Outside the Law

I wonder how many major businesses had their roots in a story like this one that Stuart Robinson writes about in Hypocrisy of Hollywood passes on by Larry Lessing:

A little history, courtesy of Larry Lessig’s new book ‘Free Culture’, goes a long way:

The Hollywood film industry was built by fleeing pirates. Creators and directors migrated from the East Coast to California in the early 20th century in part to escape controls that film patents granted the inventor Thomas Edison. These controls were exercised through the Motion Pictures Patents Company, a monopoly “trust” based on Edison’s creative property and formed to vigorously protect his patent rights.

California was remote enough from Edison’s reach that filmmakers like Fox and Paramount could move there and, without fear of the law, pirate his inventions. Hollywood grew quickly, and enforcement of federal law eventually spread west. But because patents granted their holders a truly “limited” monopoly of just 17 years (at that time), the patents had expired by the time enough federal marshals appeared. A new industry had been founded, in part from the piracy of Edison’s creative property.

There are other examples of legal loophole as enabling innovation.  The cryptography package used by the Open Source community was written in Australia; which had a different configuration of laws then those found in the US.  A friend tells me how Belgium is a hot spot for music based on sampling because their copyright laws are somehow different for that kind of “fair use.”  Of course there is there is Las Vega for gambling. And, I believe, the John Hancock insurance company, which first sold insurance to shipping firms, was founded by folks who’s fortune was made by piracy. That last one has a nice symmetry with the Hollywood story.

The term resource endowment labels the theory that certain venues succeed in a given industry because they have unique endowments. These give credibility to founding myths, like New York is there because of it’s great harbor.  For example dentist chairs are made in LA because of a resource endowment in working aluminum. A skill it accumulated from it’s role in the aircraft manufacturing business.

In the examples above endowment is some species of unlawfulness. Will San Francisco be able to use gay weddings as the spring board to taking a dominate position in the whole wedding industry?  Time will tell, but I certainly believe that Apple has carefully played the drm free mp3 card to disrupt the music industry in a mimic of this pattern.

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