IPSC part 6

Closing Plenary Session

Christopher Buccafusco, Chicago-Kent College of Law & Christopher Sprigman, Virginia

The Creativity Effect

Interested in work on endowment effects. Framing affects how people think about the value of goods and services. (This leads to what I think is the next step in these experiments: there are mature markets for many creative goods, with standard contracts/prices, and that will be part of the framing as well, at least for people who are or become aware that there might be money to be made, and the effect of being presented with a standard contract needs to be considered.)

Ran an experiment about goods that people actually create. Wanted an experiment that looked like a chance to benefit, like IP is, rather than a good with a consensus market value like a mug. Asked people to write haiku. Entered into a contest against 9 other contestants. Asked them to sell the chance to win the prize: incomplete alienation. Then brought in the buyers: how much would they be willing to pay? Third set of subjects: mere owners, who were put in the same position as the authors but were assigned their haiku and asked their willingness to accept.

Hypothesis: author valution would be greater than owner valuation, which would be greater than bidder valuation. This was true. Authors’ mean value was $22.90 (for chance to win $50); owners were $21.23; bidders were $10.38. So even with nonrival, incomplete alienation there was an endowment effect, but the author/owner difference was not significant. Maybe creating haiku in a couple of minutes is insufficient and externally motivated. What if we looked at internally motivated creators? Students at the Art Institute of Chicago who’d been working for months.

This time, a $100 prize. Painters: $74.59; owners $40.67; buyers $17.39—owners and buyers were in the same relation to each other as in the previous experiment. Painters were way out there. This is the creativity effect.

But why? That may determine our normative response. Emotional attachment; labor; regret aversion; optimism. Hard to figure out what to do with the first two. Clearly there’s more labor and emotional attachment in the painters, but within the class of painters neither more labor nor more emotional attachment predicted valuation. Instead the relationship would have to be binary: on-off. Regret aversion doesn’t seem to play a huge role. Optimism seems key: painters thought they had 52.8% chance of winning the prize. Owners were at 41.9%; buyers 31.8%. Irrationality about quality is high.

Implications: debate between property and liability rules. A right to exclude leads to overvaluation and supraoptimal number of failed negotiations. IP more than other forms of property relies on negotiation for efficacy, because IP often locates rights in rightsholders who are unable to exploit them commercially in an easy way. So the initial transfer is very important. IP law often presumes efficacious transaction costs, but we should worry about negotiation costs here. Unlike liability rules, where pricing mistakes are both over- and under-, property rule mistakes are directional. So if the creator is just as likely to be over- as under-compensated, errors in implementing a liability rule might not harm efficient incentives.

Formalities: if we are going to have a property rule regime, we will have overvaluation. We should therefore take care to limit the impact of the property rule to commercially valuable transactions that will bear the freight of valuation anomalies.

Intermediaries: ways to ease transition to intermediaries, if you think they’re better at valuation than authors. One way might be to expand work for hire doctrine.

Running royalties: allow parties to agree to disagree about the value of the transaction. If authors are widely optimistic though the seller may disagree about the split, since the seller may disagree about the amount of work she did to deserve her share. Running royalties are also expensive. Only work for transactions rich enough to carry the freight.

Mark McKenna: Work for hire idea depends on the idea that people who are authors by operation of law, like Disney, are going to view themselves as owners rather than creators. What underlies that intuition? (Listening to the lawyers for big companies, there is often huge emotional investment in “our” stuff. “Our people” made it.)

Sprigman: Intuition.

Betsy Rosenblatt: what about creators who are more than happy to forego protection/compensatoin in their works?

Buccafusco: We’re thinking about testing this. If we meet intrinsic motivations, people might accept less money.

Sprigman: this takes the copyright system on its own terms, testing the role of appropriability. Other people outside the industry may behave differently.

Q: (1) Droit de suite? (2) Wouldn’t the market reward creators with lesser endowment effects, disciplining them over time? (This may be a version of my argument above.)

Sprigman: We asked people to rate their emotional attachment and so on; these are difficult questions to ask because we don’t know people’s scale. We saw no significant attachment between emotional attachment or labor and valuation. If their preference were to raise their valuation because of emotional attachment/labor that’s a preference and there’s little reason to think about debiasing. Optimism is just a mistake, leading to a stronger case for debiasing. Thus this study does not provide normative support for droit de suite.

Buccafusco: IP works are highly imperfect substitutes for one another, but people will be equivalently overoptimistic about each one.

Q: Does the bias exists before they create the work? If optimism is part of the incentive to create, then that is important (e.g. for debiasing).

Sprigman: we don’t know the answer but know it’s important to copyright’s (silly) incentive story. If I’m overestimating my likely returns on the front end, then ratcheting down copyright protection can work more easily.

Q: In order to get out of bed in the morning, maybe creators need to be overoptimistic.

Buccafusco: Gets to debiasing question.

Orly Lobel, University of San Diego School of Law

Employment IP and Innovation: A Dynamic Model of Optimal Human Capital Flows

[missed beginning due to conversation with young children] Empirical test of worker capacity where people were asked to do mechanical or free association (more creative) tasks. People were paid for accuracy. Looked at task completion, performance, reported work satisfaction. People who sign a noncompete agreement (agreeing not to take the same test again) are almost 20% more likely to abandon the task before even giving results and getting paid for participating. After that, the task that requires pure effort gets less time on task; enjoying it about the same; error rates are more than twice as high in the noncompete condition. They skip as many questions as in the control condition, but fail more.

In the experimental condition where the tasks are more intrinsically motivating—associations—we hypothesized less of an effect on performance. Spend a little less time in restrictive conditions v. control; also have as many mistakes as control.

This is a starting point. In time zero, during employment relationship, restrictions on competing jobs may encourage firm investment in human capital, but also discourage individuals to invest in their own human capital and negatively affect innovation. But if it’s something you enjoy/your own focus or career, we might see less of an impact. There’s also a relationship with carrot-based performance bonuses as compensation. In time 1, post employment, controls may prevent loss of valuable employees and misappropriation, but also reduce mobility and efficient employee-firm fit.

Gaia Bernstein: People might not know what they’re signing; often true in new employment situations; can’t affect them if they don’t know about the restriction. People also are optimistic; may think they’ll be in the job for a while.

A: true, we need to consider sophistication/what employees know. Often employment contracts are quite thin, because employers have interest in not writing very much down; post-employment restrictions and arbitration are the two that are key. May also matter whether people are going to big firms that will back them up when the former employer makes noises about the noncompete.

Oliar: were people offered the same monetary compensation in the control and experimental conditions? One would think that the noncompete affects the amount that would need to be offered.

A: Yes, they were offered the same compensation. Evidence is that weak post employment controls increase salary (as well as performance base component of salary).

Jorge Contreras, Washington University in St. Louis

Data Sharing, Latency Variables and the Science Commons

Scientists share data; there’s a literature on why. Individual recognition, validation of results, scientific advancement. Access blocking rights: copyright, trade secret, database. Usage blocking rights: patents. Publication delay and interpersonal and institutional delays also interfere with access to information/sharing. Knowledge latency: period from generation of information until contribution to commons. Rights latency: period from appearance of datum of knowledge until the time it is freely useable.

Various anti-patenting policies from private groups. Bayh-Dole prevents government from implementing non-patenting policy. Two divergent approaches developed: embargo. Data had to be released rapidly, but users must agree not to present or publish on data during an embargo people, so you can’t scoop the data generators. Enforceabilty of agreement questionable. Policy: advances science; minimizes encumbrances; but it’s a weak protector of publication priority. Alternative approach: retention, adopted by private consortia: knowledge latency can be longer, but once data is released, no post-release embargo/optional. Patents addressed via contractual nonpatenting resolution because no need to fight patenting strategies. Policy effects: strong protection for publication priority, weaker advancement of science and doesn’t do much to minimize encumbrances.

Scientific publishing: increasing subscription fees diminished access to data. Calls for open access resulted. Stakeholders: data generating scientists, data using scientists, commercial publishers, funders like NIH, public/taxpayers/Congress (want to make use of data as soon as possible). Punchline: latency variables were used. Different approaches reflect a wide variety of negotiations—bilateral between publishers and large universities like Harvard, which implemented policies requiring professors to publish in public domain, open access journal. Agreed on exclusivity periods giving the publisher a chance to earn subscription fees. Professional association journals: NEJM—adopted its own exclusivity period. NIH policy: have to release data through publicly accessible databases like PubMed Central within 12 months. Pending legislation would shrink that to 6 months and apply to all federal funding. Bilateral negotiation, private ordering, regulatory action, legislative action: all use latency variables to compromise.

Conclusions: competing groups can achieve compromise using objective variables to mediate competing policy goals; variables like time are suited for compromise, compared to values.

Congratulations to Pam Samuelson on running another tight and wonderful ship. Thanks to everyone who helped make it such a great conference, and to Peter Menell for opening his home for the postconference dinner.