IP's online market: The economic forces at play

• Pages: 5-6

In 2010, WIPO launched a Seminar Series on the

Economics of Intellec tual Property (IP) to explore

the interface between the two areas. At the

September seminar, Professor Hal Varian, examined

the economic forces at play in the online market for

IP. He focused on how to encourage legitimate

transactions of online content by reducing the

costs associated with identifying IP right owners.

Digital technologies have fue lled an “informa tion

explosion” and tr ansformed copyr ight’s operating

landscape, bl urring traditiona l r elationships and

creating new ones a s new onlin e services appear

almost daily. While f acilitating the dissemination

of creative content – an original tenet of copy-

right law – this rapidly evolving landsca pe pres-

ents many copyright cha llenges, part icularly in

terms of returni ng value to author s and harness-

ing the econo mic benefits of onli ne content – the

other pr inciple under pinning copyr ight law.

The costs of securi ng and managing legitimate

transact ions of p rotected material – transac tion

costs1– have soared rec ently, large ly becau se of

difficult ies in identifyi ng copyright own ers. “There

are many valuable transac tions between buyers

and selle rs… that don’t tak e place because of the

transact ion costs of identif ying the appropria te

owner,” Professo r Varian exp lained. He said, “as

economist s we look at value in t ransactions…

and transaction costs are like sand in the ge ars;

[they] slow the m d own or prevent things from

happening. So it’s importa nt fr om an econo mic

perspect ive to try to minimize transaction c osts.”

Orphan works

Under copyright law, there is no requirement to

register a creative work; protection is immediate

and automatic. According to the Professor, this,

coupled with an extended term of copyright pro-

IP’S ONLINE MARKET

THE ECONOMIC

FORCES AT PLAY

>>>

1 Transactio n costs –

expenses a ssociated

with mak ing an

economic e xchange –

the time, money and

energy invol ved in

concluding a deal.

2http://nordh aus.econ.

yale.edu/prog_ 083001a.

pdf

3http://hmi.u csd.edu/

howmuchinfo_r esearch

_report_con sum.php

4 An average web pag e

(including graphics)

is about 50 kilobytes –

so 1 gigabyte is roughly

the equiva lent of

20,000 web pages.

5

Information explosion

In the digital era, the costs of reproduc ing, s toring and disseminating crea tive content have fallen

dramatically. Computation costs are estimated to have fallen by 1 to 5 trillion times in the last 100 years,2

Professor Varian explai ned. This has spurred unprecedent ed growth in the information available, with

strikin g increases in professio nal content and user- created conten t as well as that produced or

accessed illic itly – pir ated content. “ This dramatic reduction in cost has led to an equally dramatic

increase in output,” he noted, citing a recent study3th at put per capita con sumption of information in

the industrialized world in 2009 at aro und 34 gigabytes per day. 4While trac ing works pre-dat ing the

digital age is diffic ult, identifyi ng owners of “digitally born” works promises to be less so as these works

are now typically rec orded when th ey appear o n digital net works.

Bio

Hal R. Varian is the Chief E conomist at Go ogle, where he st arted as a

consultan t in 2002. He has been involve d in many aspects of the comp any’s

activ ities, including auc tion design, economet rics, finance, corpo rate

strategy and public policy.

He is e meritus professor at the Uni versity of Ca lifornia, Berkeley – at th e

School o f Information , the Haas S chool of Busi ness and the Department of

Economics. He has publi shed nume rous pape rs on economic theory,

econometr ics, indust rial organ ization, p ublic finan ce, and the econ omics of information technology.

Professor Varian has written two bes tselling t extbooks entitled

Intermedia te Microe conomics

and

Microecono mic Analysis

. Ranke d by Accenture as one of the top 10 busine ss gurus in 20 02, he is co -au-

thor of

“Informati on Rules: a Strategic Guide to th e Network Economy”.

Photo: H. R. Varian