Evaluating the Demsetzian Trend in Copyright Law

Copyright law provides an excellent case study with which to study and evaluate Harold Demsetz’s theory of property rights. Regardless of how one feels about the relationship between property and intellectual property, it is hard to escape the fact that intellectual property rights have expanded and grown more property-like and more privatized in recent decades. There has been an undeniable Demsetzian trend in copyright law.
In this article, I critique the Demsetzian trend in copyright law and challenge some of the fundamental premises upon which the normative arguments for continued privatization and propertization of intellectual resources rest. First, I focus on the perceived benefits of internalizing externalities. I argue that externalities do not necessarily distort incentives or, more generally, the market allocation of resources. For many externalities, there is no efficiency benefit to internalization (whether internalization is accomplished by Pigouvian taxes/subsidies or property rights). In the end, the benefits of internalization must be carefully assessed rather than assumed. The view that increasing the degree of internalization through private property rights inevitably leads to increased incentives to invest in creation or distribution is not well-established in either theory or practice.
Second, I focus on the frequently invoked solution of efficient licensing and the “”logic”” that property rights should be extended “”into every corner in which people derive enjoyment and value . . . [so that] signals of consumer preference [may] trigger and direct [producers’] investments”” (Goldstein, 1994). I argue that there is a fundamental flaw in this logic that undermines the efficient licensing hypothesis. Social demand for individuals’ access to and use of copyright protected works often exceeds private demand. Purchasers’/licensees’ willingness to pay reflects only their private demand and does not take into account value that others might realize as a result of their use. As I explain, many uses of copyrighted works generate value for third-parties.
Finally, drawing from the first two points, I argue that, from a Coasean perspective, both externalities and property rights have symmetrical and reciprocal potentials to distort the market allocation of resources. A priori and devoid of context, one cannot say that the potential distortions caused by a property right, externality, or incremental change in a property right have a net positive or negative effect on social welfare.

Brett M. Frischmann

Review of Law and Economicse

November 2005

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