Part 26 (1/2)

I was not always opposed to intellectual property rights over data. Indeed, in a book written before the enactment of the Database Directive, I said that there was a respectable economic argument that such protection might be warranted and that we needed research on the issue.5 Unfortunately, Europe got the right without the research. The facts are now in. If the European Database Directive were a drug, the government would be pulling it from the market until its efficacy and harmfulness could be rea.s.sessed. At the very least, the Commission needed a detailed empirical review of the directive's effects, and needs to adjust the directive's definitions and fine-tune its limitations. But there is a second lesson. There is more discussion of the empirical economic effects of the Database Directive in this chapter than in the six-hundred-page review of the directive that the European Commission paid a private company to conduct, and which was the first official doc.u.ment to consider the issue.

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That seemed to me and to many other academics to be a scandal and we said so as loudly as we could, pointing out the empirical evidence suggesting that the directive was not working. Yet if it was a scandal, it was not a surprising one, because the evidence-free process is altogether typical of the way we make intellectual property policy. President Bush is not the only one to make ”faith-based” decisions.

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There was, however, a ray of hope. In its official report on the compet.i.tive effects of the Database Directive, the European Commission recently went beyond reliance on anecdote and industry testimony and did something amazing and admirable. It conducted an empirical evaluation of whether the directive was actually doing any good.

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The report honestly described the directive as ”a Community creation with no precedent in any international convention.”

Using a methodology similar to the one in this chapter on the subject, the Commission found that ”the economic impact of the 'sui generis' right on database production is unproven.

Introduced to stimulate the production of databases in Europe, the new instrument has had no proven impact on the production of databases.”6 46

In fact, their study showed that the production of databases had fallen to pre-directive levels and that the U.S. database industry, which has no such intellectual property right, was growing faster than the European Union's. The gap appears to be widening. This is consistent with the data I had pointed out in newspaper articles on the subject, but the Commission's study was more recent and, if anything, more d.a.m.ning.

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Commission insiders hinted that the study may be part of a larger--and welcome--transformation in which a more professional and empirical look is being taken at the compet.i.tive effects of intellectual property protection. Could we be moving away from faith-based policy in which the a.s.sumption is that the more new rights we create, the better off we will be? Perhaps. But unfortunately, while the report was a dramatic improvement, traces of the Commission's older predilection for faith-based policy and voodoo economics still remain.

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The Commission coupled its empirical study of whether the directive had actually stimulated the production of new databases with another intriguing kind of empiricism. It sent out a questionnaire to the European database industry asking if they liked their intellectual property right--a procedure with all the rigor of setting farm policy by asking French farmers how they feel about agricultural subsidies. More bizarrely still, the report sometimes juxtaposed the two studies as if they were of equivalent worth. Perhaps this method of decision making could be expanded to other areas. We could set communications policy by conducting psychoa.n.a.lytic interviews with state telephone companies--let current inc.u.mbents' opinions determine what is good for the market as a whole. ”What is your emotional relations.h.i.+p with your monopoly?” ”I really like it!”

”Do you think it hurts compet.i.tion?” ”Not at all!”

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There are also a few places where the reasoning in the report left one scratching one's head. One goal of the database right was to help close the gap between the size of the European and U.S. database markets. Even before the directive, most European countries already gave greater protection than the United States to compilations of fact. The directive raised the level still higher. The theory was that this would help build European market share. Of course, the opposite is also possible. Setting intellectual property rights too high can actually stunt innovation. In practice, as the Commission's report observes, ”the ratio of European / U.S. database production, which was nearly 1:2 in 1996, has become 1:3 in 2004.”7 Europe had started with higher protection and a smaller market. Then it raised its level of protection and lost even more ground. Yet the report was oddly diffident about the possibility that the U.S. system actually works better.

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In its conclusion, the report offered a number of possibilities, including repealing the directive, amending it to limit or remove the ”sui generis” right while leaving the rest of the directive in place, and keeping the system as it is. The first options are easy to understand. Who would want to keep a system when it is not increasing database production, or European market share, and, indeed, might be actively harmful? Why leave things as they are? The report offers several reasons.

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First, database companies want to keep the directive. (The report delicately notes that their ”endors.e.m.e.nt . . . is somewhat at odds with the continued success of U.S. publis.h.i.+ng and database production that thrives without . . . [such]

protection,” but nevertheless appears to be ”a political reality.”) Second, repealing the directive would reopen the debate on what level of protection is needed. Third, change may be costly.

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Imagine applying these arguments to a drug trial. The patients in the control group have done better than those given the drug and there is evidence that the drug might be harmful. But the drug companies like their profits and want to keep the drug on the market. Though ”somewhat at odds” with the evidence, this is a ”political reality.” Getting rid of the drug would reopen the debate on the search for a cure. Change is costly--true. But what is the purpose of a review if the status quo is always to be preferred?

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The final result? Faced with what Commission staff members tell me was a tidal wave of lobbying from publishers, the Commission quietly decided to leave the directive unchanged, despite the evidence. The result itself is not remarkable. Industry capture of a regulatory apparatus is hardly a surprise. What is remarkable is that this is one of the first times any ent.i.ty engaged in making intellectual property policy on the international level has even looked seriously at the empirical evidence of that policy's effects.

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To be sure, figures are thrown around in hearings. The software industry will present studies showing, for example, that it has lost billions of dollars because of illicit copying. It has indeed lost profits relative to what it could get with all the benefits of cheaper copying and transmission worldwide and with perfect copyright enforcement as well. (Though the methodology of some of the studies, which a.s.sumes that each copier would have paid full price--is ridiculous.) But this simply begs the question. A new technology is introduced that increases the size of your market and decreases your costs dramatically, but also increases illicit copying. Is this cause for state intervention to increase your level of rights or the funds going toward enforcement of copyright law, as opposed to any other law enforcement priority? The question for empirical a.n.a.lysis, both before and after a policy change, should be ”Is this change necessary in order to maintain incentives for production and distribution? Will whatever benefits it brings outweigh the costs of static and dynamic losses--price increases to consumers and impediments to future innovators?” The content companies might still be able to justify the extensions of their rights.

But they would be doing so in the context of a rational, evidence-based debate about the real goals of intellectual property, not on the a.s.sumption that they have a natural right to collect all the economic surplus gained by a reduction in the costs of reproduction and distribution.

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DOES PUBLIC INFORMATION WANT TO BE FREE?

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The United States has much to learn from Europe about information policy. The ineffectively scattered U.S. approach to data privacy, for example, produces random islands of privacy protection in a sea of potential vulnerability. Until recently, your video rental records were better protected than your medical records. Europe, by contrast, has tried to establish a holistic framework, a much more effective approach. But there are places where the lessons should flow the other way. The first one, I have suggested, is database protection. The second is a related but separate issue: the legal treatment of publicly generated data, the huge, and hugely important, flow of information produced by government-funded activities--from ordnance survey maps and weather data to state-produced texts, traffic studies, and scientific information. How is this flow of information distributed? The norm turns out to be very different in the United States and in Europe.

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In one part of the world, state-produced data flows are frequently viewed as revenue sources. They are often copyrighted or protected by database rights. Many of the departments which produce them attempt to make a profit or at least to recover their entire operating costs through user fees. It is heresy to suggest that the taxpayer has already paid for the production of this data and should not have to do so twice. The other part of the world practices a benign form of information socialism. By law, any text produced by the central government is free from copyright and pa.s.ses immediately into the public domain. The basic norm is that public data flows should be available at the cost of reproduction alone.

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