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Against Intellectual Monopoly
Against Intellectual Monopoly is a relentless, pounding, take no prisoners attack on patent and copyright law. It joins Lessig's Free Culture and Heller's The Gridlock Economy as an instant classic and a must-read on these issues.
Many people argue that the patent system has gone wrong in recent years, Boldrin and Levine argue that the patent system was rotten from the start. James Watt they say was a "scoundrel" who with his politically-connected partner Matthew Boulton used the patent system to crush their innovative opposition and delay the industrial revolution.
During the period of Watt's patents, the United Kingdom added about 750 horsepower of steam engines per year. In the thirty years following Watt's patents, additional horsepower was added at a rate of more than 4,000 per year. Moreover, the fuel efficiency of steam engines changed little during the period of Watt's patent; however between 1810 and 1835 it is estimated to have increased by a factor of five.
Will books be published without copyright? Boldrin and Levine point out that the 9-11 Commission Report was profitably published by Norton despite being available free for download. Not to mention the fact that most of the great works of literature were published without copyright. Boldrin and Levine are top-notch theorists but AIM is widely accessible and it succeeds best with its many historical discussions and contemporary anecdotes.
AIM does suffer in places from a lack of a lack of nuance and a surprising ability to ignore trade-offs. Boldrin and Levine argue, for example, that among the reasons we don't need patents are a) because ideas aren't copied immediately, they take time to diffuse, b) first movers have significant advantages and c) trade secrecy is often a more effective "means of appropriating returns" than patents.
Quite right on all three counts but each of these reasons also explains why patents are less costly than one might at first imagine. After all, what Boldrin and Levine are really saying is that intellectual monopoly would exist even without intellectual property law.
A standard model used to explain why patents might be useful implicitly
assumes that ideas are transmitted instantly at zero cost. Boldrin
and Levine smash the premise of this argument but the premise is sufficient for the conclusion not
necessary. Indeed, once you acknowledge that the slow diffusion of ideas helps entrepreneurs to appropriate the returns to their innovations it becomes an open question of how slow is best? When is the appropriability of returns strong and when is it weak? Doesn't it differ for different goods? Shouldn't intellectual property law recognize these differences? It's clear, for example, that ideas are diffusing more quickly than ever before. On Boldrin and Levine's argument, faster diffusion of ideas implies lower appropriability and thus a stronger argument for intellectual property law. Needless to say Boldrin and Levine are too busy using
a "mallet to smash shiny myths" to make this argument. (To be fair, they are more nuanced in
the conclusion.).
Similarly, Boldrin and Levine argue that the larger the market the less patent protection is needed, hence globalization implies less patent protection. Again, quite right (see also my paper, Patent Theory versus Patent Law, on this point). But you won't see Boldrin and Levine drawing the corollary conclusion that more intellectual property rights are optimal the smaller the market, despite the fact that we have a very successful example where increased patent rights for smaller markets generated considerably more innovation, namely the Orphan Drug Act.
For economists, it's also surprising how little marginal analysis you find in AIM. For example, Boldrin and Levine ask, Did Rowling really need a billion dollars to write Harry Potter? Surely, a few million would have been enough. But that's like saying that taxing lottery winnings won't reduce the number of buyers because the winner will still get a huge return on her dollar of investment.
The bottom line is that that there is a Laffer curve for innovation - more appropriability increases innovation at first but innovation declines when appropriability extends too far. I agree with Boldrin and Levine that rent-seeking has put us on the wrong side of the Laffer curve for innovation. We need to reduce intellectual monopoly with patent reform, less copyright protection, and a greater use of patent substitutes like prizes. But unfortunately, when it comes to innovation there is no invisible hand theorem which moves us automatically to the top of the curve.
Posted by Alex Tabarrok on August 12, 2008 at 07:46 AM in Economics, Law | Permalink
Comments
Most of your points seem perfectly OK, but I have some doubts about the Harry Potter paragraph. Are you suggesting that a billion dollar 'jackpot' for writing a children's book DOES lead to significantly more attempts to write one, compared to say a 10 million dollar jackpot?
For me, and I suppose most people, the difference between 10 million and a billion is so esotheric that it would hardly matter in any consideration to spend time writing. And as far as I know, most writers see earning 'a living as a writer' already as the 'jackpot', with the chance of becoming rich hardly an important factor in their considerations.
Posted by: greatzamfir at Aug 12, 2008 8:23:54 AM
Boldrin, not Boldrine.
Posted by: Der Duden at Aug 12, 2008 8:44:25 AM
(... I know, I know, it's below the belt, but I can't help it) where can I download a free copy of the Boldrin/Levine's book?
Posted by: Ozornik at Aug 12, 2008 8:47:34 AM
"On Boldrine and Levine's argument, faster diffusion of ideas implies lower appropriability and thus a stronger argument for intellectual property law."
Sure, if you only consider the inventor's point of view. But "faster diffusion of ideas" also means society gives up more to have the same intellectual property laws.
The natural state (and right) for people is to freely use and exchange information. Intellectual property is a way for society partially to give up that right in order to get more and better ideas. That is, society buys better ideas by paying with restrictions on our natural freedom to share knowledge.
But the more freely we are able to exchange ideas, the higher the "cost" of the same set of IP laws. Copyright did not take much away from most people when they needed their printing press to reproduce a book. The situation today is completely different.
People obviously want to exchange music on the Internet. The relevant question is, how much worse would the music be if you simply let them?
Posted by: Nemo at Aug 12, 2008 8:57:21 AM
Coca-Cola never patented the formula for Coke because it would have to reveal the formula and the
patent would eventually expire. Coca-Cola has an intellectual monopoly without any legal
protection. Should Coke be forced to reveal its formula? Should it be busted up by antitrust?
Other firms make their own colas; does that mean the cola industry is competitive?
Should universities drop all bans on plagierism?
Charles Dickens despised the US for printing his stories in newspapers without any compensation.
Was his resentment unjustified?
The US trade deficit with China is much higher than it need be because China is refusing to pay
royalties for US music and movies. Should the US be indifferent? Will the world get less music
and movies as a result of this stealing?
Also, you might note that Judge Richard Posner has written quite a lot on this topic.
Posted by: B.H. at Aug 12, 2008 9:19:33 AM
You can read a free copy on David K. Levine's webpage.
Coca-Cola doesn't have an intellectual monopoly on anything; a trade secret is not a monopoly. And yes the soft drink industry is very competitive.
Plagiarism (passing someone else's work off as your own) is a type of fraud, which is why universities ban it.
Dickens' complaint was disingenuous because the magazines were pumping up the market for his books and lecture tours.
While he alleged that his books were pirated, in fact he was paid royalties by three American publishers. The president of Harper & Bros. took issue with his prevarications, and wrote him a sharply worded letter setting him straight.
No one in China has stolen any intellectual
"property" from anyone in America. What they have done is to expand the market for American intellectual "property." Even one Bill Gates admitted in a Fortune magazine interview that software "piracy" was good for Microsoft because it spurred its open source efforts and collaboration, such as they have been.
It's not stealing and the world will get more, not fewer, creative works as a result.
Posted by: Bill Stepp at Aug 12, 2008 9:37:16 AM
A free copy of the book is available at:
http://www.micheleboldrin.com/research/aim/anew.all.pdf
Posted by: Andreas at Aug 12, 2008 9:38:59 AM
Boldrin and Levine love to recycle their arguments - they've used the James Watt steam engine anecdote before and , unfrotunately for them and their argument, it has been thoroughly debunked - e.g. see here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=940698
Posted by: Alec van Gelder at Aug 12, 2008 9:45:18 AM
Ozornik: There's this thing called Google...you should try it sometime: http://www.dklevine.com/general/intellectual/against.htm
Posted by: d at Aug 12, 2008 9:48:43 AM
I find Richard Epstein to be devastatingly convincing when it comes to drug related patents.
In general, there has to be some sort of intellectual property if one wants to foster industries where there is an enormous fixed cost of invention, an extremely low marginal cost of manufacture and low cost to reverse engineer.
That being said, it strikes me that this argument doesn't really apply to patents taken out on computer related information "inventions" simply because the high fixed cost associated with most of said businesses is related to construction or manufacture and not to invention.
Posted by: nordsieck at Aug 12, 2008 9:52:40 AM
The Laffer curve is a powerful concept. But, it may not be linear. We could easily back the cat into the wrong bag. You need to keep asking "what do we need now?" Kind of a theory of constraints for policy.
One practical benefit of patents is that it promotes publication of ideas so that NON-competitors can use the idea to come up with ideas in their respective field.
But, I'm basically anti-IP, or at least right now I don't think our problem is not enough of it. For big companies already getting paid, who use IP to smash competition, I don't think the free-rider theory applies.
I've also come to the conclusion that ideas are a dime a dozen and it's the execution that is hard. Having this bureaucracy around the idea makes the hurdle for execution all the higher. Also, there's a lot of luck with a good idea. The best technical solution often doesn't succeed in the market. Noone knows something will be good until it is tried. What we need is the best system that matches outstanding idea generators to excellent executors. I bet folks could get paid for their ideas as well or better through something like a prediction market or prizes.
If I felt that the little guy could use the system to get what's right, I might be persuaded otherwise, but I've been told by one little guy how it's often not even worth the expense and effort to try to get a patent. The big guys can tie you up while the lawyers ravage you through your hip pocket.
As usual, the opposite has evolved from what the system is sold to address.
Posted by: Andrew at Aug 12, 2008 9:53:58 AM
Ditto to what Alec van Gelder said. Others should check out the Selgin and Turner refutation. Selgin's got a new book on private coin minting in Europe during this period, and he and Turner have an article (I think it's already out somewhere) refuting the stuff about the James Watt steam engine here. Not sure how crucial that is, but fyi.
Posted by: jason voorhees at Aug 12, 2008 10:12:39 AM
Should've caught that - it was published in November 2006, IER. Here's the abstract: In their 2003 Lawrence R. Klein Lecture, Michele Boldrin and David Levine argue that intellectual property rights may be damaging to social welfare. As empirical evidence for their theory they offer James Watt's steam engine patent, claiming that it delayed the Industrial Revolution by as much as two decades. We show that this claim, as well as the more general claim that Watt's story supports Boldrin and Levine's theory, rests upon a distorted summary of the historical record.
Posted by: jason voorhees at Aug 12, 2008 10:13:33 AM
I need to read the book to see a coherent argument regarding a), b), and c), because I fail to see these as bulletproof statements. Arguably, when strong patent rights emerged in the U.S., the focus was to level the playing field between large and small (read wealthy and poor) inventors. A), b) and c) would be good arguments in a world with perfect knowledge and equal resources, but not so in cases where that does not exist. For example, in a contest between Microsoft and Apple, each party has the capacity to hide its invention, as well as take time to develop it and be the first to move on it. But where one of the parties is a small inventor, the wealthier and more established party, such as Microsoft or Apple, has a distinct advantage. In most such cases, the small inventor does not have the resources to sustain a developmental stage or to protect his invention. The best use of the inventor's time and abilities would be to sell his invention to a larger party that is better equipped to develop it. Alternatively, property rights would provide ample time for the small inventor to generate the requisite resources to move on his invention. Without strong property rights, however, neither scenario is feasible. Elimination of property rights would raise the cost of entry - prohibitively in many cases - for small inventors and subsequently hinder innovation.
Posted by: Axel Molotov at Aug 12, 2008 10:16:51 AM
Excellent post, Alex, most discussion of IP gets too dogmatic and yours is an excellent departure from the trend. Based on your review, it sounds like the argument is, "Don't use laws to slow the spread of (instantiation of) ideas, just sheepishly rely on physical constraints to do the job, and when they can't, too bad!"
For discussion: if ideas (specifically, the right to instantiate an idea) can't be owned, that means the "right" price for the market to place on ideas is zero. Yet in reality, we know people would pay a lot of money for certain ideas to simply exist, let alone for it to be instantiated in such a way that they can use it. How is it possible to reconcile promotion of the Mises/Hayek "Economic Calculation Argument" yet oppose IP? Inquiring minds want to know.
Posted by: Person at Aug 12, 2008 10:29:12 AM
I agree. Excellent, thoughtful post. I'm curious about the first mover advantage claim. Are they any academic results which account for legal IP protections that show clear first mover advantages in specific industries or across industries? It's always sounded more like a business book idea than reality. Think iPods... They weren't the first digital music players on the block. In a recent EconTalk podcast, Chris Anderson talks about how free can twist around first mover advantage.
Posted by: BoscoH at Aug 12, 2008 10:47:47 AM
IMO if patent and copyright are not clearly but pluses for society we should drop them. Why bother if the advantage is debatable? Also Court costs should be a consideration. Also it seems that countries only enforce patent and copyright when it seems in their favor to do so.
Posted by: floccina at Aug 12, 2008 10:53:55 AM
Excellent review.
The quote you chose doesn't seem to really address the incentive question, though; would the steam engine have existed in the first place? The Harry Potter example deals with that, but doesn't really come a conclusion.
I also wonder about this "Similarly, Boldrin and Levine argue that the larger the market the less patent protection is needed, hence globalization implies less patent protection."
People can appropriate ideas much faster in a global market, too. I'm not sure why this is true.
Person:
The argument isn't that ideas have no value, or that they should not be protected with property rights -- it is that government shouldn't protect them with a monopoly privilege.
"Public goods" are non-rivalrous and non-excludable. "Commons" are rivalrous but non-excludable. Ideas are non-rivalrous but excludable.
We can both use the idea without diminishing it, but I can exclude you from the idea, if I protect it myself - like Coke does, so long as you don't independently come up with it.
But if government grants a monopoly to the first person who comes forward then even if you independently come up with the idea, you can't have it. What happened to your property right over your own idea?
So, how does one protect just the property right and not the monopoly? Perhaps trade secrets protection is the best that we can do... I am not sure.
Posted by: liberty at Aug 12, 2008 10:59:05 AM
Re: Watts, Boldrin and Levine were not the first economists to cite his patents as a barrier to the development of the steam engine.
Second, Selgin and Turner corrected a few factual errors, but didn't refute their charge that his patents were a barrier to competition in its development.
Re: the first mover advantage, it doesn't guarantee profits, market share, and business success. Remember the sock puppet, who now lives only on eBay? I'll bet pets.com does.
Remember WebVan? I'll bet FreshDirect does.
So a first mover advantage needs good execution in order to succeed. Boldrin and Levine don't deny this, nor do they claim that a first mover advantage guarantees a winning business. It also helps to sell complementary services, which they point out.
A first mover advantage is just that--an advantage. It's neither a necessary nor a sufficient condition to grow.
Posted by: Bill Stepp at Aug 12, 2008 11:07:29 AM
One of the difficulties in making the Harry Potter analogy is that you're not necessarily asking the right question. In essence, you're demanding ex post information regarding an ex ante decision. Almost any aspiring/struggling author/musician/artist would sell their work for a lower price than they would post-fame, because the incentives they face are drastically different (getting ANYONE to read it vs. allowing EVERYONE to read it).
It could easily be argued that JK Rowling would have written the FIRST HP novel for substantially less than the average of all the novels. Ask her now, post-Potter, how much the effort and energy that went into the novels, combined with the permanent impact on her public and private life, and she may well require a very different fee.
In short, to suggest that the return on copyrights should be based on ex ante questions is very dangerous in my opinion, as it requires decisions to be made on invariably incomplete information.
Posted by: Scott at Aug 12, 2008 11:43:34 AM
Ozornik stole my idea. i will believe then when they give away their book
Posted by: karl at Aug 12, 2008 11:50:34 AM
They have given away their book.
Posted by: Jesse at Aug 12, 2008 12:03:45 PM
Karl - they are giving away their book. I just downloaded it for free from Levine's web site, onto my Sony Reader. And I noticed that in their preface they acknowledge the corrections of Selgin and Turner, which did not, obviously, however, change the main point of their story about Watt.
Posted by: Ak Mike at Aug 12, 2008 12:08:26 PM
The problem seems to be that IP and trademarks emerge spontaneously in the free market. So even if it were off the books, it might still survive and develop through private contracts or agreements. Car-makers for instance would keep differentiating their logos and it's conceivable that they would set up private courts to punish impersonators.
Posted by: Unit at Aug 12, 2008 12:49:53 PM
"they are giving away their book. I just downloaded it for free from Levine's web site"
Not to split hairs, but does it say that you are free to use it as you will? If they are truly giving it away, then you could reproduce it and sell it yourself. Something tells me that Cambridge Press would think otherwise if you started selling copies of it for $10.
Posted by: liberalarts at Aug 12, 2008 1:18:07 PM
