A fundamental critique of the law-and-economics analysis of intellectual property rights.

Author:Rahmatian, Andreas
Position:International Intellectual Property Scholars Series
  1. INTRODUCTION: SOME MAJOR PROBLEMS WITH AN ECONOMIC ANALYSIS OF INTELLECTUAL PROPERTY LAW II. THE ECONOMIC THEORY OF INTELLECTUAL PROPERTY RIGHTS PROVIDED BY LAW-AND-ECONOMICS III. TRADE MARKS IV. PATENTS V. COPYRIGHT VI. THE RELEVANCE OR IRRELEVANCE OF A LAW-AND-ECONOMICS ANALYSIS OF LEGAL INSTITUTIONS TO INTELLECTUAL PROPERTY LAW AND MORAL CONSEQUENCES VII. CONCLUSION "Die Schriftstellerei wird erst durch den Erfolg als freier Beruf moglich; der Erfolg sagt jedoch nichts uber den Wert einer Schriftstellerei aus, er deutet allein darauf hin, dass der Schriftsteller eine Ware herstellt, die sich verkaufen lasst: Dass dieser Umstand nicht befriedigt, sei zugegeben." (1)

    (Writing becomes only possible as an independent profession because of the success; but the success reveals nothing about the value of the writing, it only indicates that the writer produces a commodity which can be sold: that this fact is not satisfactory must be conceded.)

    Friedrich Durrenmatt (1921-1990), Swiss writer and playwright


    The economic analysis of law and legal institutions, or the law-and-economics movement, originally a distinct North American phenomenon that emerged in the 1960s, (2) has become a widespread tool for a certain conceptualisation and understanding of legal problems. Prominent representatives of the law-and-economics approach especially regard intellectual property as a "natural field for economic analysis of law." (3) Since its inception, this form of analysis has been met with suspicion, as it was felt that law-and-economics tried to take over other social sciences and establish a kind of "economics imperialism." (4) This criticism has to be taken seriously because the law-and-economics analysis does not only reconceptualise otherwise dissimilar fields of knowledge in a rather unrecognisable way to the "home-grown" researchers of the other fields, it also alters, deforms, or even destroys the object of research because it has a strong normative element, even where it presents itself as purely descriptive (5) or (which amounts to the same) "positive." (6) This is particularly true of intellectual property law as the research object of an economic analysis because all areas of law have developed their long-standing and highly elaborate methodology and do not need a new one, developed for an entirely different discipline, to describe their objects of research. (7) The purpose of an economic analysis can only be a change of current legal institutions and decisions according to perceived superior economic considerations, so every law-and-economics analysis is ultimately normative. (8) Otherwise, it would be superfluous for economists because they take legal institutions (e.g., the legal institutions of contract and property, or regulatory rules) for granted when they seek to explore market phenomena and economic behaviour, and it would be superfluous for lawyers because they have their own conceptual and scholarly frameworks of legal institutions and decisions.

    The law-and-economics approach, seeking to belong to economics as well as to law but arguably belonging to neither, engrafts economic research methods on law; it wants to provide a scientific theory to predict the effect of legal sanctions on behaviour, whereby these sanctions are conceptually simplified as prices because people are supposed to respond to sanctions in the same way as to prices. Economics then claims to have mathematically precise theories (e.g., price theory, game theory) and empirical methods for the analysis of the effects of prices on behaviour. (9) The ways of modelling, also mathematical modelling, are controversial within economics itself, (10) but the complexities of human economic behaviour and of the causes and effects of human endeavours require a simplification through modelling which enables scientific findings. In economics, that can often lead to the development of a mathematical equation whereby the economist has to admit that he will never be able to determine the numerical values of the parameters in such a formula. (11) Reductionist models are necessary to manage the complexities of reality and to gain a better understanding, but if the model simplifies so extremely such that the connection with reality can hardly be made out, (12) the scientific exercise is worthless for the purpose of legal policy. (13) Unlike "pure" economists, adherents of the law-and-economics approach appear to be far more insouciant in this regard. Furthermore, an economic analysis of the law influences the object of the examination, the law itself, or at least the perception of the law. One can illustrate the problem of some approaches of the law and economics analysis with a slightly exaggerated example: A researcher wants to study the social behaviour of rats interacting with each other, but, to simplify the complexities of that behaviour for a greater chance of making scientifically verifiable empirical observations, he takes one single rat, kills it according to the devised scientific model for simplification purposes, and then describes the rat's behaviour with earnest scientific accuracy as motionless, perhaps assisted by the empirical methods of statistics and econometrics. The economic analysis of intellectual property law often provides good examples for such a "dead rat" approach.

    The following discussion is a fundamental critique of the application of the law-and-economics analysis to intellectual property law from a lawyer's viewpoint. Economists have also raised concerns, (14) most notably Coase:

    Since the people who operate in the economic system are the same people who are found in the legal or political system, it is to be expected that their behaviour will be, in a broad sense, similar. But it by no means follows that an approach developed to explain behaviour in the economic system will be equally successful in the other social sciences. In these different fields, the purposes which men seek to achieve will not be the same, the degree of consistency in behaviour need not be the same and, in particular, the institutional framework within which the choices are made are quite different. It seems to me probable that an ability to discern and understand these purposes and the character of the institutional framework (how, for example, the political and legal systems actually operate) will require specialized knowledge not likely to be acquired by those who work in some other discipline. Furthermore, a theory appropriate for the analysis of these other social systems will presumably need to embody features which deal with the important specific interrelationships of that system. (15) Coase's view is important here since he became the originator of the prevailing law-and-economics theory of property. (16) The following is not a rejection of an economic method for the analysis of economic phenomena which presuppose, or have been created by, the law, such as supply and demand on the market, which requires at least contract and property rights (or intellectual property rights) for its functioning. (17) But it is a rejection tout court of the remodelling of legal institutions and decisions in accordance with certain scientific methods and paradigms developed in (and for) economics, and of the claim that a corresponding analysis could yield any epistemic value for the law and a normative standard of efficiency for future legal policy. The critique also disagrees with the idea that we are supposed to have an "economic theory" of property rights, of crime and punishment, of privacy, and so on. (18)

    Law-and-economics seems to take the worst of both worlds. Economics tends to be descriptive and seeks to ascertain rules of patterns of economic behaviour, which, usually after modelling and a partial analysis, (19) may be expressed in mathematical equations. A necessary consequence of this scientific approach is a plurality of different models for different aspects of the economy and/or different, also contradicting, models and outcomes in relation to one distinct phenomenon. This unavoidable plurality of models and theorems alongside one another is characteristic of economics but is discarded in the law-and-economics analysis. The reason is sociological. As one of the most important protagonists of the law-and-economics movement candidly stated, a motivation for the emergence of the law-and-economics approach was "that many law professors have lost interest in the traditional undertakings of legal research". (20) But the law-and-economics researchers are for the most part still lawyers. Law, unlike economics, does not entertain a plurality of different scientific approaches and models but provides authoritative answers and decisions, either by a lawgiver in statutes, by judges in judgments, or, in addition, particularly in Civil Law countries, prevalent opinion by eminent legal academics. Law-and-economics renounces the plurality of economics and takes the authoritative singular approach of law and, at the same time, uses the arguably unsuitable scientific methods of economics since they were developed for economic, not legal, problems. While unsuitable and wrong approaches are cut to size within the multitude of equal methods and models in economics, or can be reviewed in appeals in law, the law-and-economics analysis seems to be an authoritative method with no established mechanism of review or criticism. Although it sometimes embraces mathematics and statistics to reinforce its scientific credibility, (21) it rather appears to be a method based more on unchallengeable ideological belief than on falsifiable science. (22) However, because of this effectively non-plural approach in law-and-economics, this critique can confine itself to the Chicago School of Law-and-Economics as the principal and most relevant approach and can ignore possible other...

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