The creativity effect

University of Chicago Law Review

Volumn 78, Issue 1, 2011, Pages 31-52

  Buccafusco, Christopher ^a   Sprigman, Christopher Jon ^b  

^a CHICAGO KENT COLLEGE OF LAW   (United States)

^b UNIVERSITY OF VIRGINIA SCHOOL OF LAW   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 79955964130     PISSN: 00419494     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (86)

1. See Christopher Buccafusco and Christopher Sprigman, Valuing Intellectual Property: An Experiment, 96 Cornell L Rev 1, 17-31 (2010).
2. Id at 4.
3. Part I.A is reproduced substantially from id at 2-6.
4. For the canonical formulation of property and liability rules, see Guido Calabresi and A. Douglas Melamed, Property Rules, Liability Rules, and Inalienability: One View of the Cathedral, 85 Harv L Rev 1089, 1089-93 (1971).
5. See Robert P. Merges, Contracting into Liability Rules: Intellectual Property Rights and Collective Rights Organizations, 84 Cal L Rev 1293, 1308 (1996) ("[IP] liability rules are set by Congress through compulsory licensing schemes and are not precisely-tailored valuations.")
6. William M. Landes and Richard A. Posner, The Economic Structure of Intellectual Property Law 414 (Belknap 2003) ("Markets and property rights go hand in hand. Property rights provide the basic incentives for private economic activity and also the starting point for transactions whereby resources are shifted to their most valuable use.").
7. See Daniel Kahneman, Jack L. Knetsch, and Richard H. Thaler, Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias, 5 J Econ Persp 193, 193 (1991).
8. See Russell B. Korobkin and Thomas S. Ulen, Law and Behavioral Science: Removing the Rationality Assumption from Law and Economics, 88 Cal L Rev 1051, 1054-58 (2000).
9. For a primer on the origins and development of behavioral economics and its incorporation into legal analysis, see generally Cass R. Sunstein, ed, Behavioral Law and Economics (Cambridge 2000).
10. See Russell B. Korobkin, The Endowment Effect and Legal Analysis, 97 Nw U L Rev 1227, 1229 (2003)
11. Samuel Issacharoff, Can There Be a Behavioral Law and Economics?, 51 Vand L Rev 1729, 1735 (1998). (Pubitemid 128443474)
12. For a review, see Korobkin, 97 Nw U L Rev at 1230-42 (cited in note 9).
13. See id at 1232-34 (highlighting research demonstrating the endowment effect's influence on the valuation of property, ranging from wetlands to candy bars to coffee mugs). As Kathryn Zeiler notes, the use of the term "endowment effect" for the observation of a WTA/WTP gap can create biases of its own, as it imports an explanation of the gap into the description of the behavior-that is, that the valuation gap is due to sellers' attachment to the good based on their ownership of it.
14. See Kathryn Zeiler, The Endowment Effect: Implications of Recent Empirical Developments for Legal Theory *8 n 32 (unpublished manuscript, Jan 2008), online at http://www.law.umich.edu/centersandprograms/ lawandeconomics/workshops/Documents/Winter2008/zeiler.pdf (visited Oct 15, 2010). We choose to employ the term throughout this Article because it has been widely adopted by most commentators on the literature. Importantly, however, we join Zeiler in resisting the temptation to use the "endowment effect" as fully explanatory of the WTA/WTP gap. Instead, our experimental design inquires into the underlying psychological mechanisms that might be motivating the gap.
15. For a review, see sources cited in Buccafusco and Sprigman, 96 Cornell L Rev at 2 nn 3-8 (cited in note 1).
16. See id at 19-20.
17. Id.
18. See Georgios I. Zekos, Nanotechnology and Biotechnology Patents, 14 Intl J L & Info Tech 310, 363 (2006).
19. See Buccafusco and Sprigman, 96 Cornell L Rev at 19-20 (cited in note 1).
20. Id at 22.
21. Id at 4.
22. See, for example, Alden F. Abbott, Intellectual Property Licensing and Antitrust Policy: A Comparative Perspective, 34 L & Pol Intl Bus 801, 803 (2003).
23. See Rebecca Tushnet, Economies of Desire: Fair Use and Marketplace Assumptions, 51 Wm & Mary L Rev 513, 521 (2009)
24. Anne Barron, Copyright Infringement, "Free-Riding" and the Lifeworld, in Lionel Bently, Jennifer Davis, and Jane C. Ginsburg, eds, Copyright and Piracy: An Interdisciplinary Critique 93, 112 (Cambridge 2010).
25. Buccafusco and Sprigman, 96 Cornell L Rev at 29 (cited in note 1).
26. See generally id (describing our model and its use in several different experiments).
27. Id at 17.
28. Id at 17-18.
29. See, for example, Richard A. Posner, Intellectual Property: The Law and Economics Approach, 19 J Econ Persp 57, 68-72 (2005)
30. Landes and Posner, Economic Structure of Intellectual Property Law at 4-5 (cited in note 5) ("We are skeptical that the noneconomic theories of intellectual property have much explanatory power or normative significance.").
31. But see Wendy J. Gordon, A Property Right in Self-Expression: Equality and Individualism in the Natural Law of Intellectual Property, 102 Yale L J 1533, 1540-75 (1993).
32. We are currently modifying the experiment to evaluate the way creators may derive value from attribution and publication in addition to licensing and rent-seeking.
33. This question read, "How would you rate your level of personal and emotional investment or attachment to the painting?" It was followed by a scale from 1 to 10, with 1 labeled "Not at all" and 10 labeled "Very Much."
34. This question read, "Imagine that your painting sells for the amount you indicated and that it goes on to win the prize. How much regret do you anticipate feeling about another person winning with your painting?" It was followed by a scale from 1 to 10, with 1 labeled "Not at all" and 10 labeled "Very Much."
35. The Buyers' question about regret was somewhat different. It read, "Imagine that you fail to purchase the painting for the amount you indicated and that it ends up winning the prize. How much regret do you anticipate feeling?" It was followed by a scale from 1 to 10, with 1 labeled "Not at all" and 10 labeled "Very Much."
36. Our "Owners" were not perfect models of real-world owners. Unlike real owners of IP who presumably own the IP because they purchased it, our owners were simply gifted the chance to win the prize. We hope to study this difference in future experiments.
37. Assigned value was significantly correlated with probability (r =.44, p < .01). Additionally, in ANCOVA analysis with role as a fixed factor and quality, regret, and predicted probability of winning as covariates, predicted probability of winning significantly predicted the value assigned to the poem, F(1, 47) =6.93, p < .05.
38. We note here that there might be a valid distinction to be made between a subject's "valuation" of the chance to win and her "pricing" of that chance.
39. Consider, for example, Ward Farnsworth, Do Parties to Nuisance Cases Bargain after Judgment? A Glimpse Inside the Cathedral, 66 U Chi L Rev 373, 399 (1999).
40. Although subjects might not have perfect knowledge about their weighted chances to win, any errors should be randomly distributed around the mean.
41. As with our previous experiment, Buyers' mean WTP was slightly higher than rational probability theory would predict.
42. Buccafusco and Sprigman, 96 Cornell L Rev at 26 (cited in note 1).
43. One possible explanation is that the nature of the scale resulted in a few high bids shifting the mean higher than expected. Another possibility is that Buyers may have attached some significance to the fact that they were being asked to bid on only one painting-and this may have raised their estimation of that painting's chance of winning the contest. Finally, having been told that this was the only painting that she could bid on, it is also possible that each Buyer developed a sense of attachment to her painting even though she did not own it.
44. All of these differences are statistically significant at p < .01. Similarly, in ANCOVA analysis with role as a fixed factor and quality, regret, and predicted probability of winning as covariates, the effect of role was highly significant. F(2, 47) =18.13, p < .0005. All of the groups differ significantly from one another. Painters assign higher values than both Owners (t(33) =4.11, p < .0005) and Buyers (t(37) =7.75, p < .0005), and Owners assign higher values than Buyers (t(38) =3.17, p < .005).
45. See Korobkin, 97 Nw U L Rev at 1228 (cited in note 9).
46. See, for example, Roberta Rosenthal Kwall, Copyright and the Moral Right: Is an American Marriage Possible?, 38 Vand L Rev 1, 2 (1985)
47. Susan P. Liemer, Understanding Artists' Moral Rights: A Primer, 7 BU Pub Intl L J 41, 43 (1998).
48. See Michael I. Norton, Daniel Mochon, and Dan Ariely, The "IKEA Effect": When Labor Leads to Love (unpublished manuscript, 2010) (on file with authors).
49. We did not collect data on the emotional attachment of Owners or Buyers on the assumption that they would feel little of it. Accordingly, this leaves open that possibility that even though relatively more attachment did not result in higher values within the class of Painters, overall differences in emotional attachment between Painters and Owners or Buyers may be related to valuation. Of course, even if we did know that Painters claimed higher levels of attachment and higher values, we could not declare that the former was causing the latter. It may simply be the case that creators have stronger attachments to their work but that these attachments do not affect valuation.
50. See David A. Armor and Shelley E. Taylor, When Predictions Fail: The Dilemma of Unrealistic Optimism, in Thomas Gilovich, Dale Griffin, and Daniel Kahneman, eds, Heuristics and Biases: The Psychology of Intuitive Judgment, 334, 334 (Cambridge 2002) ("By a number of metrics and across a variety of domains, people have been found to assign higher probabilities to their attainment of desirable outcomes than either objective criteria or logical analysis warrants.")
51. Zlatan Krizan and Paul D. Windschitl, The Influence of Outcome Desirability on Optimism, 133 Psych Bull 95, 95 (2007) (noting research finding that an individual's accuracy in predicting future events is heavily influenced by the individual's desires regarding those events).
52. See Armor and Taylor, When Predictions Fail at 334-35 (cited in note 39).
53. We are uncertain why Buyers exhibited substantially higher probability estimates than would be predicted by classical economics. One possibility is that because they were assigned to an individual painting, they immediately felt a sense of attachment to it even though they did not "own" it. See note 34. It is also possible that the subjects did not understand probability estimates perfectly. Even if this is true, the relative differences between the groups still support our results.
54. See Buccafusco and Sprigman, 96 Cornell L Rev at 26 (cited in note 1).
55. Several commenters suggested to us that the Painters' regret aversion could also be characterized as a propensity to seek risk. Whether the trait is labeled as an aversion to anticipated regret or an attraction to risk, the result is to drive Painter valuations higher than either Owners' or Buyers'. Our questions about regret aversion did not focus on attraction to risk unlinked to anticipated regret following potential loss. We may consider broadening our questions in future studies to capture all facets of regret aversion and risk attraction.
56. In ANCOVA analysis of value, with role as a fixed factor and quality, regret, and predicted probability of winning as covariates, regret is very close to being significant (p =.057).
57. Relatedly, we should note one potential confounding variable in our study. Prior research has shown that the strength of the endowment effect is positively correlated with length of ownership.
58. Michal A. Strahilevitz and George Loewenstein, The Effect of Ownership History on the Valuation of Objects, 25 J Consumer Rsrch 276, 285 (1998).
59. In our study, the Painters obviously had spent much more time with their works than had the Owners. Thus, it is impossible for us to isolate the amount of the valuation difference attributable to creativity from that attributable to length of ownership. (We are indebted to Orly Lobel for this observation.) Although identification of the precise source of the creativity effect awaits further elucidation, we have two observations that suggest that our results from this experiment are nonetheless valuable. First, length of ownership will tend to differ in the real world; in the usual course, creators will possess their works for some time before licensing or transferring them to intermediaries, and even after license or transfer, creators are often likely to continue to think of their work as "theirs."
60. For this reason, it seems to us that differing length of ownership is an ecologically valid feature of our experiment-that is, it likely reflects real-world conditions. Second, and importantly, we believe that the effect, if any, of differing length of ownership is testable empirically. And even if length of tenure accounts for a substantial portion of the creativity effect (which we doubt, at least as an initial hypothesis) we are still faced with creators' tendency to manifest higher WTA, which results in a suboptimal level of contracting compared with deals involving mere owners.
61. For example, very little is known about the effects of group decisionmaking on valuing goods.
62. See Buccafusco and Sprigman, 96 Cornell L Rev at 31-44 (cited in note 1).
63. The US Constitution empowers Congress "[t]o promote the Progress of Science and the useful Arts, by securing for limited Times to Authors and inventors the exclusive Right to their respective Writings and Discoveries." US Const Art I, § 8, cl 8.
64. See generally, for example, Jeanne C. Fromer, A Psychology of Intellectual Property, 104 Nw U L Rev 1441 (2010)
65. Gregory N. Mandel, Left-Brain versus Right-Brain: Competing Conceptions of Creativity in Intellectual Property Law, 44 UC Davis L Rev 283 (2010).
66. See Thomas H. Davenport and Jeanne G. Harris, What People Want (and How to Predict It), 50 MIT Sloan Mgmt Rev 23, 29 (Winter 2009) (describing movie studios' use of neural network analysis to make predictions about a film's likelihood of market success).
67. Consider also Posner, 19 J Econ Persp at 58-62 (cited in note 25) (proposing a modified IP regime combining public subsidies with limited property rights to ensure that "the creator of intellectual property is compensated for the cost of creation" while also ensuring public access to those creations).
68. We thank Oskar Liivak, John Duffy, and Ed Kitch for encouraging us to think more about this point.
69. See Buccafusco and Sprigman, 96 Cornell L Rev at 34 (cited in note 1).
70. See Russell B. Korobkin and Joseph Doherty, Who Wins in Settlement Negotiations?, 11 Am L & Econ Rev 162, 196 (2009).
71. For a fuller discussion, see Buccafusco and Sprigman, 96 Cornell L Rev at 36-38 (cited in note 1). In addition, the effectiveness and availability of royalty contracts is limited by both industry norms and costs.
72. See Lucent Technologies, Inc v Gateway, Inc, 580 F3d 1301, 1326 (Fed Cir 2009) (discussing the "[significant differences" between running royalty and lump sum licenses, including the ongoing "administrative burdens of monitoring usage of the invention" and risk of renegotiation due to "a subsequent decision not to use the patented technology").
73. See notes 34-35 and accompanying text.
74. See 17 USC § 201(a).
75. See 17 USC § 201(b) (defining "works made for hire"); Community for Creative Non Violence v Reid, 490 US 730, 738, 750-51 (1989).
76. See 35 USC § 102(f).
77. See US Const Art I, § 8, cl 8.
78. See also, for example, Peter K. Yu, Cultural Relics, Intellectual Property, and Intangible Heritage, 81 Temple L Rev 433, 450 (2008).
79. For a fuller discussion, see Buccafusco and Sprigman, 96 Cornell L Rev at 38-42 (cited in note 1).
80. See id at 38-39.
81. See id at 39-10.
82. See Christopher Sprigman, Reform(aliz)ing Copyright, 57 Stan L Rev 485, 547 (2004).
83. See Buccafusco and Sprigman, 96 Cornell L Rev at 41 (cited in note 1). See also 17 USC § 504(c) (providing for statutory damages)
84. USC § 505 (providing for costs and attorneys' fees).
85. Buccafusco and Sprigman, 96 Cornell L Rev at 34 (cited in note 1).
86. Id at 33-35.