As a practical matter, patent laws do not provide complete protection against
imitation. Copycat firms frequently succeed in making just enough changes in
the process or product to avoid patent infringement. Nonetheless, patents make
imitation more difficult and more costly. Thus, by bequeathing the firm a partial
monopoly, patent laws provide a positive profit incentive for invention.COPYRIGHT Copyright law provides protection for expressive works, such as
music, drama, literature, film, and even software. The Copyright Act of 1790
protected material for 14 years, renewable for another 14 years while the author
was still alive. By 1998, this protection had been raised to the life of the author
plus 70 years.
Media attention continues to focus on the contours of copyright law, espe-
cially in the area of music where technological advances (video recorders, DVD
recorders, and the like) have made copying and downloading easy and inex-
pensive. In the late 1970s, Universal Pictures and Disney sued Sony and other
makers of video recorders to prohibit the sale of the recorders, alleging that
such recording violated copyright law. The federal district court ruled in Sony’s
favor and allowed the production of these devices. On the other hand, in 2001,
the Court of Appeals (Ninth Circuit) upheld an injunction that effectively shut
down Napster, a popular music and file exchange service. In that case, the court
objected to Napster making copyrighted songs available from its main server.
(So far, courts have refused to prevent the distribution of software that allows
direct file sharing among users without the benefit of a central server.)
Although the music industry has recently begun suing individual violators, ille-
gal downloads continue to dominate the market. To further fight the down-
loading problem, the industry has aggressively promoted paid download
services such as iTunes, MusicMatch, Rhapsody, and even a new paid Napster.466 Chapter 11 Regulation, Public Goods, and Benefit-Cost AnalysisEfficient regulation depends on a careful consideration of benefits and costs.
Regulatory reforms in the 1980s and 1990s have made slow but steady progress
in this direction.^13 Initially, benefits were not explicitly traded off against costs.
For example, the 1970 Clean Air Act specifically excludes a consideration of
costs in setting air-quality standards, and the Food and Drug Administration is
not obligated to use benefit-cost tests in ascertaining product safety. However,
over time regulatory agencies have increasingly turned to a comparison of ben-
efits and costs.
One important area of reform is deregulation.^14 Critics have pointed out that,
by intention or not, regulation frequently reduces true competition: RegulatedRegulatory
Reform and
Deregulation(^13) See R. W. Hahn and R. Malik, “Is Regulation Good for You?’ Harvard Journal of Law and Public
Policy(June 2004): 893–916.
(^14) For an economic assessment of deregulation, see C. Winston, “US Industry Adjustment to
Economic Deregulation,’’ Journal of Economic Perspectives(Summer 1998): 89–110.
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