All Commentary
Friday, November 1, 1996

Home, Home on the Internet

How Do We Define and Protect Property in an Elusive Commodity Like Information?

Dr. Boustead, who recently received his doctorate in economics, is interested in law and economics.

Sometimes, all you really need is a better fence. While that advice seems sensible for an 1880s cattle rancher, it might appear less relevant to a pioneer on a novel frontier like today’s Internet. After all, straying cattle hardly compare to the data so cleverly routed over the Internet. And rusting barbed wire scarcely resembles modern fiber optics. Still, barriers and fences, even if composed of algorithms rather than steel strands or wooden rails, have a part to play in the evolution of the Internet—a role based in the economic nature of the Internet and the often subtle relationship between well defined private property and economic activity.

The Internet’s potential for a commerce in information has generated much excitement. If all goes right, the Internet will be a marvelous 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 property 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 incentives to create products stifled by free ridership or throttled by theft. Here then is the 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 rangeland prevented overgrazing or the intermingling of herds. But with time, herds grew and ranchers confronted the need to insure adequate pasturage and to prevent theft or unwanted 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 property rights while the growth of cooperative associations had lessened the cost of resorting to legal institutions.

As so often happens, legislation didn’t 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 provided 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 government report, Intellectual Property and the National Information Infrastructure (the report).[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 electronic information infrastructure would be a marketplace for the exchange of information. Here, some buyers shop for works of art, music, literature, or multimedia. Others purchase 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. Conceived this way, systems for protecting intellectual property are as important for protecting the investments of information producers as earlier systems were for protecting 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 producing 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 property 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 challenges, 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 protecting property in information on the Internet is that copyright law is not self-enforcing. For some, the law’s moral force doesn’t compel. Information producers themselves must detect and sanction infringing copiers. That prospect doesn’t promise to be easy; it’s largely compromised by advancing technology 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 discourage 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 property rights resides in the subtleties of incentives. 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 ranchers did in the 1880s. Legal sanction will protect their investment in creating information, 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 will be computer codes.

Superficially, the Internet operates somewhat like the familiar telephone system. It links an information source or server computer 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 services, such as America Online and the Microsoft 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 individual sites on the Internet require passwords for access so as to limit access to authorized users.

Encryption technologies will also play an important role in protecting property. Through encryption of information, unauthorized interception of authorized transmissions can be prevented. Encryption technologies now under development would focus specifically on thwarting copiers. Some of these technologies would forestall unauthorized copying and downloading; other technologies would provide hidden, digital `watermarks’ 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 will make the same investment since each faces a different profit equation. Much information will continue to be provided for free either because it represents advertising or because the producer (for example, a fan club or a university library) wishes simply to offer it. Other suppliers 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 highly valuable 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.

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.