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JILT 2005(1) - Tony Ciro

The Scarcity of Intellectual Property

 

Tony Ciro
Barrister and Senior Lecturer, School of Law, La Trobe University
t.ciro@latrobe.edu.au

 

Abstract

It has long been argued that intellectual property is justified on a number of alternative bases. Economic, labour and spiritual theories have been advanced to justify propertising intellectual creations. The thesis of this article is that justifications used for tangible property cannot be used to support the propertising of intellectual property. Intellectual property differs to tangible property because tangible creations are physically scarce. Intellectual property does not suffer from the same scarcity problem because it makes use of a plentiful commodity in the form of information. Intellectual property becomes scarce because of artificial constraints which are imposed by a legal framework that restricts access to public dissemination and use of the intellectual work that is created. It is, therefore, argued that justifications used to support the propertising of tangible property cannot be used to justify the propertising of intangible creations. Instead, an explanation founded upon the creation and protection of investor value can be advanced to explain, but not justify, the enforcement of intellectual property rights as they currently exist.

Keywords: Intellectual property, John Locke, Hegel, Kant, market instrumentalism, personality theory, pareto equilibrium, resource allocations, commercial information, trade secrets, government secrets, confidential information, Australian Competition and Consumer Commission (ACCC).


This is a refereed article published on: 22 August 2005.

Citation
: Ciro, 'The Scarcity of Intellectual Property’, 2005 (1) The Journal of Information, Law and Technology (JILT). < http://www2.warwick.ac.uk/fac/soc/law2/elj/jilt/2005_1/ciro/>.


1. Introduction

The justifications advanced for intellectual property law have been many and varied.1 It is has been suggested that intellectual property is analogous to tangible property and justifications used to support the propertisation of physical creations can be advanced for intellectual ones as well.2 A common assertion used to justify propertising intellectual works is that intangible creations require property protection because they are economically valuable works worthy of protection in their own right. This is essentially an economic justification, one premised upon overcoming market failure and market imperfections.3 Economic justification for propertising creative work is premised on the very foundation that without proper protection authors would have insufficient incentives to write new works unless they are compensated with property rights.4

Similar justifications are advanced from other sources, most notably labour rights. It is argued under the pretext of the theory advanced by John Locke that once labour is mixed with property the labourer obtains a natural right to the property that is created.5 It is argued that when one labours over intellectual endeavours the author of the work obtains a natural right to the intellectual creation.6 Locke’s “mixing theory” is a justification which commonly arises with the creation of tangible property and has been conveniently borrowed by owners of intellectual property.

Justifications in the form of spiritual rights have been advanced to support propertising intellectual works. Support for this proposition has principally arisen from the writings of Hegel7 and Kant.8 According to Hegel and Kant creations are the embodiment of one’s personality where human spirit and creative endeavour are inextricable linked. The intellectual work becomes part of the creator because it represents an extension of one’s self. The spiritual embodiment between the creator and the work justifies the recognition of a natural property right vesting in the author.9

The aim of this article is to argue that there is no natural right to intellectual property. It will be argued that justifications used to support a natural property right in tangible property cannot be used to justify the propertisation of intellectual creations because the two types of property are intrinsically different.10 The main difference lies in the relative scarcity of each forms of property. Tangible creations suffer from a scarcity problem because the resources used to create are finite and physically scarce. With tangible property both the physical raw material and the end product that is created are scarce.

In contrast, creators of intellectual property use a non-scarce resource in the form of ideas and information express it in some original form to justify propertising the intellectual expression. Importantly, neither the idea (the raw material) nor its expression (the end product) in the absence of intellectual property laws is scarce. This begs the question:-Are current intellectual property rules justified in adopting a private property system to allocate non-scarce resources? The article will argue that private property cannot be justified when it is applied to intellectual creations. Further, the article argues that intellectual property rules can be anti-competitive because it can give rise to the creation of artificial monopolies. The recent decisions in the United States in the Microsoft anti-trust suit11 and the Sony12 decision in Australia highlights the tension between private property laws which protect intellectual works on the one hand, and competition laws that are designed to promote competition and consumer choice on the other.

2. The Justifications of Intellectual Property

(a) Locke & Labour Theory of Property Rights

The philosopher John Locke argued that a labourer has a natural property right to an item that is created with his/her labour. Writing in the early 18th Century, Locke sought to justify the expropriation of native American land to white colonialists through a simple but powerful theory premised upon labour. In Chapter Five of the Second Treatise of Government Locke wrote the following, much quoted passage:

every man has a property in his own person: this nobody has any right to but himself. The labour of his own body and the work of his own hands we may say are properly his.13

Underlying Locke's labour theory of property is the assumption that if one is not a slave one must therefore own oneself including one's labour. It follows from Locke’s proposition that labour can be used to justify the creation of a natural right to private property if one “mixes” their labour with the land. Thus, the mere act of “mixing” one's labour with land or any other item of tangible property is sufficient to give rise to a “natural right” to property and private ownership.

Ownership in one's self provides the conceptual underpinning for Locke's labour theory. Self-ownership is the necessarily conclusion if one is not a slave. Professor Harris has queried whether Locke’s conclusion that an individual who is not a slave and who “owns” and mixes their labour should obtain a natural property right to the item that has been created is correct.14 As Harris points out the very fact that one is not a slave does not make them an “owner” of their labour, neither does it make an individual an owner of themselves.15

According to Professor Harris, simply because one is not a slave does not necessarily mean that they “own” their labour.16 If one is not a slave then the only correct conclusion to reach is that no-one else owns them. However, it does not mean that a non-slave individual must therefore own their body and their mind. If one cannot own themselves or the contents of their brain then labour on its own cannot be used to justify a natural property right in any creation. It is irrelevant whether one “mixes” their labour with a resource, tangible or intangible, the conclusion is the same. Labour alone cannot justify a natural property right to the item that is created.

(b) Market Instrumentalism

A justification that is advanced to support the propertisation of intellectual creation is one founded upon economic grounds.17 In order to overcome some form of market failure creators need an economic incentive in the form of a property right to create. The argument is self-fulfilling. To provide the necessary incentive to create the author of the work needs to be compensated in the form of property interest.18

The legitimacy of this assertion has not been empirically tested but it would appear to be far-fetched to suggest that only property rights provide the sole incentive or for intellectual creation.19 Intellectual creations have been created and continue to be created in the absence of any transfer of property rights. Academics produce large volumes of work not for property rights but for career advancement. Similarly, many artists, song writers and musicians produce works for a small token fee and are not the owners of copyright. Even if it can be legitimately said that property does provide incentive to create, how much compensation is required? Copyright for life of the author plus 50 years, sounds like a lot because it is. Life plus 70 years in continental Europe is worse and there have been moves to extend the duration of copyright to life plus 120 years in the US to cover the expiration of copyright on the Disney collection.20

(c) Personality Theory

Personality theory has been used to justify the granting of intellectual property rights. The theory has its genesis in the writings of Kant21 and Hegel,22 where both legal philosophers adhere to the view that an author’s personality, spirit and will cannot be free unless the author owns his/her work.23

Essentially, the theory relates to the metaphysical status of an individual’s spirit and will. The theory assumes that by granting a property right the author’s will is unrestricted because he/she has full control of their personality and spirit. The justification of granting a property right to the author of the work is that the work represents a spiritual embodiment of the author’s will. Hence, if an individual is to have complete control over their spirit and personality, property rights must be granted to the author of the work. Given, the metaphysical emphasis on the theory it is not surprising to find that Kantian personality theories have found popularity with artists and authors of works who often have a spiritual or metaphysical connection with their art.

3. Market Failure or Market Value?

The concept of property is central to most legal systems. Property forms the basis of much of the criminal and civil law in both common and civil law jurisdictions. In criminal law offences such as theft, obtaining property by deception, robbery, burglary and larceny involve criminality with another’s property rights.24 Similarly, in civil law a number of torts including trespass, conversion and detinue involve unwarranted interference of property rights.

It is in respect of tangible and physically scarce items that property laws sit most comfortably with resource allocation and pareto equilibrium.25 The institution of property has the role of providing an efficient response to the scarcity problem. It is by no means accidental that classical economists are supporters of legal systems with a strong emphasis on the protection of property rights. The system of private property ownership is the epitome of the interaction between law and economics.

The laws of property are used to allocate scarce resources among competing needs and provides the backdrop for a capitalist economy to properly function. As classical economists would assert prices provide the clearest and most transparent signal for efficient resource allocation to occur. Without contract and property laws there could be no equilibrium because there would be no security of tenure. Hence, even with potentially high prices and high profits suppliers would refrain from producing and supplying to the market in the absence of specific property protection.

The argument essentially draws on the evil caused by the free rider. The free rider is bad because they are opportunistic and seek to reap where they have not sown. If the free rider is given carte´ blanch nothing will be produced since there would be no incentive to invest time, skill and resources to create. The fallacy in this argument can be pointed out. Why should there be laws protecting the “reaping without sowing” when the resource, namely information that is used as a raw material to create intellectual property is plentiful and freely available.

Should the free rider be excluded from participating in information gathering and competing against the first producer at lower cost? The free rider would argue that he/she should not be locked out of the equation because without them competition and the consumer would be the loser. Free riders provide much needed competition and consumer choice to a marketplace that would otherwise be in the firm grips of the monopolist. Why else does the legislature allow limited access to the public to copyrighted works and imposes limits to the duration of trade marks, patents and other oppressive intellectual property rights?

The market failure justification cannot be used to support intellectual property because unlike tangible creations intellectual property is not inherently scarce. For intellectual creations their scarcity is a phenomenon of the legal system that protects intellectual property as property. Through intellectual property laws restrictions on the dissemination are imposed. Free use is no longer the norm. Instead, the law creates the scarcity problem and then seeks the assistance of the market’s invisible hand to allocate the resource in the most efficient manner. Market value is not only a product of market demand but also artificial scarcity imposed by intellectual property laws.

None of this is new to classical economists who are well versed in dealing with relative scarcity. Scarcity exists in many forms and affects many resources. Importantly, physical constraints alone cannot produce the scarcity problem confronting intellectual property. Why then do economists argue that a property system is the only viable alternative for the protection of intellectual property?

The typical answer to this question essentially involves a market instrumental justification. The production of intellectual creation can be costly and some may not be produced if property is not granted in return. At face value this would appear to be a strong justification for the creation and protection of intellectual creations through a property system.26 The market failure argument is essentially a self-fulfilling prophecy. There is a need for intellectual property laws because without them there would be less incentive to produce valuable intellectual creations, which in the absence of the laws would remain scarce. The market failure argument necessarily begs the question- why do we have a scarcity problem in the first place? The answer can be simply stated. Intellectual property laws produce an artificial restriction that creates the scarcity problem and are then used to allocate scarce resources through a complex web of private property rights controlled by intellectual property owners.

An equally compelling market based argument can be made against propertising intellectual property. Granting intellectual property rights, which are akin to monopoly rights, is anti-competitive. The creation of monopolies over tangible property and the harm they cause to consumers and society as a whole are well documented. Similar concerns have recently been raised with the monopolistic behavior of intellectual property owners. The US Justice Department’s anti-trust case against Microsoft and the finding that Microsoft engaged in anti-competitive behaviour is illustrative of precisely this problem.27

It should come of no surprise that Microsoft was described as the “Standard Oil” of the 21 Century.28 Indeed, it is no coincidence that both Microsoft and the Standard Oil Company share some distinct similarities. Microsoft and Standard Oil were market leaders in their respective fields. Both had enormous market clout and both derived their power principally from their holdings of scarce property. The only difference was that Standard Oil was the owner of a physically scarce resource in the form of oil, whereas Microsoft remains the owner of a legally scarce resource in the form of copyrighted and patented computer software programs.

Further confirmation of the high market value of intellectual property can be ascertained from the trading activity on global financial markets. If anyone was mistaken into believing that market value was not an inherent characteristic of intellectual property and the main driver justifying intellectual property then one should take a close look at the NASDAQ. The NASDAQ market in New York is made up of essentially start up biotech, internet, telephony and other related intellectual property listed companies.29

In effect, the NASDAQ represents the market’s valuation of intellectual property that can be commoditized.30 Intellectual property that is perceived to be of high value is marked up by investors and similarly, intellectual property holdings with low perceived value are marked down. Again, it should be of no surprise that when a publicly listed company announces the favourable assessment of a patent by the Patent Office investors mark up the share price because the investors’ perceptions and expectations have changed.

Market value and not market failure is the central driver explaining the creation and protection of intellectual property. In fully appreciating this point we should now get a feel of why powerful multinational corporations seek extensions for the duration of their copyright. The motives are purely financial and reflect the enormous market value of popular intellectual property and the opportunistic behaviour of monopolists keen on maintaining exclusive control over their revenue streams.31

Is it any wonder that valuable intellectual property rights in the form of patents, trade marks and even copyright are jealously guarded by their owners? The protection of market value by any means is the central driver of the monopolists who act as the impoverished owner getting a bad deal whenever their rights are affected. If this sounds like a cynical appreciation of the monopolist’s position then it is because it is equally cynical to hear the self-justifying arguments used by owners to justify the creation and enforcement of their intellectual property rights.

4. Application of the Property Label to Certain Categories of Information

The application of the property label to intellectual creations is the hallmark of every intellectual property system. As discussed above, monopolists seek property because this provides them with the best protection against erosion of market value. The monopolists are not alone here. The state is equally at fault because it too wants property protection for all intellectual creations and jealously guards this resource with trade sanctions and the like.

The state has a vested interest in property labeling of intellectual works for a number of reasons. First, adding more property to one’s control increases the state’s relevance and economic power. This can be seen with the increase in the relative economic power of nations who have heavily invested in intellectual property. The greatest culprit here is of course the United States, who unashamedly parade’s itself as the world leader in biotechnology, research and development, silicon chip technology and the like. The behaviour of regulatory bodies and aggressive legislatures has also changed in response to the number of products and markets that have been propertised. It is no wonder that the patent’s office in the United States, the United Kingdom and continental Europe have recently lowered the tests to be adopted for patent recognition. The European Patent Office and the United States Patent Office have effectively engaged in a race to the bottom in the carve out of patentable subject matter.

A second reason favouring state involvement in intellectual property is taxation.32 With the creation of property come the inevitable consequences of taxation. As property is created it moves: through assignments of the legal or equitable interest underlying the property, outright transfer or quasi assignment via licensing arrangements. Whatever the mode of transfer tax, a strong incentive exists for active state involvement in the creation of new intellectual property laws to cover novel intellectual creations and also to extend current laws in existing areas.

Application of the property label to intellectual creation has almost been a forgone conclusion. Nevertheless, there exist a number of specific areas of intellectual property where the property label has stirred considerable controversy. These areas include:- commercial information, trade secrets, government secrets, confidential information and digital copyright.

(a) Commercial Information

The landmark US case of INS v. Associated Press33 examined the problems associated with propertising a non-scarce resource. In the case the plaintiff (INS) sought an injunction to prevent the defendant from obtaining news items posted on the plaintiff's bulletin boards for distribution through the defendant’s news services. The plaintiff argued that it had expended time, effort and money in obtaining news items from the war front and this constituted valuable property belonging to the plaintiff. The defendant submitted that information and in particular news could not be the subject matter of property since once it was the news was published it was free to any member of the public to use and in this sense it is common property and anyone is entitled to use the information for any purpose including profit.

The majority of the court held that the plaintiff was entitled to an injunction restraining a rival agency from selling news taken from bulletin boards posted by the plaintiff. Pitney J said that information gathered about events of public interest was not “susceptible of ownership or dominion in the absolute sense”. The gatherer had no right against the public at large that they should not make any use they wished of such information. In that sense news was “common property”. Therefore as between the members of the public the plaintiff could not restrain use of the news information.

On the other hand there was a right to restrain use of the news by a commercial rival. Between the plaintiff and the defendant, fresh news must be regarded as “quasi property”. It has all the attributes of property necessary for determining that a misappropriation of it by a competitor is unfair competition.

Two decisions have been commonly cited against any proposition that commercial information can be the subject of any kind of ownership interest. In Sports & General Press v. “Our Dogs” Publishing Co34 the Ladies Kennel Club promoted a show on land which it had leased for the day. It had attempted to assign the exclusive right to take photographs of the show. The defendants employed a freelance photographer to take photos at the show. The plaintiff’s sought an injunction to prevent publication by the defendants of photographs taken at the show. At both first instance and in the Court of Appeal the issue was seen as the control powers incidental to an ownership interest in land. Since these powers did not include power to prevent anyone off the premises from taking photographs, it followed that the right to take photographs was not a proprietary subject matter.

Unlike the US decision in INS v. Associated Press, the court did not consider nor address the relevant issue of whether information about the show could be the subject of limited protection against commercial competitors from disseminating such information in the form of published photographers.

The Australian decision in Victoria Park Racing v. Taylor35 is also somewhat problematic. The High Court held that no legal right of the owners of a racecourse had been infringed when live commentaries of the races were broadcasted over the radio by a commentator standing on an observation platform especially erected on a neighbour’s land. The court was concerned with whether the defendant’s activities constituted a nuisance so that any power to control this type of activity would be an incident of ownership of the land. There was also some reference to whether there could be property within a spectacle. The plaintiff however was not attempting to prevent neighbours from watching the races. Instead the plaintiff sought to prevent was the unauthorised dissemination to the public of information about the race by a commercial competitor. Thus the claim was very similar to the claim in the US court case in International News. In the INS case the information was considered to be “quasi property”. This was rejected by Latham CJ on conceptual grounds. As Professor Harris points out if there was property in information how could it be material whether it was communicated to many or to few?

In the judgment of Pitney J in the INS case his honour appears to be invoking a labour-desert argument in supporting the plaintiff’s claim. Pitney J said that it unfair business competition would be committed by any competitor who endeavoured “to reap where it has not sown”. In that case the defendant was seeking to appropriate a material proportion of the profit “from those who had earned it”.

As Professor Harris points out in his book Property and Justice36 however, labour-desert theory is hostage to social conventions. A labour-desert argument for a property right will not work in the absence of conventions which dictate that the morally appropriate reward for creative endeavour is ownership of the entity which has been created rather than something else. Such conventions do existing in granting intellectual property rights for a limited period for original works (as emanating from the author) protected by copyright, and novel and non-obvious ideas, which are protected by patents. But it is implausible that this is so of all information gathering activities. This was pointed out in the dissenting judgment of Brandeis J in INS v Associated Press.37 Brandeis J was of the view that there is no coherent doctrine of property, but merely specific interests which are protected either because of statute or because of policy reasons the common law or equity protects them. Brandeis J relied on the three telegraph cases to support this view: Exchange Telegraph v Gregory & Co,38 Exchange Telegraph v Howard and London & Manchester Press Agency Ltd,39 and Exchange Telegraph v Central News Ltd.40

In the Exchange Telegraph case the Court of Appeal asserted that one who collects commercially valuable information must be its owner:

If this information, this collecting together of materials so as to give knowledge of all that has been done on the Stock Exchange, is something which can be sold, it is property and being sold to the plaintiffs it was their property.

This in effect utilises the “creation without wrong” argument as a conceptual basis for the finding of a property right. The creator or gatherer of the information has created something of value and has infringed no-one’s rights in doing so. Therefore he ought to own it. However according to Professor Harris, creation without wrong does not stand on its own as the basis for a natural property right. It does not follow that the creation of the information necessarily allows the imposition of unilateral trespassory protection.

Another argument which may be invoked for ownership of commercial information is the instrumental one of creative-incentives. If it is obvious that the person or entity will not create or gather information unless its exploitation of the information is protected against commercial rivals then this will be sufficient to grant an ownership interest to the information which is created. This was the finding in INS.

Since this is the sole reason for recognizing an ownership interest in commercial information, it follows that the kind of interest in question and the degree of trespassory protection need to be tailored precisely to what is required to provide the necessary incentive. The requisite ownership interest will be high on the ownership spectrum since it must carry powers of transmission for value. On the other hand it need not include ordinary control powers associated with ownership of tangible resources. Thus the ownership interest of “quasi-property” would be suitable as was the case in INS. The same principle can be applied with other sources of information such as trade secrets.

(b) Trade Secrets

It is uncertain the precise basis for characterisation of trade secrets. Are trade secrets property? Is it necessary for trade secrets to be categorised as property? Are there alternatives? Categorising trade secrets as property has important implications. Like other forms of property the future development of the action changes from an in personam development to an in rem development. Unlike an action under contract, difficulties experienced in reaching third parties and strangers are resolved. As property, trade secrets become subject to new causes of civil action (trespass) and potentially criminal (Theft Act).

Some courts have recognised trade secrets as constituting “property”. In FCT v. United Aircraft Corporation41 the Australian High Court by a majority recognised a proprietary right to the commercial exploitation of intangibles. The United Aircraft Corporation, an American company made available to an Australian company various drawings, specifications and other “know-how” to enable the Australian company to manufacture aircraft in Australia. The issue for the court was whether the royalties paid by the Australian company were derived from the American company from a source in Australia. Williams and Rich JJ held that “the information contained in such specifications and drawings would be property and protected in the manner described”.42

Latham CJ disagreed and delivered a judgment consistent with the views he expressed in the Victoria Park43 case:

Knowledge is valuable, but knowledge is neither real nor personal property. A man with a richly stored mind is not for that reason a man of property. Authorities which relate to property in compositions etc. belong to the law of copyright and have no bearing upon the question whether knowledge or, information as such is property.

Other cases have also held that knowledge and in particular trade secrets can form the basis of property.44 In Re Keene45 the court held that manufacturing formulae were property. This was the case even though the formulae were not written down but remained within the brain of a bankrupt who was under a contractual duty not to disclose the formulae. The court ordered a transfer of the information to the trustee in bankruptcy. This was tantamount to treating the information as an item of property since there was a transfer of the formulae and the bankrupt ceased being entitled to use it. The courts have also recognised property in a range of intangibles including the goodwill of a business in an action of passing off46and the names of towns and geographic regions.47

(c) Government Secrets

It becomes necessary at times to decide whether certain government held information which may be considered to be important for “national security” reasons should be held back from public dissemination. The issue requires a balance between important public interests in ensuring secrecy against the competing interest for a free and open society. Should all government information and in particular government secrets be protected from public dissemination and hence be considered to be the property of the Crown?

This issue was raised in the “Spycatcher” case:- A.G. v Guardian Newspapers (No 2).48 A book was written by a former member of the British security service titled “Spycatcher”. The book had been available for sale overseas. The Crown attempted to prevent the author from publishing the book within the UK. The court at first instance, as well as the Court of Appeal and the House of Lords held that nothing was to be gained by banning publication within the UK since the damage to security had already been done by publishing abroad. However, Scott J did state that if the argument used by the Crown could demonstrate that the former employee stood in a fiduciary position, the Crown would be entitled to prevent further publication of the book by anyone.

Perhaps a better approach would be to consider State information the subject of a protected non-property holding instead of invoking some ownership interest with it. According to Professor Harris this would be the preferable option. The balancing problem between security and openness is difficult enough without having a “proprietary loose cannon”.

(d) Confidential Information

This issue usually involves deciding whether an individual who stands in the position of a fiduciary is entitled to keep the fruits of their wrong-doing. Typically this involves a fiduciary obtaining a profit which arises from their position as a fiduciary. Should they be entitled to keep their profits?

The issue arose in the case of Boardman v Phipps.49 In Boardman v Phipps50 a solicitor used his position to obtain commercially sensitive information and use that information to purchase shares within a private company. The purchased shares proved to be a profitable purchase. The court held that solicitor had placed himself in a special position which was of a fiduciary character in relation to the negotiations with the directors of the company. The profit made from that special position was to be held on account to the beneficiary. The solicitor was entitled to payment on a liberal scale for their work and skill.

This rule has been extended by the use of a constructive trust. Constructive trusts have been employed by the courts to allow a principal to recover as a debt bribes paid to his agent, which would give rise to a personal and not a proprietary claim: Lister v Stubbs.51 The Privy Council in A.G. of Hong Kong v Reid52 decided not to follow this rule and instead held that such a claim based on the constructive trust principle would give rise to a proprietary claim.

The position of surreptitiously obtained information and its link with confidential information53 was recently in issue before the High Court in Australian Broadcasting Corporation v. Lenah Game Meats Pty Ltd.54 The case involved the filming in a clandestine and unlawful manner, the respondents game meat processing operations. The Australian Broadcasting Corporation (ABC) had received a copy of the film from Animal Liberation Ltd. The ABC had not been involved in the unlawful filming of the respondent’s brush tail possum processing facility.

The dispute centered on the ABC’s right to broadcast the film and the respondent’s claim for an interlocutory injunction. Following the Full Court’s award of an injunction, the ABC appealed to the High Court to set the order aside. Lenah sought to uphold the Full Court’s finding arguing that the ABC would be acting unconscionably by allowing the broadcast of film with tainted knowledge. Alternatively, the ABC would be in breach of the right to privacy enjoyed by Lenah.

(e) Criminal or Civil Trespass?

The issue of whether to impose civil or criminal trespass to gathered information. The issue came before the court in Oxford v Moss.55 In that case the English Divisional Court held that information was not intangible property for the purposes of the Theft Act. The case concerned a student who borrowed an examination paper for the purpose of obtaining the information on the forthcoming exam. The student was charged with stealing the information contained on the exam paper. Both the trial magistrate and the English Divisional Court held that the student was not guilty of the offence since there had not been a permanent deprivation of property.56

It is submitted that the accused could have been convicted of stealing the documents on which the examination questions appeared. When the accused returned the document it had changed its character completely-by virtue of losing its confidentiality it had lost its value. The Canadian Supreme Court in Stewart v R,57 reversing the Court of Appeal’s decision, reached a similar conclusion. The Supreme Court held that confidential information was not capable of being stolen for the purposes of the Criminal Code. The case involved the defendant bribing a hotel security guard to supply him with a list of the hotel’s employees and was charged with counselling theft. Whereas civil liability may be tailored in meeting a balance of considerations in different contexts, the criminal law allocates responsibility in black and white terms.

(f) Digital Information & Copyrighted Works

With the advent of digital technologies the regulation of intellectual property has become increasingly challenging. The use of anti-circumvention devices by copyright owners has thrown up interesting tensions involving the free and unfettered dissemination of information on the internet on the one hand and the enforcement of private property rights on the other.

Tension is no stranger for private property and private markets, for they have grappled and perhaps even exacerbated this for centuries.58 The increasing commoditization of public goods in the digital and information arena and the broader societal needs for full and fair competition have created a new hotbed of volcanic proportions. Private property holders want and need to aggressively protect their holdings from competition. This is because through competition price and market value fall. By creating artificial barriers to entry market value is maintained and even heightened as price moves in an upward trend.59

It is no wonder that in recent litigation involving Sony Music in Australia,60 the Australian Competition and Consumer Commission (ACCC) was granted special leave to be present in the proceedings.61 The dispute involved consideration of the scope of new anti-circumvention legislation in Australia which was designed to provide digital copyright owners enforcement rights for works that had been protected by virtue of circumvention devise.62 The defendant, Mr Stevens was sued by three Sony companies alleging that he infringed the registered trade marks of Sony Japan, that he had engaged in misleading or deceptive conduct in contravention of the Fair Trading Act 1987 (NSW), and was liable under s. 116A of the Copyright Act 1968 (Cth). It was alleged by Sony that the defendant supplied and installed “mod chips” in Sony PlayStations which amounted to the supply of circumvention devises capable of circumventing technological protection measures comprised by the use of the access codes and Boot ROM’s.

At first instance, Sackville J held that the defendant had not infringed s.116 A on the basis that mod chips were not anti-circumvention devises because the access codes and the Boot ROM’s were not technological protection measures. His Honour stated:

It is necessary for the applicants to demonstrate that the protective devices are designed to function, by their own processes or mechanisms, to prevent or hinder acts that might otherwise constitute an infringement of copyright.63

His Honour was of the view that access codes were not designed by reason of their function to prevent or acts that might otherwise constitute an infringement of copyright. Access codes only prevented access for software that originated from other geographic locations. Since, access codes were not “technological protection measures” for the purposes of the Copyright Act, the “mod chips” installed by the defendant were not anti-circumvention devises. Notwithstanding that the “mod chips” had only a limited commercially significant use other than circumventing or facilitating the circumvention of the access codes.64

It is submitted that Sackville J was influenced by the submission made by the competition watchdog, the ACCC. The ACCC submitted that the protection devices produced by Sony could not be regarded as technological protection measures because they were not designed, in the ordinary course of their operation, to prevent or inhibit the infringement of copyright.65 The basic reasoning underpinning the ACCC’s submission rested on the fact that Sony’s protection devices did not discriminate between infringing copies and non-infringing copies, which may have included Sony PlayStation games purchased overseas and imported into Australia.66

Accordingly, the ACCC pushed for a narrow meaning to be given to the term “technological protection measure” (“TPM”), namely that the definition should be confined to a measure that ensures that access to the work or other subject matter which would enable infringement of copyright to occur is available solely by use of an access code or process or through a copy control mechanism.67

It is quite clear that the ACCC’s concern related to ensuring competition would not be adversely affected with a liberal definition given to technological protection measures. The Sony case highlights the problems one is confronted with when copyright owners aggressively seek to protect their works by restricting access not only because of the threat posed by infringing works but also the perils of surviving full blown competition.

On appeal to the Full Court of the Federal Court of Australia,68 the Full Court reversed the finding of Sackville J in the Sony case with regard to the definition of TPM. The Full Court adopted a broader meaning to a TPM. After reviewing the history of the legislation69 including the Copyright Law Review Committee’s Draft Report70 and Final Report71 and the Commonwealth Attorney-General’s Department Discussion Paper,72 Lindgren J held that a “broader approach was intended by the legislature” and that the definition of TPM “were intended to embrace that inhibition, in the sense of deterrence or discouragement of infringement, which results from a denial of access to, and therefore prevention of use of, a program copied in infringement of copyright.”73 The two remaining judges:- French and Finkelstein JJ agreed with the approach adopted by Lindgren J.

The new broader definition to a TRM has significant implications for competition policy in Australia. A broad TRM definition alters the balance between protecting private property rights in the digital arena via the Copyright Act and promoting public access to such works. An intellectual property system which favours private rights at the expense of public access will be a boon to copyright owners whose self interests in preserving and enhancing economic value far exceeds the social benefits they provide to consumers.

5. Alternatives to the Property Label for Intellectual Creation

Obligations founded in contract and equity are the two main alternatives to categorising intellectual creation as "property". There are limitations with both of these two alternatives. Contractual obligations suffer from the privity problem notwithstanding the recent amendments made by the Contract (Third Parties Rights) Act UK 1999. The Act only confers rights to third parties which have been in the contemplation of the contracting parties at the time of contracting. Third parties which are late comers are not protected or regulated by the Act. Equitable obligations can be defeated by equity's darling:- a bona fide purchaser of a legal title without notice of the prior equitable interest: Pilcher v Rawlins.74

Despite these limitations, there are supporters of the alternative approaches to propertisation.75 Professor Vaver in his paper Trade Secrets appears to favour a broad equitable approach to the classification and regulation of information especially, in the case of commercial trade secrets.76 Protected non-property holdings could be viewed as viable alternative especially in the area of government secrets. This could ensure the necessary balance between national security concerns and the rights of the public to freely disseminate information.77

Common property of information and ideas would be the obvious conclusion for information within the public domain. This is the consequence of refusing to confer ownership to any individual. Essentially no-one would "own" information which is available to the public at large.78 This should be contrasted with the categories of other forms of privileged information discussed above which are no longer within the public domain, namely commercial information, government secrets and trade secrets.

There exists one other alternative to private property for intellectual works. There could of course be no private ownership of intellectual creations at all. Put simply, all intellectual creations would not be “owned” because they do not form the basis of any type of private property holding. Instead, all intellectual creations would be held by and for the benefit of society, similar to public beaches where no single individual lays claim to the ocean. Intellectual works could form a type of communitarian property where members of a community can share and enjoy the fruits of their labour.

Indeed, there existed precisely this type of arrangement prior to white settlement in both the United States and Australia with the native Indians and indigenous Aboriginals. The natives of both countries did not have private property holdings but instead shared a spiritual connection with their land and their possessions. As Professor Harris rightly points out in his book Property and Justice79 the High Court of Australia in Mabo v. State of Queensland (No. 2)80 gave formal recognition to the native indigenous peoples of Australia of a specific form of communitarian property. The High Court held in Mabo that native Meriam people whose descendants remained in occupation of certain part of North Queensland held native title and the “radical title” acquired by the Crown upon settlement was burdened with the native title of any aboriginal clan that could prove occupation. Importantly, native title was held by the members or descendants of the clan and not by any one individual and could be enforced against the whole world.

6. Conclusion

There appears to be sufficient justification for propertising certain information. Information and ideas in general which are available to anyone and everyone should not be made the subject matter of ownership interests. They are, after all, common as the air itself. And no-one is seriously considering metering air. Or are they?81

When information is used by an individual to create a special entity there appears to be some justification for making the entity which has been created the subject of some kind of ownership interest. The strongest justification is the instrumental argument founded upon creator-incentive and market value. This basis would appear to favour a limited ownership interests which is tailored to providing the necessary incentives to expend labour, skill or money for the entity's creation. Arguments for a natural right premised on creation without wrong are ill-founded. Similarly, natural right arguments based upon labour-desert are hostage to social convention which may or may not favour the creation of private ownership interests.

The major implication for the propertising of information is that rules of institutional design must be flexible. The rules need to recognise that there are different forms of an ownership interest which may be applicable to the entity which has been created. This was illustrated with the US decision in INS v Associated Press where a limited "quasi-ownership" interest was recognised for newly created news. Similar considerations arise when deciding the type of trespassory protection which should be given. The decisions of Oxford v Moss and Stewart v R demonstrate that criminal rules have no place for "theft" of information. Instead, civil trespassory protection may be the more appropriate approach to protect private intellectual property and even then there needs to be balance between private and public interests.

Market based solutions may provide efficient distribution, similar to tangible goods. However, there may be a real tangible benefit in maintaining information as a public good. Public goods tend to be distributed at lower prices because they are subsidized by taxpayers. This may prove to be beneficial for educational institutions, public libraries and the like which cannot afford private rates. Moreover, as illustrated by the Sony decision, competition watchdogs may well be ill-equipped to promote full and fair competition in the digital arena. This is precisely the conundrum one is faced with when existing intellectual property laws premised upon private property rights restrict competition and encourage the creation of monopolies, and competition laws aim to do the exact opposite.

Notes and References

1 For a discussion of a number of these theories see: P. Drahos, A Philosophy of Intellectual Property Dartmouth Sydney 1996.

2 See The Institutes of Gaius (F.De Zulueta (ed.), Clarendon Press Oxford, 1946, Book II, 12-14.

3 R. Watt, Copyright and Economic Theory Edward Elgar Publishing Ltd UK, 2000, Ch 1.

4 As Watt states it is “frequently observed that copyright holders argue that piracy is damaging to them, and often estimates of the economic value of the costs that piracy imposes upon them, and upon society in general, are presented: Ibid, p.33.

5 J. Locke, Two Treatises of Government 1690 (P.Laslett, ed, Cambridge 1988) Ch. 5.

6 C. Wolf, “Contemporary Property Rights: Lockean Provisos and the Interests of Future Generations” (1995) 195 Ethics 791.

7 G.W.F. Hegel, Elements of the Philosophy of Right (trans. H.B. Nisbet, CUP, 1991).

8 I. Kant, Critique of Practical Reason and Other Works on the Theory of Ethics (trans. Thomas Kingmill Abbott, Longman and Green and Co 1879).

9 D. Knowles, “Hegel on Property and Personality” (1983) Philosophical Quarterly 45.

10 D.F. Libling, “The Concept of Property: Property in Intangibles” (1978) 94 Law Quarterly Review 103.

11 United States of America v Microsoft Corporation United States District Court of Columbia No. 98-1232.

12 Kabushiki Kaisha Sony Computer Entertainment v Stevens [2003] FCAFC 157 (30 July 2003).

13 J. Locke, Second Treatise of Government (G.W. Gough (ed.), Blackwell, 1976), Ch. V, 27.

14 See J. W. Harris, Property and Justice, Clarendon Press Oxford 1996.

15 Harris refers to this as the “spectacular non-sequitur”: Ibid, pp.196-7.

16 C/f Y.Barzel, Economic Analysis of Property Rights (CUP, 1989) where he states: “The current prohibition of slavery implies that each individual is the owner of the capital asset embedded in her or him”: Ibid, p.84.

17 See Drahos, op cit (n. 1) pp.213-220.

18 See Landes and Posner, The Economic Structure of Intellectual Property Law, (2003) Harvard University Press Cambridge Massachusetts.

19 According to Landes and Posner, the propertisation of intellectual creation is ancient in origin with trademarks in common use in ancient Rome. According to the authors “even the modern idea that propertising intellectual property may be necessary if there are to be adequate incentives to create it dates back to the Middle Ages”: Ibid, at p.1.

20 C/f Landes and Posner, op cit (n.14 above). The authors undertake economic analysis of intellectual property and conclude that there may social benefits of allowing some copyrights to remain in effect indefinitely: ibid, pp.222-228.

21 I. Kant, op cit (n.8).

22 G.W.F. Hegel, op cit (n.7).

23 See also A. Brudner, “Hegel and the Crisis of Private Law,” (1989) 10 Cardozo Law Review 949 and A. Brudner, “The Unity of Property Law” (1991) 4 Canadian Journal of Law and Jurisprudence 3.

24 C.R. Williams and M.S. Weinberg, Property Offences (3rd ed. Law Book Company, NSW, 2000), Ch. 1 and 2.

25 An economic term to denote the precise price point at which quantity demand equals quantity supply for any given item. The term “pareto-optimal” equilibrium point is used here to refer to resouce allocation efficiency. Resources are allocated efficiently when it is no longer possible to increase the quantity of the item supplied without making someone worse off.

26 See J. Boyle, Shamans, Software & Spleens: Law and the Construction of the Information (1997) Harvard University Press: Cambridge, Massachusetts pp.47-50.

27 United States of America v Microsoft Corporation United States District Court of Columbia No. 98-1232.

28 The “Standard Oil Trust” was established by the oil entrepreneur John D. Rockefeller in the United States. The first Standard Oil company was established in Pittsburgh Pennsylvania in 1868. At its height the Standard Oil group of companies controlled much of oil production and distribution in the United States and in Brazil. For a history of the Standard Oil story see: Ida M. Tarbell, The History of The Standard Oil Company (1904 McCLURE, PHILLIPS AND CO).

29 Curiously it was decided in the case of Board of Trade of City of Chicago v Dow Jones & Co. Inc 456 N.E. 2d 84 (Ill.1983) that Dow Jones has a “proprietary interest in its indexes and averages which vests it with the exclusive right to license their use for trading in stock indexes which could be devised”. See also D. Baird, “Common Law Intellectual Property and the Legacy of the International News Service v. Associated Press,” (1983) 50 Chicago Law Review 411.

30 C/f H. Demsetz, “The Private Production of Public Goods,” (1970) 13 Journal of Law and Economics 293.

31 R A Spanner in his treatise: Who Owns Innovation? (1984) Dow Jones Irwin, comments on the growing importance of intellectual property to the American economy: “The old adage “knowledge is power” is coming to have its commercial counterpart in the more sordid but equally valid aphorism “information is money”. In a nation that is entering the so-called post-industrial information society, information has quite literally become capital”.

32 Intellectual property is fast becoming an important revenue earner for state taxing authorities. See the interesting High Court of Australia decision in Federal Commissioner of Taxation v United Aircraft Corporation (1943) 68 CLR 525. In that case the Federal Commissioner of Taxation sought to argue that information in the form of a trade secret is an item of property and subject to federal income tax. The High Court of Australia disagreed and held that: “Knowledge is valuable, but knowledge in neither real nor personal. A man with a richly stored mind is not for that reason a man of property. Authorities which relate to property in compositions & co belong to the law of copyright and have no bearing upon the question whether knowledge or information, as such, is property. It is only in a loose metaphorical sense that any knowledge as such can be said to be property. Either all knowledge is property, so that the teaching of, for example, mathematics, involves a transfer of property, or only some knowledge is property. If only some knowledge is property then it must be possible to state a criterion which will distinguish between that knowledge which is property and that knowledge which is not property. The only criterion which has been suggested is the secrecy of knowledge-it is said that the fact that knowledge is secret in some way creates a proprietary right in that knowledge. I confess myself completely unable to appreciate this proposition as a legal statement: (1943) 68 CLR 525 at 534-35 per Latham CJ.

33 248 U.S. 215 (1918).

34 [1916] 2 KB 880.

35 (1937) 58 CLR 479.

36 (Clarendon Press: Oxford: 1996).

37 248 US 215 (1918).

38 [1896] 1QB 147.

39 (1906) TLR 375.

40 [1897] 2 Ch 48.

41 (1943) 68 CLR 525.

42 Ibid, 68 CLR 525 at 539-540 per Rich J and 547-549 per Williams J. In support of this conclusion, Williams J cites:- Delage v Nugget Polish Co. Ltd. (1905) 92 LT 682 and British Dyestuffs Corporation (Blackley) Ltd v Inland Revenue Commissioners (1923) 129 LT 538.

43 (1937) 58 CLR 479.

44 Re Keene [1922] 2 Ch 475.

45 Id.

46 Spalding (A G) & Bros v AW Gamage Ltd (1915) 32 RPC 273; Reckitt & Colman Products Ltd v Borden Inc [1990] 1 WLR 491 (Jif Lemon Case).

47 See: Tattinger v Allbev Ltd [1993] FSR 614 (Elderflower Champagne case). In the Elderflower case, the Court of Appeal (UK) was of the view that cheaper non-alcoholic champagne was likely to cause damage to the more expensive French import on the basis that it was likely to mislead consumers as to the source and origin of the goods. C/f Champagne Heidsiech et Cie Monopole SA v Buxton (1930) 47 RPC 28 where an application for an interlocutory injunction restricting the defendant from selling the French import in the UK was refused.

48 [1988] 2 WLR 805.

49 [1967] 2 AC 46.

50 Id.

51 (1890) 45 Ch D 1.

52 [1994] 1 NZLR 1.

53 For a review of the cases involving surreptitiously obtained information and breach of confidence see: A. Mc Robert, “Breach of Confidence: Revisiting the Protection of Surreptitiously Obtained Information”, (2002) 13 (2) Australian Intellectual Property Journal 69; M. Richardson, “Breach of Confidence, Surreptitiously or Accidentally Obtained Information and Privacy: Theory Versus Law” (1994) 19 Australian Intellectual Property Journal 763.

54 [2001] HCA 63 (15 November 2001).

55 [1979] Crim L. Rev 119.

56 See the reasoning of Smith J:- “It seems to me, speaking for my part, that they are of little assistance in the present situation in which we have to consider whether there is property in the information which is capable of being the subject of a charge of theft. In my judgment, it is clear that the answer to that question must be no” According to Wein J:- “would support the decision of the stipendiary magistrate on one ground only, that it is shown in this case that the right to confidential information is not intangible property within the meaning of s4 (1) of the Theft Act 1968”.

57 [1988] 1 SCR 963.

58 See: L.Lessig, The Future of Ideas, (2001) Random House: New York, pp.26-48 where Lessig discusses the intellectual commons that has been allowed to be created over the internet and the attempts of copyright owners and telecommunication giants exerting control of the public common.

59 Ibid, Lessig cites G.Cook where the Cook in commenting on the “dark forces” attempting to control the internet:- “The internet revolution has come and gone. It has created a tremendous bust of innovation[-a ] burst that now looks to have been mismanaged…[T]he people who did the least to advance the new technologies seem most likely to control them. We are left not with the edge-controlled intelligence of the [end-to-end] network but with the central authoritarian control of the likes of AOL Time Warner”: G. Cook, “The Meaning of Current Events,” The Cook Report, June 20, 2001 available at http://cookreport.com.

60 Kabushiki Kaisha Sony Computer Entertainment v Stevens [2002] FCA 906 (per Sackville J).

61 Kabushiki Kaisha Sony Computer Entertainment v Stevens [2002] FCA 906 (per Sackville J) granted the ACCC special leave as an “amicus curiae”:- Ibid [2001] FCA 1379.

62 In Australia, the term used by the legislation is “technological protection measure” (TPM):-s.116A of the Copyright Act 1968 (Cth).

63 Kabushiki Kaisha Sony Computer Entertainment v Stevens [2002] FCA 906 at 943. (per Sackville J).

64 Ibid, [2002] FCA 906 at 960. (per Sackville J).

65 Ibid, [2002] FCA 906 at 933 . (per Sackville J).

66 Id.

67 Ibid, [2002] FCA 906 at 935 . (per Sackville J).

68 Kabushiki Kaisha Sony Computer Entertainment v Stevens [2003] FCAFC 157 (30 July 2003).

69 Exposure Draft and Commentary on the Digital Agenda Copyright Amendments, (1999) AGPS, Canberra. See also: Copyright Amendment (Digital Agenda) Bill 1999 (the First Digital Agenda Bill). The First Draft Bill had drawn upon a proposed European Commission Directive:- Harmonisation of Certain Aspects of Copyright and Related Rights in the Information Society. The EC Directive was adopted by the European Parliament on 22 May 2001: Directive 2001/29/EC.

70 Copyright Law Review Committee (CLRC), Draft Report on Computer Software Protection (1993) AGPS, Canberra.

71 Copyright Law Review Committee (CLRC), Draft Report on Computer Software Protection (1995) AGPS, Canberra.

72 Copyright Reform and the Digital Agenda (1997) AGPS, Canberra.

73 [2003] FCAFC 157 at 198 (per Lindgren J).

74 (1872) LR 7 Ch App 259.

75 The “jurisdictional debate” over whether a trade secret is property or not is not new. See for example:- Stuckey, “The Equitable Action for Breach of Confidence: Is Information Ever Property?” (1981) 9 Syd LR 402; S. Wheeldon, “Reflection on the Concept of Property with Particular Reference to Breach of Confidence” (1997) 11 Auckland U LR 353; S. Ricketson, “Confidential Information-A New Proprietary Interest? (Part 1) (1977) 11 MULR 223; (Part II) (1978) MULR 289; Tsaknis, “The Jurisdictional Basis, Elements and Remedies in the Action for Breach of Confidence” (1993) 5 Bond LR 18.

76 D. Vaver, “Trade Secrets: A Commonwealth Perspective” (1969) EIPR 301.

77 Indeed, according to Dean, courts have proven to be flexible and practical in their “desire to prevent the misuse of confidential, private, commercial, governmental and artistic information, in each case developing principles guided by public policy applicable to specific facts, not rigid causes of action’: R. Dean, The Law of Trade Secrets and Personal Secrets (2002) LBC NSW, 29.

78 Indeed, a similar question has been posed by R.A. Spanner in his treatise:- Who Owns Innovation? (1984) Dow Jones-Irwin.

79 J. W. Harris, Property and Justice, Clarendon Press Oxford 1996 at pp.102-103.

80 [1992] 175 CLR 1.

81 Query:- Under current Kyoto arrangements there may well exist an economically viable market for carbon dioxide emissions. Countries with lower than target emissions can raise credits and “sell” them to countries which are higher pollutants. In effect this represents a market solution to the problem of pollution where “good” countries are rewarded and “bad” polluting countries are taxed for emitting high levels of carbon dioxide.