Intellectual Property

One major policy domain of which I have a limited understanding is intellectual property law and policy. So I wanted to write a post to talk through my understanding of intellectual property and invite you, readers, to correct and improve me in the comments. In the first part of the post, I’ll try to lay out broad ideas about intellectual property; in the second, I’ll try to apply those ideas to some current controversies.

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Property: In the modern world, at least since the fall of the Berlin wall, most of us believe that private property is important and deserving of protection. There’s both a deontological, ethical argument and a consequentialist, economic argument for why. The deontological argument hearkens back to John Locke, who famously argued in his Second Treatise that people initially assumed property rights to the land by ‘mixing their labor’ with it; the original landlords, he imagined, were those who put their selves into their land by founding, taming, and tilling it, making that land a kind of extension of their selves; the right to private property was therefore an extension of self-ownership. Modern intellectual heirs to Locke (including those who identify as Nozickians) would argue by extension that when I freely contract with others, offering them my talents and hard work in return for cash compensation which I use to purchase assets or commodities, then I have earned and deserved those assets, and so taking those things from me would be a violation of my self and a denial of my desert. The economic argument for property rights it that people will not build and invest in valuable assets unless they feel assured that they will continue to control those assets and, hence, be able to use them to their profit. Countries that don’t credibly guarantee to protect private property discourage investment and scare their own citizens into investing all their assets abroad, hurting their growth and prosperity. (See Argentina.)

Property, Intellectual: Intellectual property  — typically defined as property that is a work or creation ‘of the mind’ or the ‘result of creativity’ — is similar but different from regular physical property. It’s arguably similar in that (1) the things I create with my mind are a kind of extension of my self, and so it would be a violation for someone to claim my work as their own or appropriate my work for profit without my consent and (2) people and companies will not invest in new ideas, research, creations, and brands unless they can be assured that they will gain compensating benefits for those investments. Since in a competitive market you cannot gain any profit from a thing that everybody else has access to, recognizing exclusive intellectual property rights is thought to be an ideal way to incentivize research and innovation. But intellectual property is different, crucially, from physical property in that it is abstract and hence non-rivalrous — that is, someone can copy my algorithm or song or blog post without taking it from me. If someone takes my physical asset, like my land, I can no longer enjoy and use it; if they copy my song or algorithm or blog post, I still can.

What principles should we use in granting intellectual property rights? I would argue that it’s better to think about property rights primarily through the consequentialist, economic lens, rather than the deontological, natural-rights-based lens. Philosophically, it’s hard to parse the boundaries of individual desert: I largely ‘owe’ my ability to produce creative work to the parents who fed me and read to me as a child, to the public institutions that educated me, and to the political system and culture that were the basis for it all. More practically, even the most Lockean stalwarts would caveat their understanding of property-as-natural right when the consequences are great enough: Suppose a brilliant scientist had discovered and patented a cure for all cancers, but refused to sell or license the patent out of a Kaczynski-esque hatred of technological modernity; in the face of the potential to save millions of lives, would we really have an obligation to ‘respect’ this scientist’s ‘natural right’ to his discovery? For another thought experiment: If our ideas are extensions of ourselves, and thus our inviolable natural rights, then shouldn’t, e.g., a policy wonk or mayor who comes up with an innovative policy solution for managing mass-transit or Medicaid logistics be able to patent that method and prevent other municipalities from adopting it? If the creative inventions of our minds are our natural rights, why would we grant patents for, e.g., efficient computer algorithms for managing data, but not for efficient ‘social algorithms’ like those imagined policies? Finally, if intellectual property is a natural right, then how would we justify ever letting patents expire? In short, I think the property-as-natural-right argument doesn’t withstand philosophical scrutiny; we should instead think of intellectual property rights as constructed social tools, artificial legal rights that we as a society assign in the interest of promoting our shared prosperity and felicity.

The basic economics of intellectual property: If we accept the argument above, then we should think about intellectual property rights as economists do, as a tool to maximize social utility. To that end, we want to both (1) give people incentives to produce innovative and creative works in the first place and (2) maximize ordinary consumers’ ability to access and enjoy those goods. These two goals are obviously in tension: If you increase patent protections from 10 year to 15 years, then you give firms even stronger incentives to invest aggressively in research and development (because they’ll be able to command monopoly prices on the innovation for longer), but you’ll also increase by 5 years the length of time that consumers have to wait to enjoy the good at cheap, competitive prices. If you decrease patent protections from 10 years to 5 years, you’ll halve the time consumers have to wait for competitive prices on goods, but you might decrease risky and innovative R&D, as companies fear that they’ll find it hard to make a killing in that time. The economic debate centers on finding the social optimum, given this tradeoff.

As I’ve read up on intellectual property I’ve found that there’s basically a consensus among intellectuals and experts I respect about three very broad things: (1) The basic economic theory — that we generally need some IP protections to give incentives to creators, and the debatable question is how to optimize the tradeoff between giving creators these incentives and giving consumers earlier and more access — is sound; (2) But in its actual legal implementation, there are a lot of problems and abuses in our current IP-law system — our IP system is subject to abuse by extortionate ‘patent trolls,’ we grant patents for small, incremental changes to technologies that may not constitute truly creative breakthroughs, etc.; and (3) Our intellectual property legal protections are probably too strong overall. Item number three here is actually what one would predict given the theory of public choice. Intellectual property law lobbying is a classic example of “distributed costs and concentrated benefits.” Individual firms and patent owners get very big, very obvious benefits from legislative extensions of the protections on their intellectual properties and they lobby accordingly; we individual consumers get hurt by these in delayed access, higher product costs and health-insurance premiums, etc., but because these costs are diffuse and sometimes invisible, we don’t put appropriate pressure on our legislators to stop them. Thus our democracy produces laws whose aggregate costs outweigh their benefits.

There’s also a compelling heterodox viewpoint that our IP laws are radically too strong, and that we should radically weaken all of our IP protections and completely eliminate many of them. But in the rest of this post, I want to first touch on a potpourri of IP issues, using the consensus ideas, and then finish up by touching on the heterodox idea a little more.

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Types of IP: First, let’s distinguish among types of intellectual property. The least controversial type is trademarks. Protecting trademarks simply amounts to preventing vendors from lying about who they are to consumers; this makes it easier for us find what we want from sources we trust. Very few people are against the indefinite extension and protection of trademarks. Industrial design rights basically amount to the same thing. Copyrights protect creative, artistic works, allowing their authors to control their use, replication, and distribution. Individual copyrights extend to 70 years after their authors’ deaths; corporate copyrights last until 120 years after their creation. It seems very hard to justify these extremely long copyright lengths. Personally, I find it hard to motivate myself with the prospect of the financial returns my blog posts will generate 1 year after my death, much less 70 years thereafter. Patents protect inventions and discoveries and allow their holders to control their use and sale for 20 years after the initial filing date (in the U.S.). While 20 years of patent protection doesn’t seem outrageous when compared to the length of copyright protection, it certainly seems like a long time for those hoping to access life-saving drugs at a competitive cost, or an energy company hoping to use some patented chemical in prototyping a new super-efficient battery, or non-Amazon e-commerce sites hoping to implement one-click shopping. In other words, it’s still an urgent question, are we offering too-strong patent protections?

Industry variance: In thinking about patents, we need to distinguish among industries. There’s no reason in principle to think that the ideal patent regime would be the same across all lines of business. Judge Richard A. Posner has argued that the pharmaceutical industry is a classic example of one that does require patent protection, due to its high, up-front R&D costs and uncertain payoffs, but that most other industries “would do fine” without patents. The I.T. industry in particular seems to be characterized by lots of lawsuits over patents held on ergonomic quick-fixes that seem more like part of the companies’ marketing than their R&D. Do we really think that Apple would not have developed the swipe function on the iPhone without the promise of patent protection? Or Amazon and its one-click-shopping option, for that matter? According to this table, all industries outside of pharmaceuticals and chemicals think the overwhelming majority of their patents would have been developed and implemented absent patent protection.

Patent trolls: These companies, which allegedly buy up dubious and less-than-innovative patents in order to shake down unsuspecting businesses with legal threats (usually coming formally from shell companies) are back in the news. In recent years companies using certain scanners and producing podcasts, for example, have received demands for cash from companies holding patents on ideas that only vaguely prefigured podcasts and contemporary scanners. People in the tech industry overwhelmingly say that they feel that innovation is being stalled by tech firms’ constant legal anxiousness that they’ll be found in violation of some esoteric, vague patent. Part of the problem is that the overstretched and understaffed U.S. patent office has granted a lot of vague patents that it probably should not have. The President is currently proposing new rules that would require that patent-holders be disclosed in patent arbitration cases; this would, at least, expose and hopefully shame the most blatant patent trolls. A more general idea for mitigating patent trolling is that we should be able to patent only implementations, not purely abstract ideas.

Music today (back to copyrights): The music industry today is an instructive case. As we all know, it’s very easy to download and torrent music for free online and so young people generally do not pay for the copyrighted music they listen to. And yet it’s commonly observed that musicians are doing better than ever before today. How’s that? The radically expanded access to music that we consumers are all now enjoying, and the ease with which we can share and recommend our friends, has whetted our collective interest in musicians and we now pay more to see more live shows than ever before. What musicians have lost in CD sales they’ve largely made up in ticket revenues. I suspect that in the future, the authorities will largely grow to accept a world characterized by (1) not-for-profit illegal downloading of media; (2) for-profit ventures like Spotify that stream music for users for small fees or advertisements and pay relatively small per-play fees to creators; and (3) pop music and movie producers that know they have to be extra spectacular to draw people into concert venues and theaters, and indie bands that learn how to cultivate voluntarily supportive cult followings. More generally, the fact that musicians have flourished despite the effective erosion of their copyrights, thanks to second-order effects of music’s increasing availability, strengthens the case for reconsidering intellectual property rights in other domains as well.

Financing medical innovation through public prizes: Pharmaceutical patents are possibly the most controversial domain of patents, first for the obvious reason that denying or charging prohibitively high prices for necessary medicine horrifies us, and second because many people see pharmaceutical companies as patenting a lot of not-so-innovative incremental changes to extant drugs, and then pushing these patented drugs, which they can sell at monopoly prices, on insurers, doctors, and consumers, driving up costs for all of us, without providing true innovation or benefits. (Now, notably, I think it’s silly to blame patent rights per se  or corporate greed here — the root problem (if I may pause to grind my ax) is the total lack of individual incentives in our insane health care system. If the medical market were more cost sensitive at every level, and we consumers were rewarded for our choices to reduce our costs, then we would simply choose to use less expensive, unpatented drugs, unless the more expensive, patented ones offered compensating benefits.) But given that my preferred healthcare policies are not likely to be implemented, how else could we mitigate this problem of wasteful pharmaceutical investment and innovation? One clever idea would be to stop granting new pharmaceutical patents and instead begin offering public prizes. I.e., the government would offer $5 billion for whichever company could first produce a drug that met some well-defined criteria in improving our treatment of AIDS/Alzheimer’s in XYZ ways. Theoretically, this would stop pharmaceutical companies from overinvesting in small, incremental pharmaceutical innovations and encourage them to focus on our most pressing health needs, as defined by smart public authorities. Once the government had awarded the prize to the victorious pharmaceutical company, any company in the world would have the right to vend it, and so its price would quickly be driven down to its marginal cost of production, immediately widening its availability. This is a clever idea, but it certainly has some problems: As a public-sector entity, such a prize-granting agency would face political pressures to focus on politically popular cures, and underinvest in less salient ones; with no ‘bottom-line,’ its revolving-door bureaucrats might overpay pharmaceutical companies generally, just as, today, government contractors are seen as overpaid; there would be huge liability issues and public outrages when prize-winning drugs turned out to have mild side effects or tradeoffs or cause 3 people 5 sleepless nights, which might also drive such a public entity to be way too conservative in awarding prizes and publicly offering drugs. I’m not sure whether our current system or this proposal is more imperfect.

Intellectual property abroad: Enforcing U.S. patents and trademarks abroad, particularly in China, India, and Africa, is a legally and morally tricky issue. Legally, sovereign nations are sovereign within their boundaries, and so U.S. patents qua U.S. patents simply don’t apply outside of the U.S. — we can only persuade and, sometimes, pressure these government through trade retaliation to adopt and enforce their own laws protecting U.S.-based IP. Morally, there’s an argument to be made that that developed-world creators’ primary markets will always be in rich, developed nations. If developed-world consumers produce strong enough incentives for innovation, then there’s a strong humanitarian argument for letting it slide when poor countries violate IP laws and use our innovations very cheaply to save lives and develop their lagging domestic economies. At the same time, we can also understand the distress American consumers feel when they find that drugs that were developed in U.S. labs and are prohibitively expensive in the U.S. are cheap and over the counter in India. And since China, India, and Africa contain most of the people in the world, as they develop economically, they’ll become increasingly important factors in firms’ incentives to innovate, and so at some point it’ll be key for them to get more serious about intellectual property. 

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The radical argument: Some smart, legit folks argue that we should go a lot further than I’ve advocated here in radically weakening all, and completely abolishing much, intellectual property protection. Proponents of this viewpoint point to the fashion industry: There, new clothing designs enjoy no patent protections (because clothing, due to its utilitarian function, does not constitute art that can be copyrighted) and yet we still see plenty of innovation. Perhaps we would see the same in other industries if we abolished their IP protections: firms would arguably continue to invest in R&D and innovation, even absent patent protections, seeking the financial rewards of ‘brand value’ in being the first and the best to implement their innovation. In addition, absent protections, there would be more technologies and ideas in the public domain, which would give us all more resources to draw upon in producing new innovations. A software engineer would have a somewhat smaller financial incentive to make any new software innovation, but she would have a lot more ideas and software engineers to draw on in producing new ideas. So it’s plausible that abolishing patents here could produce more innovation in the aggregate. 

On the whole, then, these heterodox thinkers argue, we’d be better off with much, much weaker IP protection. I’m not sure this argument is right, particularly for firms in industries with very large up-front R&D costs, like pharmaceuticals and alternative energy. I also worry that once firms couldn’t enjoy monopoly rights to their patents, they would respond by aggressively and permanently guarding the secrecy of their innovations, which wouldn’t be great for human progress in the long run. But I think the example of the still-innovative fashion industry, and the surprisingly still-successful music industry should both push us to think very boldly about more narrowly circumscribing intellectual-property rights. 

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One thought on “Intellectual Property

  1. I realize it’s not your main point, but since I’m reading Henry George’s Progress and Poverty at the moment, it really stands out to me that you’re not making a distinction between property in land and property in things that people use their labour to get land to produce.

    It’s all very well to say that someone “mixed their labour” with some land, and therefore they own it permanently (to the exclusion of their immigrant successors and even their descendants, if they sell the land and spend the proceeds before they die), but even if they took away all the soil with which they’d mixed their labour, we’d still consider that they “owned” the location, which they certainly didn’t create.

    Also, more on-topic: You say “In short, I think the property-as-natural-right argument doesn’t withstand philosophical scrutiny”, but your preceding argument relates only to the absurdities that result if we assume that intellectual property has a basis in natural rights. So, if we look at property from a natural-rights perspective, the conclusion could be that the artificial monopolies involved in intellectual property have no basis in morality.

    An argument could still be made for something like trademarks, on the grounds that it would be fraudulent to sell something on the basis of lies about who made it.

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