Knockoff Economy session III

Chris Buccafusco (Chicago-Kent College of Law)

What level of creativity would we have with formal IP?  The studies can’t tell us.  The problem with the approach is that it doesn’t give us the necessary counterfactual.

Specifying the mechanisms by which creativity and innovation continue to occur in these low-IP fields is very helpful.  What else?  More comparative and historical studies.  IP protects perfume in Europe: do we see innovation?  Historically—Stan Liebowitz has done work on the effects of downloading on production; Paul Heald has looked at how public domain status affects entry/investment.  Experimental evidence: issues associated with attribution.

What about “real art”?  Music, movies, literature.  How much do these studies of marginalized production affect “real” culturally valued production?  Difficult to answer.  Internal v. external incentives.  That may be why we never see “failures” of entire fields—people like creating stuff, and often continue to do so.  The question is: how much more could we be seeing if we did have IP.

Role of performance.  Sometimes it’s possible to preserve the role of individual performance and incentives related to a particular performance: music, food, adult entertainment; less so with pharma, movies, etc.  If chefs are not able to protect the food, they shift to performance elements.  Competition evolves around performance, not content, which might be problematic for social welfare; if we really value chefs for the delicious food they make, then the ones who make good food will lose ground to good performers.  Book on creating country music/manufacturing authenticity: in the 20s/30s, desire to create music that sounded authentically folk/country because it could get IP protection rather than performing public domain standards.  (Isn’t this the music version of churn?  If you can separate composers from performers, I’m not sure why this is a problem, since people who are good at composing can do well without losing out to people who are good at performing; though maybe you can’t.)  In all these industries, there are differences between the incentives of different kinds of players—chefs don’t care about copying, but cookbook authors do; Food Network sends takedown notices to people posting Rachael Ray recipes.  Content is highly copyable and can’t be substituted with performance. Have to make normative decisions about who we care about.

We don’t want innovation no matter what; we want cost-justified innovation.  Every single year, Balenciaga has to invest in creating a new dress, and the ones that are failures represent lost social welfare.  The innovation we get may be more costly than justified.

Bob Ellickson (Yale Law School)

For further work: What does it mean to “thrive”?  We are getting the exact right amount of innovation in fashion, football, etc.? Weaker version: in a world of transaction costs, we can’t do much better. Third, weakest version is a slam dunk: however we’re doing now, patent and copyright would make us do a lot worse.

Overall systems of social control: formal associations that make rules.  Notre Dame Law School makes rules about food in the library: neither law nor norms.  In all the contexts studied, there are formal associations—maybe even tattoo artists.  Question: are these ass’ns involved in policing copying or not?  There is a national ass’n of comedians.  The ass’ns in the fields in The KE are generally weak.  Why do the comedians set up an ass’n but not get it involved in disputes like this one?  What about strong associations, like condominium ass’ns, which establish and enforce rules?

His view of social control: how do we prevent wrongful copying?  First-party controls achieved through socialization of children: the main form of order in our society.  People don’t copy jokes because they think it’s wrong.  Second-party social control: if you copy, the person who’s been copied will retaliate violently or by calling clubs to keep you from being hired.  Third-party: law; norms (ostracization of offender even if the offender didn’t steal your own joke); associational rules.  The last is the dog that’s not barking here.  Comedians themselves think they don’t need/want that because informal second- and third-party sanctions work well enough; ass’n has no comparative advantage.  Homeowners’ associations are stronger because of weaker social ties—it’s possible to survive being hated by your neighbors but not by your comic colleagues, so the HOA needs stronger/more formal associations to govern behavior.

Nicole Garnett (Notre Dame Law School)

How much can we learn about the appropriate level of social control from the case studies? Elinor Ostrum on effective management of common pool resources; too much gov’t can interfere with that.  Turns out there’s a lot of gov’t in the collective management, too.  Example: mountain-climbing shoes: Sanuk Vagabond, apparently very innovative—TM and patent does protect some of that.  Apparently not used for mountain climbing/functionally, but do signal membership.  Crocs immediately copied the Sanuk Vagabond with the Crocs Santa Cruz, upsetting the mountain-climbing community. Will speed of copying spur improvement in Sanuk’s quality?  Now making new/different Sanuks. Separate problem: fake Sanuks.  With more limits on copying, would there be more counterfeiting as the only way to copy?  Will restrictions on copying lead to more creative production—designing further away from the Sanuk/Croc.

[discussion of use of design patents to protect shoes]

Michael Heller (Columbia Law School)

Fashion in academic book conferences: which books get chosen?  Writing entertainingly/clearly for a mass audience is something academics should strive for. 

Pointed us to ND’s law library food & drink policy: historically none allowed.  Change in that in recent years.  Noticed disjunction between formal “law” and actual practice of students.  ND librarian researched the range of policies around the country and incorporated elements from others while making its own. Three distinct zones: no eating & drinking, no exceptions, in special collections. Drinking ok but not eating in computer room (why not the opposite?).  Rest of the library: lengthy policy allowing light prepackaged snacks not damaging to the materials and not disturbing to others, with examples (disturbing = aromatic; prepackaged = pretzels, not burgers).  Initial concern was messy food.  But the only all-caps part: no outside delivery permitted!  What if you tried to have a light prepackaged snack delivered?  (How likely is that?)  The all-caps rule trumps.  So moved beyond the initial concern.  Set of informal norms, law trying to catch up over 25 years.  What’s changed as the law became increasingly elaborate and covered more of the norms?

Well, nothing has changed in what students do.  Students brought in snacks before and they still do; they’d get in trouble for pizza and they still do. What’s changed is the effort in defining what’s ok and publicizing the rule.

One possible response is, so what?  If the actual practice before and after is the same, then there’s a possible invariance theorem: law/IP doesn’t matter.  People simply do what they’re going to do, or work around it. Omri Ben-Shahar showed mathematically that a long adverse possession period led to relatively little individual effort to police, and a short period led to the opposite; the total amount of adverse possession would be invariant as to the law.  (This may be the paper.)  Heller thinks Ben-Shahar is wrong because he doesn’t account for the effects of very specific guidelines in front of people/shaping norms; harder to adapt to new types of food/new types of behavior.  In a world of fast change, formal rules are more troubling.

Me: On how much more we’d have if we had IP in these spaces: Glynn Lunney has done work on this—tradeoffs with other kinds of investment.  Relatedly, scarcity of attention.  How much more can you actually experience? “failed” genres and the reasons they fail other than copying: w/o fully endorsing, let me quote Nicholas Carr: “The oral epic poem, the symphony, the silent film with live musician accompaniment, the dramatic play, the short-form cartoon, the map, the LP. Most of these still exist, particularly on the consumption side, but they’ve all been diminished.”

Garnett: what are the connections between norms and strong associations? If the norm is strong, the association doesn’t need to be, which is good because ass’ns can become highly overbearing—especially homeowners’ associations! 

McKenna: As Avishalom was saying: innovation doesn’t just descend down on consumers with no consumer-side aspects, as if it’s delivered with no question of what they want.  We don’t actually know whether consumers want shoes that are very different from Crocs v. shoes that are close to Crocs at very different price points.  Another complication of the counterfactual.

Sprigman: Came up in Apple v. Samsung. If we had less copying and had more “pioneering,” then Samsung has to make its phones very different—but if consumer demands are supposed to drive innovation (and where those preferences come from is a complicated question).  If Apple came up with a user interface that people want, with variations, but they don’t want something that’s very different.  As if one car company could have a driving interface that was a wheel and everyone else has to use handles.  Consumers may not want that kind of differentiation!

Comedians’ ass’n used to be a lot stronger; wanted to organize over health care.  One thing that weakened it was that the ass’n hired a lawyer to see about the possibility of suing for copyright infringement of jokes, and it weakened the ass’n because people split on whether this was a good idea.

Raustiala: Council of Fashion Designers of America; trying to change norms about copying/knockoffs.  MPAA is trying to do the same thing (Beebe points out that they’re trying to get it into schools, with some success).

Shaver: Slippage: the difference between the way the law is supposed to work and the way the law actually works—higher in some countries than in others through gaming, error, fallibility.  Challenge of defining what’s new/infringing is one of the slippage points.  Law can take on a life of its own and lead to overprotection.

Buccafusco: does it have to be political economy? Couldn’t it be a real economy issue driving the increase in scope, term, etc.  We see unidirectionality but we don’t have the counterfactual.

Perzanowski: Steve Jobs said consumers don’t know what they want until he shows it to them.  Made a lot of money that way—preferences aren’t always known in advance.  Counterfactual about the right level of protection: First we need to figure out qualitatively what kind of output we want, and what the optimal level of production is before we can figure out the optimal level of protection.  There may be overproduction in tattoos; clients could be satisfied by choosing from existing designs—but they want to make the monkey dance/see the artist go through the steps of creating something new. Adult entertainment: we already have plenty; why make someone create a new performance?  If we don’t know the optimal level of production, we won’t be able to talk about optimal level of protection.

Buccafusco: zero-sum investment doesn’t mean zero-sum output—if we shift from one type of media to another, we might get different amounts out of them. There are good reasons we want to live in a world of 21^st century cuisine instead of 14^th century cuisine: taste, variety.

Qian: why no innovation before the entry of counterfeits in her study?  If we think of different brands as having monopoly power within their own niche, their own brand serves as a natural entry barrier/horizontal differentiation allowing people to self-sort, not because quality is higher but from personal preference. Counterfeits break the natural monopoly.

Income inequality positively relates to demand for counterfeits: empirical finding based on studies in China and lab experiments: the link is through power/status signalling. If people are less threatened for being poor, less surrounded by superrich, then they feel less powerless and feel less need to buy counterfeits: that’s an anticounterfeiting strategy without IP.

Samuelson: fast innovation has been problematic in software (settled down now).  Release 1.0, 1.1, 1.2, etc. and dealing with customers with different levels of the product—companies ended up getting penalized by consumers if they innovated too fast. 

User innovation stories of Eric von Hippel and collaborators: companies basically adopt/appropriate pioneering innovations in info tech/sports equipment.  Another way in which you get innovation-as-improvement but without using IP/with very strong sharing norms.

There are a couple of places where we could see some interesting experiments: SCt decided that diagnostic methods aren’t patentable; they aren’t copyrightable; and they can’t be kept as trade secrets.  How much investment was there prior to Prometheus, and how much will there be post-Prometheus?  Even bigger deal is Myriad and patentability of gene sequence; biggest argument against rights is creation of patent thickets, preventing research instead of helping.  If the SCt strikes down the Myriad patent, what happens to innovation in that space?

Copyright side: until early 1990s, the US didn’t protect architectural designs, and then it did.  The architects weren’t enthusiastic, but the treaty required it and the copyright pros wanted to make it look like we were in compliance with Berne and architecture was the easiest sacrifice.  Could look at effects on innovation.

McKenna: the ones who use the system to litigate aren’t high end designers but subdivision builders, not high end builders.

Buccafusco: same with food.

McKenna: certain players who push for stronger TM/copyright may be the ones who benefit most from the current state of affairs.  Do they not get it?

Gosline: When you talk to luxury brands, they stick to the party line, but they do understand that they benefit from infringement and enjoy a particular status within their categories where they are less likely to suffer harm than others in the middle categories.  High end stuff that is less well known is less likely to be counterfeited—the heavily logoed stuff gets copied, but not bags that cost $15,000/bag.  Have resources to create the super-high-end stuff that allows them to survive/benefit from imitation at the lower end.  “Fakes are never in fashion” campaign etc. are trying to control the behavior of people who might be their consumers.  But they’ll never say that on the record.

McKenna: they litigate against people who seem to helping them.

Gosline: yes, against distributors, but they’re not chasing the individual consumer who buys a bag.  Distribution channels are different.

Qian: Provides results to companies that give her data; some have an a-ha moment where they see the benefits of counterfeits—but there are lots of lost sales on the low end. Overall average effect across product lines is still negative.  Also looks at brands at different stages—counterfeits helped brands that were less renowned at the time of infringement.  Once the brand is established, they want counterfeits shut down.  That’s just what Microsoft did. Only when it had a 90% market share did it start fighting piracy.

Gosline: it’s mass exclusivity, which is an oxymoron.  If you pull back the curtain and say everyone’s got some luxury, that undermines it.

Sprigman: this is an industry of lawyers/brand protection experts dedicated to doing precisely this. (As Upton Sinclair said, it is very hard to get a man to understand something when his salary depends on believing the opposite.)

Raustiala: cultural differences?  In Europe, where so many of these firms are headquartered, are the norms different?

Gosline: differences according to whether you have a new upwardly mobile class with disposable income.  Doing some work in India now.  Dynamism: people wanting to signal they now have loads of money.  Europe/US face more stability there.  Notion of couture—pretty common in India to have shirts made for themselves; doesn’t differentiate rich from poor in India, which creates a challenge for luxury manufacturers to convince people that’s why you should pay so much.

Recent entry of luxury manufacturers and media is serving to create value—fashion industry is training people to look forward to these products. 

Qian: experiments in China and US have similar results qualitatively; quantitative scale is larger in China, and field data so far is only from China.  Effects larger for China: advertisement effect. If consumers are unfamiliar with multinational brands they rely heavily on common opinion for knowledge/awareness.  Converse is not famous in US but is in China because of all the counterfeits.