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Like all forms of property, some part of the cost of enforcing IP rights is paid by taxpayers through government enforcement. Examples are the costs of running the court system (to adjudicate disputes over rights) and the police system (to investigate the failure to honor enforceable property rights). And, as is the case for all forms of property, enforcement is not entirely public. Just as companies pay for private security, they also pay part of the cost of protecting their IP.

An important point about enforcement is that the holder of a private property right has an incentive to maximize the extent of government enforcement, regardless of the efficiency of public-versus-private enforcement. A public enforcement mechanism, as long as it works, is superior to private enforcement from the perspective of the rights holder because the cost of the former can be spread among all members of society through the tax system.

One example of cost shifting was an attempt in the 1980s to outlaw videocassette recorders (VCRs) because they could be used to create unauthorized copies of motion pictures and television programs. Outlawing VCRs would have created two costs. First, the government would have assumed responsibility to ferret out and capture VCRs, much as it bears responsibility for finding and confiscating illegal drugs. Second, consumers would have been forced to bear the cost of forgoing legal and legitimate uses of VCRs, and the VCR manufacturing industry (including holders of VCR patents) would have been forced to abandon the income generated by a product that sells for hundreds of dollars, to protect a product that could be sold for much less and, in the case of television broadcasting, is given to consumers for free.7

The important points here are these:

• Like any other kind of property rights, intellectual property rights can be costly to enforce;

• Enforcement, in and of itself, adds nothing to the social value of IP (although enforcement may be important to induce others to create and distribute IP);

• The cost of enforcement is a balance of public and private costs, seldom entirely one or the other; and

• The balance of enforcement costs between public and private, as well as the overall level of cost, must be considered in designing the legal and social institutions for managing IP.

7As a result, popular feature films usually are not released to the videotape market until after their first theatrical run. These releases on videotape have a negligible effect on revenues from theaters and can be profitably priced low enough so that pirates have little incentive to engage in extensive unauthorized commercial copying.