Who really benefits from intellectual property law? And who should?

One of my favorite economic policy bloggers, Matt Yglesias, started a kerfuffle the other day with a frighteningly commonplace point about the vain fight of creative producers against free content online, especially vis-a-vis music file-trading. In short, he proposed that in a perfect marketplace for music, 

"The price of a song ought to be equal to the marginal cost of distributing a new copy of a song. Which is to say that the marginal cost ought to be $0."

In a followup post on Wednesday, however, Yglesias took this point a step further. He argues that the entire infrastructure of intellectual property law is designed to bring the cost of all creative products down, eventually to zero, where it's best able to serve the most possible consumers; he cites the expiration date on the copyright of creative work as clear legal intent for all intellectual property to become free. He compares this to the reasoning behind expiration dates on patents for pharmaceuticals, so as to allow for cheaper generic drugs that improve lives for much less money while still providing a financial incentive to pursue new research.

This is a perniciously populist approach to how your information-market sausage gets made.

His example is wrong for two reasons. One is in his misreading of the motivation behind various copyright and patent law expiration dates. Under current copyright law, a writer, musician or artist has claim over his or her intellectual property for their life plus 70 years. That's a pretty clear indicator that copyright law was designed not only for the artist to (hypothetically) have claims to the profit from a song for their entire life, but that their children and grandchildren should as well. The patent on brand-name drugs expires 20 years after the patent is granted. The wide difference suggests a clear intent as to who the beneficiary of these laws should be -- for drugs, it's a consumer; for art, it's the artist. This is why you can't sample P-Funk or the Beatles without taking out another mortgage, but you can get penicillin for pennies.

For someone who writes so eloquently about the distorted market for health insurance, Yglesias completely overlooks how the relative market for drugs and music is not equivalent. If a song is too pricey relative to its value to you, you can choose not to buy it and your life will be pretty much the same. Even in a downward-tilting price war, this encourages artists to make theoretically more awesome music to provide you, the consumer, a better value. Drugs hardly work the same way. If you have an illness, you don't have the ability to decline the drugs you need to cure it. This is why we have patent-expiration laws -- to protect vulnerable consumers.

Therefore, the motivation to create a song or a pill has two very different sets of market circumstances encouraging or discouraging them. As a society,we have decided that both products are worthy and have crafted laws to ensure an equilibrium between allowing consumers access and making it worth one's while to create them. But because the markets are skewed toward different ends of the spectrum, copyright and patent law mediate the transactions. It is absolutely not intended to make MediaFire links to "The Fame Monster" some kind of neo-liberal marketplace ideal. 

He also mistakenly equates the "marginal cost of producing a song" with the overall cost of making one. While I'll grant that the days of seven-figure studio budgets are long over, that cost is not zero. There's a particular distortion in the fact that music is a glamor industry that people will participate in regardless of profit incentive. This ensures a steady supply of decent-enough music to feed the Internet churn of new artists. But I'd give serious pause before saying that removing any profit motive from making music is the best thing for art, artists or consumers. And none of this changes the legal reality that -- hey guys, it really is stealing to have a copy of a song and not pay someone something for it. Some artists might be more OK  with that, some might not be, but the law says it's up to the copyright holder, not the consumer.

I'm no Luddite about the Internet's impact on music -- if I had to choose, I'd certainly rather be an aspirant artist today than in any other decade in pop music, and a world where a lot of bands can make a lower-middle-class living at music rather than a few dozen bands getting to throw televisions out of hotel windows is a huge improvement. But acknowledging and navigating a world where free file-trading is the reality is not to say it's the ideal marketplace petri dish for music, nor the one our lawmakers intended. 

-- August Brown

Photo of the Somalian coast guard, which likewise tries in vain to guard against piracy, by Farah Abdi Warsameh / Associated Press

Comments

[km]

The claim:

Under current copyright law, a writer, musician or artist has claim over his or her intellectual property for their life plus 70 years. That's a pretty clear indicator that copyright law was designed not only for the artist to (hypothetically) have claims to the profit from a song for their entire life, but that their children and grandchildren should as well.

Whatever the merits of the arguments about marginal cost (and clearly there are fixed costs that have to be covered, so marginal cost can't be zero), this above comment
about copyright law shows complete ignorance of the "design" of copyright law. The original term of copyright was for 14 years. It remained relatively limit until the post-war era, when campaign contributions worked their magic (most profitable works under copyright are owned by large corporations--the argument about children and grandchildren is nonsense) and it has basically been extended into perpetuity (thought the Constitution expressly prohibits this, but a 150 year copyright is effectively that). The argument against this long-period copyright is simply that
at some point works become the common currency of mankind. It can be argued that "Ice Ice Baby" is not a particularly great contribution to culture but there is really no argument about extension of copyright beyond a short period aside from the collection of economic rents by large corporations.

[Writeathome]

Your article has many good points.

I would like to make one also. The hardware I draw upon to play and record music has cost me about 40k over the past 35 years. I think a return on that is not unreasonable to ask.

[Joseph Polimeni]

The essential issue is that almost everybody has forgotten the historical roots intellectual property rights. During the 1300's, Venice implemented the first intellectual property rights in the silk industry to protect their city's economy. It had absolutely nothing to do with rewarding individuals. Rewarding the inventors of new silk manufacturing technologies was simply a means to an end. People copy other people all the time. Take pop songs; almost every lyric, phrase or story somehow derives from other people. In other words, the specific medium that gets copyright protection can be very arbitrary (I want to start lobbying for copyright protection for those little humorous quips I sometimes make at dinners). I personally believe that medicines probably require patent laws, however, music most likely doesn't. Let's try it. Abolish all copyright protection for music. If in 2-3 years the quality of contemporary music deteriorates, then I'm sure the public will favor returning copyright laws. Until then, music copyright protection will be seen for what it is - a legalized money grab.

[Barnacle Bob]

August, lower-middle-class money svcks. Actually, so does middle-middle and upper-middle-class money. Sure there is some consolation in the fact that, these days, one might make the aforementioned "middle-money" playing music, instead of say, working at innumerable HR Block branch offices. But a real artist knows only fvck you money or Leif-Garrett-bottle-collecting-money, no in-betweens.

[SadCalifornian]

Copyright law as currently written was not created to benefit individual creative artists, but large corporations. Since corporations live forever, it is in their best interest to extend copyrights as long as possible. Disney is an excellent example of this. Free Mickey Mouse!

[Anthony Peterson]

The marginal cost of Yglesias depositing a dollar in his bank account is zero. He still expects to get it back with interest. Profit is the price of risk my friend.

[Industry Wag]

Should a bridge engineer should be paid a royalty everytime a car crosses for the rest of his life? They certainly don't now.

Let's face it- recording artists want special treatment from society and the Internet took away their golden goose- mechanical control of distribution.

Doing something once and getting paid for it for the rest of their lives is a fantasy now, no matter how many lawyers you line up. Deal with it.

[Jonathan Fleck]

Terms on patents should be extended for independent inventors/entrepreneurs that are a "qualifying" small business entity. The terms of patents should be lengthened to further nurture garage and basement innovators in America. Large corporate entities with enormous R and D budgets have little risk in loosing livelihood in contrast to an independent, further tilting the innovation equation away from the out of the box innovation borne in a garage that the corporate set just can't "see". By nurturing the small guy a flood of development and access to capital would encourage groundbreaking innovation. Independent innovators don't have access to the vast resource of the influential corporations (going forward corps will have even more influence - thank you Supreme Court?) that swim in the same innovation Sea - yet the breakthroughs are plentiful and are often times lost in the burn rate of savings and the necessity of food on the table...not so for a huge corporate patent factory. Check out www.deflecktor.com this little innovation is coming to one of the largest trucking companies in America - straight out of a basement in a hotbed of innovation the twin cities of Minneapolis - St Paul - where cold winters encourage thoughtful change... As for copyright - shorten the terms - the innovator is the one to be incentivized -not the (oftentimes) dysfunctional heir ...

[seriousfun]

August Brown, you are startlingly ignorant on this subject.

A person trading a file, whether on the internet or on disk or etched into a stone tablet, is not a pirate.

Piracy - counterfeiting, for example, a legitimate product and passing it off as the real thing - is a real problem and every wrong-headed discussion on this issue like yours puts us further from stopping this.

Trading a file is a federal crime of infringement. Serious, yes, and potentially costly, with fines of up to $150,000 per infringement. This is not piracy and its effects are a complex dance between a potential lost sale (that's about nine pennies to the artist, but it's impossible to prove that an infringement equals a lost sale) and marketing value far beyond that (if enough people hear a song through whatever means, a percentage will buy it if it's good).

It's a federal crime since our founding fathers, with much contention, wanted to encourage the creative and practical arts. That is why a limited exclusive right was granted in the constitution for the creator of a work to profit from that work, and that is why that work would eventually return to the public domain so this work could generate more.

And you are totally, blindingly wrong about the music market today. There is no middle class musician. The big music industry (not evil, and they used to serve a purpose) has thrown the game and sulked home taking the ball with them. There is essentially no music industry left for aspiring artists to aspire to. Even the share of the elusive 1% of the music industry that makes a few people very rich has been cut by more than half.

The only reason copyright law has changed to be as long as it is is so corporations like Disney can pillage stories, public domain or not, call them their own, and pass exclusive rights down to the grandchildren of their corporate heirs. This is pure evil, and a clear indication of the corporate coup d'état currently underway in Washington.

[musicfan]

Couldn't have said it any better... you're not a true fan if you're stealing music of the artists whom you claim to support

[Sophie]

Hmmm, interesting counter-argument, Mr. Brown, but I'm not completely buying it. Although there's logic in your analysis of the differing intents behind pharmaceutical patents and music copyrights, I think Mr. Yglesias has a powerful argument regarding the "costs" associated with the distribution of music on-line. There are none, really. Now if 100% of my 99 cents is going directly to the artist and the production team, I would be more likely to think it's worth it.

[Alan]

YOu say "Under current copyright law, a writer, musician or artist has claim over his or her intellectual property for their life plus 70 years. That's a pretty clear indicator that copyright law was designed not only for the artist to (hypothetically) have claims to the profit from a song for their entire life, but that their children and grandchildren should as well." Well, not really. Prior copyright law, as I recall, provided protection for the life of the artist plus 25 years. The new law was passed after concerted lobbying by corporate media conglomerates spearheaded by the Disney Co. -- because the copyright on Mickey Mouse was getting near the expiration date, and having Mickey pass into the public domain would cost Disney - the corporation, not the family -- hundreds of millions of dollars. The current state of copyright law is all about corporate profits, not the rights of artists.

[KB]

Mr Brown would be advised to perform at least 30 seconds of research before committing fingers to keyboard. Otherwise, he undermines his entire essay.

The purpose of copyright was originally to encourage creators to create and to make their creations public. From the US Constitution, "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." Copyright was originally for a 14 year term in the US.

After significant lobbying in the 20th century by corporate holders of copyright (and who is there to lobby against them?), copyright has been extended in time, with the goal of providing revenue for the rights holder, and their descendants.

This extension of copyright undermines its original goal. If a (creatively successful) rights holder is guaranteed a revenue stream for the rest of their life, plus for their descendants, what incentive do they have to continue creating? They might as well kick back and enjoy the good life.

[mike]

The legal and moral arguments aside, it seems certain that the supporters of these intellectual property laws have lost. This game is essentially over; the enabling technology assures that regardless of draconian penalties and countermeasures, music will continue to circulate for free.

My recommendation would be to recognize the current arguments as diversions that delay coming to grips with reality. The music industry is shooting itself in the foot with its ultimately unenforceable claims and its demonization of people who have evolved a more felicitous distribution system.

I think the industry ought to go back to basics and find new ways to remain relevant rather than continue to beat a dead horse. What those ways might be, I don't know. But in the meantime, my advice to holders of equities in these firms is: sell!

[david]

If you think there is enough music out there already and you don't want any new music, then fine, take away the incentive to create music by denying songwriters, music publishers and record companies payment for their work.

Funny, how you folks who claim there is no basis for paying for music - I bet none of you would agree to work for free.

[kabosh]

Yglesias doesn't address the marginal cost of production, but the marginal cost of distribution; you've misquoted him. Regardless, he doesn't confuse either with the total cost of production-- this is purely your own error. Yglesias knows quite well that the marginal cost is the *change* in the total cost incurred by producing and/or distributing one *additional* unit, and that it is standard economics that this trends downward on a per unit basis the more units are produced. In the case of easily replicable copies of music, the marginal cost becomes very low; that does not mean that the *total* cost is $0; nor does it say anything about the profit side of the equation. Once the cost of initial production is recaptured, if the marginal cost of production and distribution is very low (or $0), standard economics argues that the market should bid the price of the product way, way down, whether we like it or not .

Also, regardless of how, and how much, and for how long, you think artists should be compensated for their work, the constitutional point Yglesias raises is quite valid: unlike the laws of other countries, the U.S. Constitution understands the point of copyright as encouraging the progress of the arts, not as a codification of a moral right of the artist. Thus the *by* clause in the phrase "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". The fact that copyright lasts 70 years after death is simply a measure of how much incentive we as a society have decided is required to further that progress. (That it is also the result of a lot of lobbying on the part of large corporations--see the "Mickey Mouse Protection Act" of 1998-- that control a lot of artistic product, with debatable benefit to society, is another discussion).

[Jonathan Fleck]

August,
A patent expires on a pill 20 yrs after the filing of the application. It used to be 17 yrs after the date of issuance. The change was good and avoids scurrilous inventors from "submarining" the application to extend the time frame. Copyright protection is too long and was largely molested by Mickey and the Disney Corporation to extend it - I bet they will seek to extend it in the future as Corporations gain more influence and do not die. Ever notice how Mickey has no wrinkles, or is that Hollywood for you?
Small innovators should be granted longer terms on patents as their inventions typically take longer to exploit -vs- a patent factory with a plethora of resource. It would be a no cost incentive to innovate at the most fundamental level.
Interesting debate - but I personally would like to know how the public library fits into the future rise of the E book. Will I be able to digitally "sign out" a copy for no charge as Andrew Carnegie envisioned with the bound copies I currently prefer over the Kindle gathering dust? What is the future of the library as we have come to know it in this new age of digital E-books"? How does this convergence impact the seeking of knowledge?

[taylor fife]

this is actually really sad and disappointing, august. others have pointed out some of your most ridiculous points, but instead of contributing examples to the list of logical errors and fallacious arguments you've made, i'd like to say that i'm most amazed at your complete subjugation to the ideology of mega-capitalism in the arts. i suppose this shouldn't be a surprise; newspapermen seem to have the most difficult time grasping even the simplest concepts in political economy. not only did i find this blog post uninformed, but also deeply offensive. i've been a semi-daily reader of this blog for quite some time but now i am, in fact, considering leaving it behind altogether.

[Ho Simon Wang]

Intellectual property laws are designed to strike a balance between the economic interest of the content creators and the welfare of the general public. The basic premise is that creators produce cultural products with the hope that s/he can make big money. There are two problems with this assumption.

To begin with, not all artists have money in mind when they create. In fact, most great artists and writers do not care much about money. A great many classical works were, in fact, created without any protection of copyright.

Secondly, I am not quite sure the award of wealth will do more good than harm to an artist's creativity. Money is important for us to make a living. But the marginal utility of money, beyond the point at which we earn our basic living, is declining. People would become very strange when they earn too much money, for example, flying in a private jet when their compatriots were sacrificing their lives for the oil and the world is going to the hell due to the global warming.

[Lee Tran]

I'm amazed by the view that musicians somehow don't deserve to make money from music they've created. Some people seem to think musicians operate in some parallel universe, where musicians aren't required to pay their rent or feed their kids or deal with the same old bills that plague most people. Yes, a small number of musicians live a fantasy life that probably distorts how glamorous the industry really is, but I know a lot of people who borrow a lot of money or work very hard to fund their music (not to mention the music labels that put up the money to do this) – so the idea that they should appreciate people downloading their music illegally is baffling.

"Should a bridge engineer should be paid a royalty everytime a car crosses for the rest of his life?" It's not the same argument as someone – a council or a goverment or private company – would have originally paid that bridge engineer to produce that work. A musician is not paid in the same way.

[Pete Smith]

"I'd certainly rather be an aspirant artist today than in any other decade in pop music, and a world where a lot of bands can make a lower-middle-class living at music rather than a few dozen bands getting to throw televisions out of hotel windows is a huge improvement."

This would indeed result in a healthier music industry for artists and fans. We are an independent label and release 99% of our catalog for free download under a Creative Commons license. In the short term this means we will struggle to make a profit and survive but we are in for the long haul, how many major record labels can truthfully say that today.

[Leigh Harrison]

One reason Matt Yglesias is incorrect (and August Brown has it right) is that music really has less in common with medicine than it does with food. If we paid stores (or farmers, if a farm is where you buy your carrots) just for the cost of delivery, it might be free to pick it up at a farm (but that DOESN'T pay the farmer for his time, effort, work, fertilizer, farmhands, etc.) Furthermore, if you just paid a store for distribution of soup, they still couldn't pay the farmer for the chicken or onions NOR the people who washed and cooked them, packaged it, and so forth.
Similarly, with music, it isn't just the cost of uploading -- it's the time and effort (the work) I have to do to compose the song, the producer and engineers who recorded it, the backup musicians I had to pay, plus the cost of manufacturing, which for people like me (an indie artist with a very tiny record company I co-manage) is a huge expense.
When someone pays me a meagre $1.29 for a song, or $10.00 for 12 songs on a CD, I am already selling it at a loss, because it cost a lot more than that to create. But that's a heck of a lot better than selling it for nothing -- or having it pirated -- which is even more of a problem, because it means a still greater economic loss, and it totally devalues the work I (and others) have done to create the CD.
In May of 2009, I wrote an Open Letter (on my website on the COPYRIGHT PROTECTION page) which clarifies a bit more what piracy does to creative artists, writers, and musicians. All musicians and other artists should be working together to eliminate piracy of IP, and to strengthen copyright protection. Free content (which is, in a way, "legalized piracy") is neither fair to us, nor conducive to future creation.

Leigh Harrison
SongCrew Music
www.leighharrison.com

[David Fraser]

I'm sorry but no-one can make a living at music these days. I'm serious. The statement "lower-middle-class" living is false. When the beatles were rocking the scene making millions, average joes were rockin the local pubs for HUNDREDS of dollars, the union rate of "scale" was $100 per person a night. Which was more like $350 of buying power today. Now bands are routinely driving all over the country to play for DOZENS of dollars, which is the financial equivalent of jack squat. The internet and this whole "creative=free" mentality is not spreading the wealth, it's killing the livlihood of artists. Yes some can still eke out a living if they win some contest or give someone a BEEJ, but it's getting so bad no matter how hard you hustle, no matter how good you are, you can't win.. That's a problem for a society that needs to have art to reflect our values.