Links as Property? Coase to the Rescue!

The conservative scholar and federal appeals court judge for the seventh circuit Richard Posner brought to bear a flavor of analysis that has won him wide renown in legal and intellectual circles.

I’m not a scholar, but it’s a kind of analysis that I happen to love, called law and economics. Others, like Erick Schonfeld of TechCrunch, have hit back with sound free-speech arguments. Alone, I find them basically persuasive.

But I don’t think Posner can win his argument on his own terms. Even if we remain within the dry, dismal realm of law and economics, Posner’s suggestion that a radically stronger version of copyright might save the traditional news companies and let them carry on as they have is wrong.

Posner’s claim:

Expanding copyright law to bar online access to copyrighted materials without the copyright holder’s consent, or to bar linking to or paraphrasing copyrighted materials without the copyright holder’s consent, might be necessary to keep free riding on content financed by online newspapers from so impairing the incentive to create costly news-gathering operations that news services like Reuters and the Associated Press would become the only professional, nongovernmental sources of news and opinion.

Would would happen if, tomorrow, we woke up and couldn’t link or paraphrase without the consent of the copyright holder? Let’s game it out.

First, big news companies might rejoice, but their joy would be short-lived. For soon, all across the interwebs, on smaller websites and services, announcements would begin to pop up. Sites like TechCrunch and Talking Points Memo, to name just a couple, would start screaming as loudly as they can, “Please! Link here. Have your discourse about my content if you can’t have it about theirs! We hereby offer blanket permission to link and to paraphrase to anyone and everyone.”

In other words, as George Frink wrote on twitter, the plan “would give enormous competitive advantage to sources granting blanket copyright permission & for all fair-use links.”

As Posner’s beloved Coase theorem holds, “bargaining will lead to an efficient outcome regardless of the initial allocation of property rights.” Now, there are important caveats like zero transactions costs, but again from wikipedia: “While the exact definition of the Coase theorem remains unsettled, there are two issues or claims within the theorem: the results will be efficient and the results in terms of resource allocation will be the same regardless of initial assignments of rights/liabilities.”

So then, of course, medium-sized sites would look in envy at smaller sites’ success. It wouldn’t be long before they too joined in on the fun, grabbing traffic that their bigger, perhaps more prestigious news companies formerly lapped up.

Now, consumers of news would still visit, e.g., the New York Times to get some news. But most of their news—and the opportunity to talk about it and feel like they’re part of the conversation—would come from sites that just aren’t as good as the New York Times. So the world’s aggregate utility would be lower. Which is sad.

But, alas, it wouldn’t be long, once again, before bigger news companies felt left out too. Soon they, too, in most cases, would post the same permissions. Little surprise, right? A few mostly misguided holdouts notwithstanding, the Internet would revert right back to where it started. Free links are the equilibrium—the Nash equilibrium.

Free links will happen. It doesn’t matter whether we start with them and refuse to change because we know better or whether we start without them and quickly all freely alienate our property rights not to be subject to them. I think Posner might actually agree with this analysis. I’d hope that he’d be open to the empirical possibility anyhow.