The Knockoff Economy

by Kal Raustiala

  7. The Sopranos, “46 Long” (1999).

  8. While Paulie’s views on who owns the cappuccino may seem extreme, this is actually a live issue in intellectual property thinking today. It usually falls under the banner of “traditional knowledge” or “cultural property.” See generally Steven Munzer and Kal Raustiala, “The Uneasy Case for Intellectual Property Rights in Traditional Knowledge,” Cardozo Arts and Entertainment Law Journal 27.1 (2009): 37; Kristen A. Carpenter, Sonia K. Katyal, and Angela R. Riley, “In Defense of Property,” Yale Law Journal 118.6 (2009): 1022; Susan Scafidi, Who Owns Culture: Authenticity and Appropriation in American Law (Rutgers, 2005); Michael Brown, Who Owns Native Culture? (Harvard, 2004).

  9. In re Morton-Norwich Products, Inc., 671 F.2d 1332 (C.C.P.A. 1982).

  10. Congressional Budget Office, Research and Development in the Pharmaceutical Industry (October 2006), 2.

  11. Brooks Barnes, “‘Avatar’ Is No. 1 but without a Record,” New York Times, December 20, 2009.

  12. Hearings before the Subcommittee on Courts, Civil Liberties, and the Administration of Justice on Home Recording of Copyrighted Works, April 12, 1982.

  13. For some notable exceptions, see Paul Nystrom, Economics of Fashion (Ronald Press, 1928); Paul M. Gregory, “An Economic Interpretation of Women’s Fashions,” Southern Economic Journal 14.2 (1947): 148; Wolfgang Pesendorfer, “Design Innovation and Fashion Cycles,” American Economic Review 85.4 (1995): 771; Jonathan Barnett, “Shopping for Gucci on Canal Street: Reflections on Status Consumption, Intellectual Property and the Incentive Thesis,” Virginia Law Review 91.6 (2005): 1381; Kal Raustiala and Christopher Sprigman, “The Piracy Paradox: Innovation and Intellectual Property in Fashion Design,” Virginia Law Review 92.8 (2006): 1687; and C. Scott Hemphill and Jeannie Suk, “The Law, Culture, and Economics of Fashion,” Stanford Law Review 61.5 (2009): 1147.

  14. Hemphill and Suk coined these useful terms in their Stanford Law Review article. They treat the two as simply different types, though of course there is a social class dimension to this, and in the past this was far more apparent. The great French historian Fernand Braudel quotes a story of a Sicilian nobleman in Paris in the early 18th century who noted that “nothing makes noble persons despise the gilded costume so much as to see it on the bodies of the lowest men in the world… so the upper class had to invent new ‘gilded costumes.’” See Pesendorfer, “Design Innovation and Fashion Cycles,” 771-72.

  15. Identifying the tipping point is a task for Malcolm Gladwell, The Tipping Point: How Little Things Can Make a Big Difference (Back Bay Books, 2002).

  16. Emmanuelle Fauchart and Eric von Hippel, “Norms-based Intellectual Property Systems: The Case of French Chefs,” Organization Science 19.2 (2008): 187.

  17. Robert Ellickson, Order without Law: How Neighbors Settle Disputes (Harvard, 1994); Eric Posner, Law and Social Norms (Harvard, 2002); Lisa Bernstein, “Opting Out of the Legal System: Extralegal Contractual Relations in the Diamond Industry,” Journal of Legal Studies 21.1 (1992): 115.

  18. Oral Argument, Two Pesos, Inc., 505 U.S. 763, 1992 WL 687823 *16 (Scalia, J. speaking; emphasis added).

  19. “Having a Ball: What’s Working in Music,” The Economist, October 7, 2010.

  20. Zoe Heller, “Mick without Moss,” New York Times, December 3, 2010.

  21. Quoted in ibid.

  22. Marie Connolly and Alan B. Krueger, “Rockonomics: The Economics of Popular Music,” in Handbook of the Economics of Art and Culture, Victor Ginsburg and David Throsby, eds. (Elsevier, 2006), 670; “Music Industry Decides that All the World’s a Stage,” The Independent, January 3, 2009.

  23. Connolly and Krueger, “Rockonomics,” 673.

  24. Jon Pareles, “David Bowie, 21st Century Entrepreneur,” New York Times, June 9, 2002.

  25. Sasha Frere Jones, “Critic’s Notebook: Pay Scale,” The New Yorker, March 23, 2009, 9.

  26. Daniel H. Pink, Drive: The Surprising Truth about What Motivates Us (Penguin, 2009), 15-16.

  27. To learn more about open source, see Yochai Benkler, The Penguin and the Leviathan: How Cooperation Triumphs over Self-Interest (Random House, 2011); Steven Weber, The Success of Open Source (Harvard, 2005); Eric S. Raymond, The Cathedral and the Bazaar: Musings on Linux and Open Source by an Accidental Revolutionary (O’Reilly Media, 2001).

  28. Richard Rothwell, “Creating Wealth with Free Software,” Free Software Magazine (August 2008), www.freesoftwaremagazine.com/community_posts/creating_wealth_free_software#. See also the discussion in Chris Anderson, Free (Hyperion, 2009), chapter 7.

  29. Nicholas Dawidoff, “Rex Ryan: Bringing it Big,” New York Times, September 8, 2010.

  30. Ferran Adria et al., “Statement on the ‘New Cookery,’” The Guardian, December 9, 2006.

  31. Eric Wilson, “Before Models Can Turn Around, Knockoffs Fly,” New York Times, September 4, 2007; see also Paul Nystrom, Economics of Fashion (Ronald Press, 1928) for an early version of this claim.

  32. Hemphill and Suk, “The Law,” 24.

  33. Congress responded to the Trade-Mark Cases by enacting the Trade Mark Act of 1881. It did so based on its power under the Constitution’s Commerce Clause to regulate interstate commerce. That enactment later passed constitutional muster.

  34. Levine, Free Ride.

  35. Michele Boldrin and David K. Levine, Against Intellectual Monopoly (Cambridge, 2008).

  36. There are scores if not hundreds of studies demonstrating the existence of optimism bias. Russell Korobkin and Thomas Ulen, “Law and Behavioral Science: Removing the Rationality Assumption from Law and Economics,” California Law Review 88.4 (2000): 1091; Neil Weinstein, “Unrealistic Optimism about Future Life Events,” Journal of Personality and Social Psychology 39.5 (1980): 806.

  37. Christopher J. Buccafusco and Christopher J. Sprigman, “Valuing Intellectual Property: An Experiment,” Cornell Law Review 96.1 (2010): 1.

  38. The participants were told that they would be selling only the chance to win the prize, not the poem itself—in adopting this structure, the experiment modeled an IP transaction, in which the author of something like a poem, which is what economists call “nonrival” property, sells some opportunity to use the poem (for example, to publish it), but does not divest himself of the poem completely. Contrast this with a transaction involving “rival” property, like a coffee mug. In the latter, the seller loses all access to the good he has transferred—you don’t drink out of a mug once you have sold it to someone else.

  39. These experiments do not empirically demonstrate increased effort, but instead increased ex ante valuations of goods. But the same is largely true for the incentive basis of copyright or patent: both rest on the belief that larger expected rewards will result in more output of innovation. A potentially more important caveat is that firms may be institutionally structured to reduce optimism bias and have more rational and reasonable valuations in mind when engaging in innovation. How individuals differ from firms in this regard is an interesting question not addressed by these experiments.

  40. Sherwin Rosen, “The Economics of Superstars,” 71.5 American Economic Review (1981): 845; Robert H. Frank and Philip J. Cook, The Winner Take All Society (Free Press, 1995).

  41. Doug Lichtman et al., “Strategic Disclosure in the Patent System,” Vanderbilt Law Review 53.6 (2000): 2200. Whether the second and third place finishers truly wasted their efforts is a hard question, since there may be useful spillovers from these efforts. But the central point remains.

  42. Jonathan Barnett et al., “The Fashion Lottery: Cooperative Innovation in Stochastic Markets,” Journal of Legal Studies 39.1 (2010): 159.

  43. Buccafusco and Sprigman, “Valuing Intellectual Property,” 7. Loss aversion may also play a role here, as a counter-countervailing force against the countervailing force of optimism bias and tournament effects. We are not claiming that the overall effect of various psychological biases is clear; rather, we simply want to point out that there is good reason to think th
at there are some, possibly significant, forces that lead creators to overestimate their incentives to create.

  44. These have slightly different connotations but share a reliance on an open innovative system in which many actors, often formally unconnected, participate. On crowd-sourcing, see James Suroweicki, The Wisdom of Crowds (Anchor, 2005).

  45. https://buy.louisck.net/statement (accessed December 16, 2011).

  EPILOGUE

  1. Greg Kot, Ripped: How the Wireless Generation Revolutionized Music (Scribner, 2009); Steve Knopper, Appetite for Self-Destruction: The Spectacular Crash of the Record Industry in the Digital Age (Free Press, 2009); Donald Passman, All You Need to Know about the Music Business (7th ed., Free Press, 2009); M. William Krasilovsky et al., This Business of Music: Definitive Guide to the Music Industry (10th ed., Billboard Books, 2007).

  2. Recording Industry of America, www.riaa.com (accessed July 8, 2011).

  3. “Napster: A Cool Billion,” The Economist, February 22, 2001.

  4. Indeed, the record label’s anti-piracy campaign appears to have provoked innovation in the technology of filesharing that made future anti-piracy campaigns less effective. Had the industry made its peace with Napster, these developments would likely still have happened, but they may have happened less rapidly and been less salient to ordinary users.

  5. Statistics drawn from domestic release figures at Box Office Mojo; http://boxofficemojo.com/yearly/?view2=domestic&view=releasedate&p=.htm.

  6. Zoe Heller, “Mick without Moss,” New York Times, December 3, 2010. On albums as ads, see Frere Jones, in Conclusion. On Madonna, see Sean Michaels, “Madonna Records Biggest Second-week Sales Drop in US Chart History,” The Guardian, www.guardian.co.uk/music/2012/apr/11/madonna-second-week-sales-drop.

  7. Jon Caramanica, “For Some, Free Music Is an Investment that Pays Off,” New York Times, November 18, 2011.

  8. Josh Tyrangiel, “Radiohead Says: Pay What You Want,” Time Magazine, October 1, 2007, www.time.com/time/arts/article/0,8599,1666973,00.html.

  9. Mark F. Schultz, “Fear and Norms and Rock & Roll: What Jambands Can Teach Us about Persuading People to Obey Copyright Law,” Berkeley Technology Law Journal 21.2 (2006): 651.

  10. Schultz, “Fear and Norms,” 680-81.

  11. Ryan Singel, “Netflix Beat BitTorrent’s Bandwidth,” Wired, May 17, 2011, www.wired.com/epicenter/2011/05/netflix-traffic/.

  12. Glenn Peoples, “Spotify Has 250,000 U.S. Subscribers,” Billboard, October 14, 2011, www.billboard.biz/bbbiz/industry/digital-and-mobile/spotify-has-250-000-u-s-subscribers-report-1005411992.story.

  INDEX

  ABS, 2

  Academic writing, 108

  Academy Awards, 1

  AC/DC, 141

  Achatz, Grant, 73, 75, 81, 190

  Acquired distinctiveness, 149

  Adams, Joey, 247n6

  Adidas, 29

  Adobe, 153

  Adria, Ferran, 62, 90, 190

  Advertisements

  brand meanings created through, 198

  copying as, 199

  description of, 173

  fake luxury items as form of, 199

  Advertising effect, 200-201

  Advil, 196-97

  Aeolian Company, 140-41

  Alinea, 73, 75, 93

  “All Along the Watchtower,” 141

  Amazon.com, 7

  American Needle v. NFL, 131

  Anchoring, 47-49, 174

  Anderson, Chris, 188, 215

  Andres, Jose, 92

  Android, 188

  Angel, Criss, 121

  Anka, Paul, 141

  Apache, 186

  Apparel-making, 22-23

  Apple, 15, 142, 176, 188, 209, 220-21

  Architectural drawings, 65

  Architectural Works Copyright Protection Act, 65

  Arclight, 181

  Arial font, 147

  Armani, Giorgio, 24, 51, 55

  Asset securitization, 159

  Associated Merchandising Corp., 32

  Athenaeus, 81

  Ault, Chris, 135-36, 189

  Aviary, 92

  Baja Fresh, 9

  Balenciaga, 37

  Barnett, Jonathan, 199-200

  Barneys New York, 51

  Bartenders, 92-94

  Batali, Mario, 64

  Baudrillard, Jean, 41

  Bazaar, 92

  Beard, James, 60

  Benkler, Yochai, 186

  Benny, Jack, 100

  Berle, Milton, 100-101, 247n7

  Bertelli, Patricio, 38

  Bidders’ Edge, 165

  BitTorrent, 217-18, 226-27

  Black, Lewis, 101

  BlackBerry, 188

  Black-Scholes option pricing formula, 158

  Blahnik, Manolo, 25

  Blais, Richard, 88

  Blass, Bill, 24

  Blue Light Grill, 92

  Blues Traveler, 225

  Blumenthal, Heston, 90, 190

  Bogle, John, 123-24

  Books

  handwritten, 145

  piracy of, 145-46

  printing press effects on production of, 145-46

  “Borscht Belt,” 99-100, 109

  Bouley, David, 61

  Boulud, Daniel, 73

  Bowie, David, 141, 184

  Brady, Diamond Jim, 60

  Brands

  consumer perceptions of, 197

  copies as advertisement for, 199, 201

  counterfeiting effects on, 200

  description of, 173

  fashion. See Fashion brands

  innovation and, 197

  meanings associated with, 198

  power of, 196-97

  role of, 195

  trademark protection of, 195

  value of, 195

  Breaking the Magician’s Code: Magic’s Biggest Secrets Revealed, 121

  Brooks Brothers, 23-24

  Bruce, Lenny, 101

  Buccafusco, Chris, 67, 80, 204

  Buffet, Warren, 89, 156

  Buildings, 65

  “Built food,” 59, 64, 67-68

  Burberry, 29

  Bureau of Labor Statistics, 45

  Business method patents, 157-58

  Caillat, Colbie, 223

  Caioti Pizza Café, 61

  California Pizza Kitchen, 61

  Calligraphy, 146, 250n13

  Camp, Walter, 127

  Cantu, Homaro, 62, 71-72

  Careme, Antoine, 59

  Carlin, George, 106

  CD, 228-29

  Chanel, 24

  Chanel, Coco, 34

  Chang, David, 71, 76, 180

  Chappelle, Dave, 107

  Charles, Rebecca, 57-59, 69

  Chau, Chak, Yam, 70

  Chefography, 87

  Chefs. See also Cuisine; Culinary copying; Food; Recipes

  attribution of dishes to, 79-80, 87, 178-79

  bartenders and, similarities between, 94-95

  celebrity status of, 87

  creativity of, 78-90

  culinary copying and, 88-89

  fame of, 59, 61

  innovations by, 62-63, 190

  patents use by, 71-72

  public reputation of, 87-88

  reputation of, 86-89

  self-policing by, 78-83

  sharing of creations by, 86

  social norms use by, 78-83, 178

  trade secret protections, 71

  in 20th century, 61

  Child, Julia, 60

  Chili’s, 63

  Chinese restaurants, 61

  Cho, Margaret, 101

  Choi, Roy, 9

  Cincinnati Bengals, 128-29

  Citigroup, 160

  Citrin, Josiah, 76

  Claiborne, Craig, 62

  “Click-wrap” license, 72

  Clothing. See also Fashion

  food and, similarities between, 68

  as positional goods, 40

  status associated with, 39-40

  Cocktails, 91
-95, 181

  Cocteau, Jean, 41, 43

  Cohen, Bram, 226

  Coke, 71

  Coltrane, John, 141-42

  Comedians

  attacks on reputation of, 112-14

  bad-mouthing of, 112-13

  creativity of, 116

  history of, 99-102

  imitation reputation of, 112-13

  joke buying and selling among, 110

  joke copying by. See Joke copying

  media exposure of, 102

  oral agreements among, 110

  originality of, 109

  peer appreciation, 112

  personalized material created by, 117-18

  plagiarism by, 248n 18

  public shaming of, 115

  refusal to deal with, 113-14

  reputation of, 112-14

  shunning of, 112-13

  social norms of, 104-15, 177-79

  violent retaliation against, 114

  Comedy Bible, The, 107

  Comedy clubs, 102

  Comedy industry

  aficionados of, 115

  characteristics of, 100

  copying in, 10-12. See also Joke copying

  history of, 99-102

  innovation in, 118

  intermediaries in, 113-14

  monologues, 101-2

  narrative, 117

  one-liner era of, 101-2, 116-17

  ownership rules in, 110-11, 116

  personalized nature of, 118

  politics in, 101

  present-day changes in, 117

  social norms in, 98, 104-115

  Comedy Store, The, 97

  Competition

  copying and, 5-6, 168-70

  in fashion industry, 24

  importance of, 5, 168

  innovation and, 168

  intellectual property and, 237n3

  Competition-style cooking, 87

  Computer programming industry, 136-38, 189

  Concerts, 182-84, 222

  Confidentiality, 80

  Cook, Dane, 10-12, 179, 208