May and Cooper, ‘Liberty of Contract and the Free Market Foundations of Intellectual Property’

The value of copyrights and patent rights is secured and maximized through market exchanges – both outright sales of exclusive rights and through licensing agreements. It is often the case that creative artists or inventors can maximize their economic returns by assigning their rights to more highly capitalized entrepreneurs or commercial enterprises that may be better situated to use, reproduce, or sell the creative works or inventions. Meanwhile, by all estimates patent licensing agreements generate well over a hundred billion dollars annually for American enterprises. And licensing of music, movies, and other copyrighted works through digital media technologies collectively generates billions of dollars each year.

In considering the astonishing economic value of intellectual property and its future potential in the digital age, we need to be mindful of the free market foundations of intellectual property rights in the United States. And in considering the importance of market exchanges and licensing agreements involving intellectual property as drivers of economic growth and innovation, we need to be mindful that liberty of contract is an indispensable component of the free market foundations of intellectual property rights.

Specifically, there is a close connection between American constitutionalism and the free market enterprise system. To be sure, the US Constitution does not formally institute capitalism as the nation’s economic system. However, the Constitution contains several provisions particularly favorable to free market enterprise. Just as significantly, legal and policy developments of the 19th and early 20th centuries built upon the Constitution’s entrepreneurial, market-friendly foundation.

This paper considers intellectual property in the context of American constitutionalism and the emergence of free market capitalism and, more particularly, the role played by liberty of contract protected by the Constitution. It focuses on the interstate commercial marketplace and the US copyright and patent systems as they developed during the 19th and early 20th centuries. Building on the Constitution’s framework and the work of the First Congress, the developments of the first several decades that followed established intellectual property as a form of exchangeable capital in a competitive interstate commercial marketplace. Although often overlooked, the protections accorded to copyrights and patent rights proved particularly conducive to free market economics, and they performed an important role in advancing art and innovation in the United States during the first 150 years under the Constitution.

May, Randolph J and Cooper, Seth L, Liberty of Contract and the Free Market Foundations of Intellectual Property (July 29, 2016). Perspectives from FSF Scholars, Vol 11, No 27, Jul 2016.

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