Owning more of the news

gridlock-economyIn thinking some more about Judge Richard Posner’s controversial suggestion the other day that Congress might need to expand copyright law to prohibit linking and paraphrasing news stories without permission in order to “save” newspapers from the ravages of bloggers and aggregators, I was reminded of a talk given last month at the World Copyright Summit by Columbia University law professor Michael Heller. Heller is the author of The Gridlock Economy, which describes a phenomenon he calls the tragedy of the anti-commons.

The coinage is a twist on the classic problem in economics known as the tragedy of the commons, in which resources held in common are notoriously over-used and under-developed economically because everyone has an incentive to use as much of the common resource as possible and no one has incentive to invest in its long-term preservation and development.

The solution, in classic economic theory, is property rights. Allow individuals to have private property rights in the resources — i.e. the right to exclude others from using it — they will have incentive to invest and develop the resource, ultimately making the fruits of that development available to others at a profit through the market. In theory, everyone wins.

The idea has formed the intellectual foundation for much of Western, and in particular American, economic policy, which has been heavily biased in favor of extending private property rights wherever possible as a mechanism for promoting the general welfare. In general, more property rights have been viewed as essential to increasing private investment and ultimately wealth creation.

Intellectual property policy has been no exception to the rule, as Congress’s repeated extension of term of copyright protection makes clear.

.Heller argues, however, that there is obverse to the classic problem, and it arises when too many individuals claim property rights in the same thing, or where rights are highly fragmented. If 100 individuals each has a property right in a resource, and any one can prevent its use by withholding consent (or demanding too high a payment) the resource does not get used and wealth is not created. This is the tragedy of the anti-commons.

rheinmapIn his book, Heller recounts the history of shipping along the Rhine River at the time of the Holy Roman Empire. During the Middle Ages, merchant ships could travel the 90-mile length of the Rhine from Bonn to Bingen safely by paying a single modest toll to the emperor for protection. By the 13th Century, however, as the empire weakened, freelancing barons — the original “robber barons” — began building their own castles along the river and imposing their own tolls on passing ships. Eventually, the tolls got so high and so burdensome that boatmen stopped using the Rhine to transport goods and commerce along the spine of the old empire collapsed.

A surfeit of property claims, Heller argues, can destroy markets and lead to a net decrease in wealth.

It can also act to prevent the development of new markets. Heller relates the story of a major pharmaceutical company that developed a compound its researchers were convinced would be highly effective against Alzheimer’s Disease. Before they could begin testing it in earnest, however, the company needed to secure the rights to dozens of separate biotech patents owned by dozens of individuals or entities. Unable to secure them all on reasonable terms the company eventually gave up and reallocated its research budget to developing spin-offs of existing drugs for which it already controlled the intellectual property rights. The Alzheimer’s drug was never brought to market.

Anyone who has ever tried to license music for novel or innovative uses will be familiar with such rights “gridlock,” as Heller terms it. With rights highly fragmented among composers, publishers, recording companies and artists, securing the necessary cooperation from each on reasonable terms has daunted even such formidable innovators as YouTube, which remains in litigation with music publishers over the use of recorded music in home-made videos uploaded to the Web site.

Heller’s analysis is not completely on point for Judge Posner’s plan for saving newspapers. Posner is not suggesting fragmenting rights, or creating a new class of rights holder but investing existing copyright owners with additional rights. But it serves as a useful cautionary tale about the potential unintended consequences of blindly (ideologically) ratcheting up property rights to spur wealth creation. Especially at a time when wealth creation is less dependent on the accumulation of market power and production efficiencies and more on innovation and the transformation of industries.

As I argue in my previous post on the subject, the fundamental problem facing newspapers today is not insufficient property rights, it is the structure of the industry and an (probably) irreversible shift in reader behavior.

Simply investing publishers with additional intellectual property rights –by itself– will do little to address the industry’s underlying problems, let alone advance any reasonable public policy goal. You could jail every blogger tomorrow and outlaw every search engine and newspaper publishers would be no better off than they are today.

Their problems are the loss of monopoly rents from advertising and the legacy cost structure those rents used to pay for. Those problems weren’t caused by linking (or paraphrasing), and they won’t be solved by turning the linked structure of the Internet into a an anti-commons.