There is a tsunami of information coming from new media, some of which has the "capacity to destroy civil society and cause unimaginable suffering."

"The fact is that, to generate good information carries a cost. It requires money. Unless you steal it like most new media companies do.

"And, if you bring that argument to its logical conclusion all you'll get on their news sites is a blank screen, because they eventually will have no one left to steal from."

Data on the supply of new works are consistent with our argument that file sharing did not discourage authors and publishers. The publication of new books rose by 66% over the 2002-2007 period. Since 2000, the annual release of new music albums has more than doubled, and worldwide feature film production is up by more than 30% since 2003. At the same time, empirical research in file sharing documents that consumer welfare increased substantially due to the new technology.

... While file sharing disrupted some traditional business models in the creative industries, foremost in music, in our reading of the evidence there is little to suggest that the new technology has discouraged artistic production. Weaker copyright protection, it seems, has benefited society.

The role of complements makes it necessary to adopt a broad view of markets when considering the impact of file sharing on the creative industries. Unfortunately, the popular press -- and a good number of policy experts -- often evaluate file sharing looking at a single product market. Analyzing trends in CD sales, for example, they conclude that piracy has wrecked havoc on the music business. This view confuses value creation and value capture. Record companies may find it more difficult to profitably sell CDs, but the broader industry is in a far better position. In fact, it is easy to make an argument that the business has grown considerably. Figure 7 shows spending on CDs, concerts and iPods. The decline in music sales -- they fell by 15% from 1997 to 2007 -- is the focus of much discussion. However, adding in concerts alone shows the industry has grown by 5% over this period. If we also consider the sale of iPods as a revenue stream, the industry is now 66% larger than in 1997.

Copyright exists to encourage innovation and the creation of new works; in other words to promote social welfare. The question to ask is thus whether the new technology has undermined the incentives to create, market, and distribute entertainment. Sales displacement is a necessary but not a sufficient condition for harm to occur. We also need to know whether income from complementary products offset the decline in income from copyrighted works. And even if income fell, welfare may not suffer if artists do not respond to weaker monetary incentives.

Patents are essential to the modern system of innovation. Once produced, information can be transmitted at zero cost. In the absence of patent protection, would-be inventors become vulnerable to competition that would drive the value of their discovery to zero, leaving them with no compensation for the costs of producing that information in the first place.

Microsoft objects that the injunction ordered by the trial judge goes too far. (It has been put on hold until after the appeal, which is to begin Wednesday.) But injunctions are almost always ordered to prevent continuing infringement, and for good reason. To simply order money damages for future infringement would be to force i4i to license out its technology at a court-imposed price.

Just as there are good reasons not to compel citizens to sell or rent out their homes at prices set by judges, there are very good reasons in general to avoid compulsory licensing of intellectual property. Court determinations of the value of intellectual property are necessarily somewhat conjectural, yet damages awards require courts to act, in effect, as price regulators. By contrast, injunctions do not prevent a licensing deal from being done, but rather cede to the owner of the property the authority to set a price. Just as giving homeowners the right to decide whether to sell or rent out their houses does not destroy the housing market, in terrorem arguments about the death of Word under this injunction are without merit.

Meanwhile, Microsoft has vociferously argued that despite the trial judge's careful vetting of the evidence, i4i did not establish at trial a firm basis for its damages claim for past infringement. This claim about the speculative nature of past damages sits uncomfortably with Microsoft's opposition to injunctions. Given the complexity of measuring supply and demand for a unique product, it must be true that there is some empirical uncertainty about the precise level of past damages. But if patents are to have value, this uncertainty is unavoidable: A damages award is the only available remedy for infringement that has already taken place.

Protecting i4i's patent protects incentives to invent and the competitive process. In this case, the trial judge wisely offered such protection, while recognizing the court's own institutional limitations, by ordering damages for past infringement and injunctions going forward. While the decision was not a good one for Microsoft, it was clearly in the best interests of society.