Control over property is valuable in and of itself. Scholars have not fully recognized or explored that straightforward premise, which has profound implications for the economic analysis of property rights. A party to a property dispute may actually prefer liability-rule protection for an entitlement resting with the other party to liability-rule protection for an entitlement resting with her. This Article presents a novel economic model that determines the conditions under which that is the case--by taking account of how parties value control. The model suggests new opportunities for policymakers to resolve conflicts and to develop better information about property disputes through policy experiments. The Article provides recommendations for implementing this new approach and suggests applications in the areas of copyright, trademark, patent, and privacy law.
TABLE OF CONTENTS INTRODUCTION I. CONTROL AS A DISTINCT VALUE A. Property Disputes Are About Both Compensation and Control B. Decoupling Compensation from Control C. Disfavoring Rule Four--Leaving an Arrow in the Quiver II. THE VALUE OF CONTROL IN PROPERTY DISPUTES A. Standard Law and Economics 1. Modeling Property Disputes 2. Transaction Costs 3. Externalities B. Incorporating the Value of Control 1. Utility over Compensation and Control 2. Disaggregating Harm 3. Ranking the Initial Endowments Under Each Rule 4. Four Scenarios 5. Conditions Under Which Owners Prefer Rule Four to Rule Two C. Anticipating Critiques 1. Doubts About the Subjective Value of Control 2. Doubts About the Reciprocal Nature of Harm 3. Doubts About the Economic Analysis of Harm 4. Doubts About the Separate Value of Control III. IMPLEMENTING THE MISSING RULE A. How Rule Four Could Work 1. Determining When to Deploy Rule Four 2. Determining How to Deploy Rule Four B. Obvious Problems and Design Responses 1. Will the Government Get the Price Wrong? 2. Will Rule Four Lead to Extortion? 3. Will Rule Four Create Unfair Advantages for Wealthy Owners? 4. How Can Rule Four Be Squared with Important Rights? C. Experiments with Rule Two and Rule Four IV. APPLICATIONS A. Copyright B. Trademark C. Patent D. Privacy CONCLUSION INTRODUCTION
Control over property--the power to decide whether a particular use of a resource may occur--is valuable in and of itself. Process matters, not just outcome. Although this is a straightforward premise, its implications for the economic analysis of property rights have not been fully explored. This Article takes the premise that control is valuable for its own sake--not just as a means to obtain favorable outcomes--and models the full implications of that premise. This analysis suggests that policymakers should seek to understand the value that parties to a property dispute place on decisionmaking authority and that they should look to a broader set of property regimes than they currently do. (1) In the right circumstances, this would create opportunities to reach more efficient and, perhaps, fairer compromises between disputants.
The notion of subjective and idiosyncratic valuation is familiar in the context of real property. (2) People often place subjective values on their homes; the specific performance remedy in real property is designed to protect this subjective value. (3) And when a taking occurs, controversy can result, partly because many people believe that "just compensation" for a taking does not adequately account for a homeowner's subjective valuation. (4) Users of property, as opposed to owners, may also have subjective valuations. For instance, the holder of a dominant estate might place idiosyncratic value on an easement. (5)
This Article emphasizes that one important part of the subjective value of property derives from having authority to decide how that property may be used. (6) Many property regimes afford either owners or users the power to decide whether a transfer will take place. As Professor Fennell observes, "there is arguably a deeper value associated with autonomy that is different in kind" from the other components of subjective value, that is, the value of enjoyment and the surplus value obtainable in trade. (7) Control over property, whether by the owner or the user, provides an opportunity to exercise autonomy that is valuable in and of itself.
From this point of departure, the law and economics of property rules and liability rules can be analyzed in a new way. Historically, liability-rule protection for owners (Calabresi and Melamed's "Rule Two") has been common, while liability-rule protection for users ("Rule Four") has been thought quite unusual. (8) Identifying the value of control raises the possibility that owners might actually prefer Rule Four to Rule Two. (9) Conversely, users might prefer Rule Two to Rule Four. In other words, assuming entitlements will be protected only by liability rules, parties to property disputes might well prefer for the other party to be entitled to a use. (10) The parties' preferences across rules depend on the value they place on control itself.
The possibility that either party might have this unorthodox preference makes Rule Four more worthy of practical consideration as a policy tool. It also presents an opportunity. If policymakers can identify circumstances in which the two parties share a preference for Rule Two or Rule Four, that shared preference could represent the best compromise. And for some disputes, that preference will also be the best solution for society.
Part I explains control as a separate value from enjoyment or compensation from trade. Part II provides an original economic analysis of property rules and liability rules that incorporates the value of control. Part III then outlines some considerations relevant to implementing Rule Four, including critiques, potential responses, and the possibility of using liability rules for experimental policy analysis. Part IV discusses four specific areas in which policymakers could apply Rule Four more widely: copyright, trademark, patent, and privacy law. The Article concludes with a discussion of avenues for future research.
CONTROL AS A DISTINCT VALUE
This Part first explains the value of control and distinguishes it from the value of deriving enjoyment from or receiving compensation for a particular use of property. Next, I briefly summarize Calabresi and Melamed's framework, which contrasts property rules and liability rules as methods for protecting entitlements. For my purposes, the central insight of their famous article is the decoupling of compensation and control that a liability rule effects. In the third and final Section, I discuss the relative infrequency with which Rule Four has been used.
Property Disputes Are About Both Compensation and Control
A person can value property ownership for two kinds of reasons. (11) The first kind is based on outcomes, such as enjoyment of the property or financial benefits from its sale or licensing. (12) For shorthand, I refer to all these outcome-based goods under the umbrella term compensation. (13) The second kind of value is procedural, relating to the ability to make autonomous decisions about how others use the property in question. I refer to this kind of good as control. (14)
For some people, in some situations, these two categories collapse into one: the point of controlling use of the property is to earn compensation. Having the right to restrict or delay how and when others use the property can generate or maintain scarcity that garners more compensation for a rights holder in the long run.
But money is not always the underlying motivation for valuing control. Some individuals value control over uses of property at least partly for the sake of control itself. Owners of real property, for example, value decisionmaking power over how others may use their land. (15) Users of real property place an opposing but similar value on control. For a person experiencing a nuisance from activity conducted on a neighbor's land, the freedom to practice one's profession in a certain location is at stake--not just money. (16)
Many creators of intellectual property view their work as an extension of their personalities or identities, which can lead them to place subjective and idiosyncratic value on controlling uses of their works. (17) Control can matter even when the owners of intellectual property rights are not the original creators. (18) Users of intellectual property also have an interest in control. Downstream creators (19) value the creative freedom to make use of existing works as a form of personal autonomy, independent of the financial gain from selling the new works. (20) Consumers value the freedoms to read, to listen, or to watch, such as the privilege to record a television show and watch it later. (21) Such freedoms sometimes allow consumers to avoid purchasing copies, providing value that falls within the category of compensation. But control over one's own viewing--outside the strictures of licensing and permissions--is a separate reason to value user rights. (22)
Several examples of intellectual property disputes suggest circumstances in which a desire for control might accompany--or even supersede--a desire for compensation. A musician may wish to prevent a politician whom he does not support from playing his song at a public rally. (23) A small-business owner may want to block the use of his company's brand name, even if used in a totally different geographic region. (24) A photographer may object to a visual artist's incorporating his photographs into collages that the photographer perceives as denigrating the solemnity of his work about a religious community. (25) A novelist may act to squelch attempts to use characters from her books in unauthorized sequels. (26)
These examples can be reversed to show how users of intellectual property may also place value on control--for them, the freedom to engage in a particular use. A politician may want the power to choose a song...