CopyFlex: Innovation Through Optimal Licensing in Free Markets and Free Software

ABSTRACT Recent developments have challenged one prevailing interpretation of the idea that proprietary systems, enshrined in copyright, create the greatest value. The challenge appears at one level among economic strategists who assert that the greatest value in information goods is not created by the strongest and most restrictive intellectual property protection and in another form by the proponents of Open Source Software who argue for value created by peer review and openly modifiable shared code. We articulate a balance of incentives as indexed by the length of time that software remains proprietary, and openness as indexed by the amount of the platform code base that an author releases to the developer community (and users) to promote the creation of new products. We analyze the trade-off between early and late release based on two novel approaches. The first is to use internetwork externalities to explore two-sided markets and how the release of free information benefits those who develop as well as those who consume. The second is a framing innovation that places existing licenses in a space that suggests where unexplored socially optimal licenses might exist. Neither technique requires the other and the contribution of each can stand on its own. The combination, however, offers the potential for advancement in a debate where many important trade-offs are often omitted to make analysis tractable.

Keywords Innovation, Free Software, Open Source, Lead Users, Two-Sided Markets, Network Effects, Network Externalities