II. Property
E. Intellectual property
    The single most important current area in property law assignment--most real estate is owned but idea space is still wide open

1. Economic analysis

    a. The economics of intellectual property (IP)

    Recall the goal of property rights: improve allocation of resources
    Do property rights in intellectual property improve allocation of resources?

    What's wrong with downloading music and movies from the internet?

    Intellectual property has the characteristics of a pure public good: (i) non-depletable and (ii) non-excludable
   => (i) MC of permitting another user to consume existing public goods is about zero and (ii) difficult to exclude free riders

Resulting trade-off for private provision of public goods:     (1) static inefficiency: non-depletability --> underconsumption of existing IP goods w/protection     (2) dynamic inefficiency: non-exludability --> underproduction of new IP goods w/o protection

    b. The economics of intellectual property rights (IPRs)

    --Creative endeavor without IPRs

    Without IPRs, would creative endeavor cease?

   (1) Nonpecuniary motivations
    much great literature predates copyright (Dante, Homer, Shakespeare)--motivated by fame, love of art (F122-3)

    (2) First mover advantage
    consumers identify the product with that firm.
    The first firm may be able to establish standards, and consumers are uncertain whether other firms are successfully imitating them

    Ex: Circa 1900 the U.S. did not recognize British copyrights, yet British authors got sizable royalties from their American sales.
    With large fixed costs and time delays due to typesetting, the first publisher (who got the manuscript from the author) had a sizable advantage over pirates (who had to wait for the first publisher to print his edition before they could start pirating it).

    Ex: Lotus received no patent on the idea of a spreadsheet (which would have gone to Visicalc anyway), yet had a large first mover advantage.

    (3) Copying costs

    The optimal protection for IP could be zero
        Since we get some creative endeavor without IPR, the    

    --Benefits of IPRs

    (1) Greater incentive for creativity
    (2) Lower incentive to invest in secrecy
    (3) Greater ability of the owner to coordinate further development--Kitch's prospect theory. (Also see F133)

   --Costs of IPRs

    (1) Monopoly power
       excessive protection: example: network externalities which can increase market power--operating system and dependent software. (CU131)

    (2) Cost of enforcement
    fuzzy boundaries the norm in intellectual property. (F118) => enforcement is complicated

    (3) Rent seeking

   Patent races: Two people working in the same area might easily come up with the same (or overlapping) ideas, so there is a serious commons problem in patent law. Indeed, there is often ligitation over who has priority when two labs were working on the same problem.
    If I make my invention a day before you do, I get all the rights to it, you get none. So there is an incentive for an inefficient competition to be first.
    Hence the revenue from licensing a patent might well overstate the social value of what was produced
    Similar to homesteading: homesteading or a patent race takes something from the commons. It eliminates a valuable opportunity (to homestead that piece of land or make that invention) that others previously had => imposes an external cost on others

    U.S. Constitution, Article I, Section 8: "The Congress shall have power . . . to promote the progress of science and useful arts by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries."