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The Piracy Paradox

Tags Capital and Interest TheoryEntrepreneurshipProduction Theory

My post Knock It Off discusses Jacob Sullum's Reason article about knockoffs in the high-fashion industry, and the lobbying by designers for copyright-like protection of clothing designs. A recent article in The New Yorker, The Piracy Paradox, also discusses this issue. There were two fascinating aspects to this story. First, the author notes that cheap knockoffs actually help the designers maintain high prices. Why? Because "for the industry to keep growing, customers must like this year's designs, but they must also become dissatisfied with them, so that they'll buy next year's." In the high-tech industry, continual technical improvements help make old products obsolete and new ones continually in demand. But this is not true of fashion. However, it is knockoffs that serve this function: "Copying enables designs and styles to move quickly from early adopters to the masses. And since no one cool wants to keep wearing something after everybody else is wearing it, the copying of designs helps fuel the incessant demand for something new." Fascinating. So... copiers actually help the fashion industry, precisely because fashion designers cannot count on technical obsolescence to help keep their newer designs in demand. By the same token, one would think, copying of high-tech designs (methods and designs that are now protected by patent) would not harm the innovators, who can "rely on improvements in power and performance to make old products obsolete". In other words, technical innovators have an advantage of being first to market, since their new products offer technical advantages that previous products do not have. The inevitability of knockoffs being produced later on by copiers does not change this fact.The second, and more interesting, point, to me, was this one:

In 1932, a group of American fashion manufacturers found themselves beset by a proliferation of cheap knockoffs. Designs, then as now, were not protected by patents or copyrights, so the manufacturers decided to take direct action to stop the copying. They set up the Fashion Originators Guild of America to monitor retailers and keep track of original designs; if you look at vintage dresses from the thirties, you can find labels reading "A registered original design with Fashion Originators Guild.” Retailers selling knockoffs were "red-carded,” and guild members wouldn't sell their merchandise to red-carded stores. This was unpopular with the retailers, but it seems to have put a damper on the copying. The only hitch in the plan was that it was illegal: in 1941, the Supreme Court ruled that the manufacturers' arrangement violated antitrust law, and the knockoff artists stayed in business.

People often ask how firms could protect their innovations in world without IP. Perhaps something like the "Fashion Originators Guild" could do the trick--if the state did not outlaw it.


Stephan Kinsella

Stephan Kinsella is an attorney in Houston, director of the Center for the Study of Innovative Freedom, and editor of Libertarian Papers.

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