It is common to argue that intellectual property (IP) in the form of copyrights and patents is crucial for the creation of innovative ideas and inventions such as machines, drugs, software, books, and music. Proponents argue that IP is just like ordinary property in houses and cars. In fact, empirical evidence shows that IP does not promote innovation and that, unlike ordinary property, it is detrimental to the social good.
What does the Constitution say?
Contrary to popular myth, the US Constitution does not provide authors or inventors with special rights: It merely gives Congress the option of "securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries." The purpose of granting such private monopolies is solely to "promote the progress of science and useful arts."
Is Congress justified in granting such private monopolies? Is the judiciary correct in continuously extending their areas of enforceability? Do they in fact "promote the progress of science and useful arts"?
These are not abstract issues. The outcome of the Bilski v. Kappos case currently before the US Supreme Court may substantially alter what is patentable.
As economists, we are convinced that incentives matter. So how can we argue that offering a reward in the form of monopoly does not increase creation and innovation?
Incentives cut both ways
As a matter of theory, intellectual property is a double-edged sword. On the one hand, giving a reward increases the incentive to innovate. On the other, allowing the monopolization of existing ideas taxes the creation of new ones, thereby decreasing the incentive to innovate. The bottom line: Contrary to widespread belief, economic theory does not provide support for the continuous extension of IP. The only answer to the question of whether IP serves the desired purpose must be empirical. Does it work in practice?
A great deal of applied economic research has tried to answer this question. The short answer is that intellectual property does not increase innovation and creation. Extending IP rights may modestly boost the incentive for innovation, but this positive effect is wiped away by the negative effect of creating monopolies. There is simply no evidence that strengthening patent regimes increases innovation or economic productivity. In fact, some evidence shows that increased protection even decreases innovation. The main finding is that making it easier to get patents increases … patenting!
The heavy price we pay for patents
Ideas kept under lock and key are much less useful than those that are freely available. So we find Africans dying of AIDS because they cannot afford to pay monopoly prices to patent holders of certain drugs. Or, at a more mundane level, we cannot legally watch movies on our new Android phones because "rights holders" do not wish us to. And we must suffer through such indignities as being sued by voting machine companies over copyright violation when their malfunctioning software is revealed to the public.
To these direct and visible costs other, most likely larger, hidden costs should be added. These are the legal costs of the patent and copyright system and the social costs of lobbying, rent-seeking, and patent-peddling. While their dollar amount is difficult to quantify, their pervasiveness is in front of us daily.
Do you remember the threat to shut down the BlackBerry network over a patent dispute? Did you read about yet another company wasting money accumulating a large portfolio of patents with which to defend itself against "trolls"? And for what? If we got more innovative new products, perhaps it would be worth it. But the evidence shows we do not. We get only more legal fights and more congressional lobbying.
Is intellectual property needed as a shield for the weak against the strong? Those of us who have yet to make our name in the media markets should fear obscurity rather than piracy. Nor is intellectual property protection against merciless corporations. Rather, it is a tool these corporations use against the small.
Patents are no real protection
Your patent is simply a ticket to lifelong litigation against a giant. Read up on the story of Philo T. Farnsworth – the inventor of television died a broken man trying to enforce his patent against the monster RCA. Contrast that with Eli Whitney, who after unsuccessfully trying to profit from his patent on the wildly successful cotton gin, gave up on intellectual property, moved on, and made a fortune by inventing the modern factory.
Rather than trying to continually fix the existing system with band-aids, it would be far better to eliminate it entirely. The resulting drastic restructuring of industry would lead to new, more competitive business models – and an environment far more favorable to the small entrepreneur.
Why are we keeping alive a system of legally protected private monopolies that does not deliver on its promises and, instead, generates a vast number of socially damaging activities? The answer seems twofold: legislative and political inertia on the one hand, and vested monopolistic interests exploiting the status quo on the other.
If we wish to innovate our way out of the current economic crisis, we must start by dismantling the myth of intellectual property, and then search for a system of property rights capable of genuinely fostering innovation and productivity.