Trading in Information: On the Unlikely Correspondence Between Patents and Blackmail Law

Abstract

This paper studies the problem of trading in information in two seemingly unrelated settings: inventive activity; and blackmail. In the former, a discoverer of some new information wishes to profit from it but may be deterred because the act of disclosure effectively makes the information public. Thus, legal protection of the information in the form of a patent is usually needed to allow the inventive process to proceed. Blackmail also involves trading in information; but because the transaction is between two parties who already know its content—the discoverer, and someone who wishes to keep it hidden—the appropriability problem is absent. The paradox of blackmail is why the blackmailer prefers to sell the information to the informed party rather than to the uninformed party (who actually values it more); this latter transaction would be legal. The resolution of the paradox provides the link to patent law, because the latter transaction does involve the appropriability problem.