The Knockoff Economy Read online

  THE KNOCKOFF ECONOMY

  THE KNOCKOFF ECONOMY

  HOW IMITATION SPARKS INNOVATION

  KAL RAUSTIALA

  AND

  CHRISTOPHER SPRIGMAN

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  Library of Congress Cataloging-in-Publication Data

  Raustiala, Kal.

  The knockoff economy: how imitation spurs innovation / Kal Raustiala, Christopher Jon Sprigman.

  p. cm.

  Includes bibliographical references and index.

  ISBN 978-0-19-539978-3 (hardback)

  1. Piracy (Copyright)—United States. 2. Piracy (Copyright)—Economic aspects—United States. 3. Copyright—United

  States. 4. Intellectual property—United States. 5. Copyright—Music—United States. 6. Sound recordings—Pirated

  editions—United States. I. Sprigman, Christopher Jon. II. Title.

  KF3080.R38 2012

  364.16’62—dc23 2012006974

  1 3 5 7 9 8 6 4 2

  Printed in the United States of America

  on acid-free paper

  For Lara, Clark, and Willem

  For Anne, Arin, and Iain

  CONTENTS

  INTRODUCTION

  1

  KNOCKOFFS AND FASHION VICTIMS

  2

  CUISINE, COPYING, AND CREATIVITY

  3

  COMEDY VIGILANTES

  4

  FOOTBALL, FONTS, FINANCE, AND FEIST

  CONCLUSION: COPIES AND CREATIVITY

  EPILOGUE: THE FUTURE OF MUSIC

  Acknowledgments

  Notes

  Index

  THE KNOCKOFF ECONOMY

  INTRODUCTION

  Every spring, millions of viewers around the world tune in to watch the Academy Awards. Ostensibly, the Oscars are about recognizing the year’s best movies. But for many people the Oscars are really about fashion. Fans and paparazzi press against the rope line to see Hollywood stars pose on the red carpet in expensive designer gowns. The television cameras are there too, broadcasting the red carpet fashion show (and the inevitable fashion faux pas) across the globe. In the process, careers in both film and fashion are made and unmade.

  For years, the designers at Faviana have been watching the Oscars as well—very closely. Faviana is an apparel firm located on Seventh Avenue in New York City. If you go to Faviana’s Web site, you will see a link titled “Dress Like a Star.”1 That link leads to a collection of dresses that are direct copies of those worn by actresses on television, in movies, and, most important, at awards shows like the Oscars. In fact, the dresses are identified using photos of stars, such as Angelina Jolie and Sarah Jessica Parker, wearing the original designs.

  Knockoffs like these are a significant part of Faviana’s business, as its Web site somewhat immodestly makes clear: “For the past 7 years, the company’s ‘designer magicians’ have been interpreting the red carpet looks of Hollywood’s most glamorous stars.” And the company does not try to hide that it does more than “interpret” these red carpet looks; it copies them. Indeed, Faviana trumpets this fact. “Ten minutes after any big awards telecast, the Faviana design team is already working on our newest ‘celebrity look-alike gowns,’” crowed CEO Omid Moradi in an interview.*

  Faviana’s creations retail for between $200 and $500—not cheap, but much less expensive than the multi-thousand dollar designer creations they imitate. At these prices, even Faviana’s “designer magicians” cannot replicate the expensive materials and workmanship of many of the originals. But for women who could never afford to buy the real thing, that does not matter. For them, a cheap facsimile is better than nothing. The company, which excels at the production of both knockoffs and PR catchphrases, refers to its work as “bling-on-a-budget.”

  The existence of firms like Faviana (or ABS, Promgirl, or any of a number of similar houses) raises fascinating questions about the relationship between creativity and copying. In most creative industries, copying is illegal. We all have seen this warning as we sit back on the couch to watch our latest Netflix arrival:

  “Reproducing,” or copying, a creative work like a film is against the law. Copyright law—and intellectual property law more generally—exist to prevent copying, on the theory that the freedom to copy would ultimately destroy creative industries. If others could simply copy the efforts of creators, few would bother to create in the first place. How then can a firm like Faviana get away with blatantly knocking off a dress that someone else has designed? And, even more important, why doesn’t this rampant copying destroy the fashion industry?

  Surprisingly, fashion designs are not covered by copyright law. What Faviana does is perfectly legal—and very common.2 Fashion trademarks are fiercely policed; it is illegal to copy brand names such as Gucci or Marc Jacobs, and expensive lawyers aggressively sue those who try. But the underlying clothing designs can be copied at will. Firms both high and low in the fashion world knock off others’ designs. Some merely take inspiration from or “reference” existing designs. Others copy far more blatantly. But all this copying is free and legal.

  As a glance at the reliably thick September issue of Vogue will show, however, creativity in fashion has hardly ended. The development of new apparel designs continues every day at a dizzying pace. Indeed, the American fashion industry has never been more creative. All this copying has not killed the fashion industry. In fact, fashion not only survives despite copying; it thrives due to copying. This book is about why—and what the story of fashion, and of football, cuisine, finance, and a host of other unusual industries, can tell us about the future of innovation in a world in which copying is cheaper and easier than ever before.

  Innovation is central to our contemporary economy. And many people believe that the rules about copying that fall under the banner of “intellectual property”—in particular, copyright and patent—are the basis of sustained innovation.* This belief in the power of intellectual property, or IP, predates the Internet, the computer, and even the lightbulb. It was also a central concern of the Framers of the U.S. Constitution. The Constitution explicitly grants Congress t
he power to create patents and copyrights for “limited Times” as a way to “promote the Progress of Science and useful Arts.”

  In a market economy like ours, of course, we depend on competition to keep the price of goods and services low and their quality high. And a lot of competition involves copying. (Think of Pinkberry, whose success spawned kiwiberry, Yogurt Land, and dozens of other stand-alone shops serving tart, frozen yogurt with mix-ins). So why do we allow prohibitions on copying, prohibitions that constrain competition?3 As the language of the Constitution suggests, we protect innovation from copying because innovation has good consequences, and restraints on copying are thought to be necessary for innovation to occur in the first place.

  Some believe that these restrictions have an important moral dimension as well: copying the work of another, they say, is unfair and akin to stealing. The Framers generally took a different view.4 As Thomas Jefferson famously wrote, ideas are not like tables or televisions:

  If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea…. Its peculiar character, too, is that no one possesses the less, because every other possesses the whole of it. He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me.5

  In other words, if we take your car, we have it and you do not. But to copy an idea takes nothing from the creator; the creator still has it and so too does the copyist. And this makes the copying of ideas more morally ambiguous than stealing ordinary tangible property like a car.

  The primary reason the American legal system regulates copying, in short, is not moral but practical. Both copyright, which protects books, songs, films, and the like, and patent, which protects useful inventions such as medicines, machines, and business methods, rest on the theory that the control of copying is necessary for innovation to occur. Innovation requires rules that allow creators to control who can make copies—either by making the copies themselves, or selling licenses to others. Creators, in short, need a monopoly over the right to make copies. In this book, we refer to this as the monopoly theory of innovation.6

  Why is it thought that creators need a monopoly over their creations? Many innovations are difficult to invent but easy to copy. If copying is allowed, the monopoly theory holds, investment in new inventions and creations will be discouraged as copyists replicate the work of originators—and often more cheaply, since they do not bear the costs of creation. In Jefferson’s terms, if everyone is constantly lighting their taper from our flame, we might not bother to light our own taper in the first place.

  The argument that copying stifles creativity is intuitively appealing. Who is going to create if others are free to take? Proponents of this view tend to assume that it is self-evident that strong patent and copyright laws are essential to keep creative juices flowing, and that more protection is better than less.

  This is one reason that the term of protection under American copyright law has increased from 28 years in 1790 to over a century today. It is also one reason the scope of patents has expanded from things like cotton gins and chemicals to cover a wide, some would say absurd, range of ways of doing business—such as the patent on “one-click” purchasing awarded to online retailer Amazon. (Only the naïve would ignore another reason for this expansion: there is a lot of money at stake in controlling innovations, and those who possess the relevant rights have every incentive to push to make them as strong as they can.)7 The justification for the expansion of monopoly rights is simple: more intellectual property yields more protection, which in turn produces more creativity. Or so the story goes.

  This book challenges the conventional wisdom about innovation and imitation. And it does so in a new way. Most of the debate on these issues has revolved around existing industries that are major proponents of strict rules against copying, such as the music business (copyright) or the pharmaceutical industry (patent). We instead explore a variety of industries and arts, like fashion, databases, and comedy, in which copyright and patent do not apply, or are not used. In other words, we ask, What happens when restrictions on copying are not part of the picture?

  What we find is that even though others can freely copy in these industries, creativity remains surprisingly vibrant. In the pages that follow we will explore a clutch of industries in which copying does not necessarily kill or even impair creativity. In some, copying actually spurs innovation—an effect we call the “piracy paradox.” In others, social norms protect the interests of originators and keep innovation humming. Imitation may also force innovators to structure their creativity in ways that make it less vulnerable to copying. The details vary, yet in all of these instances copying tends to lead to transformation rather than decimation.

  Our main message is an optimistic one: surprisingly, creativity can often co-exist with copying. And under certain circumstances, copying can even be good for creativity.

  This has vital implications in a world in which rapid technological advances have made copying easier and easier. Some believe we are entering an era of cultural and economic decay in which unrestrained copying by “digital parasites” destroys first one, then another, creative art.8 Others foresee an impending utopia of the mind in which creativity and information are set free and available to all. We think the truth is more complex, but also more interesting, than either of these views. Copying can harm creativity and some rules are necessary; we are not IP-abolitionists.9 But the effects of copying on creativity are not nearly as simple as the monopoly theory suggests. The industries we explore tell us that creativity is more resilient than commonly believed; that copying has unappreciated virtues; and that the rise of free and easy copying may, in the end, prove to be far less apocalyptic than many believe.

  The industries we look at in this book are often surprisingly big and interesting. Understanding how they work, and why they work, is fascinating. We also want to draw out lessons for other industries, such as music and film, which increasingly struggle in the face of rampant, and rising, copying. These IP-dependent industries are certainly different from the industries we profile in the pages to follow.10 Yet there are still useful lessons about how and when prohibitions on copying are necessary. This is especially true since copying appears increasingly difficult to stop, even as innovation becomes ever more central to our economy. In this new world, a close look at those industries that already survive and even thrive in the face of pervasive copying can help us judge whether the future of creativity is bleak or bright. For reasons this book will explain, we think the future is brighter than many realize.

  Here are a few examples of the industries, and the stories, we examine in the chapters that follow.

  CUISINE

  Walking home one night in Los Angeles with his sister-in law, Mark Manguera had an epiphany. Mexican and Korean were two of L.A.’s street food mainstays. Could the tastes be combined? Maybe he could pull off the culinary version of a mash-up. What if he stuffed a tortilla with… Korean BBQ’d short ribs?

  This was the birth of the now-famous “Korean taco”: a concept that fused two of L.A.’s favorite cuisines—both associated with cold beer and good times—into one delicious combination. Within a month Manguera had teamed up with a friend and highly accomplished chef, Roy Choi. Choi took the idea and made it work. Together, they launched a business to sell Korean tacos out of a truck. They called it Kogi, a play on the Korean word for meat.

  In L.A., food trucks are a common sight. But for decades trucks were limited to basic Mexican fare aimed at construction workers and residents of immigrant neighborhoods. Kogi’s insight was to take the concept of a taco truck and tweak it. It was a flash of gastronomic inspiration to combine Korean BBQ with tacos, but it was also a flash of marketing inspiration to offer a more upscale and lively truck experience, one that would appeal to an entirely new demographic.

  Still, Kogi’s culinary mash-up was not
an immediate hit. The truck parked in a busy part of West Hollywood, yet at first the team couldn’t give their tacos away. But Manguera and Choi weren’t deterred, and they tried some innovative strategies to get the attention of jaded Angelenos. The truck would park near offices by day, residential areas in the evening, and clubs and bars at night. Manguera would hand out free samples to the club bouncers, who loved the food and spread the word to those waiting at the rope lines. Manguera also reached out to L.A.-area food bloggers, and they reciprocated with glowing reviews. And Kogi benefited from the tech savvy of Manguera’s sister-in-law, Alice Shin, who made extensive use of Twitter to help followers to know where the truck was at all times. But the overwhelming reason for their success was the creativity of the Kogi team, who cleverly combined two great tastes that had existed cheek-by-jowl in L.A. for decades, and, moreover, chose to “upscale” the plebian food truck rather than start a traditional brick-and-mortar restaurant.

  The rest is food history. In 2010, Roy Choi was listed as one of Food & Wine magazine’s 10 best new chefs, and today there are hundreds of gourmet food trucks in L.A. and nearly every other major city in the nation, offering everything from banana pudding to sushi. Inevitably, there are also many knockoffs of the Kogi taco. Even Baja Fresh, the fast-food Mexican chain, began offering one.

  From an innovation perspective, cuisine is a lot like fashion. Recipes are unprotected by copyright, so anyone can copy another’s recipe. Actual dishes—the “built food” you order in a restaurant—can also be copied freely. As anyone who has eaten a molten chocolate cake or spicy tuna on crispy rice knows, popular and innovative dishes do seem to migrate from restaurant to restaurant. The bottom line is that almost anything a chef does that is creative—short of the descriptions of the food in the menu, which are at least thinly protected by copyright law—can be copied by another chef.