Via Randy Ray: Patent trolls

From the NBER Digest:

COUNTERFEITERS: FOES OR FRIENDS? Yi Qian

Counterfeits ... steal demand from low-end authentic products, but [have] positive spillover effects for high-end authentic products.

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In fiscal 2009, the U.S. Customs and Border Protection seized more than $260 million worth of counterfeit goods, with counterfeit footwear accounting for 40 percent of the total seizures. Counterfeit footwear has topped the seizure list of the customs service for four years. How does the existence of such counterfeits affect the sales of authentic products?

In Counterfeiters: Foes or Friends? (NBER Working Paper No. 16785), author Yi Qian analyzes product data from Chinese shoe companies over 1993-2004. She can study the impact of policy changes, such as the 1995 change in government enforcement efforts in monitoring footwear trademarks in China. That change had different effects on counterfeit entry for branded companies with varying degrees of closeness to the Chinese government.

Qian finds that counterfeits have positive advertising effects for the brand of shoes they copy. However, they have negative substitution effects for the authentic products, driving buyers away from the authentic shoe to the counterfeit one. For sales of high-end authentic products, the positive advertising effect dominates the substitution effect. For sales of low-end authentic products, the negative substitution effect outweighs the advertising effect. All of the effects last for a few years before leveling off. And, these different effects for different products reinforce incentives for authentic producers to innovate and to move upward in the quality portfolio. Finally, after the entry of counterfeiters, market shares for the higher quality products increase while those of the lower end products decline.

Qian tests these results by conducting some surveys and finds similar effects regarding the purchase intent of high-end, medium-end, and low-end branded products. Her subjects' responses suggest that counterfeits signal brand popularity, at least to some consumers. Counterfeits thus appear to steal demand from low-end authentic products, but their presence has positive spillover effects for high-end authentic products.

--Lester Picker

link to the paper

(via George Leef) What will we do when every word in the English language is trademarked?

The mainstream blogs occasionally cover intellectual property. Andrew Sullivan, for example reproduced a few letters from his readers criticizing commentary on Yglesias's blog. I suppose he picked these letters because he thought they were the most sensible? I thought just for fun I would fisk one of them, mostly because it is the kind of nonsense I hear at seminars all the time:

I just wanted to weigh in on the budding IP debate to say that anyone who takes a firm stand on the specific meaning of IP law doesn't really understand IP law.

David: No clue what that means.

Copyright, patent, and trademark law all serve different purposes, and have different statutory regimes precisely because the issue is multifaceted, complex, and must meet various and sometimes opposing interests.

David: Wow, it is complicated? Who'd have thunk it?

Conflating three separate legal regimes as "IP law" can make arguing about it's purpose inherently impossible.

David: You mean the way that the U.S. Constitution conflates copyright and patent? I suppose this letter writer is merely dishonest. Few if any people conflate trademark with copyright and patent law, and in the United States the legal purpose of copyright and patent as established by the Constitution are indeed the same.

For instance, Yglesias points to the Constitutional requirement that the protection be for a "limited time." Well, over the last 200 years as IP laws have evolved, we've decided that "limited time" means something very different in patent law and copyright law. Patents generally last for 25 years, copyrights last for the life of the author plus 75 years (this is a gross simplification, but good enough for our purposes).

David: A very gross simplification unless they recently increase the length of patent protection from 20 to 25 years. I know they keep changing the length of copyright protection at a dizzying rate, but it appears to still be life of the author plus 70 years. I guess this stuff is multifaceted and complex.

Patents cover inventions that increase our standard of living and move society forward.

David: You mean like the swinging on a swing patent?

The inventors of those things should be protected, but only for a short time; after that society as a whole should be allowed to benefit from the increased utility of the technology's wide dissemination.

David: Why is it exactly that they "should" be protected?

More to the point, copyright law protects expression -- the words or notes an artist uses in creating his work.

David: I hear this repeatedly at seminars. How does protecting "expression" give the author the unique right to write a sequel? What does "expression" have to do with Suntrust v. Houghton Mifflin lawsuit over The Wind Done Gone? With the lawsuit over the Harry Potter lexicon? Copyright protects ideas not merely the expression of ideas. Where on earth did this myth that copyright only protects the expression of ideas start?

Though I agree with him on many things, Yglesias is wrong here. Copyright law is very much in the business of protecting the rights of the author. That's why a copyright term lasts so long (copyright terms have been increasing steadily over time, indicating that we are becoming more and more concerned with protecting authors as time goes forward). That's also why copyright protects such a wide range of expressions and has so few formal requirements for securing one. Our copyright scheme is actually quite expansive in its protection of producers' interests.

One could say, as Yglesias does, that copyright protects consumers, but only with very roundabout logic: copyright incents producers to produce copyrightable works, and that allows consumers to consume those works, thus protecting their interest in listening to music, etc. It's much more logically satisfying to accept the basic truth and say "copyright law protects an author's interest in his copyrightable works," and then derive whatever ancillary benefits you want from there.

David: There is a telling difference between what copyright does protect - the interests of the intermediaries involved in distributing copyrightable works - and what copyright is intended to protect - the rights of the public at large. As it happens it does not and is not meant to protect either authors or consumers.

John Spiers was recently in Hong Kong and has a report about IP problems there. Any of our readers who think they might interested in helping can get in touch with him through his website (below)

I bought your book and noted you've made anti-IP presentations in Hong Kong. I have one book on small business international trade, and am working on another which will feature an argument against the individual entrepreneur from seeking IP rights, or even exclusive contracts (I disagree even with your trademark exception, but that is for another day.) I am alarmed by the concerted efforts to promote IP law in Hong Kong and China.

I was there a few weeks ago and read this article: link here

I then emailed the reporter and he replied keen on a follow-up.

Mr. Spiers,

Thank you for writing in to the Standard.

The defendent's details were not revealed by Customs because he has yet to be charged while forensic investigations are still ongoing.

I will follow up with the Department of Justice and Customs at a later date on whether I can obtain his hearing date and location.

You're POV on IP rights is definetly novel and very interesting and look forward to reading what other developments you may have in the case.

Thanks again and I shall reply again to you sometime next week.

Sincerely yours,

Tim Chui The Standard Reporter

Dear Mr. Chui,

I enjoyed your article today on "Customs Nabs Second Cybercriminal" in the Hong Kong Standard.

I have been trading in designed goods with China since the 1970's, and there is a good argument against intellectual property rights, although the argument is not popular. I was interested in your article because it might offer an opportunity to put forth the argument in a legal setting.

I work with a small group of people in USA who endeavor to eliminate intellectual property rights law. The group includes academic, lawyers and business people in USA. I may be able to persuade this group to write a "amicus curiae" brief to teh judge in this case. An amicus curiae brief is where parties not involved in a case plead a point to the judge. One point among others would be the fllow was unemployed, could not afford to pay for the movie, nothing was really "taken" when he downloaded the movie, so, no harm no foul. The lawyers would do a better job of explaining of course.

If you could provide me the name of the defendant and the identifying court and case number, I would attempt to persuade my associates to prepare and submit sucha brief to the court. Should they do so, I would inform you first, so if you wish to have an exclusive story, you would have it. This all may do the defendant some good.

Please let me know if are interested. I look forward to your kind reply.

Sincerely,

John Spiers. www.johnspiers.com

As you may know I am much more favorably inclined towards trademarks than other forms of intellectual property. (Michele is less favorably inclined.) It seems to me a good thing that it is possible to tell who you are doing business with, and no downside monopoly. That may be the purpose of trademark law...but there is another part of creeping IP: the apparent right under trademark law to protect the image of your product. Daniel Monchuk directs us to an article in the WSJ about what seems to me to be trademark abuse. The article is about costume companies that are being sued by trademark holders for providing costumes based on trademarked characters. For the life of me I don't see what this has to do with identity: there is no claim that these costumes are authorized by the trademark holder, nor can a costume based on a comic book be confused for a comic book. Perhaps Justin or someone else who knows more about the law than I do can comment on whether this is a proper use of trademark law as it exists. Certainly if the law allows it, then there is a big problem with trademark law.

For your amusement, a 45 page legal treatise by Andrew Beckerman Rodau entitled "The Supreme Court Engages in Judicial Activism in Interpreting the Patent Law in eBay ,Inc. v. MercExchange, L.L.C." The treatise opens with a long, cursory, and misinformed discussion about the economics of patents - misinformed not in the sense that Michele and I disagree with the economics, but that all economists would disagree with the economics. But the amusing part is the criticism of the Supreme Court for judicial activism. Their activism? Not respecting a long tradition of allowing permanent injunctive relief. The humor: the patents in question are business practice patents - for conducting auctions, no less - the real activism was of course the activism of the United States Court of Appeals for the Federal Circuit which created business practice patents whole cloth against an equally long tradition of not allowing them. Not surprisingly I didn't see any mention of this by Rodau in his article.

If you are looking for more IP humor, you might try this. Here is a bit from the abstract:

Origin stories serve both ontological and epistemological functions. They in- fuse everyday life and relations with significance by explaining why things are as they are and by providing guidance for how things should evolve based on what we already understand about our world. Origin stories also literally give a culture life by designating a beginning and a history. Finally, most origin sto- ries are political, legitimating or justifying certain relations of power in society. This Article is a comparative analysis of the "origin stories" that structure several branches of United States intellectual property protection: copyright, trademark and patent law.

Sadly this paper by Silbey is probably closer to the mark than Rodau's.

Via Gerry Everding: What were they thinking?

In creating a double standard for copyright and trademark law, the courts appear to have been influenced by the "romantic nature" of copyright law, Bartholomew says. "It's romantic to think about someone writing the great American novel or producing a hit song," he explains, "and the people who appeal for protection of these rights authors, movie stars, musicians are themselves very appealing."

When these romantic notions are combined with fears of widespread digital theft, you get "copyright panic," Bartholomew contends.

Complete article here

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.

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.