Culture is future » Financing and economic models

09.24.2011

DEBATES 2011 - Intellectual property - Intellectual property, a recent concept by Olivier Bomsel

Olivier BOMSEL is an economist, professor of industrial economics at MINES ParisTech and director of the ParisTech chair of Media and Brand economics.

Intellectual property, a recent concept

It should be noted first that the economy often comes after law. Lawanswers in a concrete and pragmatic way to temporal and political imperatives. Economy observes the functioning of institutions, so it starts from positive law and tries to interpret it and analyze what it allows in terms of organization of the society. (Reading of legal and economic institutions of property.) The right of property appears to be an institution that allows the coordination of the society.

If property is an ancient concept, it began to be interpreted by economists in the 1960s, as a structuring institution (Demsetz, Coase). As for the category of intellectual property, it was unthinkable in the early 20th century: for example Schumpeter never refers to the concept of intellectual property even if he made innovation the motor of capitalism. Intellectual property designates the exclusiveness of the use of information and its commercial utilization. There are three types of umbrella institutions which protects creation and innovation: copyright, trademark and patent.

More precisely intellectual property was created with the concurrence of two discoveries. In the 1960s, Harold Demetz develops a theory of property as an institution used to internalize the effects of individual actions for benefit or expense of society. He refers notably on studies about American Indians showing some forms of exclusiveness to prevent from the overexploitation of the hunting reserve. On the other hand, Coase shows that property is an instrument often more effective than public intervention to deal with societal problems, leading to privatization of programs. To these economic theories need to be added a better consideration of the category of information as a component of the economy, particularly because it allows organizing the division of labor. It is the adaptation of the category of property to the information one that gave rise to the category of intellectual property as an exclusive use of information.

To deal with intellectual property, we must keep in mind its function and analyze the functioning of institutions in which it is embodied, for example the patent.

Patents, between exposure and protection

The patent is a complex institution of publication of scientific or technical innovations. A patent is a form of disclosure, in exchange of what the institution provides a protection regarding competition. But the act of disclosure goes instinctively against a competitive process. This opposition is showed in the drafting of patents, which seem like a constraint publication where company says minimum.

Patent organizes the relationship between innovation and the actual conditions of its technical application. Its functioning is necessarily imperfect, with cons-productive uses, but we cannot say what it would be without it.

Patents are often interrelated and thus can cover a broad scope in a technical application. Company uses here the institution to create a monopoly. Big firms that have large stocks of patents, especially in high tech, maintain peering relation between them (neutralization of payment of licenses by mutual use of patents), a strategy known as patent pool. This practice encourages the creation of barriers to entry by prohibiting a new entrant, who does not have an equivalent stock of patents, to compete except paying royalties for these licenses. The institution creates sometimes the apparition of new actors, but also reinforces oligopolies. It allows sectors that are intensive users of patent to promote their balance and organize the competition, especially since the transaction costs (negotiation of license fees) are high.

Property and society

Culture is difficult to define as an economic category. However, we can talk about the media. The media is a vector of dissemination of meaningful expressions to anonymous publics: it is the semantic value of these expressions that creates economic value, which depends of course on the public’s appetite and its perception criteria. A possible reference to culture as an ecosystem, such a social environment of the media.

To be effective, intellectual property rights must be clearly defined and enforceable.  As soon as they are questionable, property rights block any transaction (example of the Greece which, for the collection of taxes as well as for privatization, seems to stumble over the lack of land registry.)

The property right is an asymmetric institution: society concedes a principle of exclusiveness to an individual by delegating a share of sovereignty. But conditions for the emergence of the “individual” are different depending on societies. In France, for instance, individual is a recent creation which, in legal terms, dates from the Declaration of Human Rights in 1789, while in Britain, the relationship between the State and the individual follows a different story, as evidenced by the creation of the Habeas Corpus in the 17th century. The notion of individual and its conception will enable to distinguish different modes of organization and development of society: the United States for instance was built by aggregation of individual properties with the conquest of the West, so that in France the subjects have been for long delegated to public services (les Offices). The deployment of media in France is a part of this context, making more difficult entrepreneurship in the sector (it is the society that makes the individual and no the contrary). In China, the imperial tradition will impose a different delegation of sovereignty.

Thus property is a way to analyze different types of societies, the coordination of individuals. While Jeremy Rifkin said that paid experiences substitute more and more possession, Olivier  Bomsel  reminds that  property does not disappear insofar as the sale of experiences is based on forms of property, including intellectual property.

Copyright, property of the expression and censorship

Copyright is an idiosyncratic institution as much, if not more, as other forms of property. Indeed, it consists in society’s evaluation of the interest for individuals to let messages circulate, including, depending on times and countries, incentive mechanisms and censorship (see Paul Starr, The Creation of the Media: Politica Origins of Modern Communications. New York,NY: Basic Books, 2004)).

In France, the privilege of publishing is inseparable from royal censorship. In UK, regulation requires a tax on paper (the Stamp) which restricts the reading of newspapers to a certain class. The censorship is "census". This circle of informed people will structure a public sphere, which widens as gentrification increases in the society. Paul Starrand or Robert Darnton consider the American Revolution was born out of the opposition to the British control of the media. While the press in the United State, more literary than Europe, was an essential element of settlers’ coordination from the East Coast, the UK will to introduce the stamp has raised the first rebellions of Boston.

The flow of messages to the public is fundamentally maintaining public order. Therefore  copyright that protects authors  also includes permissions of publishing, broadcasting, to control possible externalities - positive or negative - of the flow of information in the society (eg, Nazi propaganda, announce of the Rwandan genocide). The flow of messages is controlled:

By institutions of property, which confer exclusiveness to the author or broadcaster

By rules of censorship which, in parallel, make authors and publishers responsible for their publications to society.

Ccopyright still covers these two dimensions: if he publishes, the copyright holder is accountable to  laws on publication. The media are still subject to regulatory policy, with a control less and less decentralized (public, delegation, private).In the United States, for example, the regulation of cinema is managed by the MPA, which was  created to self-regulate the industry rather than depending on censorship leagues.

On the Internet, the bypass of copyright is also a bypass of censorship, such as the one established for television (violent images, interdiction of some content for underage, etc.)

Copyright and trade mark

The copyright is not an institution completely independent of trademark law. From a legal perspective, copyright protects an expression (a code, a chain of signs and not a meaning). But the value of a message from an economic point of view is related to its semantic value, which is highly contextual. It depends on a meaningful environment, a specific context. An article in a newspaper, on a specialized website, a blog has a different significant value, which is linked to the signaling capability of the brand associated with the support of expression. The construction of meaning depends primarily on "who speaks? " and on the stand that this individual has access.

The modalities of communication cover two distinct uses, which structure the meaning of the term. On the one hand,  correspondence is a private communication, where signal only has a value for agents who exchange it, after being identified. The message is not intended to circulate and so not to be valued directly in markets. That is why  correspondence is usually charged at the cost of transporting the message and not its intrinsic value.  Correspondence is at cost price, without taking into account economic consequences of private exchange, which can lead to a contract, the launch of a product, etc. On the other hand, communication by media includes situations such as an individual address to an anonymous public. It comes within copyright because the espression aims for a market in particular. The value of the message will depend on the meaning conveyed by it, but also on the identification of the agent, who "speaks", which is a brand built by the issuer sender (the speaker) and the medium through which it is expressed.

The brand is an instrument of signaling a source, of its promotion. But building a media brand is more expensive than financing expressions (and copyright) that will feed it. To secure a return on their investment in  brand, the media need the institution to guarantee them their investments in expressions (copyright), otherwise they would lose the exclusiveness attached to it.

copyright may be considered as a land-law and this resource has social value only by its exploitation by a brand. The media is a "labeled expression". Thus, the authors pay to submit articles to prestigious scientific journals, no the contrary: they buy the labeling by a brand. Once a media good circulates as a labeled product, the expression and its editorial brand become inseparable. So when an Internet user downloads illegally a Michael Jackson’s title, he goes against the copyright law but also against the brand “Michael Jackson" built by communication costs and investments of its producer.

On this subjet, by Olivier Bomsel : Copyright and trakemark, published in Contemporay Economic Policy 

Wikipedia can be considered as the symbol of important production of information without author. But the Wikipedia brand connotes the status of expressions represented under this label. The reader perceives and judges it as such. However, the more expressions are in circulation, the more labeled expressions are sought: in the digital age, proliferation of bits of information of any kind creates a shortage of editorial brands. The economics of publishing brands is at the heart of the media economy.

The economy of publishing brands is full of cross externalities between brands, especially between publishers and talents. Thus, Universal Music France has broken the contract of Johnny Halliday , because against on the terms of the contract, he communicated for the brand of sunglasses Optic 2000 at the time of the release of an album, blurring the brand Johnny Halliday funded by Universal. (Johnny won a trial for unfair dismissal but lost on appeal and cassation for its claim to recover his recordings under copyright).

About the question of  duration of copyright, Olivier Bomsel suggests to align copyright with trademark law, which has no duration but includes production obligations, the brand does not fall into the public domain. Some brands, however, fall into public domain when their product names become common nouns, as frigidaire, Post-it, Sopalin, but no pedalo, which is also the name of the company producing the pedal boats!

What are the incentives to create an author’s brand today? Can we safely make live again an author? First the example of "Shakespeare". Shakespeare is considered as a public good, he is part of the Anglo-Saxon but also global. It is a common name known by all. On the contrary the book of the Marquis de Pelleport, The Bohemians, was not republished since the 19th century. These names are almost unknown. The publication consists in making brand with it. If a publisher wants to publish again The Bohemians, this requires a real investment to create the brand Pelleport and Bohemians. But in the case of a success, it could be used by anyone, since they are in the public domain; the publisher’s investment should be protected, what does not allow the current copyright.

Olivier Bomsel suggests a renewable copyright based on the signal and not the expression.