The Piracy Paradox: Innovation and Intellectual Property in Fashion Design

The orthodox justification for intellectual property is utilitarian. Advocates for strong IP rights argue that absent such rights copyists will free-ride on the efforts of creators and stifle innovation. This orthodox justification is logically straightforward and well reflected in the law. Yet a significant empirical anomaly exists: the global fashion industry, which produces a huge variety of creative goods without strong IP protection. Copying is rampant as the orthodox account would predict. Yet innovation and investment remain vibrant. Few commentators have considered the status of fashion design in IP law. Those who have almost uniformly criticize the current legal regime for failing to protect apparel designs. But the fashion industry itself is surprisingly quiescent about copying. Firms take steps to protect the value of trademarks, but appear to accept appropriation of designs as a fact of life. This diffidence about copying stands in striking contrast to the heated condemnation of piracy and associated legislative and litigation campaigns in other creative industries. 

Why, when other major content industries have obtained increasingly powerful IP protections for their products, does fashion design remain mostly unprotected – and economically successful? The fashion industry is a puzzle for the orthodox justification for IP rights. This paper explores this puzzle. We argue that the fashion industry counter-intuitively operates within a low-IP equilibrium in which copying does not deter innovation and may actually promote it. We call this the piracy paradox. This paper offers a model explaining how the fashion industry’s piracy paradox works, and how copying functions as an important element of and perhaps even a necessary predicate to the industry’s swift cycle of innovation. In so doing, we aim to shed light on the creative dynamics of the apparel industry. But we also hope to spark further exploration of a fundamental question of IP policy: to what degree are IP rights necessary to induce innovation? Are stable low-IP equilibria imaginable in other industries as well? Part I describes the fashion industry and its dynamics and illustrates the prevalence of copying in the industry. Part II advances an explanation for the piracy paradox that rests on two features: induced obsolescence and anchoring. Both phenomena reflect the status-conferring power of fashion, and both suggest that copying, rather than impeding innovation and investment, promotes them. Part II also considers, and rejects, alternative explanations of the endurance of the low-IP status quo. Part III considers extensions of our arguments to other fields. By examining copyright’s negative space – those creative endeavors that copyright does not address – we argue can we can better understand the relationship between copyright and innovation.

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An Efficiency Model of Section 363(B) Sales

Section 363(b) of the Bankruptcy Code allows a corporation to sell assets outside of the ordinary course of business without undergoing the rigorous process of confirming a Chapter 11 reorganization plan. Such a side door may encourage efficiency—enabling a quicker sale of assets that would diminish in value during the lengthy plan confirmation process—but may also encourage waste—enabling managers or creditors to advocate a hurried sale of assets at a sub-optimal price without the protection of confirmation procedures. These sales have become ubiquitous in large corporate reorganizations, but are largely under-theorized.

This Note offers a theoretical approach, deriving a framework analyzing the features of efficient sales. The framework demonstrates that the level and quality of court analysis of such sales drives whether a Section 363(b) sale is efficient or inefficient. Too much intervention increases the costs of a sale such that its value is less than that recoverable under a reorganization plan. Too little or poorly tuned intervention enables under-valuation and agency shirking which likewise reduces the value below the reorganization plan baseline. The framework provides a theoretical calculus from which to determine the optimal level of court intervention and which factors should matter to the decision-making process both by the court and the seller. Among others, the driving factors are the agency costs and the anticipated fluctuation in the value of the asset. This Note finally questions whether there may be a more efficient mechanism to perform the functions of valuation and minimization of agency costs.

Liberties and Markets

Liberties and Markets argues both that libertarianism based on consequentialist moral reasoning is internally inconsistent and that alternative “deontological libertarianisms” face different problems than those emphasized by Jonathan Wolff. Libertarians, I claim, can respond convincingly to most of the arguments advanced against them by Wolff. But these responses are not adequate to defend the libertarian position; for any arguments that could demonstrate the existence of moral rights that would be sufficient to underpin libertarian economic ideals would also imply the existence of rights inconsistent with those ideals.