Home, Home on the Internet; R. Boustead

The Internet's potential for a commerce in information has generated much excitement. If all goes right, the Internet will be a mar velous marketplace. But will all go right? Accustomed as we are to well functioning markets, we're tempted to presume success for the Internet. Yet market exchange doesn't just happen. To bring a product to market, sellers need the protection granted by prop erty rights. Simply stated, a property right is an owner's freedom to use, improve, or deal in his or her property with only such interference as the law allows. The protection of property rights permits owners to invest their time and capital in productive activities. Without property rights, markets become precarious: the incen tives to create products stifled by free rider ship or throttled by theft. Here then is the Dr. Boustead, who recently received his doctorate in economics, is interested in law and economics.

quandary for the Internet: how to define and protect property in an elusive commodity like information? A little history lesson might help. Fencing the Open Range The trade in elusive commodities predates the Internet. For example, nineteenth century ranchers in the open-range areas of the American West faced the problem of wandering cattle. 1 Initially, this problem was minimal: the sheer abundance of open range land prevented overgrazing or the intermin gling of herds. But with time, herds grew and ranchers confronted the need to insure ade quate pasturage and to prevent theft or un wanted interbreeding of their stock. Their solution involved the creation of systems for protecting their property. These protective systems focused not only on legal sanctions but also on alternatives to law, such as the restraints of custom and the technology of self-protection. Initially, rights to certain rangeland could be asserted by notice to others. While not supported in law, these range rights garnered an amount of respect through the force of local custom.

Eventually, as herds increased, rights to rangelands were formalized by statute, in part because cattleman associations effectively supported such legislation.2 In effect, the larger herds had increased the value of prop erty rights while the growth of cooperative associations had lessened the cost of resorting to legal institutions. As so often happens, legislation didn't 721 722 THE FREEMAN • NOVEMBER 1996 completely solve the problem. Most of the cattle failed to read the law, and continued to stray. Not satisfied, the ranchers turned to improved methods of self-protecting their property. Now if cattle can't understand laws, they do understand fences. Ranchers also understand fences, and more to the point, they understand the economics of fences. On the prairies, where the scarcity of trees makes wooden rails expensive, traditional rail fences made little sense. Ranchers needed an alternative, and the appreciation in herd values provided an incentive to seek out new and improved materials. Technology pro vided an assist as the development of cheap barbed wire offered a cost-effective means of encloSing cattle.3 With it, ranchers were able to control and protect their property.

Updating Intellectual Property Law, a Little The lessons of fencing the range live on in such unexpected places as a recent govern ment report, Intellectual Property and the National Information Infrastructure ("the re port").4 While it focuses on how to modify intellectual property laws for the developing "Information Superhighway," the report also highlights the continuing vitality of diverse systems for the protection of property. The term "Information Superhighway" conjures up images of some vast, electronic freeway. But a better metaphor for this elec tronic information infrastructure would be a marketplace for the exchange of information. Here, some buyers shop for works of art, music, literature, or multimedia. Others pur chase electronic newspapers, scholarly works, databases, and software as inputs into their own production. In all of these diverse forms, information is just a product: constructed, owned, sold, and bought like any other. Con ceived this way, systems for protecting in tellectual property are as important for pro tecting the investments of information producers as earlier systems were for protect ing the open-range ranchers of the 1880s.

They are needed to provide incentives to bring the product to market. The issue for the Internet is how to keep unauthorized copiers out rather than how to fence cattle in. This concern arises from the somewhat unusual costs involved in pro ducing and copying information. A copier avoids the fixed costs of original production, for example, of writing a poem or compiling a database. So the copier can offer to sell copies at a price below that necessary for the producer to recoup the costs of origination. Faced with a copier able to free-ride, the producer may have little or no incentive to create information in the first place. To create incentives, the intellectual prop erty law of copyright grants the producer an exclusive right to reproduce the copyrighted work and to prepare derivative works based on it.5 Wisely, the report proposes only modest changes to current copyright laws-primarily clarifying that a digital transmission over the Internet constitutes a distribution subject to copyright. Current copyright laws have plenty of flexibility. Judges can tailor and stretch existing law as technology offers new chal lenges, as it will on the rapidly evolving Internet. Rather than accommodate new technology, massive new legislation might prove a hindrance. It could deprive judges of the body of precedent so necessary to a flexible interpretation of existing law.

Try as it might, however, copyright law simply cannot afford perfect protection to Internet information producers even if it wanted to. The most basic difficulty with a purely legal answer to the problem of pro tecting property in information on the Inter net is that copyright law is not self-enforcing. For some, the law's moral force doesn't com pel. Information producers themselves must detect and sanction infringing copiers. That prospect doesn't promise to be easy; it's largely compromised by advancing technol ogy and the explosive growth of the Internet. Each day new sites populate the Internet, and the information content of existing sites changes. Despite the efforts of information providers, monitoring even a significant fraction of these sites for copyright violations can prove daunting. 6 Rational copiers will increasingly discount the law as the likelihood of legal sanction declines.

Fencing Cyberspace Foretelling the Internet's future would dis courage almost any soothsayer. Still, some hint can be gleaned by focusing on property rights. In elusive ways, the passion to protect property can sculpt a landscape as it did when the fences appeared on the open ranges. By themselves, a few strands of wire stretched over miles and miles of rangeland would hardly seem powerful. But the force of prop erty rights resides in the subtleties of incen tives. With the fences came greater rewards from investing in cattle and so more cattle, larger towns to service the cattle ranches, and more railroads. With the fences came progress for many and change for all. Information suppliers on today's Internet face much the same problem as cattle ranch ers did in the 1880s. Legal sanction will protect their investment in creating informa tion, but not entirely. For added protection, information suppliers will also build fences although fences of a different sort. Instead of barbed wire, the fences on the Internet willbe computer codes.

Superficially, the Internet operates some what like the familiar telephone system. It links an information source or "server" com puter to a user's computer through a system of leased telephone lines. But unlike the telephone system, a linkage on the Internet has no continuous connection. Instead, a system of protocols breaks the information into packets and ships the packets along various routes from the server to their final destination. Along the way, computers called "routers" direct the packets on their trip through cyberspace. Later the packets are reassembled into usable information. 7 One place to build fences will be at the server level.8 Already, familiar on-line ser vices, such as America Online and the Mi crosoft Network, require user names and passwords to access their service. Access can then be limited to authorized users who pay for the information. Likewise, many individ ual sites on the Internet require passwords for access so as to limit access to authorized users.

Encryption technologies will also play an HOME, HOME ON THE INTERNET 723 important role in protecting property. Through encryption of information, unautho rized interception of authorized transmis sions can be prevented. Encryption technol ogies now under development would focus specifically on thwarting copiers. Some of these technologies would forestall unautho rized copying and downloading; other tech nologies would "provide hidden, digital 'wa termarks' that automatically become part of a file and enable providers to identify all users.,,9 Ultimately, each information supplier will face a choice-how much to invest in digital fences? Clearly, not all suppliers willmake the same investment since each faces a different profit equation. Much information will con tinue to be provided for free either because it represents advertising or because the pro ducer (for example, a fan club or a university library) wishes simply to offer it. Other sup pliers will build low fences or will rely on the no-trespassing signs of copyright law. For these, the commercial value of information they have available for sale will not justify large expenditures in thwarting copiers. But for some, especially those with highlyvaluable information, expenditures on protecting their information will be worth it. Here the digital fences will be the highest.

The future of the Internet will not be an entirely open range. There's just too much potential for creating value. People will seize that potential and then build fences to protect it. Unsightly, perhaps, but greater value from the Internet will be gained. 0 1. Terry L. Anderson and Donald R. Leal, Free Market Environmentalism (San Francisco: Pacific Research Institute for Public Policy, 1991), pp. 26-34. 2. Ibid., pp. 28-29. 3. Ibid., p. 29. 4. Bruce A. Lehman, Intellectual Property and the National Information Infrastructure, The Report of the Working Group on Intellectual Property Rights, Information Infrastructure Task Force, Sept. 1995. 5. 17 U.S. Code Sec. 106. 6. Doreen Carvajal, "Book Publishers Worry about Threat of Internet," New York Times, March 18, 1996, p. 1. 7. IPNII, pp. 179-182. 8. Ibid., pp. 183-185. 9. Robert L. Jacobson, "Internet Tools Designed to Block Unauthorized Use of Copyrighted Works," The Chronicle of Higher Education, March 22,1996, p. A23.