Volume 1, No. 2, May 6, 2004

Comment on S. J. Liebowitz
Alternative Copyright Systems:
The Problems with a Compulsory License

Based on a Presentation at a Conference on
Promoting Markets in Creativity: Copyright in the Internet Age
Washington, DC | June 10, 2003

Sponsored by
The Progress & Freedom Foundation
and the
National Center for Technology and Law of the
George Mason University Law School (The Tech Center)

Though much of the debate about copyright is among lawyers and economists, I represent neither perspective. I join this discussion as a scholar of management and organizational behavior, mainly because I co-authored a management book titled Creativity at Work. [1] Though copyright issues do not commonly factor into my research, I've thought a great deal about creativity and why we are creative. Thus, as a minority of sorts, I would like to introduce an additional set of considerations that tend not to be part of the typical copyright conversation.

The question is how to promote markets in creativity. In his paper, Liebowitz carefully itemizes the implications of economic theory for the production of intellectual properties in the music industry. The MP3 market offers an excellent analogue to other industries that are protected by copyright law. All of these industries are under assault by the new technologies that reduce the cost of their reproduction and distribution and increase the ease of making illegal copies. Specifically, Liebowitz focuses on the problem of maximizing production and consumption while minimizing social costs. He introduces the challenge of adequately compensating the people who produce music-including artists, publishers, and distributors-when monitoring distribution is difficult.

Liebowitz's concern with financial incentives underscores a pressing issue: How do we design a system that encourages the ongoing production of creative, intellectual properties? Though economic models are useful for understanding these problems, a social-psychological perspective of creativity should also play a role in shaping copyright policy. This question is not only legal or economic, but rather it takes us back to the basics of human behavior. To explore this issue through the lens of organizational behavior theories, I will discuss three topics:

• What is creativity?
• What makes us creative?
• What do we get in return

To understand how to promote markets in creativity, it is important to first define creativity. Creativity is the production of something novel that offers value in a particular situation. What is valuable differs according to the situation. The value may stem from the usefulness, merit, importance, uniqueness, or desirability of that product, service, process, or idea.

Many of us think of the arts and sciences as being the sole domains of creative expression, but creativity is manifested in many different ways and in many different fields. [2] Consider these few ways that people and organizations produce novelty and value:

• Expressions: Fashion is more than creating new styles of clothing. Fashion reveals creativity through the crafting of an image associated with a famous designer. It isn't the clothing's materials that are valuable, but the cachet of the name that carries a premium. As with many products, the marketing of a designer brand or identity expresses creativity by finding new ways to catch consumer attention and create a memorable identity.

• Potential: Innovative technology depends on more than just understanding the nuts and bolts of engineering. Product accessories demonstrate creativity through the many ways that they transform a technology beyond the new gadget's basic features. Essentially, the underlying technology serves as a platform for a broad array of customizable products. It is not necessarily the technology itself that is creative but the potential for spinning out thousands of different products from one fundamental standard.

• Experiences: For commodities and cash-and-carry goods, creativity may be displayed through the invention and delivery of a customer experience. For example, when eating a hamburger at the Hard Rock Cafe, buying coffee at a Starbucks, or testing hiking boots on an indoor mountain at Recreational Equipment, Inc., consumers are willing to pay more for a fairly standard product. The special experience of getting the product is what attracts them and makes them willing to pay more. [3] Likewise, outstanding customer service-as at a Ritz-Carlton hotel or on Southwest Airlines-uses creativity to produce a marketable experience that draws and keeps customers.

• Capabilities: Software firms are often valued more highly than giant manufacturers with millions of dollars in capital assets. However, all software companies face the constant threat of having their products pirated because the valuable part of their product is easy to reproduce. So what underlies their value? Software and other information-based firms are so valuable because they have the intellectual capital (what is commonly called an "intangible asset") to invent and introduce new products faster and more effectively than competitors or pirates can.

Fundamentally, each of these examples of creativity is intellectual property-valuable for their ideas, not for their materials or basic function. [4] The last category-creativity that emerges from individual and organizational capabilities-is what is at stake in the debate about the future of copyright. The next section discusses what is behind this capability.

There are two major factors that predict creativity: ability and motivation. The most obvious factor is ability. This includes both expertise in a relevant field and creativity skills (such as cognitive flexibility or looking at old things in new ways). [5] To be creative, one must be able to recognize a novel and valuable contribution. For all the specialized knowledge one might have, however, creativity won't happen without also being able to extend these ideas beyond traditional ways of thinking.

The second factor is motivation. Motivation is one of the oldest and trickiest areas of organizational behavior research. In all cases, motivation is uniquely shaped by both the individual and the work culture, shifting according to the circumstances. Classic theories of motivation have suggested that we are motivated by both basic needs like food and shelter and higher needs such as gaining recognition, connecting with others, or personal growth. [6] People are better motivated when they are aware of such goals, and they weigh the perceived value of these goals against the likelihood that their effort will get them there. [7]

We classify goals as either intrinsic or extrinsic. Intrinsic motivation comes from an inherent interest, involvement, or personal challenge represented by the goal. Extrinsic motivation refers to external goals, such as money or other rewards. Intrinsic motivators are highly conducive to creativity, while purely extrinsic motivation will decrease creativity. [8]

Within an organization, what makes motivation difficult is that so often individual actions are distant from the final organizational goals. Many creative outcomes take a lot of time and manpower before they come to fruition, so people need reinforcement along the way to know that the goal is worth the effort. Incentives bridge that gap.

Centuries ago, the original copyright laws protected publishers. With perpetual ownership, publishers could earn money indefinitely without soliciting new material. Eventually legislative efforts to reduce the publishers' monopoly power shifted and limited the duration of ownership. This created an incentive for publishers to obtain new pieces of literature, and likewise authors had an incentive to create new sources of income for themselves when their copyrights expired. Thus, revised copyright laws acknowledged both that the effort and cost in producing a creative work should be adequately compensated during an author's lifetime and that the greater social good was the ongoing production of new intellectual properties. [9]

Today, copyright laws have been expanded to cover a broader range of creative products, while modern copyright protection has been extended so far into the future that most people are protected much longer than they are likely to earn rewards for their efforts. Though many artists wish their books and music had the endurance of an Ernest Hemingway novel or a Beatles album, the reality is that most creative products enjoy a short burst of sales and are later relegated to used book stores and bargain bins. Artists need to be able to exploit this value while they can.

So, how do you appropriately reward something as intangible and subjective as "creativity"? How should organizations encourage and sustain creativity within a large and complex operation? I can't offer any easy solutions, but I will suggest a few points for organizations and policy makers to consider while debating this issue.

There is quite a range of value and novelty produced by creativity. In a system in which rewards were to be regulated by the government, high creativity and low creativity might not be compensated according to their value. In such an indiscriminate system, people might seek the lowest satisfactory solution rather than striving for the most value and novelty. [10] How might we create incentives for people to produce the best that they can? Though I do not wish to suggest that individual creative ability is the only source of creativity, let me draw an analogy to a similar way of describing individual differences to suggest why creativity should be recognized differentially.

As an ability, creativity is evocative of Howard Gardner's multiple intelligence theory. [11] This theory says that intelligence appears in at least seven forms: linguistic, mathematical, kinesthetic, spatial, musical, interpersonal, or intrapersonal. For example, Michael Jordan is kinesthetically intelligent, and he has applied that intelligence to be creative in sports. Carole King is musically intelligent, and she has achieved creative success as both a songwriter and a singer. But one is not necessarily better than another. Instead, intelligence of different sorts allows people to produce outcomes of novelty and value in different areas.

So should a multi-million-dollar sports star be compensated differently than a musician? Why should a terrific musician receive exactly the same compensation as a mediocre one? Even if the free market system is not working, as Liebowitz has pointed out, regulated systems should still reward creative products according to their perceived value. Though Michael Jordan was paid for each game he played, he was also paid more per game because the value of his contribution was so great. Likewise, when Barbra Streisand launched her comeback tour, she could command top-notch ticket prices because her creativity was considered exceptional and rare, and people were willing to pay more to see her perform. Creativity deserves compensation, and appropriate compensation must recognize the many guises of creativity across domains while acknowledging that performance varies within a domain.

The Perils of Money and Other Extrinsic Motivators

Within organizations, money is a dangerous motivator. On the one hand, money is a symbolic way of showing employees that they are valued. For some people, money is a very important way of deciding where they work and how much effort they expend. On the other hand, negligible monetary differences that create inequitable rewards can damage morale and motivation. [12] There are three ways that money can have serious repercussions for the creative process.

First of all, financial rewards can distract employees from the organization's underlying goals. As I mentioned earlier, it is often difficult for employees within large organizations to see direct connections between their efforts and the final results. To make these connections clearer, some bonus reward systems tie individual compensation to overall firm performance. For example, stock options are thought to encourage employees to work harder as "owners" of the firm. However, a recent study shows that stock options can become a carrot that lures employees completely off track, causing them to be so obsessed with the hour-to-hour fluctuations in stock value that their effort and motivation fluctuates accordingly. [13] Instead of working, employees in one firm spent hours of work time each day preoccupied with their personal stock portfolios. Rather than focusing employee effort and responsibility, stock options can be a damaging extrinsic motivator. Businesses need to consider meaningful, non-financial ways of sustaining motivation throughout the creative process.

Second, people may not put forward their best work if they are "bought out" for limited rewards. Often, people produce creative work in exchange for a salary or a fixed contract, so their "copyrights" are owned by the employer. If creativity has the potential to produce ongoing income to the firm, individual contributions should be rewarded in kind. For example, some organizations allow individuals within the organization to hold copyrights or patents and perhaps earn royalties from them. Financial rewards aside, this simple recognition may offer a sufficient incentive. In addition, the opportunity to reap the benefits for the years that their creativity continues to be profitable may bolster existing intrinsic motivations.

Third, extrinsic rewards such as money can actually damage intrinsic motivation. [14] People begin to focus on the reward rather than on the work, and lose interest in going the extra distance. Knowledge workers-those responsible for many of the creative products protected by copyright-typically have intrinsically motivating work, and it is important to preserve that intrinsic value as an incentive. Intrinsic motivation is encouraged through exciting opportunities, supportive work environments, and recognition. [15] As Eric Raymond, an evangelist for the open-source software movement, has said, "You cannot motivate the best people with money. . The best people in any field are motivated by passion. . When are programmers happy? They're happy when they're not underutilized-when they're not bored. This is a general preference in creative work. People are happiest when they're the most productive." [16] The open-source software movement is proof that money is not the sole motivator. Given that fact, it is important to identify what else might motivate a particular individual-whether that might be more varied projects, a chance for learning and challenge, or greater autonomy-and reward accordingly.

Tailoring Incentive Systems

Incentive systems can go terribly wrong. Consider, for example, an insurance company that changed how its agents were rewarded. The organization's goal was to increase the number of potential clients. It introduced an incentive system that rewarded salespeople according to the number of calls they made to prospective clients. Unfortunately, the salespeople boosted their number of calls, but stopped focusing on whether they actually sold policies. Meanwhile, the company had a larger phone bill and fewer sales. [17]

It is necessary to match an incentive to the purpose of the incentive, while anticipating unintended outcomes. Loopholes can corrupt an otherwise well-conceived system. If the goal of copyright law is to motivate the continuing production of new creative products, then it must be structured accordingly. An example from patent law illustrates one of the potential problems of revising intellectual property laws. Drug development is hugely expensive, yet drug patents last for only a fixed number of years so that companies are compensated for their development costs but cannot hold an indefinite monopoly. In response, drug companies have found ways to renew their patents without creating something truly "new." For example, when the depression drug Prozac's patent was about to expire, the manufacturer Eli Lilly extended the patent by introducing an identical drug called "Sarafem," promoted as a cure for Premenstrual Dysphoric Disorder.

If copyright protection were to be shortened to provide an incentive for creating new creative works, then the law would also need to devise systems that prevent people from using minor technicalities to generate completely new protection periods. Conversely, given that copyright protection currently extends well beyond a lifetime, how is the law already being applied at the expense of the social good? Whatever incentive structure copyright protection is intended to support, the design of the copyright system needs to reinforce those goals-while minimizing the introduction of unintended, and socially unfortunate, consequences.

To summarize, copyright issues are more complex than economic and legal analyses would predict. We need to consider how creativity is valued and rewarded in all its forms. For copyright protection to serve as the healthy incentive system it once was, we need to consider the basics of human motivation-beyond money-and structure rewards to encourage creativity for the benefit of all. Are the solutions simple? I don't think so. But thoughtful policies should be able to cope with changing technologies for years to come.

* Katherine A. Lawrence is completing her PhD in organizational behavior at the University of Michigan Business School, Department of Management and Organizations. The author would like to thank Emily Frye for her thoughtful comments during the development of this paper.

Katherine A. Lawrence
University of Michigan Business School
701 Tappan Street
Ann Arbor, MI 48109-1234
kathla@umich.edu

1. Jeff DeGraff and Katherine A. Lawrence, Creativity at Work: Developing the Right Practices to Make Innovation Happen (San Francisco: Jossey-Bass, 2002).
2. Thanks to my co-author Jeff DeGraff for introducing many of these ideas during a prior presentation we made at Leaders Connect (in association with the University of Michigan Business School Pressing Problems Series, Ann Arbor, MI, April 1, 2003.)
3. B. Joseph Pine, II and James H. Gilmore, The Experience Economy: Work Is Theatre and Every Business a Stage (Boston: Harvard Business School Press, 1999).
4. Although this encompasses "intellectual property" in the legal sense, here I am additionally implying a much broader concept of intellectual property-that is, that these examples embody valuable ideas, pure and simple.
5. Teresa M. Amabile, Creativity in Context (Boulder, CO: Westview Press, 1996).
6. A. Maslow, Motivation and Personality (New York: Harper & Row, 1954), C. P. Alderfer, Existence, Relatedness, and Growth: Human Needs in Organizational Settings (New York: Free Press, 1972).
7. Victor H. Vroom, Work and Motivation (New York: Wiley, 1964).
8. Teresa M. Amabile and Regina Conti, "Environmental Determinants of Work Motivation, Creativity, and Innovation: The Case of R&D Downsizing," in Technological Innovation: Oversights and Foresights , edited by Raghu Garud et al. (Cambridge, UK: Cambridge University Press, 1997), pp. 111-125.
9. Amici Curiae Brief of Tyler T. Ochoa et al., submitted in Eldred v. Ashcroft, 534 U.S. 1160 (2002). Available at http://cyber.law.harvard.edu/openlaw/eldredvashcroft/supct/amici/historians.pdf.
10. James G. March and Herbert A. Simon, Organizations (New York: Wiley, 1958).
11. Howard Gardner, Frames of Mind (New York: Basic Books, 1983).
12. J. S. Adams, "Inequity in Social Exchange," in Advances in Experimental Social Psychology , Vol. 2, edited by L. Berkowitz (New York: Academic Press, 1965), pp. 267-299.
13. Julia A. Welch, "Good Intentions Gone Awry: A Field Study of Stock Options in the High-Tech Industry" (Unpublished Dissertation, University of Michigan, 2003).
14. Alfie Kohn, Punished by Rewards: The Trouble with Gold Stars, Incentive Plans, A's, Praise, and Other Bribes (Boston: Houghton Mifflin, 1999), Teresa M. Amabile, "Motivational Synergy: Toward New Conceptualizations of Intrinsic and Extrinsic Motivation in the Workplace," Human Resource Management Review 3 , no. 3 (1993): 185-201. According to Amabile, some extrinsic motivators can boost creative performance when they are combined with already high intrinsic motivation, but too often an excessive focus on extrinsic motivators will undermine intrinsic motivation, particularly if employees feel manipulated or unsupported.
15. Geoffrey Colvin, "What Money Makes You Do," Fortune (August 17,, 1998): 213-214.
16. William C. Taylor, "Inspired by Work," Fast Company (November, 1999): 200-208.
17. Dean R. Spitzer, Supermotivation: A Blueprint for Energizing Your Organization from Top to Bottom (New York: AMACOM, 1995).