual property as its purpose rather than as t... [Read More]

Tracked on Mar 30, 2005 3:27:48 PM

» Matthew Yglesias: Socially Optimal Piracy from Jake Savage
Matthew Yglesias posts on the social benefits of music piracy. Interesting discussion in the comments. UPDATE: Marginal Revolution adds a couple of points. [Read More]

Tracked on Apr 1, 2005 8:09:35 PM

» IANAL from Begging To Differ
...although everyone else here probably is. But I'm still getting excited for this week's high-stakes high-court action: MGM v. Grokster. Arguments begin tomorrow, and nobody knows how the P2P industry will fare. Everyone seems to agree that the most r... [Read More]

Tracked on May 19, 2005 2:11:37 PM

Comments

Have to disagree with Atrios: when this kind of battle breaks out between Great Powers, it may at first appear that there is hope that the outcome will be good for the little guy. But like Belgium, twice caught between Germany and France at war, that never turns out to be the case.

My prediction: the movie companies, big publishers, hardware makers, and Microsoft will jockey around a bit, trampling some mice in the process. Then they will sit down behind closed doors, reach an agreement that gives them each a slice of the pie, and take it to Congress (cf Orrin Hatch) as a "united front".

The interests of citizens and non-commercial artists will of course be utterly destroyed in such a process.

Cranky

Posted by: Cranky Observer | Mar 28, 2005 1:08:06 PM

I think the problem with your argument is that it is probably impossible to devise rules that allow the "good" type of infringement and not the "bad" type of infringment. Thus, any enforcement regime, strict or not, will prevent (and effectively allow) the same proportion of "good" and "bad" infringement. If we determines that the "bad" outweighs the "good", then society has an interest in reducing it to zero (subject, of course, to the same kind of enforcement cost and proportionality concerns that apply to what you call "real" property.*) If the "good" outweighs the "bad", then society should just throw IP law out the window.

*"Real property," of course, legally speaking, is only real estate. You obviously were not using the term in this sense.

Posted by: LarryM | Mar 28, 2005 1:10:01 PM

I think you are buttressing up against some areas where the financial payoff can actually decrease the value of the products.
For instance, if there were no real money to be made in music, at least from IP restrictions, music would still get made, and there is an argument to be made that the results might be better than the status quo. I am not prepared to endorse that argument, but I am also not ready to dismiss it entirely.
With sports we have a similar situation where the very high salaries offered to sports figures provides a very high skill level of, say, basketball, but it is at least arguable that the entertainment value of the sport might be better with less skilled players (still the best in the world, but without the increased financial incentive), that played the game for reasons other than a gigantic financial payoff.
Factoring the societal costs of NBA stardom aspirations creating perverse incentives among youth that are very unlikely to acheive those goals, there is a lot of room to argue that the current status quo is broken in as much as it does not provide the best incentives for societal well being.

Posted by: theCoach | Mar 28, 2005 1:28:26 PM


A couple of problems:

1) "Broken windows" issues. Toleration of socially-positive infringing may very well create a culture of widespread socially-negative infringing. Thus not tolerating socially-positive infringing may have a better outcome than tolerating it.

2)Infrastructure issues. If the only way to create a workable socially-positive sharing network is to allow socially-negative piracy, we might very well be better off without the networks necessary to support socially-positive sharing. This might happen if there just aren't enough eyeballs for freely-sharable content to support the servers and bandwidth.

In practice, I'm pretty sure we've seen both of these sort of effects.

Posted by: dave | Mar 28, 2005 1:30:47 PM

NPR closed its coverage of this case by nothing that Sony would likely continue to sell the products after striking a deal with the IP owner to PAY license fees. Now why the attorneys did not strike this deal earlier is beyond me.

Posted by: pgl | Mar 28, 2005 1:35:38 PM

Actually Matt's misuse of the term "real property" actually made me think. There is, of course, the concept of adverse possession, whereby if one's use of the land is open and notorious for a certain period of years, determined by statute, you can get title to it. One justification is that your use of it is more productive than the owner's would be. He hasn't bothered to kick you off of the place for 17 plus years or whatever the terms are.

Now maybe we don't think that land that isn't being farmed or lived on is a waste. Wilderness preserves anyone? But in that case it's our duty to police them and kick the squatters off.

Posted by: Abby | Mar 28, 2005 1:38:20 PM

Yeah, I think the word Matt is looking for is "tangible," not "real."

Posted by: Colorado Luis | Mar 28, 2005 1:40:51 PM

I don't think your argument quite holds, Larry. I think you're quite likely correct that we can't eliminate "bad" infringement without eliminating "good" infringement, barring radical restructuring of our IP system, but it could be that the first few incidents of infringement have "bad" incidents with very low costs, and "good" incidents with very high benefits. So at the margins, perhaps "good" infringement has diminishing marginal costs, and "bad" infringement has increasing marginal costs? I don't know if this is true, but I find it reasonable. Abolishing IP laws entirely would mean virtually no one would buy CDs -- or, rather, no one would buy those $14 CDs linked to the artist: they'd either download or buy $1.50 CDs from (legal) bootleggers. Abolishing piracy would mean no one would get the free music, even those with no ability to buy it legitimately. It is perhaps true that, for every level between abolishing IP and abolishing piracy, there's socially good and socially detrimental piracy, but it's also possible that there's a level that maximizes the social good minus the social detriment.

Posted by: Julian Elson | Mar 28, 2005 2:06:29 PM

Nitpicking time. The Atrios link describes a patent case. Music "piracy" is a copyright issue.

Patents
- are given for new and non-obvious inventions
- prevent others from making using or selling something described by a claim.

Copyrights
- outlaws copying of books, music, film, software.

The term "intellectual property" is an unfortunate neolism. "Intellegence" is important and "property" is important, but they are not two great tastes that taste great together. They really are at cross purposes.

If it made people better off we could get rid of "intellectual property". Just change the laws. Getting rid of actual property would be significantly more challenging.

Patents and copyrights are meant to spur the creation of new works and technologies. Both can protect certain works and technologies that would have been created anyway. One way to reduce this problem is to use subject matter distinctions like MY does.

As for copyrights, if congress passed a "Screw Metalica Act of 2007", removing copyright protection for music; MY is right that overall utility would probably go up. On the patent side, protection for pharmaceuticals may spur innovation, while protection for software may reduce it.

In a side note, in the nineties the US was pressuring China to cut down on software and film "piracy". China offered to execute some guys. The US didn't take them up on the offer.

The efforts of net IP producer countries (like the US) to pressure poorer net IP consumer countries to change their laws to the advantage of companies in the net IP producer countries has been pretty despicable. The term "intellectual property" with its natural law connotations significantly aided in this process.

Posted by: joe o | Mar 28, 2005 2:14:13 PM

I must say my life has change since I came to the blogoshpere at least in the intellectual sense. And it’s all because I could access free stuff that I would have had to pay for before, or go spend long hours in the library – which I used to do. I use the indices of what is the most linked articles and have found material that I would never have found looking on my own. Most of it (if not all) were there for my taking. I guess I’m to MSM what the downloaders of music and movies are to the industries that produce it, but of course the MSM puts the stories up there for me to read (take) – they get their reward elsewhere I guess.

If all this apparently free music had been available when I was young, I would have taken it also. I used to tape songs off the radio, but of course it did not have the quality today’s downloaded songs do – but it was stealing just the same. Anyway, it did not seem to put any music company out of business, but this current form of downloading will or so they claim.

Would the taking of intellectual property have a chilling effect on its creation? I think creativity will find new creative ways of being rewarded. So a singer can’t make as much money selling records as he or she used to because the downloaders eat away at any profits and thus no company will produce it. On a fully intergraded, fully accessed, high speed internet, one performance could produce more money for the creator of the music than they would get as a small piece of some recording companies action.

I’m hoping the internet is going to do away with the middle men between the artist and his or her audience. How this could be done for movie makers, I don’t know. Maybe the producer would have a site and for a price of a today’s movie ticket, you get to see the latest movie. Subsequent runs would cost less and less until it reaches a price where it would not be worth buying a pirated copy. Or like old news, if you want it, you can have it.

No doubt the current market structure of producers and distributors will try to keep this from happening. But like the MSM and blogs, they need to learn a whole new world order is upon them.

Posted by: scou29c | Mar 28, 2005 2:16:20 PM

Dave,

If you change the laws, there is no "infringing".

Posted by: joe o | Mar 28, 2005 2:23:26 PM


If you change the laws, there is no "infringing".

I wrote sloppily. My arguments are unchanged regardless of the legality or not of sharing, merely on it's social costs or benefits. Replace "infringing" and "piracy" with "sharing" in my post and the points stand unchanged.


Posted by: dave | Mar 28, 2005 2:54:38 PM

dave,

If you are allowed to copy something then copying should be encouraged. There are no broken windows. It isn't a problem if copying leads to more copying, just as it isn't a problem if learning leads to more learning. If music copying were allowed, clearly legitimate music sharing technologies would be created that would exclude other uses.

Posted by: joe o | Mar 28, 2005 3:11:57 PM

"I’m hoping the internet is going to do away with the middle men between the artist and his or her audience."

Most of that $14.95 per cd of course goes to the distribution system, the artist receives very little. Most artists, as they have for centuries, make their living off live performance. I don't think Mozart had much protection for his scores.

Yet the distribution network has a lot of value. There was a great experiment called MP3.com, in which unknown artists uploaded their music for free or cheap download. Most artists remained unknown and few were downloaded.

"Development" is top-loaded, with the vasy majority of bucks going to the possible windfall profit hit possibles, and very little to the niche markets. So "infringing" is indeed damaging to Brittany & Co, tho it would likely be helpful to the Decemberists.

Newberry Long Tail

Posted by: bob mcmanus | Mar 28, 2005 3:54:16 PM

Well, one good thing to do at the start of this debate is to completely ignore the entertainment industry. Music, movies etc are meaningless in this debate.

This debate is about pharmeceuticals. Nothing that can seriously impact the pharmaceutical industry is going to be allowed to occur in the entertainment industry. No matter how much sense some compromise might seem to make, it will die if it will cost Pfizer money due to precedence.

Posted by: Njorl | Mar 28, 2005 4:03:48 PM

Joe O gets. Matt, you're out of your depth here. So was Atrios. The issue at question, Immersion v. Sony, is a very clear cut case of patent infringement. The original case was Immersion v. Sony & Microsoft. Microsoft, maybe because they have money to burn, or maybe because they have smarter lawyers, settled early. Sony's been dragging the case out for years. Why? Probably because they make a lot their money from video games, whereas Microsoft doesn't.

Immersion is a relatively small technology company (100+ employees, $20 million in revenue), and this case is (was) for the most part a do-or-die situation. Had the company lost, it is doubtful that it could have continued on as a going concern. But having won - first the initial judgement, and now today's $90 million ruling - Immersion is going to turn a profit on its intellectual property. I see no ambiguity here. Read the company's literature and you'll see that their business model is built around dominating the market for haptic technology. Very much an IP-, patent-centric strategy.

The real story here is that two multi-billion dollar monster companies ripped off tiny Immersion and have been made to pay. The judge's ruling today pretty much added up to saying that Sony stole $90 million. Maybe we should be talking about instituting criminal penalties for such blatant thievery.

Posted by: bling | Mar 28, 2005 5:05:48 PM

Its somewhat silly to write a long post discussing the difficult task of finding the pareto optimal levels of copyright protection, then to dismiss with a wave of the hand the idea that reduced copyright protection of music might lead to reduced production of music, with just this sentence: "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."

Ok, SOME people would. Others would get day jobs. How many? Doesn't this imply that the real loser would be the small bands who don't tour, and don't sell much merchandise? Doesn't that suggest a likely homogenization of musical production towards large budget popular music, even further than today's system does?

There's also a few other unintended consequences to be addressed. What legal doctrine regarding intentionally aiding a wrongful act could be used to exculpate Grokster? What effect would that have on other people who knowingly aid other wrongful acts? Leaving what the legislature may or may not do aside, the criminal and liability law aspect of this is at least as interesting as the intellectual property aspect. I don't really know how this one will work out, but I do know that the idea that a technology ought to have a "substantial" non wrongful use rather than a mere existant one, probably won't destroy the internet.

Posted by: Patrick | Mar 28, 2005 5:30:53 PM

I suspect bling is right in a way, both Matt and Atrios took this one case, to take a swing at a completly different issue. Patents and IP sharing are different matters completly.

I don't think the patent system is a problem. Vague patents are.

But it really doesn't diminish what Matt said, which actually is a very interesting way to look at it, from an economic wonk point of view.

Patrick:Actually, those small bands don't sell very many CDs. They mostly do have day jobs, and make some extra money playing music in bars and the like at night. IP laws don't really affect them all that much in any way.

In any case, what the Grokster case is about is controlling methods of promotion. No article should be written about this subject without mentioning it. The labels are terrified that the next Elvis, Beatles, U2, Nirvana will come and go and decide to make a go of self promotion and distribution. And they'll be amazingly successful, and then the horses will finally have bolted.

They've convinced the MPAA to go along with it, mainly because the MPAA believes the hype, but they, with exploding DVD and theatre receipts, only have potential future losses, not actualized ones.

Posted by: Karmakin | Mar 28, 2005 5:44:32 PM

Patrick,

Getting rid of copyright protection for music can still improve utility even if the total amount of music production is reduced. It is not like people would run out of music to listen to. Some people would still make music for other reasons. And, "small bands who don't tour, and don't sell much merchandise" don't sell too many CDs either.

Posted by: joe o | Mar 28, 2005 5:49:53 PM

Intellectual property is theft.

Posted by: epistemology | Mar 28, 2005 6:47:46 PM

I can tell that there are not many artists, musicians, or authors reading this blog. Try to find some analogies between what you do for money and what an artist does for money. Everyone who "works" labors to creates something in exchage for money. Try to imagine how you would feel if someone took the product of you labors but didn't pay you. Say you flip burgers. You make a hamburger but the people eat it and then sneak out. There is no difference between that and copying a CD.

It's really pretty simple. I'm not a libertarian but I think that the encouraging innovation and benefiting the public argument is way beside the point.I think that if I make something then that is my property. If I make a chair, it's my property. If I raise a crop, it's my property. If I build a house, it's my property. If I write a song, it's my property. That's just plain common law.

It is also common law that I have the right to place conditions on the sale of my property. The constitution doesn't give me this right, it limits my right. It says, for the public good, I can only control who copies it for 80 years (or whatever it is now).

All this talk about musicians should make their money touring or whatever is pure hypocritcal BS.


Posted by: cw | Mar 28, 2005 7:46:00 PM

What I find strange and irritating in these discussions is that no one ever mentions the huge and long-standing non-IP isntitution we already have for encouraging intellectual production, namely the university system.

The whole idea of universities is that creators of scientific research need to be rewarded, but that providing these rewards by allowing them to exclude others from the products of that research is unworkable for lots of reasons. So we provide them with incomes thru a mix of public subsidies and a gatekeeping function for the middle class (aka "teaching"), and incentives thru a system of peer review, tenure, etc. It seems to work rather well, all things considered.

I don't know that eliminating copyrights for music plus increasing incomes for music-makers by subsidizing conerts, making music proficiency (and tehrefore music lessons) a prerequisite for high-status jobs, and of course increasing everyone's ability to enagge in creative activity thru a guaranteed minimum income or some such would increase the utility of both music consumers and producers. But I'm inclined to think so.

Posted by: lemuel pitkin | Mar 28, 2005 7:47:32 PM

cw-

I made my post at the same time as yours but I think it's responsive. There are other models for compensating creative work besides the copyright system.

Posted by: lemuel pitkin | Mar 28, 2005 7:48:46 PM

Lemule,

Professors work for universities under contracts that say that anything they create is the property of the University. The university then can do with the products as they see fit. Just like if I make a chair for you under contract. Then that chair is yours and you can do with it as you see fit.

About your second point, I don't think there is much chance of that ever happening in this country on any kind of large scale. I'd definitely sign up though.

Posted by: cw | Mar 28, 2005 8:39:48 PM

Professors work for universities under contracts that say that anything they create is the property of the University. The university then can do with the products as they see fit. Just like if I make a chair for you under contract. Then that chair is yours and you can do with it as you see fit.

Well, no. If I cite an article from an academic journal, I don't have to pay royalties to the author or the institution he/she works for.

And that's the whole reason I bring up universities. This is not a utopian fantasy, this is how we already much intellectual work in this country. Extending a similar model to music doesn't seem so far-fetched to me.

Of course it won't happen in the next couple years. Nothing good will. But one of these days, instead of Tom Delay and Karl Rove trying to turn the clock back 100 years, it will be us trying to turn it forward. Now is not a bad time to be thinking about what that could mean.

Posted by: lemuel pitkin | Mar 28, 2005 9:00:25 PM

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