Copyright: An Institutional Insight - Vysoká škola ekonomická v Praze

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Copyright: An Institutional Insight - Vysoká škola ekonomická v Praze

Copyright: An Institutional Insight

Martin Ždímal*

Department of Institutional Economics

University of Economics, Prague

* Martin Ždímal is a PhD. student at the Department of Institutional Economics, University of

Economics, Prague.


Abstract:

This paper analyses the institution of copyright. Institutional analysis is used here to reveal the

reasons why moral rights constituting a part of copyright are usually not a subject to the same critics

as the economic rights are. Use of the parallel between informal institutions among the society and

the formal institution of copyright should gives the explanation for this contradiction. The second

part of this paper deals with the necessity of copyright existence to rule complex exchange. It denies

the argument that copyright evolved as a formalization of any pre-existent informal institution as it

wasn’t established to reduce the free-rider problem. The paper shows that it has always been a

monopolistic privilege bringing monopoly profit to those who had power to introduce it and this

privilege it remains. The paper shows, that the society is able to establish and enforce appropriate

institutions ruling exchange with intangible goods once it is needed. The final part is dedicated to

examples showing that copyright is not necessary is in many cases and is even inefficient as it is a

source of non-cooperative behavior (which it should as an institution prevent).

Keywords

copyright, intellectual property, moral rights, economic rights, institution, institutional analysis, cartel

JEL Classification

K11, K21, , N40, O31, O34, O43

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I. Introduction

There is no major disagreement among economists (and definitely not only among them) that

authors of scientific studies, novels, songs, or other kinds of intangible products should have a

right to derive profits from their labor as well as those producing tangible goods. But there is

no agreement whether they should have a privilege to gain these profits. This privilege is

represented by copyright.

There are many possible ways to derive profit from intangible products, but one thing is

usually of extreme importance. Most of the business models are usually based on close

relation between the intangible good (let’s call it a “thought” in any possible expression) and

its author.

The academic world may give us an illustrating example of such a “business model”. The

relation between author and his creation is the basic condition to derive profit from his work.

The major part of the work is usually embodied in a study or similarly codified. And the name

of the author on it is one of the most important conditions to derive the profit. This usually

serves as an advertisement of the author’s skills and his knowledge. Using the basic feature of

intangible product (in any form) – easiness of copying and transmitting – the author gains

profit based on this prove of his skills. He may be offered jobs at universities, participation in

various grants – which all allow him to earn money for living.

All of these examples are based on the simple relation between the author and his work. It is

inevitable that the authorship is recognized as it is the crucial condition making this system

work. If anyone could use someone else’s thoughts (declare himself as the author) to promote

himself, this strong information carrier wouldn’t work anymore. That is the reason why there

is a very strong informal (and usually also a derived formal) norm stating that the act of

declaring yourself as an author of someone else’s idea is prohibited. This norm prohibits what

we usually call plagiarism. This anti-plagiarist norm is one of the most important rules in

academic world. Its infringement is perceived very seriously and the punishment is usually

severe.

Plagiarism is usually mismatched with copyright infringement. But these are definitely not the

same as copyright is in certain point of view a much broader norm. The most important

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feature of copyright is that it forbids simple copying of the works. But not only in the sense as

anti-plagiarist norm does as it imposes a ban on copying the work even if the relation between

author and his work is preserved – it bans preparing physical copies of medium (a study or a

book). In other words it grants the author a privilege to prepare and sell physical copies of his

work and gain monopoly profit from this privilege. This thus introduces a new artificial

business model – selling physical copies.

Copyright as a norm consists of two major parts – a ban to appropriate someone else’s

thoughts (what we usually call plagiarism) and a ban to prepare physical copies of someone

else’s work. The former being called “moral rights” as well as the later called “economic

rights”, both constitute the norm called copyright as we understand it today.

While the anti-plagiarist norm seems to be widely accepted in many areas, the ban to make

physical copies does not seem to be the case. It seems that there is no strong informal norm

within the society to prohibit such a behavior – even after long decades of interest groups’

effort to establish it. Taking copyright into account, the moral rights of the author (to keep the

relation with his own work results) seem to be much more accepted and observed than the

second part of economic rights (the ban to prepare physical copies), which seems to be everlastingly

infringed. It looks like the institution of copyright wasn’t compact, like it consisted

from two quite different norms having a very different background. And it is this informal

background that may be the reason why the former is far more accepted than the later. To

analyze this contradiction and prove this assumption is the first goal of this paper.

Further, observing the reality, it seems that the anti-plagiarist norms are in certain cases

present and enforced by market participants even without copyright protection being

established. We also see business lines with intangible goods (like fashion) that operate

without copyright protection at all. This leads us back towards the Grand question – should

we have copyright protection at all?

An institutional analysis should be very helpful here as copyright is a kind of formal

institution. The standard explanation states that formal institutions help to overcome the freerider

problem once the community loses its power to enforce any pre-existing informal norms.

This might be the explanation for the necessity of copyright. Trying to find arguments proving

or denying this explanation is the second goal of this work.

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II.

Academic Writing as a Case of Impersonal Exchange

North (1991, p. 34-35) distinguishes three basic types of exchange – these are i) personalized

exchange, ii) impersonal exchange and iii) impersonal exchange with third party coercion.

The first two of them are characterized by the absence of external coercive party involved in

the exchange. It is just because it is not necessary.

Personalized exchange is characterized by small number of participants who usually know

each other or have some kind of ties among each other. This exchange usually has a

characteristic of a repeated game, which solves the prisoner’s dilemma problem and enables

cooperative behavior (a cooperative game, where the profits for each player are higher than

the costs of it). And even if it is not a repeated game, still the gains from cooperative behavior

are higher than the costs of it. This is the reason why there is no need for any special external

institutions (rules of the game) that would enforce the cooperation as the rules are selfenforcing

– it pays off to follow them.

The case of impersonal exchange is a bit different situation. These exchanges are usually

more complex with higher number of participants. But still, according to North (1991, p. 34)

this is a kind of exchange where the participants are somehow tied. These ties may take

several forms of “kinship ties, bonding, exchange hostages, or merchant codes of the

conduct” (North, 1991, p. 34-35). However there is no condition, that all of the players had to

know all each other.

However in this kind of exchange it may be profitable for individual participants to play a

non-cooperative game – opportunistic behavior may be profitable. Once the self-enforcing

mechanism of the rules doesn’t work anymore, there has to be a way to enforce the

cooperative behavior (to make the participants follow certain rules of the game). To avoid

non-cooperative behavior, the close ties among the participants are essential. These ties

enable the enforcement of the rules by the community, no matter how large this may be 1 . The

community may impose many types of penalties on the infringer that raise the cost of noncooperative

behavior and thus enforce respect towards the rules. The fact the community is

capable of enforcing these norms itself is extremely important – there is no need for a

specialized third party with coercive power.

1 This is a relative group of persons who might have any kind of interest in the respective exchange or just have

some kind of ties among each other

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This means that there are certain rules (often informal), that are enforced by the community

and thus enable to gain profit resulting from cooperative type of games by all participants.

Voigt (2008, p. 28) calling these institutions “internal” divides these non-self-enforcing rules

into i) ethical rules, ii) habits and iii) formal private rules 2 . The first and second type may be

collectively called norms and values.

Academic world is a sound example of such type of “market”, where impersonal exchange

takes place. This example fully corresponds with our definition of impersonal exchange.

There is quite a high number of participants with very complex relations and these

participants do not necessarily have to know each other. But still, they have something in

common – they are all members of the “academic world” which imposes certain duties on

them as they have to follow certain rules which are applied here.

The product in this area is quite specific – it is almost exclusively intangible. If we try to

define its purest form, we may call it a “thought”. No matter what the thought is – be it an

invention, a new theory explaining yet unknown connections in economic theory or a theory

explaining why apples fall down the tree. Of course, these intangible products – thoughts –

usually have some connection with tangible goods. They are written on a piece of paper or

stored on a computer disc as a file. But this doesn’t change anything about the nature of the

product – it still remains an intangible thought, usually codified in some kind of a study or

similar work.

This product is the object of exchange. Academicians try to promote these thoughts by its

publishing and explaining – thus giving them to all of those who might be interested. In return

they try to raise their professional credit as much as possible. We might say they use this

product as self-promotion. But why? What is this good for? The reason is quite simple – it is

the well known signaling effect 3 . Proving that they are real professionals and experts in their

respective field will (or they at least hope so – which is more important for their decision

making 4 ) open them new perspectives for their career – shall it be in a form of obtaining

offers to lecture at a university, to conduct a research for concrete sponsor, or taking part in

2 As an example he mentions self evolved economic rules

3

4 Because this is definitely a case of ex-ante decision-making

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different kinds of grants. This is the way the “business model” works – it enables the

academicians to make money for living 5 .

Of course, there are more reasons and more benefits resulting from following the described

model of exchange. There is much more to get from publishing one’s work and presenting it

to the others. The basic benefit is getting some feedback and / or comments for further

research and shaping one’s theory, or the thought (as we have defined it to be the purest form

of the product). This is extremely beneficial to both parties – the author (who gains valuable

feedback) as well as the “audience” who becomes aware of the thoughts and theories and may

use them in their own research to develop their own derived thoughts. This is an extremely

important feature of the system – it makes the thoughts flow and spread and supports

innovation thereby 6 .

Of course, we may not forget the intrinsic benefits for the authors resulting from publishing

one’s work, meeting with other professionals and potentially becoming a respected expert in

one’s respective field.

All of these mentioned (and probably many of those unmentioned) benefits serve as a

motivation for the authors to invest their scarce resources into research and take part in the

exchange described above. But there is one extremely important condition that we haven’t

examined properly, yet. This is the fact that there is always present the close link between the

author and his work – his thought expressed in any possible way corresponding with the

above described model.

This condition makes the system work, as the business model we have described, relies on it.

The signaling effect only takes place when it is clear from the very beginning who the real

author is. This is also the reason, why the community perceives so sensitively whether the

proclaimed author is the real one or not. Because, not being there the confidence that the

5 Of course, most of them try to gain as much from their work as possible. This is the reason, why they at a

certain point try to publish their works and suppress its copying (preparing physical copies of their manuscript)

– using the copyright “protection”. But this is an additional bonus, because this is usually possible only after

becoming known academic, or is it a parallel process. There is no reason why they should not use the possibility

to become a monopolist in selling physical copies of their works once it is possible. But this doesn’t make our

argumentation being invalid.

6 What is of a great importance here is that this the way of supporting the innovation is market-neutral. It

doesn’t disturb the market – it doesn’t make (by force) the money flow into research and thereby producing

unnecessary innovation (as Rothbard suggests), it only reduces the information barriers of those who seek it.

Therefore calling this a support to innovation, we mean quite a different support than the one resulting from

state granted monopolies, subsidies or tax reliefs.

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proclaimed author is the real one, this system wouldn’t work. If anyone could proclaim

himself an author of someone else’s work, the system would cease to wok – just because the

signaling effect wouldn’t say anything about the “author’s” abilities. But this is definitely not

the only reason. It seems, that there act some other factors, like the sense of justice - the clear

provision that no one should proclaim himself an author of someone’s work – just because it

is immoral 7 .

All of these factors together are closely linked with author’s motivation to produce and

exchange his work efforts on the respective market - and thus making this system work

effectively.

Listening the proponents of intellectual property protection, we would suppose that there will

be no respect to this link among the society (of academicians in this case) if there were no

formal institutions. But this is definitely not the case, as we see in reality. Of course,

copyright protection matters in this respective case, but it hasn’t been created to “regulate”

cooperation on this specific market and rule this type of exchange 8 . It just covers this area as

it is a segment of the market for “intangible goods”.

Copyright sets rules for use of other’s thoughts expressed in concrete form (the words

someone has already written). But the anti-plagiarist norm we observe in reality is much

broader in certain respect (as it protects also the thought itself no matter how has it been

codified or has it been codified at all), but narrower in other (it does not impose a ban on

preparing physical copies of the manuscript).

There is a very strong rule among the “market players” that no one shall declare himself an

author of someone other’s work – no matter how large part of someone else’s work has he

“stolen” – be it a sentence, whole study or the thought itself. In other words, this norm states

that no one shall break the line between the author and his work. Infringement of this rule is

what we call plagiarism.

To make a conclusion – it seems, that there is a strong informal institution stating that the

result of one’s intellectual effort should be respected and that this product (in a form of a

thought) should not be appropriated by someone else in the sense of braking the link between

7 Please note, that we do not claim here what is ethical or not based on our own argumentation. We just state,

that there is something like a sense of morale or justice among the society. We therefore do not incorporate

any ethical or normative judgments into our analysis and stay clearly value-free.

8 See following chapters describing the origin of copyright

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the author and his work or creating this link with a supposititious author. As a consequence

this rule is not much far away from the institution concerning tangible goods – private

property 9 . But it is not of much importance for us now whether we call it property or not.

What is important for us, is the existence of the described institution – the respect for

authorship.

This very strong informal institution is further specified in many other derived rules – formal

as well as informal. Among the formal rules one may find concrete academical rules on how

certain works may be used and definitely specification how to quote parts of someone else’s

works. Other important derived formal rules are standards for giving bibliographic references,

which specify how to give a reference on the work used by the author. The main purpose of

these rules is to enable standardization among community members all over the world and

thus lower operational costs of this system.

Enforcement of the institution

To make the institution work, it must be actively enforced as it is not self-enforcing. The

reason is that in this type of exchange it is likely that opportunist non-cooperative behavior

will occur. But it is in the very interest of all participants that all of them play cooperative

games. The explanation may be demonstrated using the game theory.

vězňovo dilema

What makes the difference between the informal anti-plagiarist norm and copyright is the way

the institution is enforced. In case of the former there is no need for third party (with coercive

power) enforcement. This institution is enforced by the community, which has developed

effective instruments to penalize those who infringe it.

These instruments may take several forms of ostracism, abhorrence or shame – all of them

meaning loss of infringer’s personal credit. This credit is usually the primary goal of

academicians as it is the basic condition making the above described business model work.

The loss of this credit directly results in loss of potential gains from the business model – as it

can’t work anymore. Even if the offenders are allowed to go on their career (the punishment is

not absolute), they definitely lose part of their potential profits as they are not that trustworthy

9 It seems that this is what might be called „intellectual property“. Or better this might probably be the

broadest form of it. But it is not the purpose of this paper to find a definition or a border of intellectual

property as it needs much more attention and much deeper analysis that is behind the scope of this paper.

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partners as they would be if they didn’t break the rule. The decision on how severe the

punishment will be is usually made by the community and is based on (and corresponds with)

the severity of the offence. In this respect we may suggest that this punishment is effective.

In its result, the punishment for breaking this anti-plagiarist norm can influence the offender

much more than any punishment resulting from copyright infringement. First, as Stearns

(1992, p. 521-525) states in her analysis of plagiarism and copyright protection, certain

plagiarist acts cannot be judged based on the copyright protection. Second, the penalty (in the

form of credit loss) may be much more severe than the one for breaking the copyright

protection (which will usually take the form of some damages payment to the plaintiff, a ban

to declare the work as one’s own product or imprisonment in some extreme cases 10 ). All of

this means that there is no strict need for the institution of copyright here.

The enforcement is inevitably associated with certain costs. The first category of costs is

connected with the detection of plagiarism. New technologies (IT) significantly decrease

these costs as it becomes much easier to discover the act of plagiarism 11 . It becomes possible

to search for whole parts of text in real time, among thousands or millions of documents. This

can be made either by public services (like Google), special databases (like JSTOR or

Proquest), or many other special programs. One gets direct access to full texts of papers, may

search among them using keywords or even whole phrases. This is what makes the system

work more efficiently.

Most of the papers (which contain the codified thoughts) are peer-reviewed before being

published (at least in renowned periodicals – which is actually the goal of most academicians

to have their papers published there). This is the first filter that should reveal (among others)

the act of plagiarism. But even if it fails, the paper is usually further discussed within the

community, which represents the second filter as the act of plagiarism is very sensitively

perceived.

The second type of costs results from the need to distribute the information on revealed act of

plagiarism. This is quite fast and effective as the community is closely connected. Of course,

10 Which is however not very common in this kind of offence. It always depends on concrete country’s

legislation.

11 In this case it seems that new technologies enable better enactment of anti-plagiarism norm. This strictly

opposes the common narrow view that new technologies impose some kind of pressure on IP protection and

entail the need for further broadening of IP “protection”. As we see here – as long as the institution is not

artificial, this kind of development helps the enforcement of anti - plagiarist norm.

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new technologies play a significant role here as well as the transmission the information

becomes very fast and effective. This is what makes the punishment come quickly.

Finally there are costs of punishing the offender. There may be certain losses of not

cooperating with the offender as he still may be an expert in other areas of research.

All the three types of costs described above are usually significant and must be taken into

account. But as these costs are being born by the community members (we see in reality that

the action of revealing and punishment is generally realized), it seems that the costs are

viewed as appropriate and are expended voluntarily. The reason is that the benefits resulting

from knowing that the institution is respected (and that all participants play a cooperative

game) is higher than the costs.

But why does this work? The game theory would suppose that there will be significant

motivation for the participants to free-ride on the community (not to bear the costs). Then, as

a result, the system would cease to work. But this doesn’t seem to be the case as most of the

scholars are aware of the importance of the norm and invest into (bear the costs of) revealing

and punishing plagiarism. This is probably where other institutions come into account and

help to overcome the free-rider problem. As Stearns (1992, p. 519) points out “[p]eople

despise plagiarism … because it is a form of cheating“. This means that this behavior is

perceived to be wrong, not fair, and it is worth for the participants (it is something like their

moral obligation) to punish such a behavior – to bear the costs and take part in the process. So

it looks like there was another institution helping the enforcement the anti-plagiarist norm.

Let’s call this institution “justice” without giving it a precise definition (as we do not need it

now). 12 As Voigt (2008, p. 26) shows, this may be a very strong motivator. It makes the

participants bear the costs of enforcing the derived institution and realize benefits (even if

intrinsic) from the superior one. This demonstrates the strength of the superior institution.

The enforcement of the derived institution thus works efficiently. High number of participants

involved and new technologies enabling fast and effective search as well as access to many

texts online, they all increase the probability of plagiarist act discovery. The community is

also capable of imposing serious punishment on the offender. This all makes the cost of

plagiarist act rise – so the costs (and profits subsequently) make plagiarism less attractive.

12 Because what is important for us has already been shown – it makes the participants conduct certain type of

behavior and bear costs of which there is no concrete measurable benefit for them.

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This is what makes the participants play cooperative games and thus makes the described

system (and derived business models) work.

Of course, the copyright institution matters here as well (the part being called “moral rights”),

but as we have shown, it is not inevitable for the system to work. Moreover it seems that the

anti-plagiarist norm (and its enforcement) is what helps the copyright being a respected norm

as it seems its “moral” part 13 is in accordance with the anti-plagiarist norm. In certain

respective point of view these two norms intersect, the former reinforcing the later. However

there is a question, whether the copyright would be a respected norm if there was no informal

anti-plagiarist norm.

We have shown that there is no strict need for any special formal (external) institution on this

market, just because the community created its own institution and is capable its effective

enforcement. This means that introducing any external formal institutions would be

ineffective wasting of scarce resources. However as we have already mentioned, copyright

hasn’t been introduced to regulate this segment of market and described type of exchange, it

just somehow overlaps here. But the important point here is that the informal anti-plagiarist

institution cannot therefore be used as a justification of a broader norm of copyright, including

the “economic rights” part.

We have instinctively shown that there exists a whole structure of institutions, which

sometimes intersect (horizontal level) and sometimes one is derivative to a superior one. In

this case the superior usually helps the enforcement of the derivative one.

Struktura institucí

Impersonal Exchange “Without Community” – Case for Copyrights?

We have so far analyzed a model with strong need for the preservation of the link between the

author and his work – called authorship. This case hasn’t been chosen by coincidence.

Academic world is strongly dependent on the respect towards the authorship. And we have

shown, that this world can and undoubtedly does effectively operate without need of

copyright or any other similar institution. But we must not forget that there is one necessary

condition making this system work – this is the community.

13

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It is the absence of such a community that is often used as an argument for need of formal

institutions with third party (with coercive power) enforcement 14 . The reason is that not being

there the community to enact the institution, there must be someone else to enact it as

otherwise the institution wouldn’t be respected and opportunist behavior would be

widespread. This would then destroy the potential for exchange and thus limit the welfare of

the society. This should be the reason why there is the demand for formal institutions and

third party enforcement (typically by the state) as it allows the participants of the exchange

play cooperative games and thus appropriate the benefits of the exchange. There is no reason

to doubt that there are certain situations where the demand for such type of institutions and

enforcement is present and the third – party enforcement is desirable. This means that there

might be a need for wide copyright protection of the authorship and related enforcement by

the state. But we have to analyze this situation very carefully, as many of the traditional

examples (used as a proof of the need for copyright) do not seem to lack the factor of

community (at least potential).

As North (1991, p. 35) suggests, even in this type of exchange usually the norms and ideology

matter 15 and have significant impact on participants. In many cases it is hard to imagine that

there were no community that would matter in the respective market segments for intellectual

property. Take the example of motion pictures, music, or literature industry. Are these really

markets without any community ties? Definitely not. There are usually quite strong industries’

trade associations 16 , colleagues, leaders within the industry, and last but not least, critics. All

of these constitute such a community having strong influence on participants’ credit within

the industry. Observing the reality this seems to be the case. Stearns (1992, p. 518) states that:

“… modern writers observe a code of behavior that differentiates the acceptable from the

unacceptable…” – in other words: what may be called plagiarism and what may be not. It

seems that, should there be an institution saying that plagiarism is bad, this community should

be capable of enforcing it. From time to time we may read about authors who plagiarize and

consequent critique usually discrediting the “author” 17 . All of this has an impact on

14 For more detailed information see North (1991)

15 This is perfectly compatible with our model of structure of institutions described above

16 Like e.g. the Recording Industry Association of America ("RIAA") and the Motion Picture Association of

America ("MPAA"), and so forth

17 Stearnss gives here an example of F. Scott Fitzgerald sending a contrite letter to Willa Cather to explain “an

instance of apparent plagiarism” after finding that he has included into The Great Gatsby a passage similar to

Cather’s earlier A Lost Lady. She continues with other Fitzgerald’s letter accusing John Steinbeck for being a

cagey cribber for stealing whole scenes from other authors.

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plagiarizing authors’ credit and may have similar impact for their lives (and potentially also

their earnings – depending on their business model).

Observing reality, it seems that there is also present the anti-plagiarist norm at this market and

that there is a community that may enforce it. Of course, an objection may be that the

enforcement may be not that strong here, as for example in the case of scientific writing. But

the reason, in case that there is present the community with coercive power may be that there

is not such a strict need for this norm. But being the enforcement stronger or more lax, the

anti-plagiarist norm is present among the authors. As a minimum, a cribber won’t be probably

ever considered a respected or even admired author 18 - which motivates the authors to follow

the institution. As we will see in the last part of this paper, there are much more examples of

such communities enforcing certain rules created among its members. It seems like there is

usually a community to enforce the institutions as long as it is necessary.

The described anti-plagiarist institution is not opposed to the moral part of copyright. On the

contrary, this norm is somehow incorporated in the institution of copyright. But why do we

need copyright than, as there will be a community to enforce the institution as long as it is

needed? There may be two reasons. First, copyright has been created as a logical (and

lawfully formal) extension of the informal anti-plagiarist institution to lower the costs of

enforcing the institution and let it work also in those cases where community enforcement

fails. Second, it should serve some special purposes to those who have introduced it and have

political power to maintain it.

The Origins of Copyright

Let us examine the first argument. Looking into history, we won’t find many historical cases

of existence of similar institution as copyright. For all the long centuries the artists’ business

models worked without such a special formal institution. But still, there has been some

respect for authorship and faulty (wrongful) copying was denounced. And the system worked.

The authors earned for living.

But then a change came. In England of 16 th century we may find an institution called

copyright. The match in the name of the institution is not a coincidence – this case is

18 Please note, that there is a line between what is considered to be plagiarism – this is the “unfair use”. This is

the reason why Plato, Homer, Dante, Boccaccio, Shakespeare and many others are not considered to be

plagiarists – as what they did is perceived as fair use (they transformed already existing works into new ones

bringing new artistic value)

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generally known as the origin of copyright. But, the reason to introduce this norm wasn’t to

incorporate an informal anti-plagiarist norm into the law. The reason was by contrast the need

to control printing of books and spread of thoughts! Since the mid 1400s the number of

printers was increasing and the competition was severe as the supply of books outstripped the

demand 19 . But it wasn’t an organized action of the publishers to introduce the copyright, it

was the King of England. The main purpose was to control and prevent publications

challenging the King and the Church. It was Henry VIII. to introduce this “protection” to

protect himself. He used the already existing Stationers’ company 20 for this purpose. The right

to produce books (copyright) was only granted to those books registered at this company. All

the publishers as well as the importers of books to England had to be registered at this

company. In return they obtained a monopoly 21 on book publishing over the England. The

company enjoyed this monopoly for long decades. What is important, under this system of

copyright the authors weren’t recognized. This norm did not give them any special rights.

Than in the fall of 17 th century the power of the Company was decreasing. This was the time

when the monopolists mobilized and did everything possible to renew their excessive power.

Their strategy was quite brilliant and modern even from today’s point of view. One certain

aspect must be recognized. This was the first time when “authors’ rights” counts. As Palmer

(1989, p. 269) states:

“Buried among six economic reasons offered, including overproduction,

underproduction, “confusion” and risk, securing the livelihood of the Stationers’

families, and preference of domestic products over imports, were found the

following words: “Fourthly, Community as it discourages stationers, so it is a

great discouragement to the authors of books also; many men’s studies carry no

other profit or recompense with them, but the benefit of their copies; and if this be

taken away, many pieces of great worth and excellence will be strangled in the

womb, or never conceived at all for the future.” 22

It might seem that the situation when the Stationer’s Company realized monopoly profits

resulting from their copyright privilege, brought benefits to the authors. But this is not true as

Wittenberg (1978, p. 24 – 27) notes that the authors had that little bargaining power compared

19 For more details and resources, see Stearnss (1991)

20 Established in 1403 in London as an organization of book producers, illuminators and book sellers.

21 This was confirmed by granting the Stationer’s company the Royal Charter in 1557.

22 Vnitřní citace

14


to the publishers and booksellers that they had to accept any price the publishers were willing

to pay them. So the ones to gain a profit from such a system were definitely the publishers and

booksellers (the monopolists), not the authors. As Palmer (1989, p. 269) quoting Kaplan

states:

I think it nearer the truth to say that publishers saw the tactical advantage of

putting forward authors’ interests together with their own, and this tactic produced

some effect on the tone of the statute.

Using this strategy of hiding real reasons behind some other noble ones worked. The Statute

of Ann was adopted in 1710. As Plant (1934, p. 178) writes:

“In the case of existing books, the Act gave the authors, or if they had transferred

their rights (which, of course, they almost invariably had) the then proprietors, the

sole right of printing them for twenty-one years and no longer. In the case of new

books, the author was given the sole right of printing them for fourteen years from

the date of publication, and, if then still living, for one further term of fourteen

years. The penalty for pirating was forfeiture and a fine of one penny per sheet, the

protection extending only to books registered at the Stationers’ Company.”

This bettered the position of the authors, but didn’t change much about the nature of

copyrighted books business, as it further let the publishers realize their monopoly profits. As

Plant (1934, p. 180) notes: “The traffic in “copyrights “of existing books was continued, as

though that Act had not been passed; […].“

This historical lesson shows us that the reason why copyright system evolved wasn’t to

protect the authors and any of their rights generally acknowledged within the society, but to

(i) control and censor literature, and (ii) to let certain parties (publishers and booksellers in

this case) realize monopoly profit. Their effort to keep this privilege granted by the state is a

beautiful example of rent-seeking.

We must not forget another historical lesson as the part of moral rights is closely connected

with origin of French copyright system (called droit d'auteur). It has been strongly influential

in development of international copyright system. It is based more on rights of the author than

“copyright” as it os understood under the Anglo-American law system. It consists of two main

parts: (i) moral rights (droits moraux) and (ii) proprietary (or economic) rights (droits

15


patrimoniaux). This structure has been also implemented in most countries by the Bern

convention 23 .

Other time, other place, similar reasons. That’s what might be said about implementation of

copyright in France. The system is strongly connected with the practice of printing patents

and royal privileges. The main aim of granting these privileges was the same as in the English

case – censorship. It was the early 1500s when books’ contents started to be controlled, which

corresponds with time when Luther’s books began to spread over France. As Pottinger (1958)

states, in these times all (religious and medicine) books had to be reviewed by universities.

Later, since 1566 when the Ordonance of Moulins was issued, books attacking individual

good reputation were forbidden and all books published had to be approved and include the

privilege and the great seal. In late 1500 the enforcement of censorship was placed on

Chancellor’s office instead of universities so as the state could get full control over it. As

Pottinger (1958, p. 59) states: "Nevertheless ... the government was never so much concerned

about looseness of morals as it was about freedom of thought."

What is interesting is the fact that it was argued that that author had no property in ideas or

texts as ideas were considered to be a gift from God. And the King as the representative of

God had the exclusive right to determine what could have been printed and by whom.

Similarly as in England, only the members of the royal guild of publishers could apply for a

"printing privilege". And the authors thus had to sell their works to the publishers if they

wanted to publish it.

This system was abandoned during the French Revolution when the Convention enacted new

legislation. The change made here was to create a clear link between the author and his work

to impose on him (and subsequently thw publishers) the liability for the thoughts contained in

his work (as a part of the fight against licentious ideas spreading along France.). At that

moment the limited duration of author’s rights (copyright) was introduced. After this term the

works entered public domain. This is where the rights of the authors come to the word.

During subsequent centuries the system evolved into the one we know today. The French

system consists of two basic parts. First - proprietary (economic) rights meaning that the

author has the right to authorize reproduction of his work (droit de reproduction) and its

public performance (droit de représentation). All of these should allow the author to gain

23 There have been some obstacles in implementing it into Anglo-American system of law – the right to the

author is granted automatically (no need for registration), recognition of author’s rights

16


profit by selling physical copies of the work. These rights are transferable to third parties and

there is time limit for these rights duration (70 years after author’s death). After this time the

work enters public domain, which means that it may be used without charge as long as the

link between the author and his work is kept (his name and the original title must be cited).

Second - moral rights are on the other hand perceived as an extension of author’s personality

(which is protected by certain moral rights). These rights guarantee the author respect to his

name, his status as an author, the right to decide on first publication of his work, and right to

prevent changes in his work. These rights are inalienable and perpetual 24 .

As we see, the argument that copyright was introduced as an act of extension of any formerly

preexistent institution within the society is not true. Its origination is connected with state

efforts for regulation and censorship. As a result, it created new, formerly non-existent

artificial business models relying upon selling physical copies of books. And based on the

potential devastation of these models (if there wasn’t the strong copyright) it has been

defended in history as well as today.

Lessons learned

We saw, that there was (and undoubtedly is) a respect towards the authorship (an antiplagiarist

norm) present within the society anytime it is inevitable for the system of exchange

to remain effective. Further, looking into history, it seems (in Palmer’s words) that there has

been a respect in the common law for the generally recognized author’s right to prevent

publication of his unpublished manuscript. Talking about modern copyright laws both of these

institutions constitute what we currently call moral rights. This part of copyright is thus

somehow backed by informal (and sometimes also some derived formal norms) already

present within the society. There is thus no major conflict among these institutions. This is the

reason why most of the critique doesn’t address this part of copyright. And of course, these

informal norms help to enact the moral rights formalized by copyright.

On the other hand, the part of “economic rights” consisting of the right to control physical

copying is the product of pure state interventionism - regulation (later prolonged by active

rent-seeking) and has no parallel in any similar informal institution within the society. There

was an attempt to prove that there is a parallel in common law for such a norm 25 , but it was

24 For more details see official English translation of French Copyright Code available at WIPO’s official website.

http://www.wipo.int/clea/en/text_html.jsp?lang=en&id=1610

25 See famous case Millar v. Taylor

17


quickly denied 26 a couple of years later. As Plant (1934, p. 180) shows, to claim the existence

of that institution was just another attempt of rent-seekers (London booksellers in this case) to

raise their monopolistic power. Palmer (1989, p. 271) quoting Abrams states that all the

“claims of precedent for any common law right to be founded on patents, privileges, Starchamber

decrees, and the bye laws of the Stationers’ Company; all of them the effects of the

grossest tyranny and Usurpation”.

It is the real opposite that seems to be true, as most people don’t seem to understand why it is

illegal to make physical copies for their friends or even themselves 27 . Taking into account the

strong efforts of the proponents of the copyright system to introduce an informal institution

saying that “piracy is wrong”, with minimal effect as we observe in reality, there must be

strong belief among the society that making a copy of a book, or a song is just and no one

should impose a ban on it.

In that case, significant resources must be expend to enforce the institution of copyright. In

situation when “economic rights” part of copyright is in conflict with a strong informal

institution within the society, the only way to enforce it is to use coercive power of the third

party. In this case the power of the subject with monopoly in this field – the state. As Pelikán

(2003, p. 5) has shown, the only way to consider the formal norms as legitimate is that they

must not be in conflict with the informal ones. This is because were this condition not

fulfilled, there will be the need for strong police state as people will not follow the formal

rule. And this is the point. The informal institutions determine how effective the formal ones

will be (North, 1991, p. 36.).

As North (1991, p. 16) has shown, the institutions are typically introduced by those having

power to do so – to let the institution serve them. Then the institution can find a way to be

used by the society to lower transaction costs of exchange. But this doesn’t seem to be the

case of “economic part” of copyright. Being opposed to strong informal institutions within the

society and thus prohibiting desired exchanges and needing substantial resources to be

enforced, it doesn’t seem we could say it lowers costs of exchange and is thus effective. The

truth is elsewhere. It is all the time the same institution as it used to be – a rule (a law)

granting a monopoly position to those who had power to introduce it. However, the

26

Donaldson v. Beckett.

27

18


monopolists try to hide their interests behind other, much nicer words like “authors’

protection” 28 or “property” 29 .

III.

Do we need copyright?

It might seem that there is no major contradiction between moral rights (constituting a part of

the copyright) and informal institutions like the respect for authorship or the author’s right to

make a decision to publish his work. But do we need copyright then? As we have shown, once

it is inevitable for exchange or building an effective business model, the society is usually

able to introduce an appropriate rule and to enforce it – remember the academic case.

Even if the economic rights (as a part of copyright) are proved to be an artificial institution

granting monopolies, we may find certain (even if limited) cases when similar, internal

institution was introduced by the market players in concrete industries to control others’

behavior. It was usually established as an extension of the copyright to make the artificial

business models work the same way even in those areas where copyright protection wasn’t

present. And it worked effectively (what is more important – more effectively than under the

copyright system). These models are typically based on cartel like behavior. But, opposed to

standard economic theory, it were their customers who benefitted from this - as we will see

further - as the norm was applied only against the competitors on the market.

The common argument to establish and keep the copyright in operation is that not all of the

market participants will follow any informal institution, which will finally make all of them

play non-cooperative games and thus make the system fail. The argument says, that anyone

could and also probably would copy works already existing without paying anything the

original author so that he won’t be able to pay his costs (to create the original). Thus there will

be no motivation for the author to invest into preparing the first copy and innovation would be

retarded. This should be the reason why a formal institution enforced by the state should be

established, as not being present the coercive power of the state, there wouldn’t be any other

power to enforce it.

But this argument evidently fails to correspond with reality as we know many cases where

business models similar to those under copyright system work even without it. We have

already shown that, in case of need, there will be a strong anti-plagiarist norm – an alternative

28

29

19


to moral rights. Now we will show an example of book market operation without copyright

protection (which is almost unimaginable to copyright proponents) – as an alternative to

economic rights, but with very different impact on the market.

As described by Plant (1934, p. 171), it was legal to reprint foreign books in the United States

during 19 th century for free (there was no possibility to claim copyright for English authors –

rozdíl oproti americkým autorům). In spite of this fact the American publishers found it

profitable to make arrangements with English authors. What made the publishers invest

money into something they could get for free? Firstly, it was the advantage to be the first in

the field with the book (this is sometimes called the first-mover advantage). Secondly,

according to Plant (1934, p. 172) quoting Professor John Tyndall, there was the “tacit

understanding among the larger publishers in America that the books published by one

should not be pirated by another“. This is what I guess might be called an alternative to

“economic rights”. All the market players, behaving like a cartel, notified the others on the

arrangements they made. But still, there were others who were not members of this “cartel”.

So, how could they enforce the norm and face the free-rider problem? The answer was given

by Plant (ibid.) again quoting professor Huxley:

“[…] the practice of all the great houses in America (there are some three or four

large publishing houses with very great capital), if anybody publishes one of their

books, is to publish a largely cheaper edition at any cost, and they would make any

pecuniary sacrifice rather than not cut out a rival.”

So we see that they developed instruments to enforce the norm. This gives us a counterargument

about the need of “economic rights”. But there is one very important point that has

also been presented:

“Yet, fourthly, perhaps the most important check on the rival publisher, whose

competing edition would in any case be late in the field, was the low-price policy

which the American publishers adopted. American editions might cost one-half as

much as the English issue; one quarter or even one-eighth of the English price was

very frequent. In such circumstances, the American public enjoyed cheap books, the

American publishers found their business profitable, and the English authors received

lump sums for their advance sheets and royalties on American sales.”

20


What we see is that even if acting like a cartel (which is itself nowadays usually presented as

objectionable), they were all making profit from such behavior – the authors and the

publishers as well as the buyers of cheap books. This all is an implication of the fact that even

if the publishers behaved like a cartel, there was still present the potential competition which

made the members of the cartel keep reasonable prices of the books 30 . This might be seen as

an effective market structure which created and effectively enforced an institution making the

system work.

It might seem that there is no difference therefore between the described model and

“economic rights” alleged by copyright and this could be thus accepted. But this is far from

the truth as copyright is a privilege granted by the state and is enforceable by the state. This

means that the effect making the books cheap is gone. There is no more the need to keep the

prices and profits on reasonable level as there is no potential substitute for the good. This is

why we can’t call this an alternative to what has been produced by the market. Copyright is

(as opposed to the cartel situation) the source of monopoly profits - enabled by the unbeatable

barrier on market entrance for potential competitors. Of course, this is the reason why the

existing publishers lob so strongly for the preservation and further broadening of the current

copyright system.

Let’s see another illuminating example of market operating without copyright protection –

this is the fashion industry. Its product (apparel design) is of strictly intangible nature, even if

connected with final product – clothes. But there is no significant difference from books, for

example. In spite of this fact, apparel design is not a subject to copyright protection, as it is

considered to be a piece of useful art which is not protectable 31 . Copying (plagiarism if you

want) has a long tradition within this sector and the standard free-rider problem seems to

matter here. This was the reason why participants on American fashion market created

“Fashion Originators’ Guild” in 1932. They just tried to establish an institution saying that

copying (plagiarism) is wrong and that no one should copy their apparel. It is the cartel

strategy described above that helped them enforce the norm. The cartel members signed a

declaration of cooperation with retailers, stating that the retailers will deal only with original

creations (produced by the cartel members). Non-compliant retailers were boycotted and

those cartel members cooperating with non-compliant retailers faced fines. The Guild also

30 This corresponds with Rotbard’s theory of cartels that might be found in Man, Economy and State, chapter

10, or subsequently Salin‘s (Cartels as Efficient Productive Structures), a contribution to is seeing cartels as

effective and stable market structures.

31 Under U.S. law

21


forced the retailers to boycott known copyists. As Raustiala and Springman (2006, p. 1697)

quoting Nurbhai state, the Guild was successful in policing the declaration as “in 1936 over

sixty percent of women's garments selling for more than $10.75 (approximately $145 in 2005

dollars) were sold by Guild members.”

There were more such examples, as Raustiala and Springman (2006, p. 1697) mention similar

cartel of women's hats designers. However both of these cartels were terminated by the

Federal Trade Commission in 1941 for unfair competition and braking the Sherman and

Clayton Acts.

What is quite surprising is the fact that the market players didn’t react by trying to cover their

business under copyright protection, which wouldn’t be too problematic as Raustiala and

Springman note. No other types of intellectual property protection (except for the trademarks

of course) are applicable here. Even if there has been a trade association called Council of

Fashion Designers of America, having certain political power, they never used this power to

extend the copyright protection to themselves. This state seems to be an equilibrium for the

last 50 years. Raustiala and Springman (2006) argue that the reason is that the participants

gain from copying. They state two reasons how this helps the industry and the players within:

(i) induced obsolence and (ii) anchoring - both of these effects being based on position status

of apparel design. Induced obsolence effect is explained by the existence of position-seekers

(people trying to show their status, their social position by) searching for new style of apparel.

These new styles (or designs) are usually prepared by a few high-end companies like Channel,

Gucci or Armani. These position seekers buy it (for high price). Then, as enough of them buy

it to be clear, that the style is a success (it is “cool”), other (cheaper) companies start to

produce the copies. Later, as there are more people wearing the respective style of apparel, it

is no more interesting for the position seekers who try to find something new. So they create a

demand for new style that is subsequently supplied by the high-end companies again. This

way copying accelerates the design cycle. There are advantages for all – customers (more of

them are able to buy style designed apparel for different prices (and quality)), high-end

companies (via position seekers’ accelerated design cycle), as well as many middle and lowend

companies gaining profit from copying the already successful design.

The second benefit is the Anchoring effect. Through copying, the companies create “trends”

every year – apparel design that has some common elements. And they use these trends to

communicate to the customers what is going to be trendy each season. This is thus used as a

22


communication medium from producers to customers. The customers then use this

information and buy appropriate new apparel to stay “trendy”.

Plus no participant of the market never knows when he is a copyist as the fashion usually

turns back to what has already been developed and uses it again. These are the reasons why

members of this industry do not seek copyright protection at all.

In is also inspiring to observe the situation in Europe, where apparel design is protected by

law as well as EU directives. In some cases, the protection is even patent like (there is a

possibility to register apparel design which is consequently protected against similar apparel,

no matter is it a copy or not). In spite of this, the number of registered apparel design is

according to Raustiala and Springman (2006) very low and there are only very few law suits

on copyright infringement in apparel design 32 . Despite the strong nominal (formal) IP

protection, the system works in reality very similarly as in the U.S. as copying is absolutely

common.

This might be a lesson for us as we have to care not only for the nominal strength of IP

protection, but also its real impact, real respect and its actual use. One might say that in such

case, it doesn’t matter is there any copyright protection or not. But this is not true as we have

proved above and as we will see in the next case.

There are business lines that directly suffer from the actual system based on copyright

protection. One of the most interesting cases is probably the software industry. It is being

accepted that without strong IP protection there would be no incentives for companies to

invest in software development. The reason is still the same – the free rider problem, called

piracy here. This is the reason why software is protected by copyright and certain parts of it

are even protected by patents, especially in the United States. This is also supposed to be the

reason why the existing software companies try to intensify the protection as much as

possible.

But there is strict evidence, showing that this argument is false. This evidence is free software

of any kind (be it open source software or any other type of it). As I have shown elsewhere

(Ţdímal, 2007), there are companies as well as individuals developing software without

claiming any rights (copyright) in it. The already created software is being given to others for

32 One of the most famous is the case Societe Yves Saint Laurent Couture S.A. v. Societe Louis Dreyfus Retail

Mgmt. S.A., [1994] E.C.C. 512, 514 (Trib. Comm. (Paris)) ("YSL")

23


free. Then the others use it for any purposes including further elaboration of the original

software and its use in their own prepared programs. This the way the business model

accelerates innovation (as the second generation of innovation may be prepared faster and

with lower additional costs). All of this usually without claiming the former (original) authors.

This is what, not being there the tacit consent of the author, would be considered plagiarism

or piracy. According to the standard intellectual property justification, this should erode

authors’ incentives to invest into software development and thus retard innovation. As we see

in reality it is definitely not the case. This is because these business models are harmonious

with the products’ nature – easiness of copying. And the authors use it in the ways already

described above – signaling effect, advertisement, supporting their brand or complementarity

to other services or products 33 . Of course, there are many other benefits for the authors, that

have “psychological” background – like benefits from being part of the open source

community or doing the right thing as there seems to be a belief among these people, that

software shouldn’t be copyrighted. It is important to emphasize that free software is not a

small business – there are many big firms and free software has an important share on

software market.

So, it might look like everything was OK, as the business models described above work even

if there is the copyright protection present. It might be concluded that in spite of strong

nominal protection, its real use is low and there are thus no problems for these harmonious

business models resulting from copyright (similarly as it is in the fashion industry case). But

this statement would be too rash.

Observing the described market for free software we see that there is no major free-rider

problem there, as it works with the product as it is – the business models use the easiness of

copying for its own benefit. The actual source of the free-rider problem is the copyright

protection here. The free software business models stand as follows: anyone can use the

software any way he wants for free - build upon it his own software and keep it for himself or

give it to others, so that they can use it the same way. This is what we may call a cooperative

game, out of which all parties benefit as everything is based on free exchange. As long as

there is no copyright protection (or any similar type of intellectual property protection), there

is no tool for anyone to harm the market or existing business models. But once we have the

33 This model has also many other financial benefits as the others take part in testing of the software and

reporting bugs, that actually lowers costs to the producer.

24


copyright protection, one can use the free software, develop it and claim copyright on it. This

means that he does not give anything to the others in return (by not letting them benefit from

it). This is the way one can free-ride on the others – use their resources and give nothing back.

The copyright is thus itself the source of non-cooperative behavior 34 .

As we see, it is the copyright that can decrease incentives of those investing into software

development and retard innovation. To fight against it, the free software producers use the

copyright protection, which itself is a bit paradoxical point. The way they do it, is claiming

copyright on their product and giving permission for any use of it, except for selling its copies

for money or claim copyright protection on any software derived from it. This software is

sometimes called “copyleft software”. There are widely used standards in the form of licenses

that specify, what may be done with the software and what may not. One of the most famous

copyleft licence is GNU GPL.

Free software producers just try to avoid their software became proprietary. So they use the

institution of copyright to fight against it and thus enact the cooperative behavior in the sense

described above. So, the institution fails again to lower the costs of exchange as it is necessary

to those who do not want to use it, to defend themselves from those that try to play noncooperative

games (which are made possible by this institution). As we have seen, the

institution of copyright is itself the source of non-cooperative behavior.

This means that in certain cases it is not possible to tolerate the institution of copyright using

the argument that if it is not necessary and beneficial for the market players, they will not use

it (so that the real market practice will be far from the nominal one settled by the law). There

are cases when the copyright itself is the source of non-cooperative behavior (which it should

as an institution avoid) and makes the market players invest into enforcing behavior that

would be present on the market without the institution itself. It is therefore a source of

ineffectiveness.

34 We must not forget, that at the very beginning, all software was free and was intended to be free. The era of

proprietary software came later as software was separated from hardware and software producers were

searching for easy and profitable business models – copyright protection was a very logical step. So the

copyright is once again a source of artificial business model, based on which protection it is being advocated.

25


IV.

Limits of the theory

- Prostor pro fungování režimu s komunitou je evidentně širší než tvrdí proponenti C

systému

- Vynucování pravidel může být / bude (pakliže je to v zájmu zúčastněných stran)

prováděno komunitou

o Praxe ukazuje příklady relativně velkých odvětví, kdy to funguje (splňuje

Northovu definici)

- Svou roli hraje kartelové chování (které je ale v důsledku méně škodlivé pro klienta, než

umělý monopol)

- V některých případech ale skutečně k vynucování nedojde – komunita nebude existovat /

nebude schopna se zkoordinovat a vynucovat

o Z důvodu selhání koordinačního mechanismu (pak může mít C prostor – to je

potřeba prověřit dále)

o Z důvodu státního zásahu – např. potlačování kartelového chování (pak je

potřeba zvážit, zda je kartelové chování skutečně škodlivé)

- To, že vynucování selže, ještě neznamená, že je třeba zavést C

o Ukazuje se, že i když C ochrana nefunguje, může dané odvětví fungovat i dále…

Byznys modely jsou pak postaveny jinak

- Také ale nelze na základě toho říci, že zavedení C je škodlivé

o Pak je ale problém najít hranici, protože při univerzální aplikaci té instituce

mohou jiné systémy, do té doby fungující v souladu s neexistencí normy, přestat

fungovat – jejich majitelé jsou přímo poškozeni

V. Conclusion

We have proved that there are certain informal institutions within the society, protecting the

link between work and its author. The act of infringement of these norms is a severe offence,

usually called plagiarism. Once it is necessary (or perceived as just), the society is usually

able to enforce the respect towards these norms. There are several other derived as well as

superior norms (creating a whole structure of the norms) specifying the anti-plagiarist norm or

helping its enforcement. We also observe pre-copyright existence of author’s right to decide

on publishing his work. As these two rules create an important part of copyright, called

“moral rights”, there is no sharp contradiction between these two norms. This is the reason,

why most of the critics on copyright don’t address this part of it.

On the contrary, there is no historical or informal parallel for the “economic rights” part of

copyright – the ban on preparing physical copies of the work while preserving the link

26


etween the work and its author. As we have proved, the origination of copyright was not a

case of any formerly preexistent informal institution formalization, but a pure act of

regulation. Later it was preserved as a result of strong rent-seeking action of those who

became monopolists on book publishing. Since then, copyright has been advocated on the

ground of preserving the artificial business models, made possible by the institution itself.

And this is the way is has been advocated till these days. It seems there is no informal

institution stating, that physical copying of others’ works is bad. Despite monopolists’ strong

efforts to establish such a norm among the society and their failure to do so, it seems more

likely, that there is a strong belief within the society, that such a ban should not exist. Thus

what we observe here is a major contradiction between informal institutions among the

society and the “economic rights” part of the formal institution of copyright. Or at least, there

is no informal institution that would correspond with copyright and help its enforcement. This

is the reason why the “economic” part of copyright does not seem to be accepted among the

society, its infringement is omnipresent and is not, by most of the society, perceived as a

crime.

Subsequently we have analyzed the necessity of copyright to rule the exchange. We have

proved, that there is usually a community capable of enforcing similar institutions once it is

necessary for effective business models to evolve. This erodes the argument that copyright is

necessary to let the market players play cooperative games and let them realize profit from

this cooperative behavior as the area where informal institutions are applicable is much

broader that usually presented. Based on the example of book publishing and apparel design,

we have proved that that there is no strict need for a formal institution with third party

enforcement. The historical example of book publishing has also shown us, how the market

may work without the copyright protection at all. Even if it was only an extension of the

existing business model using copyright to those areas where copyright protection wasn’t

applicable (so that the market players did not have to change their already working business

models based on copyright protection 35 ), we have shown that the cartel like behavior of

producers may let them realize similar business model as under copyright. But there is one

major difference in this case as the potential competition for the cartel members is always

present. And that makes them keep competitive prices. As its result, the customers benefit

from it as compared to the situation under copyright protection - which is a pure state

35 This point is very important, because we cannot use it as a historical, self-evolved parallel for „economic

rights“ part of copyright.

27


monopoly privilege excluding all potential competitors and letting the publishers raise their

prices. And this is, of course, the reason why the existing monopolists seek copyright

protection, as it makes it possible to raise their profits.

We have also presented an inspiring example of fashion and apparel design, showing that

copying may be in certain cases very desirable for the industry as its members can use the

basic feature of intangible products – easiness to copy – for their own benefit. We have

proved, that the copyright proponents’ argumentation, saying that the act of copying will

erode authors’ motivation to invest into intangible goods production, is false. We have also

shown an important characteristic of legal environment as there may be a significant

contradiction between nominal strength of law protection and its real use and respect for it.

But, we have also proved that we cannot accept copyright protection based on this fact, as it

directly harms some of the market players and is itself a source of non-cooperative behavior

and ineffectiveness - and thus fails as an institution. This fact has been demonstrated on the

business line of free software that directly suffers from copyright existence. The reason is

simple. The players on the free software market have their business models developed in

accordance with product’s nature and use it in accordance with it. There is no way for

anybody to play non-cooperative games as long as there is no copyright protection. But once

this protection is established, opportunist behavior becomes possible. It is then possible to

free-ride on the others – use their resources in one’s own monopolistic business models. This

is why the free software producers have to fight against such a behavior, enabled by

copyright. The paradoxical point is that they use the copyright to fight against copyright. This

is the reason why this institution fails in its function to lower transaction costs of exchange.

28


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