His talk was loosely focused on the role of law in the new economy. In his words, the product of the new economy is intellectual property. “The cardinal characteristic of intellectual property is that the making of copies is extremely cheap.” Wherever a producer incurs significant costs before being able to sell the product, he said, “the threat of copies – where the cost is close to zero – means that the producer of the intellectual property can’t recover their costs.” This, he concludes, drives a wedge between upfront costs (very high) and continuing costs (marginal).
He noted that if IP producers sell directly to their buyer (no middleman), then the producer can impose any contractual limitations they want. For instance, copyright law has firmly established that buyers of copyrighted works have the right to make a second “backup” copy. But you can waive that right by contract if you choose to. Similarly, you can contractually bind yourself to agree to never copy a copyrighted work – regardless of the actual copyright term as established by law.
Fair use reflects a belief that the “vitality and dynamism of intellectual property depends on the existence of a public domain.” The nature of intellectual property is that today’s producers build on a body of prior intellectual property by “ borrowing it” or incorporating those ideas into their own. The reason that public domain is so important is that the alternative – a model where any producer today needs an explicit license in order to incorporate prior work – would be stifling to creativity.
He noted that today’s IP – much of which is digital – is increasingly reliant on digital protections (i.e., encryption) to safeguard against unlawful copying. This use of encryption, he noted, can have the effect of shrinking the public domain – which can be damanging to the longer term goals of future creation.
“I’m concerned about the shrinkage of the public domain through the use of encryption,” Judge Posner started. “However, the issue with the DMCA is more complicated than that.” He noted that if you don’t have some limitations on the circumvention of encryption used to protect copyrighted acts, then you “set off an arms race between the offense (the circumventers) and the defense (the producers who use encryption to protect their property).”
He allowed that if you limit circumvention, you probably also have to limit the encryption that’s used too. He concluded this section by stating that the “technology may present challenges for the law that the law may not be in a position to rise to right away.”
Judge Posner talked at some length about the Tasini case, in which The New York Times was sued by a freelancer who didn’t believe the Times could lawfully include their articles in the Times’ online database without explicit authorization. Tasini, said Posner, “is a fairly literal-minded opinion of the Supreme Court”, and creates a cumbersome process of negotiation which is necessarily flawed. (“What do you about dead authors?”)
The decision had a “kind of futility” to it – in that it ends up frustrating both the Times and the majority of its authors who, by Posner’s estimation, “are perfectly happy to get the reach accorded them by being included in the Times database.” Most authors, he believes, want the widest possible distribution. For authors who wrote for the Times prior to Tasini, now the Times has to chase the authors down or the authors won’t get the benefit of that wider distribution.
The next topic of discussion was the question of whether software code can be copyrighted. The law says yes, and the fact that the code is read by a machine and not a human is “a detail.” Posner explains why this is important by saying that in the absence of some kind of property right, there’s no incentive to produce. This is a bit at odds with a statement he made in the prior section, where he noted that copyright law can be used to frustrate technical development (à la Tasini).
(Aside: Someone should tell Judge Posner it’s “say-ga” and not “see-ga”.)
Facts of the case weren’t entirely clear to Judge Posner: “for technical reasons I don’t entirely understand, Accolade had to make a copy of the entire Sega OS. It did that, made its game for the Sega platform, and then destroyed it.” The court held that since the purpose of copying was to further a lawful purpose, then the copying was a fair use. This was a daring interpretation, since the whole doctrine of fair use arose around the notion of copying “pieces” of copyrighted works and not the entire work itself.
Economies of Scale & Production and Network Externalities
Judge Posner touched briefly on the idea that as a firm scales, the cost of production goes down. The result? The IP producer has more customers and the value of the service goes up. The network externalities in this situation are twofold: the cost of producing such mass-market IP is high, and the lack of standardization necessary to encourage the growth of such networks is also very costly. Successful companies are able to both shoulder the burden of that cost and the effort required to build the standards. Of course, once someone successfully does both, they’ve got a monopoly. Judge Posner admitted that this was a tightrope of sorts. (No kidding!)
After the presentation, I asked Judge Posner about his comments on the DMCA. Weren’t the IP producers asking the legal system to create an environment in which it was impossible to break the law? In other words, today’s system is one that creates a framework for punishing those who break the law. But mandating anti-copying technology in new devices, for example, is radically changing the law’s role in the protection of intellectual property.
“Yes,” he admitted. “The law has limits, while the technology does not.” Furthermore, he said that because copying is so easy (he had not heard of Morpheus or Kazaa, but was intrigued to hear that they are incorporating offshore and building decentralized systems to be “better” than Napster), it is impractical (if not impossible) to punish the violators. So now the IP producers are stuck trying to use contributory infringement as a weapon to go after the companies who make the products. And the current law on the subject – especially Sony v. Universal Studios – suggests that contributory infringement is difficult when there are significant non- infringing uses of the technology.