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.