Chain Reaction: How Property Begets Property



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Chain Reaction: How Property Begets Property

by

Sabrina Safrin*


Abstract: Traditional explanations for the evolution of property rights have never been fully satisfactory. This paper proposes a novel and contemporary addition to our understanding. It suggests that the expansion of intellectual and other property rights have an internally generative dynamic. Drawing upon (a) the newly established property regimes over genetic material, (b) the recent movement to establish intellectual property rights over traditional knowledge, and (c) the patent paradox, where the amount of patent activity has risen dramatically, even though the expected value of individual patents has diminished, this paper argues that property rights evolve in a chain reaction. The paper posits that the demand for property rights by some engenders the demand for related property rights by others. It asserts that this cycle of increased demands for and resulting recognition of property rights may have little to do with the actual or the potential value of the resource in question. Rather, the creation of property rights itself engenders the demand for additional property rights.

The paper offers three explanations for why property rights beget more property rights.The first draws on group behavior theory; the second focuses on a breach of a cooperative norm; the third flows from the right of exclusion. The chain reaction evolution of property rights helps explain why intellectual property rights have vastly expanded over the last several decades and continue to expand. It also sheds light on the increased transformation of spaces and tangible goods from open access or commons property to exclusive ownership regimes. The chain reaction theory of the evolution of intellectual and other property rights has considerable implications. It anticipates the development of unexpected, extensive and ultimately undesirable property regimes.

DRAFT
Introduction

In 1980, the U.S. Supreme Court issued its seminal Chakrabarty decision.1 That decision permitted the patenting, and hence the private ownership, of man-made living organisms. What the reams of paper filed in this watershed case did not anticipate was how the patenting of genetically-modified organisms would cause nations and individuals responsively to assert property rights over naturally-occurring biological and genetic material. The propertization of living organisms and their genetic material did not remain cabined to “man’s handiwork.” Rather, it set off an unexpected chain reaction of collateral propertization of unmodified genetic and other biological material.


Until recently, nations and individuals treated genetic material – the subcellular sequences that direct the structure and characteristics of all living things – as open access property.2 Like information in the public domain, genetic resources were available in principle for the use of all.3 No one held an exclusive ownership interest in this material, and individuals and countries freely shared samples of seeds, soil and even animal specimens containing it.4 In sharp contrast, today extensive ownership rights envelop genetic material. Individuals and corporations patent genetic sequences that they have isolated.5 Meanwhile, national governments of developing countries, which house most of the world’s genetic material in its natural state, increasingly assert sovereign ownership rights over biological samples containing this material.6

What accounts for this transformation? Explaining the evolution of property rights from open access or global commons regimes to private property ones has long presented one of the great challenges to understanding developments in the law.7 This long-standing query holds particular importance today. Nations and societies preserve fewer places, spaces and goods as open access or commons property, replacing them instead with more exclusive property regimes.8 Over the last several decades, knowledge, in particular, has undergone increased propertization, and the trend to expand intellectual property rights continues.9

The canonical explanation offered by Harold Demsetz10 for the evolution of property regimes is that private property rights emerge when the economic value of a resource changes relative to the costs of controlling it such that it becomes cost-efficient to establish a property regime over the resource and to internalize costs or benefits previously experienced as externalities.11 Changes in relative value typically occur when some external shock, like the introduction of a new technology or the opening or closing of particular markets, alters the costs and benefits of the existing property regime.12 Biotechnology explains the transition of genetic material from open access property to private or government property from a Demsetz perspective.13 The introduction of this novel technology, which enables the manipulation of genes to create new agricultural, therapeutic and other goods, increased the actual or the potential value of the underlying genetic material used by the technology. This increased value engendered the creation of property rights over genetic material.14
Yet, one cannot explain the overall evolution of property rights over genetic material from an open access or global commons good to a private or government owned good by pointing to an increase in its economic value relative to the costs of controlling it. Actual or potential value does not explain today’s extensive property regimes over genetic material. Indeed, the extent of these rights and the costs of establishing and maintaining them often exceed the material’s economic value. As we shall see, the Demsetzian account does not adequately explain the rise in property rights in other areas as well.

Under the classic Demsetzian account, the emergence of private property rights marks a progressive development that should be celebrated because it reflects a society’s movement to a more efficient property regime.15 Others have proposed a more sinister interest group theory for the emergence of property rights.16 This article suggests that instead of the progressive dynamic envisioned by the classic Demsetzian account, a more subtle and damaging chain reaction dynamic can come into play that interest group theory neither anticipates nor explains. This article argues that the establishment and the expansion of intellectual and other property rights have an internally generative dynamic. The assertion of or demand for property rights by some engenders the assertion of or demand for related property rights by others. This cycle of increased demands for and resulting recognition of property rights may have little to do with the actual or the potential value of the resource in question relative to the costs of controlling it. Rather, the creation of property rights itself engenders the demand for additional property rights.

Part I develops this chain reaction theory for the evolution of property by drawing upon several case studies: (a) the newly established property regimes over genetic material, (b) the recent movement to establish intellectual property rights over traditional knowledge, and (c) the dramatic increase in patent activity even though the expected value of individual patents has diminished, commonly referred to as the patent paradox.17
Part II offers three explanations for why property rights evolve in a chain reaction. The first two draw upon group behavior theory and focus on social dynamics rather than on the kind of economic factors that Demsetz and his followers have emphasized. The third flows from property’s core right – the right to exclude.
The chain reaction theory for the evolution of property rights yields several important insights, which are developed in Part III. First, the creation of property rights in one sphere can trigger unanticipated changes in other property regimes, a phenomenon that traditional theories do not adequately explain nor usually anticipate.18 In fact, those demanding or creating the initial property rights may even be aghast at the repercussions of their actions. Today’s global economy makes this collateral creation of property rights more pronounced because changes in property rights in one country can trigger unanticipated changes in the property regimes of another.
Second, the thesis gives new importance to first movers in the evolution of property rights precisely because first movers may initiate a chain reaction of propertization.

Third, while a change in actual or potential value, occasioned by a technological or market breakthrough, may provide the impetus for moving toward a property regime, the transition process itself may have little to do with value or any cost-benefit calculation. As a result, the contours of the overall resulting property regime may not reflect an efficient outcome from a cost-benefit perspective.

The chain reaction theory for the evolution of property rights is both explanatory and cautionary. It helps explain the emergence of more restrictive property regimes and the expansion of existing ones.19 It does not, however, purport to explain the transformation of property regimes in all situations or to serve as the exclusive explanation for the process through which all property rights evolve. Other theories, like the powerful interest group theories20 or those that focus on the evolution of property norms in close-knit communities, 21 may better explain the transformation of property in some situations or may operate in conjunction with the chain reaction theory in others. The chain reaction theory is cautionary because it shows that once property rights are created, they take on a life of their own and can have serious unanticipated consequences. Therefore, decision-makers, when granting new property rights or expanding existing ones, need to take into account the reverberation effect of their actions up front.22
Most law review articles borrow insights from conventional property rights and apply them to intellectual property.23 They also focus on the evolution of property in national contexts. This article uses case studies from the intellectual property field to yield lessons about the evolution of property generally.24 It also draws upon international developments to shed light on a long-standing question in property law.25




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