Intellectual Property on the Internet: What's Wrong with Conventional Wisdom?

by James Bessen and Eric Maskin Revised 2004 Introduction The growth of the Internet has put pressure on traditional intellectual property protections such as copyright and patent. Some forms of information, when made accessible on the Internet, are easily copied. Because the costs of copying are low and because copying is often anonymous, publishers have often responded with more aggressive enforcement of existing intellectual property rights and with calls for extensions of those rights to cover additional content, new media and new forms of access. This effort can actually be seen as part of a twenty-year trend toward tighter intellectual property enforcement and extensions of intellectual property rights. Yet this response and this trend toward tighter intellectual property rights are not always appropriate, especially on the Internet. This paper argues that the Internet and World Wide Web possess characteristics that may make such policy inappropriate—the Web is a "community" that is highly interactive and dynamic. Indeed, much of the software that runs the web is Free/Open Source software. This paper summarizes a formal economic model applied to such an interactive and dynamic environment. The model suggests that both individual publishers and society more generally may benefit from weak intellectual property enforcement and protection in such an environment. As policy-makers address this new environment they should tread carefully. The conventional view that tighter intellectual property protections always improve innovation incentives is based on a limited economic model that often is inappropriate in such highly interactive and dynamic environments. The Traditional Intellectual Property Model The conventional argument for tight intellectual property protection is that it preserves the incentive for authors and inventors to create. The argument goes as follows: Creative activity typically involves substantial development costs. Artists, authors and inventors are not necessarily motivated exclusively or even primarily by the prospect of financial gain. Nevertheless, the potentially high expense of originating, developing and distributing creative works imply that many creators need a financial return to recoup their development costs. This return provides the "innovation incentive." If a work is copied, the original author/inventor may lose potential sales and profits, and thus an environment that permits copying reduces the innovation incentive. With a smaller prospect of profits, some