Permission, Please: Copyright in the Digital Era

Internet Law Digital Copyright Introduction Economic Theory

Rivalrous vs. Non-Rivalrous Goods

To understand why there is an economic necessity for copyright, it is first necessary to distinguish copyrighted works from other types of property. Unlike the situation with most goods, sharing copyrighted works does not lessen individual utility. In other words, most goods are economically rivalrous in use, while copyrighted works are nonrivalrous. The distinction is important because the economics behind the two different types of goods is different.

An example of a rivalrous good is a public highway.1 When one person gets on the highway, it reduces the utility of other highway users. The chance of an accident increases, the speed of traffic decreases, and everyone is worse off than if they simply used the highway themselves or without the person. On the other hand, the utility ideas, such as copyrighted works, does not decrease upon dissemination. Their use is non-rivalrous. One person's utilization of a certain idea to build a widget does not mean another person has to wait in line to use the idea as well, provided that both people know the idea. As Thomas Jefferson, the first Patent Examiner of the US , wrote:

If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea, which an individual may exclusively possess as long as he keeps it to himself; but the moment it is divulged, it forces itself into the possession of every one, and the receiver cannot dispossess himself of it. Its peculiar character, too, is that no one possesses the less, because every other possesses the whole of it. He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me...2

Jefferson's comment sheds light on the difference between the two types of goods. Since there is a limited supply of rivalrous goods, markets naturally form around such goods to efficiently allocate the scarce goods for society's needs. On the other hand, because there are theoretically no restrictions and no costs involved in the dissemination of an idea (or story, play, etc.) once it has been released on a network like the Internet, it is generally difficult to extract a price out of such goods. As a result, economics dictates that an artificial form of scarcity, through copyright, be created so that producers have incentives to produce knowledge goods. By granting producers (publishers and authors) a monopoly over the rights to a work for a limited time, artificial scarcity is produced because there is only one supplier to the market. This monopoly gives authors of original works an incentive to produce new works even though they are non-rival in nature.

The Copyright Bargain

That the government must provide some incentive for authors to create non-rival goods such as books, movies, and other forms of media is not the hard question for economists to answer. The tough question is how much incentive should be provided to authors to reach an optimal market equilibrium. If too little incentive to create is provided, authors will not publish as many innovative works as needed for society to function optimally; they would not be able to recoup the cost of their labor even if a work was useful to society. On the other hand, granting too much incentive to authors would mean that a disproportionate amount works would be locked behind the bars of corporate permission for far too long before entering the restriction-less public domain, resulting in a less innovative society.

One way of understanding the copyright bargain is provided in open-source visionary Richard Stallman's classic essay, Misinterpreting Copyright. Stallman argues that the "copyright bargain" can be analyzed in much the same way as any other government purchase. Ideally, with most purchases, as little money is spend as is needed to accomplish the job; the government should not continue to spend the taxpayers' funds once the marginal benefit of a good is equal to the marginal cost of purchasing one extra unit of it.

Since copyright grants a monopoly to companies to the exclusion of the incorpoation of content in the restriction-less public domain, increasing copyright restrictions do not cost taxpayer money but rather the freedom of the citizens. Since freedom is more precious than money, the government should aim to spend as little of the public's freedom as possible while still giving authors an incentive to publish works. It would therefore make no sense to grant authors ever-greater copyright protection if the additional protection amounted in little additional incentive for authors to publish their work.

Legal basis of copyright | Analysis of present situation