|
Following are excerpts from a panel discussion entitled "Property
Rights in the 21st Century," which was part of the Federalist
Society's 1998 National Lawyers Convention. The convention took
place November 12-14, 1998, in Washington, D.C.
The comments below are a transcription of oral remarks by the Honorable
Frank H. Easterbrook, United States Court of Appeals for the Seventh
Circuit. In addition to his position on the federal bench, Judge
Easterbrook is a noted scholar and a professor at the University
of Chicago School of Law. Judge Easterbrook's remarks have been
edited by the Federalist Society for publication in this newsletter.
For other excerpts from the 1998 National Lawyers Convention, please
see the upcoming issue of the Texas Review of Law and Politics (www.trolp.org).
JUDGE EASTERBROOK: The
prospect of applying good solid 18th century intellectual property
law to 21st century technology is bound to yield proposals for new
and better law to match the new and better technology. Are you frightened
by the idea of a patent on the human genome and products developed
from that patent? Well, like the Supreme Court of California, you
can just declare all of that information in the public domain. Or
maybe you could amend the laws to create... mandatory low cost licensing.
Do you get unsettled by the prospect that in the future [you will]
get your books and articles via the Internet, and that they will
come to you tagged or encrypted in such a way that the use you can
make of it is limited, or that you have to pay for additional uses
and dissemination? Well, you can forbid the encryption or tagging
process. Does a software license forbid disassembly of the object
code in search [of] the source code, and ideas about how to make
similar or sometimes cooperating products? Tell the author that
in the public interest, the law [will not] enforce onerous terms
and then leave it to wise judges to determine which terms are onerous.
[I have] come as a skeptic about the idea that new developments
in technology imply the need for new laws or new rules. And [I am]
skeptical for two fundamental reasons. One, we know so little about
the effects of current laws of intellectual property that it is
quite unrealistic to think that we would be able to know and choose
intelligently for new technology. And second, it is much easier
to design legal rules that hurt the process of the development of
intellectual property than it is to design legal rules that help
it. . . .
[C]onsider for a second a world in which the price of everything
equals the marginal cost. But if so, given that intellectual property
is costly to create and cheap to use, you [would not] be able to
cover the cost of creation. . . . Patent, copyright, trademark,
. . . trade secrets, [and] the rest of the law of intellectual property
create property rights that elevate the price of use above marginal
cost in order to allow the cost to be collected. And everybody can
see that [that is] in many ways a terrible compromise. But, of course,
is there anything better? To say improve is to suppose that we know
what the optimal trade off is between the creation of new information
and lower cost for using existing information. Well, we can test
whether we know the optimal trade off for . . . new technologies
by asking whether we know the optimal compromise for existing technologies.
So, therefore, I would ask you why exactly is it that patents are
17 years long, whereas copyrights are the life of the author plus
the future potential usefulness of Mickey Mouse? This is, I believe,
the algorithm Congress chose to choose the length of the copyright
period. Why is it? Well, it turns out that economists, people who
have studied for their career, do not have any answers to the question:
what is the optimal term? What is the proper extent of fair use?
Same problem. We [do not] have an answer to that, and, therefore,
one would be skeptical about our ability to improve.
Skeptical about that, one would ask who is the logical person to
devise the improvement. Well, the Academy? You [cannot] even pick
up a law journal these days . . . without it being full of proposals
for new and better changes in the law of intellectual property,
of compulsory licensing, of striking down foreign contracts, you
can name it. These proposals are themselves intellectual property.
And what do we know about intellectual property? Well, there have
been very interesting academic studies of the returns for intellectual
property. . . . Most patents are totally worthless. They never have
any return, and [that is] the same for most books which [do not]
pay off in royalties, and most songs which nobody ever sings. And
if you look in the ASCAP repertory, there is no return. [There is]
a small percentage of intellectual property that has some pay off
and a tiny percentage of intellectual property with big pay offs.
Ex ante, we [do not] know which of these it will be. . . . [For
example], [a]mong the people to whom [Chester] Carlson tried to
sell his Corona charging patent, which was the key to what he did,
was IBM. [You would] think IBM would be very interested in this
kind of technology. IBM commissioned a study from the very best
business consultants that money could buy, and they determined that
there would be no market for plain paper photocopying, and, therefore,
they turned down the opportunity to buy this patent . . . . There
was just no market for it. Ex ante, it turns out to be enormously
hard to distinguish what will be useful ideas from what are useless
ideas. And that proposition is as true of what [you will] read in
the law reviews about useful ideas for intellectual property law
as it is about Corona charging patents or which forms of biotechnology
will be successful. So [there is] reason for skepticism about the
Academy.
Now the legislature? Well, there [is not] any extra information
there, and there are, of course, interest groups who are very interested
in changing the law in a way that favors them at the expense of
. . . the rest of us. That has largely been controlled historically
because copyright and patent laws have been generic. And most of
the people you think of as interest groups are both producers of
intellectual property and consumers of intellectual property. But
if you think about [the] proposals, [their proponents do not] want
to exploit themselves as consumers. [So], many of the proposals
for adapting intellectual property law for 21st century technologies
would break down that organization of interest by having special
rules for biotech, [or] special rules for [other industries]. And
then you could be fairly sure that interest groups would dominate,
and you [could not] trust [that] the outcome would be in the public
interest.
Well, how about the courts as sources of these rules? There still
[is not] very much information about what optimal rules look like.
And I think judges are particularly bad at making legal rules for
four basic reasons. First, [they are] judges. Second, [they are]
lawyers. Third, [they are] ignorant and that is not redundant with
being lawyers. And fourth, they are incoherent. Briefly, [what is]
wrong with being judges? Well, IBM [did not] get xerography, [did
not] understand it even though its executives are highly compensated
for success and highly penalized for failure. If you fail in the
business world, you get kicked out. And even if you [do not] get
kicked out, your income from stock options and so on goes way down.
We think that in business, in trying to make these assessments,
these interest alignment devices and the possibility of being removed
for failure are terribly important. What we think in business is
terribly important is absolutely precluded in the judiciary. Judges
[do not] get any reward for better rules. And if they prove real
bad at devising rules, they [are not] fired. The second problem
is one of being a lawyer. . . . [L]awyers scarcely have social science
training, let alone technical training. . . . [W]hat a scientist
brings to a problem is we formulate a hypothesis, we figure out
how to test it empirically, we verify it or falsify it, and move
on. The standard drill in law school is people are asked to make
arguments . . . [b]ut talk is cheap. The question is: can you evaluate
what [you are] doing? And judges, as lawyers, are not trained to
do evaluation of the rules they make. [As for] [i]gnorance, I think
you can see the point about ignorance: if IBM is in trouble, so
are the rest of us. And incoherent? Well, one basic problem about
judges is that there are just too many of them. There are 650-odd
federal district judges, some of them more odd than others. . .
. And even [for ]168 people, [ the] appellate federal judges, it
is extremely difficult to get coherent policy out of a judiciary
that large.
Well, if we [do not] really have an optimal system, where are we
going to go? There are lots of things about which we [do not] know
what the right outcome is. [What is] the right price of wheat? What
is the right balance between, say, computers and movies in your
consumption mix? These turn out to be enormously complex questions,
but [they are] handled altogether without rules. When there [is
not] any universally right approach, we rely on the affected people
to make their own decisions through contract. You can have a series
of Pareto-superior bargains that people believe make them all better
off as they search for ways to improve themselves, lower their costs,
and so on. And, indeed, systemically, the more complex the problem,
the more ignorant we are, the better off we are avoiding rules and
letting people solve the problem by contract. Now I can remind you
of the Coase theorem, Ronald Coase's famous work, . . . which [postulates]
that in a world of free contracting, if there are no costs to forming
contracts, contracts will lead to the optimal outcome. And, indeed,
the rule of law just [will not] matter. People will contract around
it if need be.
We [do not] have a world of free contracting the standard
response to somebody who invokes the Coase theorem. We [do not]
have it. [We are] not close to it. But the one thing we know about
technology is that we are moving in that direction. . . . [H]aving
people be able to communicate with one another cheaply and easily
and often automatically through their computer, the prospect that
Netscape Navigator or Microsoft Internet Explorer will be able to
make a deal for you quickly and easily between you and an author
about what terms you will have the latest article or book on, moves
us toward the world of zero transaction [costs]. And, therefore,
one would think [we are moving] toward a world in which it is relatively
more attractive to resolve [these issues] by contract and not worry
altogether about legal rules.
But I am after all a lawyer and a judge. And, therefore, I do want
to say a few things about what we can do with our current stock
of legal rules. [We are] obviously going to have legal rules; the
most important of them defining the property rights that people
can then trade. . . . It seems to me that the best thing we can
do is not worry so much about what those rights are as to make them
perfectly clear and straightforward, to have some intellectual property
right in every piece of intellectual property, and then let people
trade for it. [W]e should have some property rights in each piece
of intellectual property, whether it be a human genome or an article
or object code or whatever. I understand [this is] controversial.
But it seems to me that if you [do not] know what the optimal compensation
package for inventors or authors is, you have to have some kind
of property rights to facilitate the transactions. If the best arrangement
turns out to be one of free distribution of something, and ready
access, if you start with a world of property rights, it is very
easy to transact in such a way that there will be free distribution.
Let me make another point based on the law review literature. .
. . [There is] a copyright in every law review article. In principle,
the author could insist that the law review pay him or her $5,000
for the right to publish it, plus a reproduction fee for all the
. . . prints. What you discover is that the authors of law review
articles do all of this for free. Now one inference one can draw
is [they are] saying something about the value of the intellectual
property. But another inference one could draw is that when free
distribution is socially optimal, people will not enforce their
property rights in such a way that they try to hold up other people
for money. If you start from property rights, you can negotiate
for distribution at zero cost. If you start from a world of no property
rights, it is extremely difficult, if indeed it is possible at all,
to work to a world of compensation for intellectual property.
My second proposition is quite related. You want to create property
rights where now there are none to make bargains possible. And my
third proposition is that you want to create bargaining institutions.
These kinds of things are actually going on all around you behind
your back. [For example], [w]hen you use your browser to bring something
online, what's going on behind your back is that they negotiate
a protocol, they negotiate a key, they deal with who is holding
the key for how long, [and] for how many sessions the key works.
[It is] all done completely behind your back. [There is] a standard
about how this negotiation occurs. It seems to me we should be encouraging
other standards of that kind. You can have a negotiation that works
behind your back so that when you go to LEXIS and download a chapter
of Moore's Federal Practice, it comes tagged in such a way that
it tells you whether you can redistribute it, and your computer
will burp if you try to redistribute it without approval or without
having paid. But those kinds of things exist in large numbers, are
being formed in more, and they manage to reduce the cost of contracting.
So there are my propositions. We live in a world of ignorance.
We can expect ignorance to be as prevalent in the 21st century as
it has been in our past. We can expect lawyers and judges to be
as afflicted by it in the 21st century as they were in their past.
And in a world of ignorance, you want clear rules, property rights
and negotiation institutions. [It is] all that simple. . . .
|