Intellectual property is a natural field for economic analysisof law,n2 and copyright is an important formof intellectual property. Yet while there are good introductionsto the economics of copyright law, and a number of excellent articleson the economics of copying (as distinct from copyright law),n3 no article examines the field of copyrightas a whole, discussing the evolution and major doctrines in thelaw from an economic standpoint. This article, which is in thespirit of our recent articles on the economics of trademark law,tries to fill this gap—although the field is so vast thatour analysis cannot be exhaustive. As in most of our work, weare particularly interested in positive analysis, and specificallyin the question to what extent copyright law can be explainedas a means for promoting efficient allocation of resources.
A distinguishing characteristic of intellectual property isits "public good" aspect. While the cost of creatinga work subject to copyright protection—for example, a book,movie, song, ballet, lithograph, map, business directory, or computersoftware program—is often high, the cost of reproducing thework, whether by the creator or by those to whom he has made itavailable, is often low. And once copies are available to others,it is often inexpensive for these users to make additional copies.If the copies made by the creator of the work are priced at orclose to marginal cost, others may be discouraged from makingcopies, but the creator’s total revenues may not be sufficientto cover the cost of creating the work. Copyright protection—theright of the copyright’s owner to prevent others from makingcopies—trades off the costs of limiting access to a workagainst the benefits of providing incentives to create the workin the first place. Striking the correct balance between accessand incentives is the central problem in copyright law. For copyrightlaw to promote economic efficiency, its principal legal doctrinesmust, at least approximately, maximize the benefits from creatingadditional works minus both the losses from limiting access andthe costs of administering copyright protection.
Section I develops the basic economic model of copyright protection,including an analysis of the optimal degree of that protection.Section II applies the model to the principal doctrines of copyrightlaw. It considers such questions as the originality requirementfor copyright protection, the distinction between ideas and expression,the absence of copyright protection for utilitarian works, theprotection of derivative works, and issues of fair use.
We begin with the factors—including, of course, copyrightprotection—that determine the number of works created. Thenwe examine the exploitation of the created work—the numberof copies and the price per copy. Last, we incorporate the importantfeatures of our discussion into a model of the optimal degreeof copyright protection.
A. Number of Works as a Function of Copyright and OtherFactors
1. General Considerations
The cost of producing a book or other copyrightable work (westart by talking just about books and later branch out to otherforms of expression) has two components. The first is the costof creating the work. We assume that it does not vary with thenumber of copies produced or sold, since it consists primarilyof the author’s time and effort plus the cost to the publisherof soliciting and editing the manuscript and setting it in type.Consistent with copyright usage we call the sum of these coststhe ‘‘cost of expression."
To simplify the analysis, we ignore any distinction between costsincurred by authors and by publishers, and therefore use the term"author" (or "creator") to mean both authorand publisher. In doing this we elide a number of interestingquestions involving the relation between author and publisher.For example, do such principles as droit moral, entitling authorsto reclaim copyright from assignees after a fixed period of yearsor entitling artists to royalties on resales of their art by initial(or subsequent) purchasers,n4 increase or reducethe incentive to create new works? The answer suggested by economicanalysis is that, contrary to intuition, such principles reducethe incentive to create by preventing the author or artist fromshifting risk to the publisher or dealer. A publisher (say) whomust share any future speculative gains with the author will paythe author less for the work, so the risky component of the author’sexpected remuneration will increase relative to the certain component.If the author is risk averse, he will be worse off as a result.However, we do not explore such matters in this article.
The second component of the cost of producing a work increaseswith the number of copies produced, for it is the cost of printing,binding, and distributing individual copies. The cost of expressiondoes not enter into the making of copies because, once the workis created, the author’s efforts can be incorporated intoanother copy virtually without cost.
For a new work to be created, the expected return—typically,and we shall assume exclusively, from the sale of copies—mustexceed the expected cost. The demand curve for copies of a givenbook is, we assume, negatively sloped because there are good butnot perfect substitutes for a given book.n5The creator will make copies up to the point where the marginalcost of one more copy equals its expected marginal revenue. Theresulting difference between price and marginal cost, summed overthe number of copies sold, will generate revenues to offset thecost of expression. Since the decision to create the work mustbe made before the demand for copies is known, the work will becreated only if the difference between expected revenues and thecost of making copies equals or exceeds the cost of expression.If we assume that the cost of creating (equivalent) works differsamong authors, the number of works created will increase untilthe returns from the last work created just covers the (increasing)cost of expression.
Two qualifications should be noted. First, for many types ofintellectual property some price discrimination may be possiblebecause individual works are not perfect substitutes and arbitrageis preventable. Thus, a book publisher will commonly charge higherprices for hardcover editions and later reduce the price for personswilling to wait for the paperback edition to appear. Similarly,the prices charged by exhibitors for first-run movies will generallybe higher than the prices in the aftermarket (cable viewing, videocassettes, and network television). Price discrimination increasesrevenue and thus the number of works produced, though it may notincrease the number of copies of each work.n6Second, the demand for copies of a given work depends not onlyon the number of copies but on the number of (competing) worksas well. The greater the number of such works (past and present),the lower the demand for any given work. Thus, the number of worksand the number of copies per work will be determined simultaneously,and the net effect of this interaction will be to reduce the numberof works created.
This description of the market for copies and the number ofworks created assumes the existence of copyright protection. Inits absence anyone can buy a copy of the book when it first appearsand make and sell copies of it. The market price of the book willeventually be bid down to the marginal cost of copying, with theunfortunate result that the book probably will not be producedin the first place, because the author and publisher will notbe able to recover their costs of creating the work. The problemis magnified by the fact that the author’s cost of creatingthe work, and many publishing costs (for example, editing costs),are incurred before it is known what the demand for the work willbe. Uncertainty about demand is a particularly serious problemwith respect to artistic works, such as books, plays, movies,and recordings. Even with copyright protection, sales may be insufficientto cover the cost of expression and may not even cover the variablecost of making copies. Thus, the difference between the priceand marginal cost of the successful work must not only cover thecost of expression but also compensate for the risk of failure.If a copier can defer making copies until he knows whether thework is a success, the potential gains from free riding on expressionwill be even greater, because the difference between the priceand marginal cost of the original work will rise to compensatefor the uncertainty of demand, thus creating a bigger profit potentialfor copies. So uncertainty generates an additional disincentiveto create works in the absence of copyright protection.
Practical obstacles limit copying the original works of otherseven in the absence of any copyright protection. But these obstacles,while serious in some cases, can easily be exaggerated. When fullyanalyzed, they do not make a persuasive case for eliminating copyrightprotection.
1. The copy may be of inferior quality, and hence not a perfectsubstitute for the original. In the case of books and other printedmatter, the copier may not be able to match the quality of paperor binding of the original or the crispness of the printing, andthere may be errors in transcription. None of these is an importantimpediment to good copies any longer, but in the case of worksof art—such as a painting by a famous artist—a copy,however accurate, may be such a poor substitute in the marketthat it will have no negative effects on the price of the artist’swork. Indeed, the copy may have a positive effect on that price,by serving as advertising for his works. On the other hand, itmay also deprive him of income from selling derivative works—thecopies of his paintings—himself. (More on derivative worksshortly.) To generalize, when either the cost of making equivalentcopies is higher for the copier than for the creator or the copier’sproduct is a poor substitute for the original, the originatorwill be able to charge a price greater than his marginal cost,even without legal protection. And, obviously, the greater thedifference in the costs of making copies and in the quality ofcopies between creator and copier (assuming the latter’scost is higher or quality lower), the less need there is for copyrightprotection.
2. Copying may itself involve some original expression—aswhen the copy is not a literal copy but involves paraphrasing,deletions, marginal notes, and so on—and so a positive costof expression. The copier may incur fixed costs as well, for examplecosts of rekeying the words from the copy he bought or of photographingthem. Still, we would expect the copier’s average cost tobe lower than the creator’s because it will not include theauthor’s time or the cost of soliciting and editing the originalmanuscript. Nevertheless, when the copier cannot take a completelyfree ride on the creator’s investment in expression and hisother fixed costs, the need for copyright protection is reduced.
Between the literal copier and the author who makes no usewhatever of previous works, three additional types of producercan be distinguished. One is the author who makes at least some,but perhaps modest, use of previous works; most authors are ofthis type. Next is the author of a derivative work, that is, awork that draws very heavily on previous works, though the derivativework involves some original elements. Third is the unoriginalcopier who nevertheless tries to complicate the author’stask of proving infringement by differentiating the copied workfrom the original in minor ways. Derivative works and infringementare discussed in Section II; the author who makes some use ofprevious works figures prominently in our formal analysis, alongwith the literal copier.
3. Copying takes time, so there will be an interval duringwhich the original publisher will not face competition. This point,which is related to the first because generally the cost of productionis inverse to time,n7 has two implications forthe analysis of copyright law. First, because modern technologyhas reduced the time it takes to make copies as well as enabledmore perfect copies to be made at low cost, the need for copyrightprotection has increased over time. Second, for works that arefaddish—where demand is initially strong but falls sharplyafter a brief period—copyright protection may not be as necessaryin order to give the creator of the work a fully compensatoryreturn.
4. There are contractual alternatives to copyright protectionfor limiting copying. One is licensing the original work on conditionthat the licensee not make copies of it or disclose it to othersin a way that would enable them to make copies. But contractualprohibitions on copying may, like trade secrets, be costly toenforce and feasible only if there are few licensees. Where widespreaddistribution is necessary to generate an adequate return to theauthor or where the work is resold or publicly performed, contractualprohibitions may not prevent widespread copying. Thus, the greaterthe potential market for a work, the greater the need for copyrightprotection. The development of radio, television, and the phonographhas expanded the market for copies and thereby increased the valueof copyright protection.
5. Since a copier normally must have access to a copy in orderto make copies, the creator may be able to capture some of thevalue of copies made by others by charging a higher price forthe copies he makes and sells. For example, a publishers of academicjournals may be able to capture part of the value that individualsobtain from copying articles by charging a higher price becauseof home taping.n8 Although this possibilitylimits the need for copyright protection, it does not eliminateit. If one can make many copies of the first copy, and many copiesof subsequent copies, the price of copies will be driven downto marginal cost and the creator will not be able to charge asufficiently higher price for his copy to capture its value inallowing others to make more copies; no one (except the firstcopier and the most impatient readers) will buy from him ratherthan from a copier.
6. Many authors derive substantial benefits from publicationthat are over and beyond any royalties. This is true not onlyin terms of prestige and other nonpecuniary income but also pecuniaryincome in such forms as a higher salary for a professor who publishesthan for one who does not,n9 or greater consultingincome. Publishing is an effective method of self-advertisementand self-promotion. The norms against plagiarism (that is, againstcopying without giving the author credit) reinforce the conferralof prestige by publishing; to the extent that those norms areeffective, they ensure that the author will obtain recognition,if not always royalties, from the works he publishes.
Such points have convinced some students of copyright law thatthere is no need for copyright protection.n10Legal rights are costly to enforce—rights in intangiblesespecially so—and the costs may outweigh the social gainsin particular settings. Perhaps copyright in books is one of them.After all, the first copyright law in England dates from 1710(and gave much less protection than modern copyright law), yetpublishing had flourished for hundreds of years in England despitecensorship and wide-spread illiteracy.n11 Thepoint is a little misleading, however. In the old days, the costsof making copies were a higher fraction of total cost than theyare today, so the problem of appropriability was less acute. Also,there were alternative institutions for internalizing the benefitsof expression.n12 And before freedom of expressionbecame generally applauded, publishing was often believed to imposenegative externalities—so there was less, sometimes no, desireto encourage it. Finally, while it may be difficult to determinewhether, on balance, copyright is a good thing, it is easy tonote particular distortions that a copyright law corrects. Withoutcopyright protection, authors, publishers, and copiers would haveinefficient incentives with regard to the timing of various decisions.Publishers, to lengthen their head start, would have a disincentiveto engage in prepublication advertising and even to announce publicationdates in advance, and copiers would have an incentive to installexcessively speedy production lines. There would be increasedincentives to create faddish, ephemeral, and otherwise transitoryworks because the gains from being first in the market for suchworks would be likely to exceed the losses from absence of copyrightprotection. There would be a shift toward the production of worksthat are difficult to copy; authors would be more likely to circulatetheir works privately rather than widely, to lessen the risk ofcopying; and contractual restrictions on copying would multiply
A neglected consideration—one that shows not that copyrightprotection may be unnecessary but that beyond some level copyrightprotection may actually be counterproductive by raising the costof expression—will play an important role both in our modeland in our efforts to explain the salient features of copyrightlaw. Creating a new work typically involves borrowing or buildingon material from a prior body of works, as well as adding originalexpression to it. A new work of fiction, for example, will containthe author’s expressive contribution but also characters,situations, plot details, and so on, invented by previous authors.Similarly, a new work of music may borrow tempo changes and chordprogressions from earlier works. The less extensive copyrightprotection is, the more an author, composer, or other creatorcan borrow from previous works without infringing copyright andthe lower, therefore, the costs of creating a new work. Of course,even if copyright protection effectively prevented all unauthorizedcopying from a copyrighted work, authors would still copy. Butthey would copy works whose copyright protection had run out,or they would disguise their copying, engage in costly searchesto avoid copying protected works, or incur licensing and othertransaction costs to obtain permission to copy such works. Theeffect would be to raise the cost of creating new works—thecost of expression, broadly defined—and thus, paradoxically,perhaps lower the number of works created.n13
Copyright holders might, therefore, find it in their self-interest,ex ante, to limit copyright protection. To the extent that a laterauthor is free to borrow material from an earlier one, the laterauthor’s cost of expression is reduced; and, from an ex anteviewpoint, every author is both an earlier author from whom alater author might want to borrow material and the later authorhimself. In the former role, he desires maximum copyright protectionfor works he creates; in the latter, he prefers minimum protectionfor works created earlier by others. In principle, there is alevel of copyright protection that balances these two competinginterests optimally—although notice that the first generationof authors, having no one to borrow from, will have less incentiveto strike the optimal balance than later ones.n14We shall see in Section II that various doctrines of copyrightlaw, such as the distinction between idea and expression and thefair use doctrine, can be understood as attempts to promote economicefficiency by balancing the effect of greater copyright protection—inencouraging the creation of new works by reducing copying—againstthe effect of less protection—in encouraging the creationof new works by reducing the cost of creating them.
[Presentation of a formal model is omitted.]
A. The Nature of Copyright Protection
Our task now is to use our model to explain the principal featuresof copyright law. We begin with the nature of the protection thata copyright gives its owner. In contrast to a patent, a copyrightmerely gives protection against copying; independent (that is,accidental) duplication of the copyrighted work is not actionableas such. In speaking of "independent [accidental, inadvertent]duplication" we are addressing only the problem of an independentrecreation of the original copyrighted work. The accidental useof someone else’s work might be thought of as duplication,but in that context liability for infringement is strict, muchas it is for the trespass on a neighbor’s land made by aperson who thinks that he owns it.
The more difficult question is to explain why duplication inthe sense of independent recreation is not actionable. Our analysissuggests two possible explanations. The first is the added costto the author of checking countless numbers of copyrighted worksto avoid inadvertent duplication. The costs (if actually incurred—aqualification whose significance will become apparent shortly)would increase e(z) and lower social welfare because both netwelfare per work and the number of works created would fall. True,the author’s gross revenues might rise if the reduction inthe amount of accidental duplication raised the demand for copiesor made that demand less elastic.n29 But sinceaccidental duplication of copyrighted works is rare (except inthe area of popular music, discussed below), the net effect ofmaking it unlawful would be to lower social welfare.
In contrast to copyright, accidental infringements of patentsare actionable, and the difference makes economic sense. A patentis issued only after a search by the applicant and by the PatentOffice of prior patented inventions. This procedure is feasiblebecause it is possible to describe an invention compactly andto establish relatively small classes of related inventions beyondwhich the searchers need not go. The procedure makes it relativelyeasy for an inventor to avoid accidentally duplicating an existingpatent.
No effort is made by the Copyright Office to search copyrightedworks before issuing a copyright, so copyright is not issued butis simply asserted by the author or publisher. There are billionsof pages of copyrighted material, any one page of which containa sentence or paragraph that a later writer might, by pure coincidence,duplicate so closely that he would be considered an infringerif he had actually copied the words in question or if copyingwere not required for liability. What is infeasible for the CopyrightOffice is also infeasible for the author. He cannot read all thecopyrighted literature in existence (in all languages, and includingunpublished works!) in order to make sure that he has not accidentallyduplicated some copyrighted material.
The cost of preventing accidental duplication would be so great,and the benefits in terms of higher revenues (and so the amountof damages if such duplication were actionable) so slight becausesuch duplication is rare, that even if it were actionable no writeror publisher would make much effort to avoid accidental duplication,so the increase in the cost of expression would probably be slight.But social welfare would be reduced somewhat. At best we wouldhave a system of strict liability that had no significant allocativeeffective; and as explained in the literature on negligence andstrict liability in tort law, the costs of enforcing such a regimeare socially wasted because their only product is an occasionalredistribution of wealth (here that would be from the accidental"infringer" to the first author or publisher of thematerial duplicated).n30
The second reason we expect accidental duplication not to bemade unlawful derives from the economic rationale for copyrightprotection, which is to prevent free-riding on the author’sexpression. Accidental duplication does not involve free-riding.Since the second work is independently created, its author incursthe full cost of expression. If the works are completely identical—aremote possibility, to say the leastn31—competitionbetween the two works could drive the price of copies down tomarginal cost and prevent either author from recovering his costof creating the work. It is more likely that significant differencesbetween the two works will remain, so that both authors may beable to earn enough to cover their respective costs of expression—particularlyif neither author is the marginal author, whose gross revenueswould just cover the cost of expression in the absence of accidentalduplication.
Although for simplicity our analysis focuses on copyright protectionfor literature and other written works, it is applicable, mutatismutandis, to other forms of expression as well. A significantdifference between literary and musical copyright is that courtshold that accidental duplication may infringe a songwriter’scopyright if his song has been widely performed.n32Since most popular songs have simple melodies and the number ofmelodic variations is limited, the possibility of accidental duplicationof several bars is significant. Widespread playing of these songson the radio makes it likely that the second composer will havehad access to the original work, which both increases the likelihoodof accidental duplication and reduces the cost of avoiding it.If proof of intentional duplication were required for infringement,composers of popular songs would have little copyright protectionand social welfare would fall.
This result may appear to show that musical copyright followsthe pattern of patent law rather than of literary copyright, butthe appearance is deceptive. Two forms of "accidental’’duplication of a copyrighted work must be distinguished. The firstis independent creation: the duplicator makes no use, direct orindirect, of the copyrighted work. Such a duplicator is neveran infringer. The second is unconscious borrowing. Unlike theindependent creator, the unconscious borrower is a free rider,and is therefore properly deemed an infringer. Musical copyrightis special only in that unconscious borrowing is more likely inthe musical than in the literary realm.
To distinguish between copying and independent duplication,the courts use an implicit indifference-curve analysis in whichaccess is traded off against similarity. Where there is a strongshowing of similarity, it is more likely that the original workwas copied and less likely that it was independently created (particularlyfor complicated works, in contrast to, say, a few bars of a popularmelody). In such a case, the copyright owner can prevail evenif he presents only weak evidence that the defendant had accessto the original work. On the other hand, where the differencesbetween the original work and its "copy" are substantial,the copyright owner will normally have to provide strong evidenceof access to rebut the defense of independent creation.
B. The Scope of Protection
The most difficult economic questions about copyright law haveto do with the scope of legal protection. We shall discuss theseunder the headings of (1) idea versus expression, (2) derivativeworks, and (3) fair use.
1. Idea versus Expression
i) The economic rationale for not protecting ideas. A copyrightprotects expression but not ideas.n33 Postponingto the next section the problem of distinguishing between thetwo, we offer several reasons for the difference in treatment.
a) Suppose that the N works in our model express the same ideadifferently; for example, each work might be a different novelabout a romance between young people who belong to different socialclasses or religious faiths and whose parents are feuding. Ifcopyright protected the first author’s idea, the cost ofexpression to each of the remaining N - 1 authors would increase,because each would have to invest time and effort in coming upwith an original idea for his work, or to substitute additionalexpression for the part of his idea that overlapped the firstauthor’s, or to incur licensing and other transaction coststo obtain the right to use the first author’s idea.n34The net effect of protection would be to reduce the number ofworks created—in the limit, to one, although the Coase Theoremmakes this outcome unlikely—so that social welfare in equation(16) would fall. Granted, the copiers’ cost would also riseif a copyright protected ideas, because copiers use not only theauthor’s expression but also his ideas. However, this offsetis likely to be small. Copiers are copying expression either unlawfully,in which case the marginal deterrence from protecting ideas islikely to be small, or lawfully, for example, because their copyingis deemed a fair use. In either case, copyright protection forideas would have a negligible effect on the copier’s costof copying. Even if protection did increase the gross profitsof the N - 1 authors and thus offset partially the reduction inN, social welfare would fall because both N and welfare per workwould fall.
The traditional explanation for protecting only expressionemphasizes the welfare losses from monopoly of an idea. We emphasizethe increase in the cost of creating works and the reduction inthe number of works rather than the higher price (per copy) thatis normally associated with monopoly. In a more complicated modelthe demand for copies would depend not only on the number of copies(our model) but also on the number of competing works. In thatcase, protecting ideas would raise the price of copies.
b) The author is both a user of ideas developed by others anda creator of new ideas. Suppose our N authors did not know whichone would be the first to come up with an idea that the otherN - 1 authors would use. Since (as we shall see in the next section)the costs involved in coming up with the kind of new idea normallyembodied in an expressive work usually are low relative to thecosts in time and effort of expressing the idea, and since theoriginator of the idea will probably obtain a normal return inone form or another from being first in the market even withoutreceiving copyright protection, the N authors, behind a veil ofignorance, probably would agree unanimously (or nearly so) toa rule that protected expression but not ideas. If so, then thatrule would be Pareto optimal.
c) Another objection to copyright protection of ideas is thatit would encourage rent seeking. Since the costs of developinga new idea are likely to be low in most cases relative to thepotential reward from licensing the idea to others, there wouldbe a mad rush to develop and copyright ideas. Resources wouldbe sucked into developing ideas with minimal expression, and theideas thus developed would be banked in the hope that a laterauthor would pay for their use. Although the development of newideas would be accelerated, the dissemination of ideas might notbe.
d) A final concern is with the administrative costs involvedin defining rights in ideas. Courts would have to define eachidea, set its boundaries, determine its overlap with other ideas,and, most difficult of all, identify the idea in the work of thealleged infringer. Yet the total administrative and enforcementcosts of operating a copyright system might actually shrink ifideas were protected, because of the significant reduction inthe number of works created. Since the optimal level of copyrightprotection for expression takes account of the costs of enforcement,our first point— the decline in social welfare from fewerworks—incorporates the savings in administrative and enforcementcosts from few works. The present point, therefore, concerns theincrease in these costs if the number of works is held constant.
ii) Distinguishing ideas from expression. Although the linebetween expression and idea is often hazy, there are clear caseson both sides of it. If an author of spy novels copies a portionof an Ian Fleming novel about James Bond, he is an infringer.If, inspired by Fleming, he decides to write a novel about a Britishsecret agent who is a bon vivant, he is not an infringer. If aneconomist reprints Professor Coase’s article on social costwithout permission, he is an infringer; but if he expounds theCoase Theorem in his own words, he is not.
In both of these cases the original work (novel or article)is the joint output of two types of input, only one of which isprotected by copyright law. In the case of the novel, the reasonfor the limited protection is easily seen.n35The novelist creates the novel by combining stock characters andsituations (many of which go back to the earliest writings thathave survived from antiquity) with his particular choice of words,incidents, and dramatis personae. He does not create the stockcharacters and situations, or buy them. Unlike the ideas for whichpatents can be obtained, they are not new and the novelist acquiresthem at zero cost, either from observation of the world aroundhim or from works long in the public domain. Most works of fictionthat anyone would want to copy are intended for a mass audience--whichmeans they must use stock characters and situations in order tobe understood. To give the author of a work embodying such charactersor situations ("idea" in copyright lingo) copyrightprotection beyond the form in which he molds them into a particularnovel or story ("expression") would increase the costof expression of later authors without generating offsetting benefits.
This discussion helps to show why, in the first part of ourdiscussion of ideas versus expression, we disparaged the welfarebenefits from creating property rights to ideas. What passes for"ideas" in the case of most expressive writing normallyis not comparable to the sort of inventions, costly to develop,that receive protection under the patent laws. An alternativeto distinguishing between ideas and expression, therefore, wouldbe to confine copyright protection to original works, or to awork insofar as it was original, much as in the case of patentlaw. The problem is that originality or novelty is an even moredebatable quality of fiction than of mechanical and other technicalprocesses. If copyright protection depended on originality, authorsand publishers would find it hard to know in advance of litigationwhether they actually had a property right.
In the case of Professor Coase, the reason for confining copyrightprotection to the form in which he expressed the Coase Theorem,and not extending it to the theorem itself, is less obvious. Thetheorem was not obtained at zero cost but reflected extensiveeducation and thought. Also, it is clearly original. But preciselybecause the theorem is a powerful analytical construct, copyrightprotection would yield the inventor a very large income over andabove the considerable nonpecuniary (as well as indirect pecuniary)income that accrues to a major theoretician. The total incomewould, in all likelihood, exceed the cost of inventing the theorem,thus creating a problem of rent seeking. Moreover, the cost ofcopyright enforcement would be much greater than in the case wherethe article itself was copied. It would often be hard to tellwhether an article in economics was really using the Coase Theorem;the author (if he did not want to pay a royalty) would make everyeffort to explain his results in different terms. Furthermore,mathematical and scientific (including social scientific) ideasoften are discovered simultaneously, or nearly so; this wouldmake it difficult to determine whether an alleged infringer wasa copier or an independent inventor.
iii) The merger of ideas and expression. By this locution werefer to cases where there are only a few ways of expressing anidea, so that protecting expression fully would, as a practicalmatter, prevent anyone but the author from using the idea. Insuch cases, copyright protection is construed narrowly, as wewould predict. The classic case is Baker v. Selden.n36Selden had published a book describing a bookkeeping system thathe had invented, and he illustrated the book with blank bookkeepingforms. Baker copied the forms, rearranging columns and using differentheadings, and sold them to people who wanted to use Baker’ssystem. This was held not to be infringement, since otherwiseSelden would have had a monopoly over his bookkeeping system thathe could have exploited by insisting that anyone wanting to usethe system buy the forms necessary for using it from him.
It might seem that without copyright protection Selden couldnot have prevented Baker even from copying Selden’s book,but this is not correct. If Baker had published a book in whichhe copied verbatim (or by close paraphrase) the expository portionsof Selden’s book, he would have been guilty of infringement.If he wanted to sell the forms together with explanatory material,he had to write that material himself. The expressive part ofSelden’s book was protected.
Is this the optimal result? On the one hand, denying Seldenthe right to copyright his forms may have prevented him from recoupingthe expense in time and effort of inventing a new bookkeepingsystem. On the other hand, there are other ways he could havecashed in on such a notable commercial innovation; and grantinghim such copyright protection might have overcompensated him (andthus created a danger of rent seeking)--as well as have createddeadweight losses in the market for account forms, by raisingthe price of those forms above their cost by the amount of royaltythat he charged for permission to use his copyright.
The scope of the rule of Baker v. Selden is an issue in thecurrent controversy over whether copyright protection for computersoftware extends to the visual "desktop" on which thecomputer operator views "icons" representing documents,files, programs, and so on, and to the organization and sequenceby which the operator is led through a program. Because a givendesktop display or program sequence can be generated by a varietyof different programs, the program copyright itself does not coverthese visual aspects of computer use. The question is whetherthey are separately copyrightable by analogy to a painting—avisual display that could be generated by a variety of differentprocesses too. The argument against copyrightability is that thevisual aspects in question have become so standardized in thecomputer market that copyright protection would enable the copyrightholder as a practical matter to exclude competing manufacturersof computers. The counterargument is that the "idea"is the display of documents or other data, or sequences of stops,on a screen, and the "expression" the particular visualsymbology. The mere fact that a particular set of symbols hasbecome the industry standard is a tribute to the expressive skillsof the particular manufacturer and should not be deemed to convertexpression into idea.
We hope the debate will be resolved not by the semantics ofthe words "idea" and "expression" but by theeconomics of the problem and, specifically, by comparing the deadweightcosts of allowing a firm to appropriate what has become an industrystandard with the disincentive effects on originators if suchappropriation is forbidden. These disincentive effects may besmall. The probability that a particular display format will becomethe industry standard is small; presumably there are significantreturns over and above copyright to a firm that achieves sucha position; and the narrowly expressive aspects of the displayare protected, thus limiting the effect of free riding.
Another contemporary application of Baker v. Selden concernscopy right of architects’ plans. The plans themselves canbe copyrighted, and if they are then copied without authorizationthe copier is an infringer. But what if someone copies not theblueprints but the building built from them? Is he an infringer?The law’s answer is "no."n37The economic explanation is that a building is functional as wellas formal or decorative, so that if the architect could preventthe copying of the design elements visible in the building hewould have much fuller property-right protection than copyrightlaw (with its very long term) envisages. The analogy to the principlethat denies trademark protection to "functional" trademarks(for example, trademarks in features, such as shape, that maybe essential to the operation as well as appearance of the trademarkedproduct) should be evident.n38 Notice the closeanalogy to the computer-software problem. The building built withoutthe aid of the architect’s plans corresponds to the desktopdisplay generated without access to the originator’s software.In both cases, the originator’s property right is measuredby the savings in cost of duplication that the copier could obtainby taking out a license from the originator.
Returning once more to the Coase example, notice that whilein Baker v. Selden expression was incidental to idea, that isnot true of Coase’s article, in which, besides announcingthe theorem, Coase gave illustrations of it, compared it withprevious approaches, defended it, and discussed its implicationsfor law, economics, and public policy.
A difficult problem in distinguishing ideas from expressionis posed by technique, which we view as intermediate between ideaand expression. The main illustrations are in literature and thearts, and include the sonnet form, stream-of-consciousness writing,the five-act play, perspective in painting, the pointed arch,and serial composition in music.n39 The lawassimilates techniques to idea and so denies copyright protection.Another reason besides the monopoly profits that such protectionwould yield in many cases is that technique is harder to copywell than a work embodying the technique. It is easy to copy someoneelse’s sonnet--but try writing one! With copies likely tobe costly, slow to appear, and imperfect, the originator of atechnique will be able to recoup some and perhaps all of his fixedcosts even if he has no property right in the technique, as opposedto a right in his own works embodying the technique.
In between works of fiction on the one hand, and works in whichexpression is largely or entirely merged into ideas (Baker v.Selden) on the other hand, are works of nonfiction. The factsthat form the subject matter of such a work may or may not dictatethe expression; if they do it is a case of merger, and copyrightprotection should be denied. The classic example is narrativehistory. The first author of a history of the United States shouldnot be allowed to copyright the sequence of events narrated, sincethat would preclude any subsequent author from writing a narrativehistory of the United States covering the same period as the firstauthor. The argument against copyright protection in this caseis even stronger than in a case like Baker v. Selden. The historianhas not, of course, invented the facts of history that constitutethe subject matter of his work--although it would not be correctto say that he acquired them at zero cost; he may have made asubstantial investment in research and study.
Notes
* Landes is Clifton R. Musser Professor ofEconomics at the University of Chicago Law School. Posner is aJudge of the United States Court of Appeals tor the Seventh Circuitand a Senior Lecturer at the University of Chicago Law School.We thank Steven Shavell, George Stigler, and participants in thelaw and economics workshops at Columbia Law School and HarvardLaw School for many helpful comments on a previous draft.
2 See, for example. our articles TrademarkLaw: An Economic Perspective, 30 J. Law & Econ. 265 (1987),and The Economics of Trademark Law, 78 Trademark Rptr. 267 (1988):and Edmund W. Kitch, Graham v. John Deere Co.: New Standards forPatents, 1966 Sup. Ct. Rev. 293.
3 See, for example, Stanley M. Besen& Sheila Nataraj Kirby, Private Copying, Appropriability andOptimal Copying Royalties, J. Law & Econ. (in press): WilliamR. Johnson, The Economics of Copying, 93 J. Pol. Econ. 158 (1985):S. J. Liebowtiz, Copying and Indirect Appropriability: PhotocopyingJournals, 93 J. Pol. Econ. 945 (1985); S. J. Leibowitz, CopyrightLaw, Photography, and Price Discrimination, J. Res. Law &Econ. 181 (1986), S. J. Leibowitz, Some Puzzling Behavior by Ownersof Intellectual Products, 5 Contemp. Policy Iss. 44 (1987); IanE. Novos & Michael Waldman, The Effects of Increased CopyrightProtection: An Analytical Approach. 92 J. Pol. Econ. 236 (1984);Michael O’Hare, Copyright: When Is Monopoly Efficient? 4J. Policy Analysis & Mgmt. 407 (1985). Notable early studiesare Arnold Plant, The Economic Aspects of Copyright in Books,1 Economica (n.s.) 167 (1934): Arnold Plant, The New Commercein Ideas and Intellectual Property (1953); Robert M. Hurt &Robert N. Schuchman, The Economic Rationale of Copyright, 56 Am.Econ. Rev. Papers & Proc. 42 (1966).
4 See generally Michael E. Horowitz,Note: Artists’ Rights in the United States: Toward FederalLegislation, 25 Harv. J. Legis. 153 (1988).
5 We maintain throughout our analysisthe assumption of a downward-sloping demand curve for copies ofa given work.
6 The effect of (imperfect) price discriminationon output is normally assumed to be indeterminate. See, for example,F. M. Scherer, Industrial Market Structure and Economic Performance316, 321 (2d ed. 1980).
7 See Armen A. Alchian, Costs and Outputs,in Readings in Microeconomics 159, 165 (William Breit & HaroldM. Hochman ed., 2d ed. 1971).
8 This point is stressed by Liebowitz,Copying, supra note 2.
9 Compare Howard P. Tuckman & JackLeahey, What Is an Article Worth? 83 J. Pol. Econ. 951 (1975)
10 See Plant, supra note 2, compareStephen G. Breyer, The Uneasy Case for Copyright: A Study of Copyrightin Books, Photocopies, and Computer Programs, 84 Harv. L Rev.281 (1970). But see Barry W. Tyerman, The Economic Rationale forCopyright Protection of Published Books: A Reply to ProfessorBreyer, 18 UCLA L. Rev. 1100 (1971).
11 On the history of copyright law—whichappears to have emerged first in fifteenth-century Venice—seeBruce W. Bugbee, The Genesis of American Patent and CopyrightLaw, ch. 2 (1967); Brander Matthews, Books and Play-Books, ch.1 (1895); Comment, Copyright: History and Development, 28 CaliforniaL. Rev. 620 (1940); and references in note 11 infra.
12 In England, the Stationers’Company had long enjoyed a monopoly of printing, and this gavethe company the equivalent of copyright protection. With the declineof the company, a need for a copyright law was felt, leading tothe passage of the first general copyright law (in England) atthe beginning of the eighteenth century, as mentioned. See BenjaminKaplan, An Unhurried View of Copyright, ch. 1 (1967); Philip Wittenberg,The Protection of Literary Property, ch. 1 (1968).
13 A parallel analysis (independentof ours) of the novelty requirement in patent law is found inSuzanne Scotchmer & Jerry Green, Novelty and Disclosure inPatent Law (Berkeley and Harvard, unpublished manuscript, May12, 1988). The authors point out that the more stringent the requirement,making it harder to get a patent, the greater the gains from patentingbut the less information useful to other inventors will be disclosed(patent applicants must disclose their inventions in the application).
14 Later generations of authors mayalso differ among themselves on where to set the level of copyrightprotection. Authors expecting to borrow less than they are borrowedfrom will prefer more copyright protection than those expectingto be net borrowers. Ex ante, however, before anyone knows whetherhe is likely to be a net "debtor" or "creditor."authors should be able to agree on the level of copyright protection.
29 If we include in y the copies madeby accidental duplication, then expanding the scope of copyrightprotection to make each "copying" unlawful would shiftupward the copiers’ supply curve and raise the residual demandcurve of the author.
30 See William M . Landes & RichardA. Posner, The Economic Structure of Tort Law 70, 115-16 (1987).
31 Recall Learned Hand’s remarkin Sheldon v. Metro-Goldwyn Pictures, 81 F.2d 49 (2d Cir. 1936),that "if by some magic a man who had never known it wereto compose anew Keats’ Ode on a Grecian Urn, he would bean author, and, if he copyrighted it, others might not copy thatpoem, though they might of course copy Keats." Hand, of course,thought such accidental duplication a remote possibility. Theprobability of accidental duplication of Keats’ poem wordfor word is too small to justify courts in treating it as a litigablequestion, that is, one fairly open to doubt.
32 For example, in ABKO Music, Inc.v. Harrisongs Music, Ltd., 722 F.2d 988, 998-99 (2d Cir. 1983),the court found that George Harrison’s "My Sweet Lord"had infringed "He’s So Fine," recorded by the Chiffons."He’s So Fine" had been one of the most popularsongs in the United States and England during the same year thatHarrison (a former member of the Beatles) composed "My SweetLord." The court found an infringement even though it alsofound that Harrison had copied the Chiffons’ song unconsciouslyrather than deliberately.
34 More formally, the full cost ofcreating a work would equal , where i is the cost of obtainingthe ideas used in the work. Normally, i would not depend on thelevel of copyright protection. However, if copyright law protectedideas (call this protection to distinguish it from z), then iwould rise. In addition, e would probably rise because the authorwould substitute e for i.
35 See Richard A. Posner, Law and Literature:A Misunderstood Relation, ch. 7 (1988).
36 101 U.S. 99 (1879); see also Morriseyv. Procter & Gamble Co., 379 F.2d 675 (1st cir. 1967), wherethe rationale for denying copyright protection is explained interms highly congruent with our analysis.
37 See, for example, Imperial HomeCorp. v. Lamont, 458 F.2d 895, 898 (5th Cir. 1972); Demetriadesv. Kaufmann, 680 F. Supp. 658 (S.D.N.Y. 1988).
38 See Landes & Posner, TrademarkLaw: An Enforcement Perspective, supra note 1, at 297-99.
39 See Posner, supra note 34, ch. 7.