The piracy paradox revisited.

• Author: Raustiala, Kal
• Position: Response to article by C. Scott Hemphill and Jeannie Suk in this issue, p. 1147

INTRODUCTION I. THE COPYING CONUNDRUM IN FASHION A. Differentiation, Flocking, and the "D/F Ratio" B. Some Difficulties with Differentiation 1. Why is the desire for differentiation better served in an environment in which there are lots of derivatives but no line-by-line copies? 2. Is differentiation only a matter of design? 3. You can't always get the differentiation you want (but you might get the differentiation you need) C. Line-By-Line vs. Derivative Copying D. Who Benefits from Stronger Design Protection? E. What Does the Fashion Industry Want? CONCLUSION INTRODUCTION

For over two centuries the United States has used copyright and patent to stimulate the production of many forms of creativity. Over time these rights have grown more economically significant; today intellectual property (IP) law is rightly seen not as a fringe topic, but as part of the core of contemporary economic and cultural policy debates. Increasingly, both lawyerly and lay discussions about creativity in the arts and sciences touch upon issues of ownership, control, and incentives, which together comprise the foundational questions of IP law.

Some forms of creative work, however, have never been protected by American law. These forms of creativity exist in IP's "negative space"--by which we mean the territory where IP law might regulate, but (perhaps for accidental or nonessential reasons) does not. The study of these unprotected forms of creativity ought to be of great interest. If we see these creative endeavors languishing as a result of uncontrolled copying, we might decide to extend IP law in order to curtail appropriation and induce investment and innovation. On the other hand, if an unprotected area of creative work thrives in the absence of legal rules against copying, we would do well to know how. We might also ask whether other currently protected forms of creativity could also flourish without expensive and potentially inefficient monopoly protections.

Nonetheless, IP's negative space has rarely been explored in any depth. Earlier analyses of unprotected creativity tended simply to note the absence of IP protections, assume a market failure in the absence of protection, and move reflexively to a proposal to beef up the law. (1) This tendency has started to change in recent years as studies of the fashion industry, stand-up comedians, magicians, typefaces, academic scientists, "jam bands," chefs, and perfumers have begun to appear in the nation's law reviews and economics journals. Much of this recent work has been thoughtful and balanced regarding the implications of the lack of IP protections in these areas. (2)

Fashion has emerged as a central focus of this new exploration of IP's negative space. Fashion is a large and vibrant global industry, yet the core of the creative enterprise in fashion--the design--is not, and never has been, protected by U.S. copyright law. For this reason fashion presents a fascinating puzzle for orthodox theories of IP. How does the industry maintain high levels of investment in new designs without protection against copying? Every season thousands of new designs are produced by the large number of firms competing in a market approaching $200 billion in U.S. sales annually. And a significant portion of this output involves copying. The major policy question is whether to continue to permit such copying, or to reverse the current low-IP regime in favor of some kind of system of copyright protection.

We are not disinterested bystanders in this debate. In a previous article, The Piracy Paradox: Innovation and Intellectual Property in Fashion Design, (3) and two shorter follow-up pieces, (4) we sought to answer the question at the heart of the fashion industry--why does that industry prosper when copying of new designs is perfectly lawful? We made two major claims. First, we argued that design copying contributes to a process of induced obsolescence--that is, copying helps to diffuse designs into the mainstream, where they lose their appeal for fashion cognoscenti. The desire for new designs is "induced" by this process. Second, we argued that copying helps anchor trends. Fashion-conscious consumers seek to follow trends; copying helps the industry create trends and communicates to consumers what these new trends are, thereby allowing consumers to follow them.

These two arguments explain what we characterized as the "piracy paradox": piracy is paradoxically beneficial to the fashion industry. This paradox helped in turn to explain the political economy question that drove our initial analysis: why, with regard to copyright, is fashion so unlike other creative industries? Why has Congress not afforded the high levels of IP protection we see elsewhere?

In recent years other scholars have begun to publish analyses of innovation in the fashion industry as well. (5) Yet there is still much we do not know about how law, norms, markets, and creativity interact in the apparel business. For these reasons, Scott Hemphill and Jeannie Suk's Article, The Law, Culture, and Economics of Fashion, (6) in this issue of the Stanford Law Review is very welcome. Their treatment of the fashion-IP nexus is stimulating and unique in its marriage of economic and cultural analysis. In this brief essay we look closely at their arguments and offer some critiques and suggestions for future research. Because they devote significant attention to our earlier work, we consider at some length the areas of tangency and tension between our respective analyses.

On the whole, we find much to agree with in The Law, Culture, and Economics of Fashion. Indeed, we believe the article has usefully employed, extended, and in some cases refined several of our original insights. We do inevitably part company in several places, and we will detail three primary disagreements here. First, we see the issue of design copying somewhat differently than do Hemphill and Suk. In particular, we define and analyze fashion copying consistent with the understanding of "copying" embedded in U.S. copyright law, and this leads us to different conclusions. Second, we believe that Hemphill and Suk understate the diversity of consumer interests at stake in the consumption of fashion goods, and that a proper understanding of these interests makes the Hemphill/Suk model fit our views as well as, if not better than, theirs. Third, we hold a different, and we think more accurate, view of the political economy of IP law. As a result, we are far less sanguine about the legislative fix proposed in The Law, Culture, and Economics of Fashion. In fact, we think this policy prescription is both misguided, and--perhaps more importantly--likely to mutate into something more malignant than its authors intend.

The issue of appropriate policy is of great contemporary interest. Just prior to the publication of The Piracy Paradox, a group of elite designers, operating through the New York-based Council for Fashion Designers of America, convinced a Republican congressman from rural Virginia to introduce a bill that would for the first time extend copyright protection to fashion design. (7) This bill has failed in two successive Congresses, but there is every reason to believe that we will soon see debate joined again over the merits of extending American IP law to fashion design.

Our differences over the proper regulatory regime for fashion design should not obscure the larger areas of agreement. Hemphill and Suk agree with us on a fundamental point: that the fashion industry operates best in an environment of comparatively weak IP rules. They, like us, think that fashion design should not be "normalized" within copyright law. We also share a basic interest in the phenomenon of creativity without copyright. Remarkably little is known about either the contours of IP's negative space or the mechanisms by which creativity persists, and even blossoms, within that space.

In the next Part of this Article we summarize our original approach in The Piracy Paradox and compare and contrast it to Hemphill and Suk's analysis. We identify some of the difficulties we see in their model, take on some of their specific claims about copying in the fashion world, and discuss several areas where we believe The Law, Culture, and Economics of Fashion either misfires or raises more questions than it answers.

1. THE COPYING CONUNDRUM IN FASHION

The Law, Culture, and Economics of Fashion advances an analysis of the interrelationships among law, apparel, social norms, and preferences. First, the Article distinguishes between two forms of appropriation: (1) line-by-line copying, and (2) the creation of derivative works. "Derivative" in this context means a work that appropriates certain design elements of a model design, but is nonetheless visually distinguishable to the average observer. Second, it offers a theory of consumer preferences for new apparel designs. Demand arises from consumers' desire simultaneously to differentiate themselves from others, and also to "flock" together with others, via their clothing choices. Hemphill and Suk summarize their theory of demand concisely: "[I]n fashion we observe the interaction of the tastes for differentiation and for flocking, or more precisely, differentiation within flocking." (8)

Based on these postulates, Hemphill and Suk acknowledge that derivative reworking of original designs is beneficial to the fashion industry. The existence of derivative reworking contributes to consumers' opportunities to flock, because the derivatives partake of a common design element and thus provide a shared design vocabulary. These derivatives do not, they contend, impair consumers' ability to differentiate because they are visually distinguishable.

On the other hand, Hemphill and Suk argue that line-by-line or "close" copies, while they serve consumers' flocking interest, harm their differentiation interest (because the garments are visually...