The New Yorker

The Piracy Paradox
by James Surowiecki September 24, 2007

T

In 1932, a group of American fashion manufacturers found themselves beset by a proliferation of cheap knockoffs. Designs, then as now, were not protected by patents or copyrights, so the manufacturers decided to take direct action to stop the copying. They set up the Fashion Originators Guild of America to monitor retailers and keep track of original designs; if you look at vintage dresses from the thirties, you can find labels reading “A registered original design with Fashion Originators Guild.” Retailers selling knockoffs were “red-carded,” and guild members wouldn’t sell their merchandise to red-carded stores. This was unpopular with the retailers, but it seems to have put a damper on the copying. The only hitch in the plan was that it was illegal: in 1941, the Supreme Court ruled that the manufacturers’ arrangement violated antitrust law, and the knockoff artists stayed in business.

In the decades since, copying has remained ubiquitous in the fashion industry. Fashion-forward but low-priced retailers like H & M and Zara have flourished, thanks to their ability to take designs from Milan to the mass market. Private-label designers for major department stores trumpet the fidelity of their imitations. And almost as soon as hot new designs appear on the runway, photographs and drawings of them are on their way to Chinese factories that can produce reasonable facsimiles at a fraction of the cost. Designers are as annoyed by this as their prewar forebears were, and so Congress now finds itself considering a bill, pushed by the Council of Fashion Designers of America, that would give original designs a legal protection similar to copyright.

Designers’ frustration at seeing their ideas mimicked is understandable. But this is a classic case where the cure may be worse than the disease. There’s little evidence that knockoffs are damaging the business. Fashion sales have remained more than healthy—estimates value the global luxury-fashion sector at a hundred and thirty billion dollars— and the high-end firms that so often see their designs copied have become stronger. More striking, a recent paper by the law professors Kal Raustiala and Christopher Sprigman suggests that weak intellectual-property rules, far from hurting the fashion industry, have instead been integral to its success. The professors call this effect “the piracy paradox.”

The paradox stems from the basic dilemma that underpins the economics of fashion: for the industry to keep growing, customers must like this year’s designs, but they must also become dissatisfied with them, so that they’ll buy next year’s. Many other consumer businesses face a similar problem, but fashion—unlike, say, the technology industry—can’t rely on improvements in power and performance to make old products obsolete. Raustiala and Sprigman argue persuasively that, in fashion, it’s copying that serves this function, bringing about what they call “induced obsolescence.” Copying enables designs and styles to move quickly from early adopters to the masses. And since no one cool wants to keep wearing something after everybody else is wearing it, the copying of designs helps fuel the incessant demand for something new.

The situation is not necessarily easy on designers, who have to keep coming up with new ideas rather than being able to milk a trend for years. But it means that in the industry as a whole there is more innovation, more competition, and probably more sales than there otherwise would be. And the absence of copyrights and patents also creates a more fertile ground for that innovation, since designers are able to take other people’s ideas in new directions. Had the designers who came up with the pinstripe or the stiletto heel been able to bar others from using their creations, there would have been less innovation in fashion, not more.

If copying were putting a serious dent in designers’ profits, it might slow the pace of innovation, since designers would have less incentive to produce good work. But while knockoffs undoubtedly do steal some sales from originals, they are, for the most part, targeted at an entirely different market segment—people who appreciate high style but can’t afford high prices. That limits the damage knockoffs do, as does the fact that fashion is one of the few industries in the world where people are still willing to pay a considerable premium to own original brands instead of imitations. (That’s why counterfeits, which pretend to be original products, are illegal.) The best evidence of this is the fact that luxury-goods makers, far from cutting their prices in response to the knockoff boom, have instead been able to raise prices consistently. In fact, given the importance to fashion of what the law professor Jonathan Barnett calls “aspirational utility”—the enjoyment people get from imitating the life style of the rich and famous—one might think of knockoffs as being like gateway drugs: access to the lower-quality version makes buyers all the more interested in eventually getting the real stuff.

The fashion industry is not alone in its surprising mixture of weak intellectual-property laws and strong innovation: haute cuisine, furniture design, and magic tricks are all fields where innovators produce new work without being able to copyright it. This doesn’t mean that we can always do without copyrights and patents, and fashion has unique characteristics that limit the damage that copying can do: it’s relatively cheap to come up with new designs, there’s a culture of novelty, and people are willing to pay more for the right brands. But we should be skeptical of claims that tougher laws are necessarily better laws. Sometimes imitation isn’t just the sincerest form of flattery. It’s also the most productive. ♦