Lochner in cyberspace: the new economic orthodoxy of "rights management".

• Author: Cohen, Julie E.
• Position: Intellectual property rights

Ninety-three years ago, in Lochner v. New York,(1) the Supreme Court struck down a maximum-working-hours law for bakers as an impermissible invasion of employer-employee liberty of contract and, by implication, of the employer's property rights in his business. Lochner came to symbolize, and was vilified for, a vision of state power as rigidly circumscribed by the operation of judicially-determined laws of social ordering.(2) By the late 1930s, the Court had changed course and accepted that the states' police power -- or, in the case of Congress, the commerce power encompassed even protective regulation of the parameters of the private employment contract.(3) Within the modern legal academy, "Lochner" has become an epithet used to characterize an outmoded, over-narrow way of thinking about state and federal economic regulation; it goes without saying that hardly anybody takes the doctrine it represents seriously.(4)

In fact, however, the economic vision embodied in Lochner is alive and well on the digital frontier. Its premises -- the sanctity of private property and freedom of contract, the sharply delimited role of public policy in shaping private transactions, and the illegitimacy of laws that have redistributive effects -- undergird a growing body of argument and scholarship concerning the relative superiority (as compared with copyright) of common law property and contract rules for protecting and disseminating digital works.(5) In their contemporary incarnation, these premises are embedded in the rhetoric of economic efficiency. In place of social contract theory, their proponents argue from purportedly neutral, scientific truths about the way markets in general, and information markets in particular, operate.

These truths, I shall argue, are nothing of the sort. Rather, they are "just-so stories" that mask the need for first-order social welfare choices about the sort of information society we want to have. Their proponents, whom I christen the "cybereconomists," argue that the most efficient legal regime, measured by its success at inducing the creation of digital works and increasing consumers' access to information, is that which permits copyright owners to maximize control over the terms and conditions of use of their digital property.(6) However, the economic case they build is anything but convincing. It is based on an essentialism about the nature of "contract" and "market" that is manifestly unsuited to mass-market transactions, on a reflexive and unsubstantiated distrust of the legislative process as compared with the market, and on assumptions about the nature of "property" and the best ways of managing it that are wholly unproven and arguably unjustified in the case of creative and informational works. Taken together, the cybereconomists' arguments and proposals amount to ideology, not science.(7) Designing the optimal regime of rights in digital works requires, instead, explicit choices about the degree of author/ publisher control, and the extent of freedom from such control, that society finds desirable.

Part I of this Article describes the economic models now proffered as the basis for defining rights in digital works, and explores their striking resemblance to the system of social ordering described and advanced in the Supreme Court's Lochner-era decisions. The ghost of Lochner is not invoked lightly, nor with intent to belittle. Lochner represented a particular ideal of social ordering, premised on a seamless convergence of the private-law institutions of property and contract to provide a zone of legal insulation for market outcomes.(8) In the physical world, that vision has long been compromised by evidence of market failures that all but the most die-hard Chicago school economist cannot help but acknowledge. The cybereconomists' argument, in essence, is that cyberspace more closely approximates the conditions necessary for perfect markets, and that under these conditions, a legal regime based primarily or even exclusively on the private-law institutions of property and contract is appropriate. This argument, moreover, had found favor with government policymakers, who have used similar reasoning to frame legislative and treaty recommendations.(9) It is both fair and important to ask whether en route to their conclusions, the cybereconomists have corrected the Lochner Court's methodological lapses, or simply reproduced them.

Part II demonstrates that the cybereconomists' debt to the social ideology of Lochner runs deep. Their proposals turn out to be grounded in identical beliefs about the conceptual primacy of private property and private ordering and the illegitimacy of "redistributive," market-distorting legislation. As a result, their models are neither scientific (in the sense of describing an ineluctable reality) nor neutral, but rather normative and contingent on the very same institutions and arrangements whose absolute efficiency they seek to prove. Their failure to conceive of contract as anything less than voluntary and (definitionally) private, or of property as anything less than complete control, blinds them to the socially constructed nature of the existing mass market for creative works and prevents them from seriously considering whether a regime based on limited ownership rights might be more effective at promoting access and progress. I argue that in light of the special nature of creative and informational works and of creative and intellectual progress, there is substantial reason to believe that a limited-ownership regime is better suited to furthering these goals.

Part III begins the project of developing a stronger, more defensible economic model for digital intellectual property rights. As a tool for understanding information markets, the neoclassically-grounded economic theory to which the cybereconomists subscribe is fatally incomplete. In particular, critiques of the neoclassical paradigm supplied by institutional, welfare-theoretic, and political economists have identified several important factors that should inform efforts to determine the optimal system of rights in digital works. First, Part III explores the dynamics of bargaining power in the consumer mass market for creative and informational works and suggests that, in light of the predominantly reactive nature of consumers' power to affect markets, consumers are more likely to attain relative equality of bargaining power in the legislative arena. Part III then considers the relationship between the legal regime governing rights in digital works and overall social welfare. It demonstrates that allowing content owners to internalize the uncompensated benefits generated by creative and informational works under a limited-entitlements regime would result in underproduction of works that produce significant social benefits. The resulting decrease in social welfare must be offset against any increased value that would be realized through market exchange. The question whether such a regime would be preferable to the current one cannot be answered except by reference to a normative conception of social welfare. Moreover, this choice implicates preferences about the conditions of individual and social self-definition that are not capable of expression and effectuation through the market. In light of these considerations, it would be entirely rational to conclude that a regime of limited entitlements is optimal.

Finally, Part IV considers, and rejects, the cybereconomists' implicit contention that the relatively "frictionless" nature of transactions in cyberspace is a technological imperative that dictates redefining digital property rights in the neoclassical mold.(10) Technology and society constitute each other; if we have not yet developed an alternative technological paradigm for defining and administering rights in digital works, it is because we have not been asking the right questions. I conclude that both the legal regime governing rights in digital works and the technology for implementing it should be determined with reference to expressly chosen social priorities. Under a broader conception of economic theory and of social welfare, society may legitimately choose to retain and institutionalize a limited-entitlements regime for digital works.

1. THE CONVERGENCE OF ECONOMIC IMPERATIVES AND NATURAL RIGHTS

   Any comparison of turn-of-the-century substantive due process jurisprudence and the contemporary digital "rights management" movement must begin by acknowledging that they differ in several important respects. First and foremost, the question of government power that was so central to Lochner does not arise because congressional power to define rights in creative works is express.(11) Debates over the appropriate scope of copyright protection focus on how, not whether, government power should be exercised. In addition, the distinctive brand of conceptualism characteristic of nineteenth- and early twentieth-century legal reasoning, which conceived of the law as a system of abstract concepts and categories "capable, more or less, of deductive application" to resolve particular disputes, is, deservedly, a thing of the past.(12) What is striking is that, despite these differences, the economic regimes asserted as natural and neutral by the Lochner Court on the one hand, and by contemporary copyright owners and economics-oriented copyright scholars on the other, are so remarkably similar.

   The central question in Lochner concerned the scope of a state's police powers. Then, as now, the states could legislate on matters concerning the safety, morals, health, and general welfare of the public; however, each of these areas was conceived as narrow and highly specific.(13) To qualify as health-related (the particular police power at issue in Lochner), a law ordinarily had to pertain to the health of the public as a whole; a law protecting a specific class of workers was legitimate as a health...