Intellectual property as property: delineating entitlements in information.

• Author: Smith, Henry E.

ARTICLE CONTENTS INTRODUCTION I. MODULARITY AND THE PROBLEM OF RIGHTS IN INFORMATION A. Intellectual Property and a Hohfeldian World of Unfair Competition B. Managing Complex Systems with Modularity C. Rights in Information Through the Lens of Accession Law D. Managing Complexity in Rights to Information II. EXCLUSION AND GOVERNANCE IN INTELLECTUAL PROPERTY A. A Simple Model of Entitlement Delineation B. "Exclusive" Rights in Information C. The Central Question for Property Rights in Information III. INFORMATION COSTS IN PATENT AND COPYRIGHT LAW A. Patent Versus Copyright Law 1. Definition of Rights 2. Independent Invention or Creation 3. Compulsory Licenses 4. Further Exceptions B. Rewards and Prospects C. Intellectual Property and the Mix of Exclusion and Governance IV. DYNAMIC IMPLICATIONS CONCLUSION INTRODUCTION

At the core of controversies over the correct scope of intellectual property lie grave doubts about whether intellectual property is property. Property covers a broad range of resources, from solid objects like land and cars to fugitive resources like water to intangibles like debts. But, as a resource, information is different from all of these. From the consumer's point of view, information is nonrival and nonexcludable: one person's enjoyment of the plot of Hamlet does not diminish another's (if anything, the opposite), and preventing people from using information is difficult. (1) Although information itself is a public good and once known would be consumed at zero marginal cost, discovering and making information useful requires inputs that are rival and are susceptible to efforts to exclude. Edison's labor in testing filaments for the light bulb (not to mention his lab equipment and working space) was as rival and excludable as the classic examples of shrimp salads or Blackacre. (2) On various theories, patent rights are said to give incentives to invent, develop, or commercialize inventions such as the light bulb. (3) Other intellectual property regimes, like copyright, focus more on creation, and still others, like trademark, are more concerned with commercialization than with creation. Yet all of these regimes reflect a concern that, in their absence, people will have too little incentive to engage in certain activities with respect to information, whether discovering it, commercializing it, or using it to lower consumer search costs.

Intellectual property rights are conventionally said to solve an incentive problem but not an allocation problem. Regular property may serve to allocate resources to avoid use conflicts, but information can be used by more than one person (i.e., it is nonrival) and so need not be allocated to one person to the exclusion of another. Instead, intellectual property is supposed to encourage people to engage in the production or development of information. And if we want to encourage various activities, it would seem to follow that we should regulate or subsidize those activities. If there is an allocation problem connected with activities like invention or commercialization, it involves not the information itself but the inputs used to discover and enhance the value of this information. (4) But the question still remains why we would provide for rights in information to solve this allocation problem when it would seem that we could simply give rights to appropriate the returns from these (rival) inputs like labor and lab space.

Although such questions are particularly pressing in intellectual property because of the special nature of information as a subject of property rights, these questions also arise in more familiar settings involving tangible property. In this Article, I argue that the information-cost problems solved by property rights carry over into intellectual property. Because exclusive rights have underappreciated benefits, the main questions in intellectual property are ultimately even more empirical than most commentators recognize. Furthermore, attending to both the benefits and the costs of exclusive rights as a second- (or third-) best solution to problems inherent in delineating entitlements will point to unexpected sources of data for resolving these empirical questions.

This Article proposes that intellectual property's close relationship to property stems from the role that information costs play in the delineation and enforcement of rights. Property differs from other areas like torts and contracts in its heavier reliance on what I have elsewhere called the exclusion strategy. (5) The exclusion strategy protects rights-holders' interests in the use of resources indirectly, by using a simple signal for violations. The prototypical example is trespass to land, whereby the unauthorized crossing of a boundary serves as a (very) rough proxy for harmful use; any voluntary entry into the column of space defined by the ad coelum rule counts as a trespass. (6) By contrast, some rights are defined more directly in terms of proper use, under what I call a governance strategy: a person has a right to perform a certain action, and the action rather than some defined thing is the focus of delineation effort. Much of nuisance law is a classic example of this approach. Certain activities like emitting odors are the focus of attention, and contextual factors about the neighborhood and the relative benefits to society of the conflicting uses are directly relevant. Indeed, the relation of the core of property to adjacent areas such as torts reflects a shift from an exclusion to a governance strategy: examples would include the trespass-nuisance divide and, within nuisance, the mixture of per se boundary rules and balancing-style rules of proper use. (7) Governance rules can refine and extend the basic rough exclusion strategy, but at ever greater cost, as we move along the spectrum from exclusion to governance. Building on this framework that identifies exclusion and governance as complementary strategies for defining property rights, I show that exclusion rights in information outputs may serve as a low-cost way to establish property rights in the rival inputs to invention and commercialization.

Paradoxically, the main advantage of exclusive rights is their indirectness, or the lack of direct fit between exclusion as a mechanism and the purposes that it serves. As some legal philosophers have argued, if the right to exclude is the basic feature of property, it nonetheless serves our interests in the use of things. (8) Property rests on a foundation of simple rules like trespass that tell duty-holders to keep off. No direct reference need be made to information about either the duty-holder or the owner: if I am walking through a parking lot, I know not to drive off with others' cars, and I do not need to know who the owners are, how virtuous (or not) they are, or whether they are actual people or corporations. (9) Likewise, the owners of the autos need not know much about me or the vast crowd of other duty-holders--the "rest of the world" against whom in rem rights avail. Our interactions can be relatively anonymous precisely because they are mediated by a thing--in this instance, the cars. The right to exclude from a designated thing protects our interests in the use of things like cars or Blackacre; if no use could be made of a given thing, there would be no reason to exclude.

Furthermore, the focus on exclusion--for reasons of simplicity and cheapness--only makes sense because of positive transaction costs, here broadly taken to include the nonzero cost of delineating property rights. (10) In a world of zero transaction costs, we might accept for all purposes the economists' definition of a property right as a right to take one of a list of actions with respect to a thing--the thing being merely a backdrop to the direct specification of what actions are permissible as between any pair of individuals. (11) Of course we do not live in a zero-transaction-cost world, but it is easy to forget that positive delineation and information-processing costs are the precondition for the role identified by philosophers of the right to exclude--its indirect protection of various privileges to use. This indirection would not be necessary if more direct approaches were costless.

This Article first argues that exclusion serves a similar function in intellectual property. Yes, we would prefer, in a world of zero or low delineation costs, to focus on what really matters to us--the use of information. In intellectual property this is all the more true because information is itself nonrival and so uses might not conflict. And, yes, if we are worried about creators, inventors, commercializers, and others not being able to appropriate the returns from their activities, we might respond to these positive externalities with subsidies or rights to those inputs. But although these more direct solutions are obviously superior on the benefit side--and they have certainly for this reason garnered a lot of support in the form of proposals for rewards and compulsory licensing--they also by their very directness are more costly than exclusive rights. The alternative to these tailored solutions is to devise rights that rely on simple on/off signals and that will allow rights-holders to reap the returns from their inputs without officials' needing to value the uses to which the inputs are put--or even to know what those uses are.

From the point of view of government enforcers, such as judges, exclusive rights are a black box; because information about uses and users is made irrelevant to the resolution of a property dispute, this modular system manages the overall complexity of attributing returns to inputs. A modular system manages complexity because it has been decomposed into pieces (modules) so that interactions are intense within the module but sparse and standardized between modules. (12) A system is nearly decomposable if a set of boundaries can be found such that...