Without Intellectual Property
How would the world look like without Intellectual Property? What are the current success stories and possible alternatives for creators if some or all forms of IP were repealed (or became unenforceable)? This page attempts to list a few examples.
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Many claim that if software could be copied freely, then software developers would have no incentive to create it. Note, however, that hardware manufacturers would have an incentive to support software development (and perhaps even give it away), since the availability of more and better software increases the demand for hardware.
In few industries has there been such extensive innovation as in the software industry â and virtually none of the innovations in this industry took place with the protection of intellectual monopoly.
Prior to the 1981 U.S. Supreme Court decision in Diamond vs Diehr, it was not possible to patent software at all and the current burst of patent lawsuits originates in the subsequent extension of patents to software products in the 1994 Federal Circuit Court ruling In re Alapat.
Not only did patents play no role in software innovation, copyrights played only a limited role. While computer programs were often copyrighted, in the early years of the PC industry, copyright was seldom respected or enforced. Microsoft made little effort either legal or technical to protect their "intellectual property" in their early creative days. It is in the 21st century that they invest their time and energy in the prevention of copying.
The best evidence that copyright and patents are not needed and that competition leads to thriving innovation in the software industry, is its thriving and innovative portion developing open source software.
Some computer game creators choose to release their games for free and still earn money.
There might be greater reliance on such collateral sources of income as personal appearances, lectures, consulting, live performances, etc. If musical recordings could be freely copied (which increasingly happens to be the case now), musicians would still have an incentive to compose and record music in order to stimulate the demand for live performances.
Financed by fans
In 2005, the Canadian singer-songwriter Jane Siberry has offered her songs as plain MP3s and the customers could set whatever price they like.
Fans were offered the choice to pay nothing, pay later, pay what they wish, or pay $0.99 for each song they download from her. The results might come as a surprise to some as the majority of people opted not to take the free track; in fact the average price paid for a track came in at $1.14 per track.
Composer and bandleader Maria Schneider won a jazz Grammy in 2005 with "Concert in the Garden," as did Billy Childs in 2006 and Brian Lynch and Eddie Palmieri in 2007 -- all on the ArtistShare label.
In this type of a project, customers are offered levels of participation in the entire process of creating a recording. The range of perks escalates as the price rises - ranging from a copy of the album up to invitations to recording sessions and more.
The association with ArtistShare has enabled Schneider to compose and record music for a 17-piece ensemble, find an involved audience that offers both enthusiasm and financial support, and -- as a little icing on the cake -- win a few Grammys. In addition to the personal gratification, Schneider's "Sky Blue" project has generated nearly $200,000 from the participants, with 15% going to the company, the balance (about $170,000) to her.
According to artist Amanda Palmer, a disagreement with her label and a guilty fan's repayment for burning her CD from a friend led her to mount the largest crowd-funding music project to date, which brought in $1.2 million to record her most recent album, Theatre is Evil.
In 2007, Radiohead, one of the world's most successful groups, released its new album, In Rainbows, as a pay-what-you-will digital download. The gambit was a savvy business move. In the first month, about a million fans downloaded In Rainbows. Roughly 40 percent of them paid for it, at an average of $6 each, netting the band nearly $3 million. Plus, since it owns the master recording (a first for the band), Radiohead was also able to license the album for a record label to distribute the old-fashioned way. The band makes money principally from touring.
The rise of illegal file sharing and the correspondingly steep worldwide decline in CD sales have made these tough times for record companies and recording artists alike. But the Rolling Stones are doing very nicely. Touring is now the most lucrative part of the bandâs business. The Bigger Bang tour, from 2005 to 2007, was the highest-grossing tour of all time raking in $558 million. "The band has also been ahead of the curve in recruiting sponsors, selling song rights and flogging merchandise.
Mick Jagger, who's "beady oversight" of the band's financial affairs has helped make it one of the richest in rock ânâ roll history, says: "There was a window in the 120 years of the record business where performers made loads and loads of money out of records. But it was a very small window â say, 15 years between 1975 and 1990."
A notorious example of working outside the traditional notions of copyright is the band Grateful Dead. The band not only encouraged concertgoers to record their live shows, they actually established "taper sections" where fans' equipment could be set up for the best sound quality. When nearly every other band said "no" the Grateful Dead created a huge network of people who traded tapes in pre-Internet days. The broad exposure led to millions of new fans and sold tickets to the live shows. They become one of the most successful bands of all time. The band has had 19 gold albums, 6 platinum albums, and 4 albums that have gone multiplatinum.
While touring with his rock band Fiction Plane in 2010, bass player and vocalist Joe Sumner discovered up one morning 450 videos on YouTube of the previous nightâs show in Lithuania. Uploaded by fans with mobile phones, the footage was mostly of low quality. But it gave Sumner an idea: "What if we could link all of these videos and make a compelling movie?"
Vyclone, a company Sumner founded, attempts to realize this vision. Its free program lets two or more people in close proximity shoot video with their iPhones, upload the clips, and view a movie automatically spliced together from different angles. A simple-to-use video editor lets users play director, toggling from one angle to the next with the tap of a finger.
Its creators see the app as a tool for citizen journalists, allowing them to weave together a documentary of a live news event. They hope it will become a killer app for home movies: âI can film the kid blowing out the candles and I can have my buddy filming my wife, whoâs sobbing, and I can have somebody else filming grandpa and grandma with their arms around each other enjoying the moment,â he says. âI get Vyclone to stitch that together in a multi-angle movie that tells the full story of the moment.â
While the app is free, Vyclone may begin charging for extras, such as longer movie times and higher resolution. In this way, technology helps artists connect with fans and gives fans a reason to buy (concert tickets, merchandise, etc.). Concerts may have just gotten more interesting.
When the South Korean singer/rapper PSY came out with his "Gangnam Style" video and song, it went viral beyond anyoneâs expectations. It was poised to become the first YouTube video to receive 1 billion views, and it has happened in a very short period of time.
PSY (Park Jae-sang) is an artist who had previously languished in obscurity for a decade. He knew the value of exposure. When his song began to be pirated, when restaurants opened with the name Gangnam Style, when T-shirts and products began to appear all over, he refused to enforce his intellectual property. He very cleverly saw that sharing can only be good for him. And sure enough, he is estimated to make $8.1 million in 2012 year from iTunes downloads, concert tickets, and advertising alone. Thanks to his refusal to participate in the IP system, he has become of the worldâs most famous musicians.
Advocates of intellectual property say, and conventional wisdom holds, that without IP protections, artists will be without the incentives necessary for them to create. Or at least they, the artists, will not be afforded the protection to profit from their work. This is because âpiratesâ could come along and copy their work and underbid the prices, or another designer could pass the work off as his or her own. Either way, they argue, free riding would stand in the way of artist profits. However, Kal Raustiala, of UCLA, and Christopher Jon Sprigman, of the University of Virginia, have found that regarding the fashion industry âcopying may actually promote innovation and benefit originators.â This they call the âpiracy paradox.â
In The Piracy Paradox: Innovation and Intellectual Property in Fashion Design, Raustiala and Sprigman show that indeed it is copying that provides the incentives for designers to continuously innovate. For if one producer is able to copy another, and provide the same goods at a lower cost, then in order to compete, the first producer must constantly be introducing new items. The result of such an arrangement is that more, better goods are produced, and their prices tend to fall. Jeffrey Tucker has made the same argument. He describes that the pace of innovation and creation in the industry occurs quite rapidly, and that because of emulation, consumers are continually being offered better goods at lower prices. He uses Talbot's and Walmart as an example, wherein the latter takes its cues from the former, and within a short period of time, consumers may purchase essentially the same garment at a lower price. Copying forces designers to innovate.
In some cases, consumers appear to view the purchase of a counterfeit as a less risky trial or prelude to the purchase of the more expensive original.
Movies and television
Movies could evolve into advertisements. Many already feature prominent product placement.
Or they could return to their roots and make going to the theater a treat. If they made the experience good enough, audiences might start to prefer it to watching pirated movies at home.
Sponsorship doesn't need to involve advertisements or significant influence on the final product. Monty Python star Terry Gilliam made a short film that was wholly financed by an Italian pasta company. The film, which will be screened at the London Film Festival, follows another short he made in 2010, backed by a US drinks manufacturer. "It wasn't selling out," the 70-year-old film-maker told the BBC. "The only stipulations were the film had to be made in Naples and nobody gets killed in it. I did exactly what I wanted to do."
"Making a short is a lot easier than doing feature-length movies, where most of your time is spent raising the money," the director said. "This took no time to raise the money. All the time was spent making the movie."
According to Gilliam, such affiliations can be beneficial to both parties - provided the backer adopts a "hands off" approach that ensures the film-maker's creative freedom. "I think it might be happening more," he said. "The company gets its name up there [on screen], but the audience gets to see a real film."
When director of the highly successful series Game of Thrones David Petrarca was told that it was the most pirated show of 2012, he shrugged and said the illegal downloads did not matter because such shows thrived on "cultural buzz" and capitalised on the social commentary they generated. "That's how they survive," he told the crowd gathered at the University of Western Australia.
It is sometimes alleged that, without a copyright monopoly, multi-million dollar movie productions would never happen in case there wasnât a guaranteed return on investment.
First, itâs a contradiction in terms. By definition, an investment is the acceptance of a risk for a possible return which is larger than the initial investment; there is no such thing as a right to profit off of any endeavor.
Second, culture has always been fluent in its forms of expression. A hundred years ago, folk songs and concerts with classical music were the two predominant expressions of culture. A hundred years before still, it was ballets and operettes in French and Italian. We should expect feature films to peak and fade, too: to give way for something else and better. Gaming and immersive culture, perhaps.
But letâs assume that everything could spread freely as soon as it was digitized, and that this would result in no more revenue for a certain blockbuster movie once it was shared in the wild (which is a completely false assumption, but one that the copyright monopoly maximalists argue, and so, letâs stick with it for the sake of argument).
This means that after the opening weekend of a blockbuster, it would yield no more revenue under this (false) assumption. As an example, the movie Return of the King cost 94 million US dollars to make. On opening weekend, it grossed 199 million. Thatâs over a 100% return on investment before a digital copy could be fileshared in the wild.
The next wave of that argument is that all movies donât reach the 100-percent level of return on investment during opening weekend. That is true, of course. Some reach more, some less, some go at a loss.
On Wall Street, a ten-percent return over a year is a considered a good investment that easily attracts hundreds of millions of dollars (or euros). And frequently enough, those investmentsâŠ just tank. Just like movies do. But you rarely, if ever see the hundred-percent return on investment on Wall Street financial derivatives that you can make on just opening weekend for a movie production. 
The Star Trek franchise
While many entertainment companies jealously protect their creations through copyright law, Paramount Picturesâ policy toward Star Trek has been somewhat different. Until recently, it has generally kept hands off, encouraging private individuals to write their own stories, start their own clubsâeven make their own movies or write episodes for Star Trek: The Next Generation, Voyager, and Deep Space Nine. It has spurred the initiative of individual fans, and that is largely the cause of Star Trekâs vast success.
Soon after the original seriesâ cancellation in 1969, fans began writing their own stories involving the crew members and publishing them in amateur magazines called "fanzines." The popularity of the fanzines helped to keep Star Trek alive and to bring about the first movie in 1979. Fanzines are probably the most important avenue of communication between fans.
Rather than cracking down on fanzines, Paramount took an almost laissez-faire attitude toward them. (Some fanzines even featured sexually explicit stories about the Enterprise crew. As one fan put it in the recent documentary film Trekkies, "We thought that either Gene [Roddenberry, the show's creator] or the studio would put a stop to it, but the studio never really seemed to care.") Star Trek: The Next Generation, Deep Space Nine, and Voyager are the only shows in Hollywood that accept unsolicited scripts from fans.
Star Trekâs fans are an often-lampooned bunch, ranging from politicians and professors to obsessive teenagers. One teen-aged fan featured in Trekkies, Gabriel Koemer, showed how his local club had written their own Star Trek-based movie, complete with costumes and spectacular special-effects sequences that Koerner rendered on his home computer. The private Star Trek entrepreneurs were also responsible for the now frequent Star Trek conventions. Paramount Pictures didnât begin the conventionsâbut they havenât discouraged them either. As William Shatner (Captain Kirk) writes, in the 1970s "Star Trek parties began springing up on college campuses, where whole groups of Trek-nuts got together to watch the show and celebrate their fascination with the series." Now conventions are monthly events, with thousands of participants and millions of dollars in sales.
Starfleet International, a club of about 4,000 Star Trek fans, with a vast Web site and its own newsletter, is another example of Star Trek activity. Like many other clubs, itâs not officially licensed by Paramount. In fact, the studio sponsors only one official fan clubâand itâs not all that popular.
Movies in Nigeria
Nigerian films are widespread in Africa. Public buses show them, as do many restaurants and hotels. Nollywood, as the business is known, churns out about 50 full-length features a week, making it the worldâs second most prolific film industry after Indiaâs Bollywood. The Nigerian business capital, Lagos, is said by locals to have produced more films than there are stars in the sky. The streets are flooded with camera crews shooting on location. Only the government employs more people.
Nigerian films are as popular abroad as they are at home. Ivorian rebels in the bush stop fighting when a shipment of DVDs arrives from Lagos. Zambian mothers say their children talk with accents learnt from Nigerian television. When the president of Sierra Leone asked Genevieve Nnaji, a Lagosian screen goddess, to join him on the campaign trail he attracted record crowds at rallies. Millions of Africans watch Nigerian films every day, many more than see American fare.
The market traders control Nollywood to this day. They make films for home consumption rather than for the cinemaâa place few can afford, or reach easily. DVD discs sell for a dollar. Print runs can reach a million. Studios, both in the physical and the corporate sense of the term, are unknown. There are no lots, no sound stages and no trailers for the stars. All scenes are shot on location and with a shoestring budget of no more than $100,000.
As soon as a film is released, copyright thieves rip it off. It takes the pirates just two weeks to copy a new film and distribute it across Africa. The merchants must take their money during that fortnight, known as the "mating season", before their discs become commodities. As soon as the mating season is over they start thinking about the next film.
The merchants curse the pirates, but in a way they are a blessing. Pirate gangs were probably Nollywoodâs first exporters. They knew how to cross tricky borders and distribute goods across a disparate continent where vast tracts of land are inaccessible. Sometimes they filled empty bags with films when returning from an arms delivery. Often they used films to bribe bored guards at remote borders. The pirates created the pan-African market the filmmakers now feed.
Other African countries made films long before Nollywood. Senegal in particular produced many movies featuring traditional songs and dances. Critics referred to such products as "embassy films" after their mostly diplomatic financiers (notably the French foreign ministry). Many catered to the sensibilities of their European sponsors. Scenes were laboriously captured on celluloid, at great expense. By contrast, Nollywood is cheap and nimble. Films are shot on digital videocameras. Scripts are improvised. Camera work can be shoddy and editing slapdash. But the sheer volume of outputâa response to the piracy problemâeventually overwhelmed the embassy films.
While the pornography industry is nominally protected by copyright, it does not receive the type of social approval that other industries have, and as a result the industry has not focused on the use of the legal system to protect its intellectual monopoly.
Despite social disapprobation, in most relevant respects the pornography industry is similar to "legitimate" movies and recordings. Producing and distributing a pornographic movie or magazine is technically and economically no different from producing and distributing a "legitimate" movie or magazine.
All through the 1980s and then, at a much faster pace, the 1990s technologies such as videotapes and the Internet became available and were quickly adopted. Indeed it is arguable that the replication and distribution of pornographic materials was one of the reasons for the early explosive growth of the Internet during the 1994-1999 period. The thousands of Internet sites distributing pornographic materials around the globe are, most of the time, imitators of the main initial producers, most often in violation of copyrights and licensing restrictions. Online pornographers are usually among the first to exploit new technologies â from videostreaming and fee-based subscriptions to pop-up ads and electronic billing. Their bold experimentation has helped make porn one of the most profitable online industries, and their ideas have spread to other "legitimate" companies and became the source of many successful and highly valuable imitations.
The consequence of the tremendous reduction in the cost of copying and redistributing visual materials, and the advent of peer-to-peer networks has not brought about any reduction in the quantity of new pornography available to consumers â indeed it seems to have expanded considerably. When compared to its "legitimate" counterpart, the pornographic movie and entertainment industry is more innovative, creates new products and adopts new technologies more quickly, and the reduction in distribution cost has resulted in more output at lower prices, and a more diverse product.
Most major news agencies have a website where news stories may be viewed for, at most, the cost of a free registration. Far from discouraging the copying of news stories, most sites invite you to "email a copy of this story to a friend." In fact, news is available so freely over the Internet, it is possible to create an entire newspaper simply by linking to stories written by other people. An example of such a "newspaper" is the site run by Matt Drudge, which consists almost entirely of links to stories on other sites. Yet the incentive to gather the news has not disappeared.
Especially noteworthy is the market for financial and most other valuable news. Here, highly impatient customers pay substantial fees to purchase from Bloomberg, Moodys, or Reuters the real-time news and quotes. The news and quotes then trickle down from websites to cable TVs, to national newspapers, and so on until, often a whole day later, the NYSE quotes are published in most newspapers around the world.
Fine arts and advertising
In the fine arts, while individual works can be protected by copyright, methods, techniques, styles, and "concepts" cannot be patented. There is enormous inventive activity in the modern figurative arts â and an equally rampant imitation â all in the complete absence of intellectual monopoly. The widespread experimentation and imitation â by a variety of artists â on the use of perspective is but one example.
Consider also the enormous growth of the contemporary "lesser brother" of the fine arts, advertising and marketing. Its economic impact is one or two orders of magnitude greater than that of the traditional fine arts sector (although the borders have been getting more and more blurred during the course of the last century) and, also in this sector, neither patents nor copyrights play a relevant role. Still, and almost by definition, if there is a sector of economic activity for which innovation and novelty are the key factors, advertising is certainly the prime candidate.
A significant proportion of scientific research is done without any expectation on the part of the scientists concerned that they will earn the private market return accruing to any innovations that they may develop. In the G5 economies, higher education accounts for about one fifth of all R&D done, ranging from 16.8% in France to 23.6 in Japan. The figure for the UK is 18.5%. Scientists working in universities and related research institutions may be said to fall into this description, although increasingly research in universities is being informed by the priorities and prerogatives of external industrial concerns. Given the typically small monetary rewards available for pure research, what motivates these researchers?
Such researchers may be motivated by a love of knowledge, or the satisfaction gained from puzzle solving but economists have come to recognise that the most plausible explanation for such behaviour is that scientists are interested in establishing priority and the status and monetary rewards that flow from attaining priority. Scientists are concerned to be the first to communicate a significant new development in their field. Although the earning profile is rather flat in science, "A variety of extra-institutional awards await the successful scientist in the form of prize money and speaking and consulting fees."
In April, 2012, Harvard University has encouraged its faculty members to make their research freely available through open access journals and to resign from publications that keep articles behind paywalls.
The memo to the university's 2,100 teaching and research staff warned it could no longer afford the price hikes imposed by many large journal publishers, which bill the library around $3.5m a year. The memo said major publishers had created an "untenable situation" at the university by making scholarly interaction "fiscally unsustainable" and "academically restrictive", while drawing profits of 35% or more. Prices for online access to articles from two major publishers have increased 145% over the past six years, with some journals costing as much as $40,000, the memo said.
Earlier in 2012, thousands of researchers started to call for open access publishing. David Prosser, executive director of Research Libraries UK said: "To be made effective, scholarly information has to be made as widely available as possible. We've seen an increasing amount of evidence that shows that, if we move to an open-access world, there are benefits not just to the scientific process itself but also wider economic benefits."
Even if a paper is made available on university repositories, though, often the copyright restrictions are so draconian that the research cannot be used in any subsequent scientific inquiry without prior permission. This has profound implications for the ability of scientists to use modern techniques to get the most out of published research, which grows at the rate of more than 1.5m new research articles every year.
IP in stand-up comedy
Intellectual property doctrine does not provide effective protection to comedians against copyists. However, social norms can serve as an alternative or supplement to legal protection. The case for intellectual property law can no longer be made by comparison to a hypothetical market failure. Rather, the argument must explain why non-legal regulation is inadequate, and why market failure is therefore likely in the absence of formal legal regulation. Even when a particular creative practice initially exists under an open-access regime, changing social and economic pressures may result in the rise of non-legal norms, institutions, and practices that maintain a non-trivial level of incentives to create.
In most instances joke thieves faced significant social sanction. In particular, interviewees suggested that allegations of stealingâespecially those that appeared to have meritâcould impair or destroy a comicâs good reputation among his peers. Reputation in the community, comedians told, is an important asset that, if depleted, could harm a comedianâs chance of success. Comedians who are just starting vie for attention and recognition. Connections to more established comedians are often helpful in finding work, and a good name and goodwill among fellow comedians is also a source of job opportunities.
A second retaliation option, often employed as an adjunct to shunning and bad-mouthing, is for an aggrieved comedian (and sometimes that comedianâs friends and allies) to refuse to appear on the same bill with a known joke thief. This can be, for the accused jokestealer, a painful sanction. Finally, in a several instances, after failing to resolve a dispute amicably, aggrieved comedians reportedly retaliated against joke stealing either by employing or threatening violence.
According to a 2006 study, there is a "norms-based IP system" among accomplished French chefs. (Norms-based IP systems, as the authors define them, operate entirely upon the basis of implicit social norms that are held in common by members of a given community.) These chefs consider recipes they develop to be a very valuable form of intellectual property. After all, professional reputations and customer patronage at restaurants can be built around successful recipes. At the same time, recipes are not effectively covered by law-based intellectual property systems. The authors identify three strong implicit social norms related to the protection of recipe IP and find that accomplished chefs enforce these norms, and apply them in ways that enhance their private economic returns from their recipe-related IP.
First, a very strong norm exists that a chef must not copy another chefâs recipe innovation exactly. This is a functional effect analogous to patenting. The community acknowledges the right of a recipe inventor to exclude others from practicing his invention, even if all the information required to do so is publicly available. A second norm mandates that, if a chef reveals recipe-related secret information to a colleague, that chef must not pass the information on to others without permission. This norm gives a chef a property right similar to that attainable via a contract under trade secrecy law. That is, protected by this norm, a chef can selectively reveal his secret information to another without fearing that as a result, the information will become generally known. A third norm is that colleagues must credit developers of significant recipes as the authors of that information. This norm gives an additional property right to a chef. The chef may choose to selectively or publicly reveal information about his innovation without jeopardizing the valuable related property right of acknowledged authorship.
Accomplished chefs are significantly more likely to deny requested information to colleagues who they believe may violate the three social norms just described. This shows that the implicit norms that together offer functionality similar to that of law-based IP systems, are being enforced within the studied community. This leads the authors to conclude that information not afforded the protection of intellectual property law may nonetheless be controlled by an effective intellectual property regime based entirely on implicit norms.
Other ways to deal with a lack of IP
Without any intellectual property protection brave inventors will try out expensive new things, while parasitic imitators will sit out, letting the experiments run their course, and then imitating only successful practices. In this way, as the Recording Industry Association of America reminds on their anti-piracy web site, "The thieves [...] go straight to the top and steal the gold" bringing the recording company to economic ruin.
However, picking only winners means waiting until it is clear who is a winner. Try ruining the poor pop star by pirating her tunes only once you are certain they are big hits! (Where "being a hit" means "having sold millions of copies.") Try competing in a real industry by imitating the winners only when they have already won and you have left them plenty of time to make huge profits, establish and consolidate their position â and probably not leaving much of a market for the sleek imitator.
The primary advantage is simply that it takes time and money to reverse engineer a product. One can easily learn by looking at what American publishers did around 1870 â flooding the market with lots of cheap copies of the book, thereby making life for anyone but the cheapest of the cheap imitators impossible. Moreover, the expertise that comes with being the innovator, and having been in production for longer than competitors has substantial market value. The example of Boulton and Watt after the expiration of their patents is a case in point, but there are many others, such as the fact that patented drugs continue to command a substantial premium over their generic competitors, even long after the patent expires. In short â even without the benefit of legal protection, the innovator certainly will enjoy a short-term monopoly, and can depend on such forces as reputation and consumer loyalty working to his advantage.
Out-compete the competition
Many products come to us every day that are not patented. Look at a Kleenex, that is, a facial tissue. Any paper manufacturer can make one. The Kleenex company was first to make the big time, and it has stayed on top through relentless innovation in design. So we have fancy boxes of every shape and size, tissues with oil in them, tissues with smells, and various colors and things. The company is still on top.
Boldrin and Levine give the example of TravelPro, the suitcase with wheels. Every company can replicate it. But TravelPro stays on top through new design and marketing.
Everyone has to marvel at how Arm and Hammer stays on top of the baking soda market. Talk about easy to replicate. And yet the company practically has a market monopoly, and has held it for many decades. The innovation here too is relentless: toothpaste, deodorant, cleaning products, you name it.
You can try this at home. Think of any company that has an open-source product that continues to make money and stay up top: Tupperware, Red Hat, Band Aid, Firefox, Tylenol, Bayer, Hershey. It is a long list, nearly infinite.
The competition is fierce. How do they deal with it? The model is always the same. Get there first. Stay on top through marketing. Count on brand loyalty. Innovate. Explain your superiority. Never rest on your laurels. Move forward and watch the competition carefully.
Another first-mover advantage, for creative works especially, is the well-documented and strong preference for originals, signed copies and early versions that are in scarce supply, to more widely available versions. The preference for originals, signed or autographed copies and so forth, is just a special example of a more general phenomenon: the complementary sale. That is, a creation, while not terribly scarce in some markets, is often quite scarce in other markets, and the innovator can generally command a premium for his services in areas not directly related to his idea. Examples of this abound. In music, live performances will remain scarce, no matter what the price of electronic copies. Movies will be produced as long as first run theatrical profits are sufficient to cover production costs, and no matter how many copies are given away over the Internet for free. Substantial money is to be earned by authors or inventors by going on the talk-show circuit. Even t-shirts signed by a famous author may be enough to pay for the opportunity cost of his labor in producing his great literary work â amazingly enough, a number of small online comic strips have found it a profitable business model to give their strip away for free, and sell t-shirts.
The greatest complementary sale of all, is, of course, the sale of advertising. Those who doubt the possibility of making a profit from giving a product away for free would do well to look into the history of the radio and television industry. How many people became fabulously wealthy from an industry that for the first 40 years of its existence had no choice but to provide its product for free?
If there is a first-mover advantage that lasts several months or years, irrespective of whether intellectual property exists, then a given author who chooses to adhere to the "traditional" publishing system could pursue the strategy of writing and publishing a new work every time the first-mover advantage of the previous work has been exhausted. An author could not expect to live off the royalties from a single work â even a widely popular work â forever but would need to keep creating in order to maintain his revenue stream.
This is not far off from the current situation; after all, most published books do not sell nearly well enough to assure the authors even a modest stream of lifetime earnings. Moreover, such a system would incentivize creation of further works.
Indeed, prior to the introduction of copyright, European classical composers found it necessary to continually create music, as their older and already-famous pieces were often performed internationally without any compensation given to them. Even so, some of these composers managed to be phenomenally prosperous as well as prolific.
The most famous composer of the early 18th century, and one of the most prosperous, was Georg Philipp Telemann (1681â1767), who is thought by some to be the most prolific composer in human history, with over 3000 works to his name. Telemann's status is rivaled by Simon Sechter (1788â1867), who wrote over 8000 works, many of them short fugues, and who endeavored to create at least one short composition every day. Neither composer lived under a copyright regime.
Virtually all of the big names of classical music â Bach, Vivaldi, Haydn, Mozart, Beethoven, Schubert, Chopin, Brahms, Berlioz â composed without copyright and were not dismayed when their works were performed without their participation or consent. Composers through the Romantic era would often borrow passages from their peers and predecessors and develop creative orchestrations and variations thereof. This was not considered to be theft but rather the ultimate compliment.
Directly selling information
People will pay for information they think they can make money from. That's why they paid for those stock tip newsletters, and why companies pay now for Bloomberg terminals and Economist Intelligence Unit reports. There have always been people in the business of selling information, but that has historically been a distinct business from publishing. And the business of selling information to consumers has always been a marginal one.
Finding the right customer
Nicholas Lovell writes in a book about how authors and others can and must adapt to the digital generation to find ways to profit in the face of copying and file sharing. Between millions of potential customers in the world, most wonât pay anything for a product, but some (who he calls "superfans") will pay almost anything.
In many cases, businesses can win by sharing their product (or a version of their product) for free, allowing it to spread as widely as possible. Eventually, a huge number of freeloaders spread the word to the superfans who value that product the most. And a small number of superfans will love a product so much that they will spend substantial sums of money on itâgiven the chance. These high-value customers are enough to fuel a profitable business. For example:
- Nine Inch Nails front man Trent Reznor gave away his album for free to find the 2,500 hardcore fans who wanted the $300 limited ultradeluxe edition.
- Bigpoint, an independent game developer, released three adventure games to 130 million usersâand made 80 percent of its $80 million revenue from just 23,000 users, who spent money to upgrade their game-playing arsenal.
- King Arthur Flour shares useful recipes and tips on its Web site, enchanting a cult of devoted bakers, many of whom happily travel to its Vermont headquarters for expensive specialty baking classes.
According to Lovell, the potential for piracy will spread to industries that believed they were immune to such disruption, however, businesses have an opportunity to make money by offering variety, complexity, and flexibility at little to no extra cost.
Owning the channel
What about iTunes? Apple controls the default path onto the iPod. They offer a convenient list of songs, and whenever you choose one they ding your credit card for a small amount, just below the threshold of attention. Basically, iTunes makes money by taxing people, not selling them stuff. You can only do that if you own the channel, and even then you don't make much from it, because a toll has to be ignorable to work. Once a toll becomes painful, people start to find ways around it, and that's pretty easy with digital content.
The situation is much the same with digital books. Whoever controls the device sets the terms. It's in their interest for content to be as cheap as possible, and since they own the channel, there's a lot they can do to drive prices down. Prices will fall even further once writers realize they don't need publishers. Getting a book printed and distributed is a daunting prospect for a writer, but most can upload a file.
In a similar vein, encryption schemes are widely used for video game players. They require special software which resides only on consoles (produced and commercialized by the same company which manufactures the games) in order to be played. When you buy one such game you are aware that, without access to the specific additional tool, you will not be able to play it. The market for video games works well without any mandatory legislation. Those consumers that like video games enough to pay also for the console buy the latter, those that do not, do not.
Boycotting as an alternative to IP
If there wouldn't be IP laws, how could one deal with certain activities that would be still highly undesirable? As Roderick Long points out: "Suppose I pirate your work, put my name on it, and market it as mine. Or suppose I revise your work without your permission, and market it as yours. Have I done nothing wrong?"
On the contrary, Long argues that is definitely a rights-violation - but not a violation of the author's rights, but those of the customers. By selling one person's work as though it were the work of another, he is defrauding those who purchase the work, as if he sold soy steaks as beef steaks or vice versa. All the author needs to do is buy a copy (so he can claim to be a customer) and then bring a class-action suit against the fraud.
There are other legal options available to the creators of intellectual products. For example, many software manufacturers can and do place copy-protection safeguards on their programs, or require purchasers to sign contracts agreeing not to resell the software. Likewise, pay-TV satellite broadcasters scramble their signal, and then sell descramblers.
None of these techniques is foolproof, of course. A sufficiently ingenious pirater can usually figure out how to get around copy protections or descramble a signal. And conditional-sale contracts place no restriction on third-party users who come by the software in some other way. Still, by making it more difficult to pirate their intellectual products, such companies do manage to decrease the total amount of piracy, and they do stay in business and make profits.
There are more organized and effective ways of securing voluntary compliance, however - like the strategy of boycotting those who fail to respect the legitimate claims of the producers. Research conducted by libertarian scholar Tom Palmer has turned up numerous successful instances of such organized boycotts. In the 1930's, for example, the Guild of Fashion Originators managed to protect dress styles and the like from piracy by other designers, without any help from the coercive power of government.
Something more formal can easily be imagined. In the late Middle Ages a voluntary court system was created by merchants frustrated with the inadequacies of governmentally-provided commercial law. This system, known as the Law Merchant ("law" being the noun and "merchant" the adjective), enforced its decisions solely by means of boycott, and yet it was enormously effective. Suppose producers of intellectual products â authors, artists, inventors, software designers, etc. â were to set up an analogous court system for protecting copyrights and patent rights â or rather, copyclaims and patent claims (since the moral claims in question, though often legitimate, are not rights in the libertarian sense). Individuals and organizations accused of piracy would have a chance to plead their case at a voluntary court, but if found guilty they would be required to cease and desist, and to compensate the victims of their piracy, on pain of boycott.
As one example, the first edition of The Lord of the Rings to be published in the United States was a pirated edition from Ace Books. The author, Tolkien, could not take legal action against Ace. But when Ballantine came out with its own official author-approved American edition of The Lord of the Rings, Tolkien started a campaign against the Ace edition. The Ballantine edition was released with a notice from Tolkien in a green box on the back cover stating that this was the only authorized edition, and urging any reader with respect for living authors to purchase no other. Moreover, every time he answered a fan letter from an American reader, Tolkien appended a footnote explaining the situation and requesting that the recipient spread the word among Tolkien fans that the Ace edition should be boycotted.
Although the Ace edition was cheaper than the Ballantine, it quickly lost readers and went out of print. The boycott was successful.
Comparisons from history
Germany and the UK
Germany experienced a rapid industrial expansion in the 19th century. As the German historian Eckhard HĂ¶ffner argues, it was due to an absence of copyright law. The massive proliferation of books, and thus knowledge, laid the foundation for the country's industrial might.
German authors during this period wrote ceaselessly. Around 14,000 new publications appeared in a single year in 1843. Measured against population numbers at the time, this reaches nearly today's level. And although novels were published as well, the majority of the works were academic papers.
At the same time, only 1,000 new works appeared annually in England - 10 times fewer than in Germany - and this was not without consequences. HĂ¶ffner believes it was the chronically weak book market that caused England, the colonial power, to fritter away its head start within the span of a century, while the underdeveloped agrarian state of Germany caught up rapidly, becoming an equally developed industrial nation by 1900.
Copyright law was established early in Great Britain, in 1710. Germany, on the other hand, didn't bother with the concept of copyright for a long time. Prussia, then by far Germany's biggest state, introduced a copyright law in 1837, but Germany's continued division into small states meant that it was hardly possible to enforce the law throughout the empire.
Authors are only motivated to write, runs the conventional belief, if they know their rights will be protected. Yet a historical comparison, at least, reaches a different conclusion. Publishers in England exploited their monopoly shamelessly. New discoveries were generally published in limited editions of at most 750 copies and sold at a price that often exceeded the weekly salary of an educated worker.
London's most prominent publishers made very good money with this system, some driving around the city in gilt carriages. Their customers were the wealthy and the nobility, and their books regarded as pure luxury goods. In the few libraries that did exist, the valuable volumes were chained to the shelves to protect them from potential thieves.
In Germany during the same period, publishers had plagiarizers - who could reprint each new publication and sell it cheaply without fear of punishment - breathing down their necks. Successful publishers were the ones who took a sophisticated approach in reaction to these copycats and devised a form of publication still common today, issuing fancy editions for their wealthy customers and low-priced paperbacks for the masses.
Bestsellers and academic works were introduced to the German public in large numbers and at extremely low prices. "So many thousands of people in the most hidden corners of Germany, who could not have thought of buying books due to the expensive prices, have put together, little by little, a small library of reprints." The prospect of a wide readership motivated scientists in particular to publish the results of their research.
The trade in technical literature was so strong that publishers constantly worried about having a large enough supply, and this situation gave even the less talented scientific authors a good bargaining position in relation to publishers. Many professors supplemented their salaries with substantial additional income from the publication of handbooks and informational brochures.
The German proliferation of knowledge created a curious situation that hardly anyone is likely to have noticed at the time. Sigismund HermbstĂ€dt, for example, a chemistry and pharmacy professor in Berlin, who has long since disappeared into the oblivion of history, earned more royalties for his "Principles of Leather Tanning" published in 1806 than British author Mary Shelley did for her horror novel "Frankenstein," which is still famous today.
The market for scientific literature didn't collapse even as copyright law gradually became established in Germany in the 1840s. German publishers did, however, react to the new situation in a restrictive way reminiscent of their British colleagues, cranking up prices and doing away with the low-price market.
USA and the UK
During the nineteenth century in the United States, anyone was free to reprint a foreign publication. The American publishers found it profitable to make arrangements with British authors, and these authors sometimes received more from the sale of their books by American publishers, where they had no copyright, than from their royalties in Britain. (At the time, the US market was comparable in size to the UK market.)
The American publisher who bought the manuscript had every incentive to saturate the market for that particular novel as soon as possible, to avoid cheap imitators to come in soon after. This led to mass publication at fairly low prices.
This enabled the establishment and rapid growth of a large and successful publishing business in the United States; also, and more importantly, it increased literacy and benefited the cultural development of the American people by flooding the market with cheap copies of great books. As an example: Dickensâ A Christmas Carol sold for six cents in the US, while it was priced at roughly two dollars and fifty cents in the UK.
Until the Chace Act was passed in 1891, only citizens and residents of the U.S. could qualify for American copyrights. Even after that, for another 60 years or so, domestic laws continued to deny copyrights to non-American authors who first manufactured or published their works abroad, or who failed to satisfy the stringent statutory formalities of U.S. copyright law. Few foreign authors bothered trying to run that legal gantlet; many who tried, failed. Through these openly protectionist provisions, U.S. copyright law subsidized domestic publishers, typesetters, printers, binders, and readers, while enriching the public domain with the works of foreign authors.
Especially prior to the Chace Act, publishers relied on voluntary and extralegal (but nonetheless quite effective) norms developed under the name of "trade courtesy," a practice in which many of the larger U.S. publishing houses acted as if foreign authors enjoyed domestic copyrights. Reputable publishers would respect any peer's claim-typically made via advertisement in a trade journal -to have purchased the advance sheets of a new book from its overseas publisher or to have reached a "first publication" agreement with the author.
Punishments for breaching trade courtesy included verbal jousting and public shaming (usually through missives in the same trade journals that carried first-publication claims), predatory pricing (by which the rightful publisher would sell at a loss to deny its counterpart any profits), and retaliation (by poaching on the foreign titles claimed by the offending publisher). Notably absent from this list of sanctions: lawsuits.
The courtesy tradition did not afford complete control over unauthorized reproductions, of course; not even copyright can promise that. Rogue publishers flouted the rules and flooded the market with shoddy editions of especially popular works. Although denigrated as pirates by their more respectable counterparts, the cheap reprinters proclaimed themselves as champions of the reading public against a conspiracy in restraint of trade. Through it all, foreign authors kept writing, domestic publishers kept printing, and the American public kept reading.
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- Michele Boldrin and David K. Levine. Against Intellectual Monopoly, Chapter 2, p. 19-23.
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- "The Lord of the Rings: The Return of the King", Box Office Mojo. $199 million is a sum of the "foreign" and "domestic" (US) total grosses for the opening weekend. Referenced 2012-02-01.
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- Michele Boldrin and David K. Levine. Against Intellectual Monopoly, Chapter 2, p. 40-42.
- Michele Boldrin and David K. Levine. Against Intellectual Monopoly, Chapter 2, p. 29-31.
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- Michele Boldrin and David K. Levine. Against Intellectual Monopoly, Chapter 2, p. 32-33.
- Michele Boldrin and David K. Levine. Against Intellectual Monopoly, Chapter 6, p. 154-157, 159-161.
- Jeffrey Tucker. "IP: Itâs a market failure argument", Mises Blog, February 10, 2009. Referenced 2013-02-05.
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- Stephan Kinsella. "The Curve: How Smart Companies use Freeloaders to find Superfans", Center for the Study of Innovative Freedom, October 16, 2013. Refers to the book "The Curve: How Smart Companies Find High-Value Customers" (Amazon) by Nicholas Lovell, ISBN 978-1591846635. Referenced 2013-10-03.
- Michele Boldrin and David K. Levine. Against Intellectual Monopoly, Chapter 5, p. 131.
- Roderick T. Long. "The Libertarian Case Against Intellectual Property Rights", Free Nation Foundation, Autumn 1995 issue of Formulations. Referenced 2011-10-09.
- Frank Thadeusz. "No Copyright Law: The Real Reason for Germany's Industrial Expansion?", Der Spiegel, 08/18/2010. Article refers to Eckhard HĂ¶ffner's book Geschichte und Wesen des Urheberrechts (German; "History and Nature of Copyright"), see a summary of some points by the author: "Copyright and structure of authorsâ earnings" (pdf). See also "Wem nutzt das Urheberrecht?", an interview with the author in German. Referenced 2011-10-24.
- Michele Boldrin and David K. Levine. Against Intellectual Monopoly, Chapter 2, p. 25-26.
- Tom W. Bell. "How Writers Coped Without Copyright", Reason Magazine, March 2014 issue. Article is a review of the book Without Copyrights: Piracy, Publishing, and the Public Domain, by Robert Spoo, Oxford University Press, 355 pages.
- Funding for Creation and Innovation in an IP-Free World by Stephan Kinsella, December 2010
- The Sky Is Rising! by Michael Masnick and Michael Ho, January 2012 (about the solid growth of the entertainment industry in a decade of technological upheaval)
- Artists Make More Money in File-Sharing Age Than Before It by Ernesto, September 2010
- Writing Without Copyright by Christopher Gronland, April 2012
- Innovation and Imitation With and Without Intellectual Property Rights (pdf) by Rufus Pollock, July 2007
- Exchanging Information Without Intellectual Property (abstract, pdf) by Michael J. Burstein, December 2012
- The Knockoff Economy: How Imitation Sparks Innovation (summary, Google Books preview) by Kal Raustiala and Christopher Sprigman, Aug 2012
- Can Artists Make Money Without Copyrights? (video) with Stephen Davies, March 2013
- Michael Masnick The Trent Reznor case study (video), February 2009
- In the real world, companies copy and succeed, Copycat Innovation, May 2012
- New Zealand bans software patents by Rob OâNeill, August 2013
- Editorial: Why Games Should Enter The Public Domain by John Walker, February 2014
- Exchanging Information Without Intellectual Property by Michael J. Burstein
- Innovation and Imitation With and Without Intellectual Property Rights (pdf) by Rufus Pollock, January 2008
- Are Patents Creative or Destructive (pdf) by Tom Nicholas, 2014