Several IP news items today. First it is being widely reported that the Supreme Court is cracking down on patent trolls - requiring the Circuit Court not to issue an injunction without considering what the potential damages might be. This may make it harder for a company without a patent to threaten to close down a business by getting an injunction - we will see. However, they may claim huge damages on account of not being able to enter the market, so it probably won't make much difference.

In the other direction Slashdot is also reporting that Creative is suing Apple over the iPod interface. Couldn't happen to nicer guys: Apple having done their best to patent the interface as well. It is probably a good reason to sell stock in both firms.

In an earlier post I said

While the home video is scarcely a good substitute for a $200 million movie production, the quality gap has narrowed enormously in the last 20 years, and it isn't unreasonable to think that in another 20 years, home production of "professional" quality movies will become cheap and practical.

I was off by 20 years. Take a look at the movie "Star Wreck", available as a free download. To my inexpert eye the production qualities are the same as a $200 million movie production. Since they thank six sponsors, one for "lend[ing] us a Pinnacle DV500 edting [sic] card" that retails for about $800, I think we can safely assume they didn't spend $200 million making the movie. According to their FAQ

Q: Damn, you must be very rich when you can afford a film like this...Huge sets, studios, actors and render farms!
A: What sets? The bridge sets are all virtual. The on-location shoots were made at locations that didn't cost any money (schools, public places etc). The "bluescreen studio" is actually a small piece of blue linoleum in Samuli's living room...
For Samuli this is a somewhat costly hobby, but as a movie it's still very close to a zero budget. The most expensive part of the production has been keeping the computer equipment up to date.

This is what their render farm looks like:

James DeLong, my opposition at the Cato conference, has a post at "ipcentral" titled "It's Happening." I thought that the "it" he was referring to was the vanishing of new music creation in the fact of piracy, but it seems he means "a loss of flexibility and interoperability." The fact involved is the involvement of the music industry in the cellphone industry - a fact that has been widely reported. Since cellphones are tightly controlled, this makes it easier for the music companies to generate revenue. Why is this a bad thing? DeLong dismisses the P2P culture's ethics with the quotation "it's our music and we have a right to steal it" but this isn't a quotation from anyone - just a reference to a blog post of his own denouncing Wired magazine. I'm sure there are some who just want something for free - but speaking for myself, and I feel confident the other authors of this blog, and the vast majority of those who have reservations about copyright - I am strongly in favor of artists, musicians and others earning money from their creative activities. At issue is not the right to sell - it is the right to monopolize. In the absence of monopoly, the best business model may be to give some things away for free to generate more demand for those things that can easily be sold. This an important model for open source software which generally gives away the computer code - not out of altruism but in order to generate paid demand for their services. If expensive ringtones brings money to musicians - what is wrong with that? And if the business model is one of giving away free MP3s to generate demand for expensive ringtones - what is wrong with that? There have been some complaints about musicians raising ticket prices in the face of less revenue from recorded music - and to those who complain, I would also say - what is wrong with that? What is wrong with a business model in which the recorded music is given away to generate more demand and higher ticket prices for live performances?

DeLong's complaint about interoperability and flexibility being reduced by the de facto reduction of copyright is misplaced. The fact is that one of the main uses of intellectual property is to prevent interoperability - witness the complaints over the closed iTunes platform. But even if there was some loss in this dimension - surely it would be worth the gain in freedom.

Freedom in many ways is at the heart of the debate. DeLong sees the word free and thinks it means beer. Those of us on the other side mean what the open source software movement means "free as in freedom, not free as in beer." The constant accusations that opponents of copyright - or even proponents of copyright who have reservations about particular methods of enforcement - are in favor of theft does him no credit. I might as well say that he is guilty of theft because he uses the English language - because it was invented by someone else. Intellectual property has more in common with slavery than its absence does with theft. The right being claimed by IP absolutists is the right to control my thoughts because it might have something in common with someone else's thoughts. So DeLong, who apparently believes that I support theft, won't mind if I call him a proponent of "intellectual slavery?"

Jim Bessen's researchoninnovation.org publishes a quarterly newsletter Research on Innovation - now in blog format.

Bessen and Maskin have a lovely paper about sequential innovation. I have reviewed this over at Najecon. There are two key ideas in this paper about why patenting may lead to less rather than more innovation. First, innovators will generally have more information about the value of their invention than existing patent holders whose licenses they will need to build their own project. This prevents efficient licensing by existing patent holders. Second, competition is not likely to dissipate all profitability from a new invention - this is a point that Michele and I have emphasized. Michele and I have also pointed out how the need to license many different patents further inhibits innovation.

The relevance of sequential innovation is brought home by the patenting of the human gene. Consider Jensen and Murray's empirical investigation. Money quote:

Our results reveal that nearly 20% of human genes are explicitly claimed as U.S. IP. This represents 4382 of the 23,688 of genes in the NCBI's gene database at the time of writing (see figure, right). These genes are claimed in 4270 patents within 3050 patent families (28). Although this number is low compared with prior reports, a distinction should be made between sequences that are explicitly claimed and those that are merely disclosed, which outnumber claimed sequences roughly 10:1. The 4270 patents are owned by 1156 different assignees (with no adjustments for mergers and acquisition activity, subsidiaries, or spelling variations). Roughly 63% are assigned to private firms (see figure, above). Of the top ten gene patent assignees, nine are U.S.-based, including the University of California, Isis Pharmaceuticals, the former SmithKline Beecham, and Human Genome Sciences. The top patent assignee is Incyte Pharmaceuticals/Incyte Genomics, whose IP rights cover 2000 human genes, mainly for use as probes on DNA microarrays.

Imagine if you will the not unlikely case of a new pharmaceutical product that requires rights to the entire human gene.

On the trademark front the legal system seems to have a degree of rationality. According to the AP an English Judge ruled against a claim by the Beatles and in favor of Apple computer: Apple computer can continue to use the apple logo in connection with iTunes.

An interesting post by Tim Wu at Lessig.

A relatively little-known fact outside of copyright practice is that movie studios regularly purchase the film and television rights to newspaper stories. Yes, newspaper stories, which by their nature, report on facts or ideas, two things the copyright law does not protect. So what are studios buying?

There is a widespread myth that the government monopoly provided by copyright is necessary to sell something: Wu speculates that the studio is worried about being sued. Why don't they pay me for the movie rights then? I have as much chance of suing successfully as the newspaper does. Michele and I have done our best to point out that as a matter of theory ideas are always scarce and command a positive price. Yet the fact that it is true in practice continues to mystify people.

I've often had the experience after presenting a paper arguing that copyright doesn't work, that someone asks "So you don't mind if I take your name off this paper, and put my name on it and redistribute it, right?" Although intended as a joke, it isn't really funny, because it demonstrates a lack of understanding of what the paper is about. Suppose I download a piece of music that I didn't previously have. Ignoring the future consequences regarding music production - it is certain that from a social point of view what I did made society better off. It made me better off - I have access to music I didn't have before - and nobody is worse off. They copyright holder might not be able to sell me music in the future - but that is just a transfer payment from me to him - it has no social consequence.

Contrast this to identity theft. I make a copy of your identity - that is, I masquerade as you. This equally certainly makes society worse off. The essence of identity is that it must be unique. If multiple people hold the same identity, then the identity loses its social value. This is why trademark is different than copyright. Copyright prevents the socially desirable use of creations; trademark prevents the socially undesirable theft of identities - it preserves the right to know who you are doing business with.

How does plagiarism fit into this? Plagiarism is the theft of identity. When you take my name off the paper and claim you wrote it, this is identity theft - you are claiming to be me. It serves no socially useful purpose, and indeed has bad social consequences. So while I am against copyright, I am for trademark, against identity theft, and against plagiarism.

Don't worry, eventually I will get tired of it. Cato has the video posted so you can see for yourself what transpired. The best part was this though: the pro-DMCA group during the final panel made a number of outrageous assertions - not least of which was that the story of Ed Felten and the DMCA had a happy ending. So you can read what Felten thinks about that.

A member of the audience - if I remember correctly someone from NBC - raised the question during my panel of whether there was any business model that would support the production of $200 million dollar movies without copyright. As Tim Lee points out, I didn't give a very good very good response to this question. The question was raised in a later panel, and someone, I think it was Mike Masnick, gave a much better response. Regardless, the question is a significant one. The short response is pretty simple: until they lost the VHS tape case, the only source of revenue for movies was for theatrical releases. Even if DVDs can be freely copied and given away for free, the revenue from theatrical releases can still sustain large scale productions.

The key point is that it is wrong to focus on the copies to which copyright applies as the sole source of revenue to pay for creative efforts. Open source software works because the complementary good produced - "expertise" - in the process of producing software, is scarce and so commands a premium in the market. So even if copies generate little revenue, as long as something else complementary is scarce, there is still a revenue source to pay for creation. In the case of movies the obvious candidate is theatrical sales. In the case of music, live performances.

A secondary issue is competition between "free" DVDs and "expensive" theatrical tickets. But no one is proposing that movie producers be required to release DVDs when movies hit the theaters. It is true that stuff gets on the internet quickly - for example, because people steal master copies and post them. But even without copyright this is illegal, nor does advocating the elimination of copyright mean that when you give someone a sealed envelope containing a master copy to deliver to a theater, they are entitled to rip it open and make copies along the way. Or that if you transmit an encrypted movie stream to a theater than anyone can hack into a router and crack your stream. Or, for that matter, that if you transmit encrypted data to your bank that anyone can hack into a router and crack that transaction. In short, the transmission between producer and theater owner should be protected - but that protection has nothing to do with copyright.

Another issue that is important lies on the cost side. Much of the cost of a $200 million dollar movie is the money paid to big name actors and directors. When the government grants a monopoly through copyright, some of that monopoly profit goes to owners of other scarce factors - actors and directors. Reduce the revenue by eliminating the government monopoly, and those people get paid less. But big name actors in particular are paid far more than their opportunity cost - the amount that is needed to get them to act rather than take another job. Harrison Ford was a carpenter before becoming a big name actor - presumably a modest premium over a carpenter's wage is what was needed to get him to take the acting job. So if half the revenue is lost by eliminating copyright - half the costs may disappear as well.

Finally, you may wonder - what happens when we all have big screen movie theaters in our homes, and none of us go out to watch movies anymore? Simple answer - the same technological change that is lowering the price of big screen TVs is also lowering the cost of making movies. While the home video is scarcely a good substitute for a $200 million movie production, the quality gap has narrowed enormously in the last 20 years, and it isn't unreasonable to think that in another 20 years, home production of "professional" quality movies will become cheap and practical.