Beyond the Incentive-Access Paradigm? Product Differentiation and Copyright Revisited

There is a new kid on the block of copyright-policy analysis. The incorporation of insights from “product differentiation” theory is arguably the most important development in the economic analysis of copyright in recent years. According to its most ambitious proponents, this approach provides a superior theoretical alternative to the traditional incentive–access framework, one that shows concerns over the “monopoly power” conferred by intellectual property rights are often misplaced. Moreover, it is heralded as offering a resolution for what has heretofore been taken to be an intractable trade-off inherent in copyright—the tension between incentives and access. On this view, product differentiation theory recommends, counterintuitively, that both increased incentives and increased access can and should be achieved primarily by strengthening copyright protection. More modestly, others suggest that product differentiation theory simply supplements the traditional economic analysis of copyright, by providing a better account of certain features of copyright doctrine. In particular, the theory is argued to provide a firmer foundation for a strong derivative works right, which has been difficult to explain or justify under traditional analysis.This Article reevaluates product differentiation theory as applied to copyright law. Such a reassessment is timely as the theory works its way into the mainstream of copyright scholarship, with its premises and conclusions on their way to becoming part of the conventional wisdom. A reexamination of these premises and conclusions is particularly important in light of several drawbacks and worrying tendencies in existing theoretical discussions. First, the reception of product differentiation theory into copyright has been marred, to a considerable extent, by the lingering hold of persistent ambiguities and misunderstandings regarding the basic economics of copyright. These include: an erroneous or obscure concept of the roles played by the two public-goods features of information goods in the policy analysis of intellectual property rights; a misplaced emphasis on monopoly power (or the lack thereof); and a failure to see that the central intellectual property (IP) trade-offs take place not in regard to one innovation but across different innovations. Second, partly due to these misunderstandings of the basic economic framework, existing application of product differentiation theory to copyright contains both specific inaccuracies and erroneous, general sweeping conclusions. The latter include the claim that by strengthening certain aspects of copyright protection, both incentive and access could be increased costlessly, and the assumption that strengthening protection is an effective and desirable remedy to wasteful rent-dissipation problems in copyright. Third, these flaws in applying product differentiation theory to copyright have led to policy and doctrinal recommendations that are either implausible or far outstrip what the theory can plausibly be said to show