Spillovers

This Essay challenges the conventional law and economics account Of intellectual property. The Essay combines supply-side and demand-side considerations and develops a theory that leads to important insights about the relationship between spillovers (positive externalities) and law generally. Contrary to the commonplace "law and economics" view of spillovers as a problem in need of solution, it turns out that a wealth of economic evidence teaches us that spillovers are good for society, and in many different contexts the law is actually designed to encourage certain externality-producing activities. This new theory has significant potential as an alternative economic theory to understand IP as well as other areas of the law. The Essay explores a few of the many possible applications of the theory to copyright and patent law and to the debate over network neutrality. It concludes with some general thoughts about the Coasean symmetry between externalities and property rights. Men relevant, both externalities and property rights distort the market allocation of resources; when irrelevant, neither does. Courts and scholars must resist the easy answer of equating public and private value by internalizing externalities because spillovers aren't always bad, and more property rights aren't always good. Only if we understand when and why each can enhance social welfare can we hope to design legal rules that do more good than harm.