Category: Technology

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The Hard Questions about Talent, Market Regulation, and the World of Work

Each in his own sharp and perceptive way, Brett Frischmann, Frank Pasquale and Matthew Bodie present what are probably the hardest questions that the field of human capital law must contemplate. Brett asks about a fuller alternative vision for line drawing between freedom and control. He further asks how we should strike the balance between regulatory responses and private efforts in encouraging more openness. Finally, he raises the inevitable question about the tradeoffs between nuanced, contextual standards (what, as Brett points out, I discuss as the Goldilocks problem) versus rigid absolute rules (a challenge that runs throughout IP debates and more broadly throughout law). Frank and Matt push me on the hardest problems for any politically charged debate: the distributive, including inadvertent and co-optive, effects of my vision. I am incredibly grateful to receive these hard questions even though I am sure I am yet to uncover fully satisfying responses. Brett writes that he wanted more when the book ended and yes, there will be more. For one, Brett wanted to hear more about the commons and talent pools. I have been invited to present a new paper, The New Cognitive Property in the Spring at a conference called Innovation Beyond IP at Yale and my plan is to write more about the many forms of knowledge that need to be nurtured, nourished, and set free in our markets.

Matt describes his forthcoming paper where he demonstrates that “employment” is reliant on our theory and idea of the firm: we have firms to facilitate joint production but we need to complicate our vision of what that joint production, including from a governance perspective, looks like. “Employers are people too” Matt reminds us, as he asks, “Do some of the restrictions we are talking about look less onerous if we think of employers as groups of people?” And my answer is yes, of course there is a lot of room for policy and contractual arrangements that prevent opportunism and protect investment: my arguments have never been of the anarchic flavor “let’s do away with all IP, duties of loyalty, and contractual restrictions”. Rather, as section 2 (chapters 3-8) of Talent Wants to Be Free is entitled we need to Choose Our Battles. The argument is nicely aligned with the way Peter Lee frames it: we have lots of forms of control, we have many tools, including positive tool, to create the right incentives, let us now understand how we’ve gotten out of balance, how we’ve developed an over-control mentality that uses legitimate concerns over initial investment and risks of opportunism and hold-up to allow almost any form of information and exchange to be restricted. So yes: we need certain forms of IP – we have patents, we have copyright, we have trademark. Each one of these bodies of law too needs to be examined in its scope and there is certainly some excess out there but in general: we know where we stand. But what about human capital beyond IP? And what about ownership over IP between employees and employers?

So yes, we need joint inventorship doctrines for sure when two inventors work together. But what about firm-employee doctrines? Do we need work-for-hire and hired-to-invent doctrines? Here we arrive to core questions about the differences between employment versus joint ventures or partnerships between people. And even here, the argument is that we continue to need during employment certain firm protections over ownership. But the reality is that so many highly inventive and developed countries, diverse as Finland, Sweden, Korea, Japan, Germany, and China, all have drawn more careful lines about what can fall under “service inventions” or inventions produced within a corporation. These countries have some requirement for fair compensation of the employee, some stake in inventions, rather than a carte blanche to everything produced within the contours of the firm. The key is a continuous notion of sharing, fairness and boundaries that we’ve lost sight of. Intense line-drawing as Brett would have it that is based on context and evidence, not on an outdated version of the meaning of free markets.

What about non-competes and trade secrets? Again, my argument is that these protections alternate, they should be discussed in relation to one another, and we need to understand their logic, goals, and the cost/benefit of each given that they exist in a spectrum. Non-competes is the harshest restriction: an absolute prohibition post-employment to continue in one’s professional path outside the corporation. This is unnecessary. The empirics are there to support their absolute ban rather than the fine dance that of balancing that is needed with some of the other protections. Sure it makes life momentarily easier for those who want to use non-competes, but over time, not only can we all live without that harsh tool, we will actually benefit from ceding that chemical weapon in the battle over brains and instead employ more conventional arms. And yet, even in California, this insight doesn’t and shouldn’t extend to partnerships. The California policy against non-competes is limited to the employment context. If two people, as in Matt’s hypo, are together forming a business, their joint property rights in that business suggest to us that allowing some form of a covenant not to compete will be justified. There will still be a cost to positive externalities but the difference between the two forms of relationships allow for absolute ban in one and a standard of reasonableness for the other. And yes, as Brett alludes to, the world is not black and white and we will have to tread carefully in our distinctions between employees and partners.

I completely agree with Matt and Frank that there are fundamental injustices created by our entire regime of work law. Talent Wants to Be Free takes those deep structures into account in developing the more immediate and positive vision for better innovation regimes and richer talent pools. Matt writes that a more radical alternative lies within Talent but “deserves more exegesis: namely, whether we should eliminate the concept of employment entirely.” What if people will always be independent contractors?, he asks. The reforms promoted in Talent Wants to Be Free, allowing more employees more control over their human capital, indeed bring these two categories – employees and independent contractors – closer together in some respects. But far more would be needed to shift our work relations to be more “democratic and egalitarian: a post-industrial Jeffersonian economy.” As both Frank and Matt show, in their own scholarship and in their provocative comments here, this will require us to rethink so much of the world we live in.

Frank Pasquale’s review is so rich that I hope he extends and publishes it as a full article. Frank says that “for every normative term that animates [Orly’s] analysis (labor mobility, freedom of contract, innovation, creative or constructive destruction) there is a shadow term (precarity, exploitation, disruption, waste) that goes unexplored.” I would agree that the background rules that define our labor market, at will employment, inequality, class and power relations, are not themselves the target of the book. They do however deeply inform my analysis. To me, the symmetry I draw between job insecurity and the need for job opportunity is not what Frank describes as a “comforting symmetry”. It is a call for the partial correction of an outrageous asymmetry. And yes, as I mentioned at the very beginning of the symposium, I hoped in writing the book to shift some of the debates about human capital from the stagnating repetition of arguments framed as business-labor which I view not only as paralyzing and strategically unwise but also as simply incorrect and distorting. There is so much more room for win-win than both businesses and labor seem to believe. On that level, I think Frank and I actually disagree about what we would define as abuse. I do in fact believe that many of us can passionately decide to give monetary gains in return for a job that provides intangible benefits of doing something we love to do. Is that always buying into the corporate fantasy? Is that always exploitation? Don’t all of us do that when we become scholars? Still, of course I agree with many of the concrete examples that Frank raises as exploitation and precarious work – he points to domestic workers, which is a subject I have written about in a few articles (which I just realized I should probably put on ssrn - Family Geographies: Global Care Chains, Transnational Parenthood, and New Legal Challenges in an Era of Labor Globalization, 5 CURRENT LEGAL ISSUES 383 (2002) and  Class and Care, 24 HARVARD WOMENS LAW JOURNAL 89 (2001)]. Frank describes a range of discontent in such celebrated workplaces as Silicon Valley giants, which I too am concerned with and have thought about how new hyped up forms of employment can become highly coercive. Freeing up more of our human capital is huge, but yes, I agree, it doesn’t solve all the problems of our world and by no means should my arguments about the California advantage in the region’s approach to human capital and knowledge flow be read as picturing everything and anything Californian as part of a romantic ideal.

 

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A Time for Action: The Double Gain of Freer Regions and the Double Speak about Talent Droughts

As Catherine Fisk and Danielle Citron point out in their thoughtful reviews here and here, the wisdom of freeing talent must go beyond private firm level decisions; beyond the message to corporations about what the benefits of talent mobility, beyond what Frank Pasquale’s smartly spun as “reversing Machiavelli’s famous prescription, Lobel advises the Princes of modern business that it is better to be loved than feared.” To get to an optimal equilibrium of knowledge exchanges and mobility, smart policy is needed and policymakers must to pay attention to research. Both Fisk and Citron raise questions about the likelihood that we will see reforms anytime soon. As Fisk points out — and as her important historical work has skillfully shown, and more recently, as we witness developments in several states including Michigan, Texas and Georgia as well as (again as Fisk and Citron point out) in certain aspects of the pending Restatement of Employment — the movement of law and policy has actually been toward more human capital controls rather than less. This is perhaps unsurprising to many of us. Like with the copyright extension act which was the product of heavyweight lobbying, these shifts were supported by strong interest groups. What is perhaps different with the talent wars is the robust evidence that suggests that everyone, corporations large and small, new and old, can gain from loosening controls. Citron points to an irony that I too have been quite troubled by: the current buzz is about the intense need for talent, the talent drought, the shortage in STEM graduates. As Citron describes, the art and science of recruitment is all the rage. But while we debate reforms in schooling and reforms in immigration policies, we largely neglect to consider a reality of much deadweight loss of through talent controls.

The good news is that not only in Massachusetts, where the governor has just expressed his support in reforming state law to narrow the use of  non-competes, but also in other state legislatures , courts and agencies, we see a greater willingness to think seriously about positive reforms. At the state level, the jurisdictional variations points to the double gain of regions that void or at least strongly narrow the use of non-competes. California for example gains twice: first by encouraging more human capital flow intra-regionally and second, by its willingness to give refuge to employees who have signed non-competes elsewhere. In other words, the positive effects stem not only from having the right policies of setting talent free but also from its comparative advantage vis-à-vis more controlling states. This brain gain effect has been shown empirically: areas that enforce strong post-employment controls have higher rates of departure of inventors to other regions. States that weakly enforce non-competes are on the receiving side of the cream of the crop. One can only hope that legislature and business leaders will take these findings very seriously.

At the federal level, in a novel approach to antitrust the federal government recently took up the investigation of anti-competitive practices between high-tech giants that had agreed not to poach one another’s employee. This in fact relates to Shubha Gosh’s questions about defining competition and the meaning of free and open labor markets. And it is a good moment to pause about the extent to which we encourage secrecy in both private and public organizations. It is a moment in which the spiraling scandals of economic espionage by governments coupled with leaks and demand for more transparency require us to think hard. In this context, Citron is right to raise the question of government 2.0 – for individuals to be committed and motivated to contribute to innovation, they need some assurances that their contributions will not be entirely appropriated by concentrated interests.

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Input Knowledge, Output Information, and the Irony of Under the Radar Expansion of IP

Peter Lee’s thoughtful review of Talent Wants to Be Free goes straight to the heart of the issues. Peter describes a “central irony about information” – so many aspects of our knowledge cannot lend themselves to traditional monopolization through patents and copyright that their appropriation is done under the radar,  through the more dispersed and covert regimes of talent wars rather than the more visible IP wars. We’ve always understood intellectual property law as a bargain: through patents and copyright, we allow monopolization of information for a limited time as a means to the end of encouraging progress in science and art. We understand the costs however and we strive as a society to draw the scope of these exclusive rights very carefully. and deliberately. We have heated public debates about the optimal delineation of patents, and we are witnessing new legislative reforms and significant numbers of recent SCOTUS cases addressing these tradeoffs. But patents are only a sliver of all the information that is needed to sustain innovative industries and creative ventures. Without much debate, the monopolization of knowledge has expanded far beyond the bargain struck in Article I, Section 8 of the Constitution.  Through contractual and regulatory law, human capital – people themselves – their skills and tacit knowledge, their social connections and professional ties, and their creative capacities and inventive potential are all the subject to market attempts, aided by public enforcement, of monopolization. Peter refers to these as tacit versus codified knowledge; I think about inputs, human inventive powers versus outputs – the more tangible iterations of intangible assets – the traditional core IP, which qualifies patentability to items reduced to practice (rather than abstraction) and copyrightable art to expressions (rather than ideas). Cognitive property versus intellectual property, if you will.

Lee is absolutely correct that university tech transfer and its challenges and often discontent is highly revealing in this context of drawing fences around ideas and knowledge. Lee writes “in subtle ways, Orly’s work thus offers a cogent exposition of the limits of patent law and formal technology transfer.” Lee’s recent work on tech transfer Transcending the Tacit Dimension: Patents, Relationships, and Organizational Integration in Technology Transfer, California Law Review 2012 is a must read. Lee shows that “effective technology transfer often involves long-term personal relationships rather than discrete market exchanges. In particular, it explores the significant role of tacit, uncodified knowledge in effectively exploiting patented academic inventions. Markets, patents, and licenses are ill-suited to transferring such tacit knowledge, leading licensees to seek direct relationships with academic inventors themselves.” And Lee’s article also uses the lens of the theory of the firm, the subject of the exchanges here, to illuminate the role of organizational integration in transferring university technologies to the private sector. I think that in both of our works, trade secrets are an elephant in the room. And I hope we continue to think more about how can trade secrets, which have been called the step child of intellectual property, be better analyzed and defined.

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Talent Flow and the Theory of the Firm

Both Vic Fleisher and Shubha Ghosh in their thoughtful commentary about Talent Wants to Be Free invoke the theory of the firm to raise question about the extent of desirable freedom in talent and knowledge flows. In its basic iteration, the theory of the firm suggests that arms-length contracting will not be optimal when one party has the ability to renegotiate and hold the other party up, which is the conventional rational for the desirability of talent controls. This is what I describe in the book as the Orthodox Model of employment intellectual property: firms fear making relational investment in employees and then having the employees renegotiate the contract under a threat of exit. Firms respond through mobility restrictions aimed at eliminating the transaction costs of this kind of opportunism. In the book, I accept, at least for some situations, this aspect of the benefits and confidence that are created for firms in internalizing production and ensuring ongoing loyalty by all players. The orthodox model thus explains post-employment controls as necessary to encourage optimal investment within the corporation. More company controls = more internal R&D and human capital investment. The new model developed in the book doesn’t deny these benefits but argues that the orthodox model is incomplete. The Dynamic-Dyadic Model asks about the costs and benefits when controls are employed.  It suggests that yes, often, protecting human capital and trade secret investments is often in the immediate interest of a company, but that too much control becomes a double-edged sword. This is because of both the demotivating effects on employee performance when lateral markets are reduced and because over-time, although information leakage and job-hopping by talented workers may provide competitors with undue know-how, expertise, and technologies, constraining mobility reduces knowledge spillovers and information sharing that outweigh the occasional losses. The enriched model is supported by a growing body of empirical evidence that finds that regions with less controls and more talent freedom, such as California, have in fact more R&D investment, quicker economic growth and greater innovation.

Vic is of course right that one solution to this problem is to recreate high-powered (market-like) incentives for performance within the firm. This is an aspect that I am greatly interested in and I analyze it in Talent Wants to Be Free as the question of whether controls and restrictions can effectively alternate with the carrots of performance-based compensation, vesting interests, loyalty inducing work environments, employee stock options and so forth. I too like Shubha am a fan of Hirschman’s Exit, Voice, and Loyalty and have found it useful in analyzing employment relations. I view the behavioral research as shedding light on these questions of what these intra-firm incentives need to look like in order to preserve the incentive to innovate. In a later post I will elaborate on the monitoring and motivational tradeoffs that exist in individual and group performance.

More generally, though, the research suggests that at least in certain industries, most paradigmatically fast-paced, high-tech fields, innovation is most likely when the contracting environments have thick networks of innovators that are mobile (i.e. Silicon valley) and firms themselves are horizontally networked. The flow of talent and ideas is important to innovation and rigid boundaries of the firm can stifle that interaction even with the right intra-firm incentives. The benefits in terms of innovation rise in these structures of denser inter-firm connections, but also, the costs of opportunism that drive the conventional wisdom are in fact lower than the traditional theory of the firm would predict. This is because talent mobility is a repeated game and at any given moment, a firm can be on either side of the raiding and poaching.   Policies against talent controls have the effect of reducing the costs of opportunistic renegotiation by ensuring the firm can hire replacement innovators when it loses its people. To push back on Vic’s phrasing, talent wants to be appreciated and free. MIT economist Daron Acemoglu’s analysis of investments and re-investments in workers as a key ingredient of production and growth is helpful in understanding some of this dynamic. People invest in their own human capital without knowing the exact work they will eventually do, just as companies must make investment decisions in technology and capital funds without always knowing who they will end up hiring. Acemoglu describes the positive upward trajectory under these conditions of uncertainty: When workers invest more in their human capital, businesses will invest more because of the prospects of acquiring good talent. In turn, workers will invest more in their human capital as they may end up in one or more of these companies.  The likelihood of finding good employers creates incentives for overall investments in human capital.

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Human Capital Law and Innovation Policy

This is a thrilling week for Talent Wants to Be Free. I am incredibly honored and grateful to all the participants of the symposium and especially to Deven Desai for putting it all together. It’s only Monday morning, the first official day of the symposium, and there are already a half a dozen fantastic posts up, all of which offer so much food for thought and so much to respond to. Wow! Before posting responses to the various themes and comments raised in the reviews, I wanted to write a more general introductory post to describe the path, motivation, and goals of writing the book.

Talent Wants to Be Free: Why We Should Learn to Love Leaks, Raids and Free Riding comes at a moment in time in which important developments in markets and research have coincided, pushing us to rethink innovation policy and our approaches to human capital. First, the talent wars are fiercer than ever and the mindset of talent control is rising. The stats about the rise of restrictions over human capital across industries and professions are dramatic.  Talent poaching is global, acquisition marathons increasingly focus on the people and their skills and potential for innovation as much as they look at the existing intellectual property of the company. And corporate espionage is the subject of heated international debates. Second, as a result of critical mass of new empirical studies coming out of business schools, law, psychology, economics, geography, we know so much more today compared to just a few years ago about what supports and what hinders innovation. The theories and insights I develop in the book attempt to bring together my behavioral research and economic analysis of employment law, including my experimental studies about the effects of non-competes on motivation, my theoretical and collaborative experimental studies about employee loyalty and institutional incentives, and my scholarship about the changing world of work, along with theories about endogenous growth and agglomeration economies by leading economists, such as Paul Romer and Michael Porter, and new empieircal field studies by management scholars such as Mark Garmaise, Olav Sorenson, Sampsa Samila, Matt Marx, and Lee Fleming. Third, as several of the posts point out, these are exciting times because legislatures and courts are actually interested in thinking seriously about innovation policy and have become more receptive to new evidence about the potential for better reforms.

As someone who teaches and writes in the fields of employment law, I wrote the book in the hopes that we can move beyond what I viewed as a stale conversation that framed these issues of non-competes, worker mobility, trade secrets and ownership over ideas  as labor versus business; protectionism versus free markets (as is often the case with other key areas of my research such as whistleblowing and discrimination). A primary goal was to shift the debate to include questions about how human capital law affects competitiveness and growth more generally. Writing about work policy, my first and foremost goal is to understand the nature of work in its many evolving iterations. Often in these debates we get sidetracked. While we have an active ongoing debate about the right scope of intellectual property, under the radar human capital controls have been expanding, largely without serious public conversation. My hope has been to encourage broad and sophisticated exchanges between legal scholars, policymakers, business leaders, investors, and innovators.

And still, there is so much more to do! The participants of the symposium are pushing me forward with next steps. The exchanges this week will certainly help crystalize a lot of the questions that were beyond the scope of the single book and several new projects are already underway. I will mention in closing a couple of other colleagues who have written about the book elsewhere and hope they too will join in the conversation. These include a thoughtful review by Raizel Liebler on The Learned FanGirl, a Q&A with CO’s Dan Solove, and other advance reviews here. Once again, let me say how grateful and appreciative I am to all the participants. Nothing is more rewarding.

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Human Capital, Tacit Knowledge, and the Limits of Intellectual Property

Orly’s ambitious and thought-provoking book covers a significant amount of intellectual ground. She deftly navigates covenants not to compete, nondisclosure agreements, trade secrets, and intellectual property assignments to provide a compelling argument for the free flow of talent in the modern economy. Orly’s work raises a host of questions that space constraints no doubt prevented her from more fully exploring, and I would encourage her to extend her analyses in subsequent work.

One aspect of Orly’s work that I found particularly intriguing is that it reveals a central irony about information. The title of her book is a play on Stewart Brand’s famous phrase “information wants to be free.” While this statement has a contemporary ring, the observation that information is “slippery” and readily appropriable has a long pedigree and has had significant legal and policy ramifications. As Orly notes, Thomas Jefferson invoked the freely appropriable nature of technical information to help justify exclusive rights on inventions. More formally, economists have long characterized technical knowledge as a public good that is nonrival, nonexcludable, and capable of nearly costless transmission. The “slipperiness” of technical information is now largely taken for granted and provides significant theoretical justification for exclusive rights on knowledge assets. Indeed, IP scholars such as Polk Wagner have argued that information’s natural tendency to slip through cracks and build upon itself should alleviate concerns that strict exclusive rights can bottle up knowledge. Information, after all, wants to be free.

Orly’s account of the talent wars, however, reveals that much information does not naturally want to be free. As Orly recognizes, much technical information is tacit and personal to a particular creator or inventor. Such tacit knowledge takes the form of intangible know-how that is difficult and sometimes impossible to codify. Importantly, even when an invention is disclosed in a patent, much valuable technical knowledge related to that invention often remains tacit and is not formally shared. The inadequacy of patent disclosure and the difficulty of transmitting tacit knowledge create a need for companies licensing patents to somehow obtain this information. This is evident, for example, in university patenting and technology transfer, a field that Orly addresses. Empirical accounts of academic technology transfer show that private companies, in parallel to licensing university patents, often seek direct interactions with faculty inventors precisely to obtain their patent-related tacit knowledge.

The tacit, sticky nature of technical information relates to another theme that permeates Orly’s work: agglomeration economies and the importance of place. In theory, patents adequately disclose the inventions they cover, which has the effect of reducing transaction costs in licensing negotiations. Among other implications, such ex ante disclosure should make licensing negotiations less sensitive to geographic proximity; at least with respect to appropriating technical knowledge, a potential licensee should not have a great need to interact directly with an inventor, for the patent itself discloses the technology. However, empirical studies of academic licensing show that licenses tend to cluster around licensor universities. To be sure, a host of factors helps explain such clustering, from universities’ commitment to local economic development to the spatially concentrated nature of professional networks (a theme that Orly also highlights). But the need for faculty inventors to literally sit down with licensee firms to convey patent-related tacit knowledge also contributes to such agglomeration. While some information can be transmitted by reading a patent a thousand miles away, sometimes transferring patent-related technical knowledge requires side-by-side demonstrations of a new technology or that ever-valuable personal conversation over a cup of coffee.

In subtle ways, Orly’s work thus offers a cogent exposition of the limits of patent law and formal technology transfer. In theory, the patent system provides a public repository of technical knowledge from which all can draw in their innovative pursuits. At the very least, licensees themselves should be able to rely on the disclosure of patents to adapt licensed inventions for commercial use. However, much information is not freely appropriable. Even when an invention is disclosed, much information remains tacit and personal to the inventor. Thus, patents are inherently limited as a vehicle for disclosing and transferring technologies, thereby creating a need for much costlier, geographically constrained, tacit knowledge transfer between individuals.

In a broader sense, Orly’s observations highlight an interesting paradox about the “freedom” of information. In the classic economic account, the ease of appropriating technical information represents a problem. This problem is resolved by subjecting technical information to exclusive rights, thus shoring up incentive to invent. However, Orly’s study reveals that much information is subject to a different problem: it is too difficult to appropriate, as it resists formal codification and disclosure. This creates a need for a different type of policy intervention, one that focuses on enhancing the mobility of the underlying sources of information—people—rather than information itself. Paradoxically, the fact that much information is not truly free provides all the more reason that the talent generating that information should be.

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Introducing the Talent Wants To Be Free Symposium

Talent Wants to be FreeThis week Concurring Opinions is hosting a symposium on Professor Orly Lobel’s book, Talent Wants to be Free: Why We Should Learn to Love Leaks, Raids, and Free Riding. In simplest terms, Professor Lobel takes on some thorny problems in innovation policy debates including whether to lock down talent and ideas or to embrace the movement of people and knowledge. Though these tensions seem easy to understand, the natural desire to keep what one has means arguments to tie up whatever seems to be giving one an advantage creates larger debates about optimal control and outcomes. Professor Lobel’s work tangles with these core ideas and more.

Professor Lobel is leading thinker on the intersection of employment law, intellectual property law, regulatory and administrative law, torts, behavioral economics, health policy, consumer law and trade secrets as they relate to innovation. She is the Don Weckstein Professor of Labor and Employment Law at University of San Diego School of Law and holds an SJD and LLM fro Harvard as well as an LLB from Tel Aviv University. She is a member of the American Law Institute and the recipient of research grants from the Robert Wood Johnson Foundation, the American Bar Association litigation Fund, the Searle-Kauffman Fellowship, the Southern California Innovation Project, and Netspar, University of Tilburg. We are honored to have her join us for the symposium as our great list of guest authors engage with her book.

Our line-up of authors include Matt Bodie, Anupam Chander, Danielle Citron, Catherine Fisk, Vic Fleischer, Brett Frischmann, Shubha Ghosh, Ron Gilson, Peter Lee, and Frank Pasquale. We look forward to everyone’s contributions.

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Fight the Power?

Orly’s book is terrific. Let’s just get that straight. The book is filled with the kind of creative energy that Orly’s reform proposals seek to release. But the emerging (or worse, entrenched) fud in me had to react to the celebration of freedom that the book exhorts. Throughout the past several centuries of human history, perhaps through all of human history, appeals to freedom have interrupted periods of dominance, control, and centralization.  “Talent Wants to be Free” is another example of the pendulum swinging away from centralized control. Whether that is a rightward or leftward swing, I will leave for others to sort out.  While Orly does not extol “stealing this book,” the arguments against over regulation by government (in the form of strong intellectual property laws) and against overly bureaucraticized mega-corporations have a Hoffmanesque quality. Of course, nothing wrong with that, but the skeptic in me wonders if unalloyed freedom is unquestionably a good thing.

Orly appeals to competition as an engine of innovation, and she points to many examples that limit the liberating force of competition. The proposition that competition fuels innovation is hard for anyone, in my mind, to contest.  Harder still is understanding what competition is.  Spencerian  renditions of Darwin as applied to social dynamics has been a recipe for disaster and elitism, leading to the very concentration that Orly decries. If competition is meant to guide innovation, it cannot be hard core laissez-faire. Is competition then the nicely diagrammed exposition of Econ 101, channeling Alfred Marshall into prices being driven to MC and minimum AC, profits dissipated, surpluses maximized, or perhaps the more elaborate auctioneering process Pareto optimally? Although an elegant formulation, the technical rendition of the dirty world of markets ignores the details of transactions and transacting, the role of legal rules and of technicians like corporate attorneys, accountants, and bankers. Perhaps  Coase has the right take on competition as a form of endless bargaining and negotiation as social costs and benefits are readily transformed, transaction costs willing, into private ones. I have no doubt that competition drives innovation, but the hard question is what kind of competition.  It is easy, however, to translate competition into unfettered freedom. That translation in my mind does not wholly work.

What is lost in translation by rendering competition as “freedom” is recognizing the need for organization to help free individuals reach their potential. Organization writ large here includes the family, the school, the business entity, and, yes, the state. Freedom without organization is anarchy and anarchy leads to either dissipation of energy into entropy (and yes that is a nod to the ideas of Thomas Pynchon, especially Gravity’s Rainbow in which flights of freedom give way Icarus-like to crashing and destruction) or to dominance and concentration by the powerful (another nod).  Neither is conducive to innovation.

Although Orly makes somes reference to Coase, I felt that there was not appreciation of his “A Theory of the Firm,” which  demonstrated that organization within an entity might be preferable to the freedom of exchange that is a hallmark of competition.  But Coase’s notion of the firm was not supplanting competition, Instead, by internalizing exchange, competition of sorts is brought into the organization as individuals vie for position within the hierarchy.  In this way, Coase is not justifying the Soviet state or centralized planning, both of which are ineffective and in opposition to innovation. Instead, consistent with Orly’s vision of freedom, the Coasean firm internalizes competition but also must confront competition that occurs through exit or dissent in order to avoid the exact forms of concentration that Orly correctly finds as antithetical to innovation.

My point here is that freedom is worthless without some form of organization that provides soil for freedom’s fruit. One example of this is the concern over D2P, a new acronym  a colleague recently assaulted on my overly taxed brain.  It stands for “Distribution to Product” and refers to the difficulty of going from labs to markets. Freedom within the university certainly leads to the creation of all sorts of inventions and new works.  The problem is the lack of institutions for facilitating the movement from the creative stage to the commercialization stage.  That movement is not dependent solely on the freedom of inventor, financier, marketer, and corporate attorney.  Instead such movement is impeded by too much freedom and not enough organization. Perhaps I am just raising dull questions about practical details.  But my point is that extolling freedom without organization may be as big a problem as extolling centralized control over freedom,

I will end with an advertisement for myself.  I have been working on a piece on nonprice competition and intellectual property, and I plan to write it after I finish my articles on the Federal Circuit’s contract law jurisprudence and Holmes’ intellectual property jurisprudence at the Mass and US Supreme Courts. The nonprice competition piece draws on Hirshcman’s theory of nonprice competition from his “Exit, Voice, and Loyalty.” Before I expand that piece into 50+ pages, let me try to distill that article-to-be into a few sentences.

Exit and voice serve as ways to promote competition through signals other than price.  Orly’s book provides a vivid and forceful exposition of exit and voice as examples of freedom.  But loyalty is necessary since organizations often act as the incubator for freedom. The problem is that loyalty can quash freedom through acts of provincialism, xenophobia, and blind faith. The difficult balance requires structuring loyalty so as not to supplant exit and voice but to channel those two freedoms into creating dynamic, evolving organizations that promote innovation.  In short, organization without freedom is tyranny, but freedom, without organization, is anarchy, with all its attendant costs.

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President Eisenhower on Innovation

96px-Dwight_D._Eisenhower,_official_photo_portrait,_May_29,_1959I came across this quote from 1961 that is worth pondering:

“Today the solitary inventor, tinkering in his shop, has been overshadowed by task forces of scientists, in laboratories and testing fields. In the same fashion, the free university, historically the fountainhead of free ideas and scientific discovery, has experienced a revolution in the conduct of research.  Partly because of the huge costs involved, a government contract becomes virtually a substitute for intellectual curiosity.”

This comes from Eisenhower’s Farewell Address, which is famous for its invocation of the “military-industrial complex.”  His point about research, though, is provocative.  Does this still describe the way research works?  What should we think about that?

In line with the new comment experiment, send me your thoughts.  gmaglioc@iupui.edu

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With Great Power Comes Great Responsibility

In a sentence, Anupam Chander’s The Electronic Silk Road contains the good, the bad and the ugly of the modern interconnected and globalized world.

How many times do we use terms like “network” and “global”? In Professor Chander’s book you may find not only the meanings, but also the possible legal, economical and ethical implications that these terms may include today.

It’s well known that we are facing a revolution, despite of recent Bill Gates’ words that “The internet is not going to save the world”. I partly agree with Mr. Gates. Probably the internet will not save the world, but for sure it has already changed the world as we know it, making possible the opportunities that are well described in The Electronic Silk Road.

However, I would like to use my spot in this Symposium not to write about the wonders of the Trade 2.0, but to share some concerns that , as a privacy scholar, I have.

The problem is well known and is connected to the risk of the big data companies, that base their business model on consumer-profiling for selling advertisement or additional services to the companies.

“[T]he more the network provider knows about you, the more it can earn” writes Chander, and as noted by V. Mayer-Schönberger and K. Cukier in their recent book Big Data, the risks that could be related with the “dark side” of the big data are not just about the privacy of individuals, but also about the processing of those data, with the “possibility of using big data predictions about people to judge and punish them even before they’ve acted.”.

This is, probably, the good and the bad of big data companies as modern caravans of the electronic silk road: they bring a lot of information, and the information can be used, or better processed, for so many different purposes that we can’t imagine what will happen tomorrow, and not only the risk of a global surveillance is around the corner (on this topic I suggest to read the great post by D. K. Citron and D. Gray Addressing the Harm of Total Surveillance: A Reply to Professor Neil Richards), but also the risk of a dictatorship of data.

This possible circumstance, as Professor Solove write in the book Nothing To Hide “[…] not only frustate the individual by creating a sense of helpness and powerlessness, they also affect social structure by altering the kind of relationships people have with the institutions that make important decisions about their lives.”

Thus, I guess that the privacy and data protection ground could be the real challenge for the electronic silk road.

Professor Chander’s book is full of examples about the misuse of data (see the Paragraph Yahoo! in China), the problem of protection of sensitive data shared across the world (see the Paragraph Boston Brahmins and Bangalore Doctors), the problem about users’ privacy posed by social networks (see Chapter 5 Facebookistan).

But Professor Chander was able also to see the possible benefits of big data analysis (see the Paragraph Predictions and Predilections), for example in healthcare, thus is important to find a way to regulate the unstoppable flowing of data across the world.

In a so complex debate about a right that is subject to different senses and definitions across the world (what is “privacy” or “personal data” is different between USA, Canada, Europe and China for example), I find very interesting the recipe suggested by Anupam Chander.

First of all, we have to embrace some ground principles that are good both for providers and for law and policy makers: 1) do no evil; 2) technology is neutral; 3) the cyberspace need a dematerialized architecture.

Using these principles, it will be easy to follow Professor Chander’s fundamental rule: “harmonization where possible, glocalization where necessary”.

A practical implementation of this rule, as described in Chapter 8, will satisfy the different view of data privacy in a highly liberal regimes and in a highly repressive regime, pushing the glocalization (global services adapt to local rules) against the deregulation in the highly liberal regimes and the “do no evil” principle against the oppression in the highly repressive regime.

This seems reasonable to me, and at the end of my “journey” in Professor Chander’s book, I want to thank him for giving us some fascinating, but above all usable, theories for the forthcoming international cyberlaw.