The Nature and Ownership of Property

Clear and enforceable property rights are essential for markets to work.
Defining them is a central function of government. Most of us have “known”
that for a long time. But to create the new cyberspace environment is to
create new property–that is, new means of creating goods (including ideas)
that serve people.

The property that makes up cyberspace comes in several forms: Wires,
coaxial cable, computers and other “hardware”; the electromagnetic
spectrum; and “intellectual property”–the knowledge that dwells in and
defines cyberspace.

In each of these areas, two questions that must be answered. First, what
does “ownership” mean? What is the nature of the property itself, and what
does it mean to own it? Second, once we understand what ownership means,
who is the owner? At the level of first principles, should ownership be
public (i.e. government) or private (i.e. individuals)?

The answers to these two questions will set the basic terms upon which
America and the world will enter the Third Wave. For the most part,
however, these questions are not yet even being asked. Instead, at least in
America, governments are attempting to take Second Wave concepts of
property and ownership and apply them to the Third Wave. Or they are
ignoring the problem altogether.

For example, a great deal of attention has been focused recently on the
nature of “intellectual property”–i.e. the fact that knowledge is what
economists call a “public good,” and thus requires special treatment in the
form of copyright and patent protection.

Major changes in U.S. copyright and patent law during the past two decades
have broadened these protections to incorporate “electronic property.” In
essence, these reforms have attempted to take a body of law that originated
in the 15th century, with Gutenberg’s invention of the printing press, and
apply it to the electronically stored and transmitted knowledge of the
Third Wave.

A more sophisticated approach starts with recognizing how the Third Wave
has fundamentally altered the nature of knowledge as a “good,” and that the
operative effect is not technology per se (the shift from printed books to
electronic storage and retrieval systems), but rather the shift from a
mass-production, mass-media, mass-culture civilization to a demassified
civilization.

The big change, in other words, is the demassification of actionable
knowledge.

The dominant form of new knowledge in the Third Wave is perishable,
transient, customized knowledge: The right information, combined with the
right software and presentation, at precisely the right time. Unlike the
mass knowledge of the Second Wave–“public good” knowledge that was useful
to everyone because most people’s information needs were
standardized–Third Wave customized knowledge is by nature a private good.

If this analysis is correct, copyright and patent protection of knowledge
(or at least many forms of it) may no longer be unnecessary. In fact, the
marketplace may already be creating vehicles to compensate creators of
customized knowledge outside the cumbersome copyright/patent process, as
suggested last year by John Perry Barlow:

“One existing model for the future conveyance of intellectual property is
real-time performance, a medium currently used only in theater, music,
lectures, stand-up comedy and pedagogy. I believe the concept of
performance will expand to include most of the information economy, from
multi-casted soap operas to stock analysis. In these instances, commercial
exchange will be more like ticket sales to a continuous show than the
purchase of discrete bundles of that which is being shown. The other model,
of course, is service. The entire professional class–doctors, lawyers,
consultants, architects, etc.–are already being paid directly for their
intellectual property. Who needs copyright when you’re on a retainer?”

Copyright, patent and intellectual property represent only a few of the
“rights” issues now at hand. Here are some of the others:

1. Ownership of the electromagnetic spectrum, traditionally
considered to be “public property,” is now being “auctioned” by the Federal
Communications Commission to private companies. Or is it? Is the very
limited “bundle of rights” sold in those auctions really property, or more
in the nature of a use permit–the right to use a part of the spectrum for
a limited time, for limited purposes? In either case, are the rights being
auctioned defined in a way that makes technological sense?

2. Ownership over the infrastructure of wires, coaxial cable and
fiber-optic lines that are such prominent features in the geography of
cyberspace is today much less clear than might be imagined. Regulation,
especially price regulation, of this property can be tantamount to
confiscation, as America’s cable operators recently learned when the
Federal government imposed price limits on them and effectively confiscated
an estimated $___ billion of their net worth. (Whatever one’s stance on the
FCC’s decision and the law behind it, there is no disagreeing with the
proposition that one’s ownership of a good is less meaningful when the
government can step in, at will, and dramatically reduce its value.)

3. The nature of capital in the Third Wave–tangible capital as well
as intangible–is to depreciate in real value much faster than
industrial-age capital–driven, if nothing else, by Moore’s Law, which
states that the processing power of the microchip doubles at least every 18
months. Yet accounting and tax regulations still require property to be
depreciated over periods as long as 30 years. The result is a heavy bias in
favor of “heavy industry” and against nimble, fast-moving baby businesses.

Who will define the nature of cyberspace property rights, and how? How can
we strike a balance between interoperable open systems and protection of
property?