Sorry, but the New Economy Demands New Regulations

By Robert Kuttner

Consider these recent news items: Authors win the right for additional payment if publishers put their articles on the Internet; Houghton Mifflin wins a suit allowing publication of The Wind Done Gone, a parody of Gone with the Wind; The House passes a law giving consumers the right to reimport prescription drugs for personal use; Microsoft agrees to let computer makers modify its Windows operating system.

These four issues underscore the fact there is no such thing as an unregulated market, especially in intellectual property. Like other forms of property, rights in intellectual property exist only because governments define what they are. Moreover, there is no intuitive "free-market" answer to these policy conundrums. They all entail competing claims, and they cry out for thoughtful public policy defining the public interest.

Take the case of the freelance writers. Until the National Writers Union (of which I am a member) won its case, publishers were claiming that by selling an article for one-time print publication, authors were also giving away rights to have the article republished in electronic data bases. The Supreme Court agreed with the plaintiffs: These electronic publication rights had to be negotiated separately.

EVER LONGER. But the victory may well be pyrrhic. Most freelance writers lack the bargaining power to do anything other than take what the publisher offers. But they now have the power to demand that old articles be deleted from databases retroactively. That means that people scrolling through the Net may find incomplete databases. Sooner or later, Congress is going to have to step in and make policy. Electronic publishing was not envisioned when copyright laws were written. Letting the courts thrash this out is not a good solution.

Nor the did the framers of the Constitution imagine a situation like The Wind Done Gone. When the Constitution empowered Congress to set up a scheme to encourage the mechanical and literary arts with patents, trademarks, and copyrights, the assumption was that the duration of the protection would be fairly short. But the publishing and entertainment industries have successfully lobbied for ever longer protection. Gone with the Wind was published in 1936. What earthly public interest is served by denying another author the right to publish a takeoff in 2001? Why not make Tom Stoppard pay a licensing fee to Shakespeare's heirs for writing Rosencrantz and Guildenstern are Dead? Here again, Congress has to compare the competing equities, and make policy. There is no natural market solution.

Exaggerated patent protections bring to mind the pharmaceutical industry. The House had to pass legislation allowing consumers to import cheaper foreign drugs because U.S. companies keep domestic prices among the world's highest. They are able to do this because of a friendly domestic patent regime. About half of all the money that goes for new drug research is taxpayer funded, either directly through government agencies or indirectly through tax-exempt private institutions. So consumers pay for drugs twice--as taxpayers and patients. The entrepreneurial route to medical breakthroughs is only one possible approach and not the most cost-effective. It would be better to spend more public funds on drug research and get life-saving drugs into the public domain at lower prices. Half a century ago, the great drug breakthroughs--penicillin, streptomycin, the Salk polio vaccine--were broadly licensed at nominal cost or put in the public domain.

We are a long way from a free market with Congress spending tens of billions of public dollars on the National Institutes of Health, the National Science Foundation giving tax breaks to research universities, and drug companies receiving extended patent protection. How best to balance private drug industry profits with broad social benefits is a policy choice.

Finally, a computer operating system presents a novel problem in antitrust law. Windows gives Microsoft immense market power. Microsoft's decision to "voluntarily" allow computer makers to modify Windows may not solve the problem. Microsoft doesn't appear to be letting the PC makers change the new Windows XP's most important features, such as instant messaging. One proposal would be to treat an operating system as a kind of common carrier and insist that the system be scrupulously neutral with respect to applications from competing software manufacturers. This is another situation that demands national policy, rather than new law arrived at by the courts.

The Internet also raises a host of new privacy concerns, and these demand a regulatory response that balances the Web's commercial potential with people's right to be left alone. So let's retire the idea that the New Economy is naturally an unregulated economy. A policy vacuum only means endless litigation and cumbersome ad hoc rule by judges. We've never needed thoughtful regulation more than we do now.

Robert Kuttner is co-editor of The American Prospect and author of Everything for Sale

    Before it's here, it's on the Bloomberg Terminal.