Exchanging Information without Intellectual Property

By Burstein, Michael J. | Texas Law Review, December 1, 2012 | Go to article overview

Exchanging Information without Intellectual Property


Burstein, Michael J., Texas Law Review


Contracting over information is notoriously difficult. Nearly fifty years ago, Kenneth Arrow articulated a "fundamental paradox" that arises when two parties try to exchange information. To complete such a transaction, the buyer of information must be able to place a value on the information. But once the seller discloses the information, the buyer can take it without paying. The conventional solution to this disclosure paradox is intellectual property. If the information is protected by a patent or a copyright, then the seller can disclose the information free in the knowledge that the buyer can be enjoined against making, using, or selling it without permission. This account of information exchange forms the basis for an increasingly popular argument in favor of strong and broad intellectual property rights for the purpose of overcoming the disclosure paradox and thereby facilitating the development and commercialization of ideas.

That argument, however, rests on assumptions about the nature of information that are neither theoretically nor empirically justified. This Article explains that, contrary to the conventional account of the disclosure paradox, information is not always nonexcludable and is not always a homogeneous asset. Instead, information is complex and multifaceted, subject to some inherent limitations but also manipulable by its holders. These characteristics give rise to a range of strategies for engaging in information exchange, of which intellectual property is only one. Information holders can use the characteristics of information itself as well as contractual and norms-based mechanisms and other legal or business strategies to achieve exchange. And examples drawn from fields as diverse and disparate as software and biotechnology show that entrepreneurs and inventors use these strategies alone or in combination to effectively link their ideas with capital and development skills, often without intellectual property appearing to play a significant role in the transaction.

Intellectual property is therefore not necessary to promote robust markets for information and is, in fact, just as contingent and context-specific a solution to the paradox as the alternatives described here. At the very least, then, there is reason to doubt that commercialization theories founded upon information exchange provide a stand-alone justification for intellectual property. This Article urges caution in policy interventions that seek to respond to the disclosure paradox and sets the stage for future empirical research to better understand the dynamics of information-exchange strategies and the social welfare costs and benefits that may accompany them.

Introduction

Contracting over information is notoriously difficult. Fifty years ago, Kenneth Arrow articulated a "fundamental paradox" that arises when two parties try to exchange information.1 In order to complete such a transaction, the buyer of information must be able to place a value on the information and determine how much she is willing to pay.2 But once the seller discloses the information, the buyer is in possession of the subject of the trade and no longer has any reason to pay for it.3 This problem has come to be known as the "disclosure paradox" or the "information paradox."4 The conventional legal solution to the paradox is a grant of intellectual property rights.5 If information is subject to a patent or a copyright, then it can be disclosed without fear that it will be taken without compensation. Any potential buyer who tries to make, use, or sell the information without permission can be enjoined against doing so through legal process.6

This account of information exchange forms the basis for an increasingly popular argument in favor of broad and strong intellectual property rights. That argument proceeds roughly as follows: Exchanging information is critical to innovation because the initial act of creation or invention is only the first step in bringing a product to market.

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Exchanging Information without Intellectual Property
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