In this paper, I demonstrate that the existing legal frameworks for database protection are inadequate – the American framework under-protects databases, while the European framework over-protects. This paper presents an economic analysis of the current scope of legal protections for databases versus the ideal, with an especial emphasis on the role of intellectual property rights in providing these protections, and concludes with proposals for an ideal system. After an overview of the current systems of legal protections for databases in the United States (US) and the European Union (EU), there will be an explanation of how different types of laws (competition, contract, and most importantly, intellectual property rights) impact the production and innovation of databases. The analysis will show that intellectual property rights are the most comprehensive and efficient form of legal protection due to its ability to limit transaction costs, provide adequate incentives for production, and maintain a reasonable barrier to entry. The scope and specificity of legal protections affects both the static and dynamic efficiency of markets, impacting not just the health of market functions, but also the growth and development of innovation. The proper scope of protection and whether intellectual property rights are the optimal source of protection depends on the economic nature of databases. If databases were to be treated as a commodity by the law, it is necessary for the law to accurately reflect the type of good that it is regulating, as different types of goods require different incentive structures. The paper will conclude with recommendations for an ideal legal system for the protection and regulation of databases, starting with accurately defining databases and ending with reasonable terms for copyrights. The solution is to find the balance between the US and the EU systems in terms of issue definition, economic incentives, and legal theory.