Hot Apps: Recalibrating IP to Address Online Software

Abstract

Intellectual property (IP) and consumer software have fallen out of sync. Software IP rules developed during an era of installable software, which has high upfront costs and is easy to copy. IP rights helped companies recoup their upfront costs by granting them the exclusive right to make and sell copies. Limits on IP protection for software were designed to foster competition by letting market entrants copy the interfaces of incumbent products. Online, the economics of the software industry are inverted. Online software has low upfront costs and is not susceptible to copying, rendering existing IP protections unnecessary. Meanwhile, limitations designed to promote competition now allow incumbents to raise barriers to entry by copying from newcomers. In sum, today’s IP regime exacerbates concentration and depresses innovation in markets for online consumer services.

Given the growing role online services play in data collection, commerce, and communication, these broken incentives have far-reaching effects. Fixing these incentives is urgent. Policymakers and commentators blame online concentration on structural market failures and turn to antitrust remedies for solutions. But this pervasive narrative focuses on a symptom, not the cause. This Article argues that tech concentration is an artifact of IP law’s failure to keep up with technology.

This Article proposes a program for IP reform: replace the trade-motivated aspects of software IP law with expanded trade regulation. Drawing on common law misappropriation as a model, it sketches one politically pragmatic implementation approach.

Beyond this Article’s focus on software innovation, it serves as a case study describing the mechanics behind a law falling out of sync with technology. As such, it may help policymakers avoid similar legislative and regulatory pitfalls as they regulate emerging and fast-changing technologies.

Keywords: IP, Antitrust, Law & Tech, Tech Regulation, Innovation Policy, Law & Economics