The prospect of applying the ordinary law of intellectual property-which many associate with the technology of Johannes Gutenberg-to twenty-first century innovations bothers many people. Why be tied to the past? Why not achieve a new and better future through new and better law?
Frightened by the idea of a patent on the human genome and drugs developed from it? Just declare that all such knowledge and products are in the public domain,1 or require scientists and drug developers to license their discoveries and products at "reasonable" (= low) prices. Unsettled by the prospect that books and articles distributed over the Internet will be tagged or encrypted so that the authors or publishers can collect payment each time they are read or redistributed? Just forbid the newfangled devices (or contracts that consent to them), declaring that authors cannot be allowed to violate the rules for "fair use" or to profit from information that "ought" to be available to everyone for free.2 Frustrated by a software license that forbids the disassembly of object code in search of the source code, which could help other programmers write competing or complementary products? Just tell the author that in the public interest the law will not enforce onerous terms, which conflict with the public's presumptive right to engage in reverse engineering-and leave it to the judiciary to determine which terms are too onerous.3
I am a skeptic about the proposition that new developments in technology imply the need for new laws or rules.4 I am skeptical for two fundamental reasons. First, we know so little about the effects of our current intellectual property regime on the production and use of traditional intellectual property that it is silly to suppose that we have the information essential to prescribe new regimes for new kinds of intellectual property. Second, when flailing around in the dark, it is much easier to come up with "solutions" that harm the development of intellectual property than it is to devise rules that help. Ignorance thus should lead us to leave well enough alone. (As Edmund Burke remarked: Don't talk to me of reform; things are bad enough already.) I shall develop both of these propositions briefly.
Consider for a moment the world of perfect competition in classical economics. Price everywhere equals marginal cost, so all decisions about producing, purchasing, and using goods are both privately and socially optimal. Now consider the problem for intellectual property: an idea, a book, a poem, or a piece of software can be used without being used up. The marginal cost of producing a new example, after the work has been created, is not zero, but it is low-substantially below average total cost. To recover its investment, a producer of intellectual property must be able to sell at average total cost or more; but if marginal cost is under average total cost, the price is "too high" to be socially optimal, for the high price discourages at least some purchases even though the consumer values the work at more than the cost of producing an extra copy. That is the problem with which the law of intellectual property grapples,5 and no solution can be praised unconditionally.
Patent law, copyright law, trademark law, and the law of contracts (of which trade secrets are a branch) create or employ property rights in information so that the producer of intellectual property can charge more than marginal cost, and thus cover the total cost of producing and disseminating the works. Would-be consumers who value the work at more than marginal cost but less than average total cost lose out; but if the law were otherwise different consumers would lose (and lose even more) because producers would not develop and distribute as many innovations, plays, drugs, and programs. Just horn much above marginal cost should the price be? No one knows. A patent gives the inventor the right to exclude competition for twenty years, and thus to collect an enhanced price for that period. …