I was originally going to entitle this post “What is property?” But that’s not really the question, is it?
Tangible products such as bicycles and haircuts and food are considered by economists to be rival goods, consumption of the good by one person prevents its use by another. Non-rival goods include things like broadcast TV. If I tune in to Seinfeld, it doesn’t prevent another person from tuning in to the same show. For that reasons, private broadcast TV companies were not able to charge money for their service, and instead relied on advertising revenue. (The publicly-owned BBC was a different story.)
Most intellectual property has a non-rival characteristic. Use of an idea by one person doesn’t prevent the use of the idea by another. So should ideas be regarded as private property? In other words, should inventions be granted intellectual property rights? And if so, to what degree?
Our intuition about these issues is not very helpful, as concepts such as “property” and “theft” were formed in a period when there were mostly rival goods. Stealing meant depriving the other person of the thing you stole. But stealing IP means not rewarding the other person for the thing you stole. That’s not the same.
Think about “small p” progressivism. I don’t mean left-wing progressivism; I mean the general notion that it would be a good thing to bring the fruits of the modern world to the billions that still live in poverty in places such as Africa, South Asia and elsewhere. As far as I know, every single development economist favors some sort of economic development. As far as I know, every single development expert believes that development involves, among other things, educating poor areas with ideas mostly created in the West. As far as I know, there has never been a single instance of people shouting “IP theft” when textbooks were donated for free to a poor country. Most well-meaning people think it’s a really good thing if poor uneducated peasants can learn what is already being taught in rich country schools: chemistry, accounting, math, etc. No one thinks poor countries should have to pay the original creators of the fruits of Western civilization.
At the same time, most people have an intuition that there is some value (perhaps even “fairness”) in certain forms of IP rights. How can companies be expected to invent new drugs if the recipe cannot be patented?
Commenter mbka provided an example that gets right at the heart of this dilemma. The two short quotes are mine, and then he responds:
“I’d add that Americans might still be concerned about the practice, but in my view there’s really not much that can be done about it.”
It’s common practice within and between countries. Example, ten years back or so I once talked to a German engineer / businessman who was in Asia trying to sell knowledge of the exact proportions for mixing the components of epoxy in the production of fiberglass hulls. Apparently that’s still a kind of an art, even when the basic component chemistry is known for many decades. I was taken aback, it’s clearly a morally ambiguous thing to try and sell out hard-won experience from his current or former company, but very likely, not even a patentable thing to begin with.
“I recall reading that 200 years ago the British were worried that Americans would steal their manufacturing techniques and bring them to America.”
De Tocqueville at the time commented how American industry practices were fast and loose as compared to the European stalwarts, how the quality was low and ships sank more often in the quest for a quick buck. Anyhow, the reputation of Japan, then Taiwan, then Korea, and now China, goes through the same cycle, from “low quality copycat” to “unfair price undercutting” to “we can’t match their quality”. Come to think of, that’s half the theory of Jane Jacobs’ “The economy of cities”, https://www.amazon.com/Economy-Cities-Jane-Jacobs/dp/039470584X
The German case is really interesting, because it crosses over the two categories I mentioned. It’s kind of like some basic idea in chemistry, which ought to be freely available to everyone in the world. Something out of a chemistry textbook. But it’s also sort of like the output of pharma research, which deserves patent protection.
I don’t have strong views on “where to draw the line”, and indeed would defer to people who know much more about this than I do. (Alex Tabarrok often does excellent posts on this topic.) But I do have strong views that no one else knows exactly where society should draw the line.
Some libertarians believe that property rights are a “natural right”. But I doubt that there’s a single person who believes that “nature” tells us that patents should last for 17 years, not 16 or 18 years. Property rights are clearly a concept that is at least to some extent created by humans for utilitarian reasons, not simply a natural right to be discovered by thinking about the world.
If you believe in “free markets”, then you believe people should be able to produce and sell anything they wish, without government interference. If you believe in IP rights, then you don’t believe that people should be able to produce and sell anything they wish without government interference. Both free markets and property rights are key principles of classical liberalism, and they are in conflict.
If we leave the realm of IP rights and look at regulation more broadly, what do we see? We see a political process that is too pro-business, and not enough pro-consumer. We see all sorts of regulations protecting business from competition, at the expense of consumers. (Think auto dealers, health care, occupational licensing, taxis, sugar quotas, steel tariffs, etc., etc.) Given that obvious public policy bias, if I knew absolutely nothing about IP law, I’d guess that these laws are also too pro-business and too anti-consumer. That is, I’d assume that the laws provide too much IP protection. Even in a closed economy. If we go to an open economy, I’d expect the “mercantilist bias” to be even worse, in order to exploit foreigners. Think about the example of Parmesan cheese in my previous post. The EU obviously cares much more about protecting cheese makers than providing cheap cheese to consumers.
That doesn’t mean that all IP protection is bad; I believe some is appropriate. Rather, at the margin, any reduction in IP protection is likely to be slightly beneficial. That needs to be taken into account when evaluating the cost of IP theft.
READER COMMENTS
Eric Charles
Dec 10 2018 at 1:56pm
You should check out Boldrin and Levine’s (two economists) book “Against Intellectual Monopoly”. It’s free online:
http://www.dklevine.com/general/intellectual/against.htm
“In fact intellectual property is not like ordinary property at all, but constitutes a government grant of a costly and dangerous private monopoly over ideas. We show through theory and example that intellectual monopoly is not neccesary for innovation and as a practical matter is damaging to growth, prosperity and liberty.”
David Henderson
Dec 10 2018 at 2:32pm
Scott,
You write: “As far as I know, there has never been a single instance of people shouting ‘IP theft’ when textbooks were donated for free to a poor country.”
But the key word there is “donated.” Someone owned the textbooks and gave them away. No one would shout property theft if I donated a used car to someone in Africa. It’s my used car to dispose of as I wish.
I think your basic point is strong. But I don’t think the “donation of textbook” example adds anything.
robc
Dec 10 2018 at 3:40pm
What about the “donation” of a digital textbook?
Alan Goldhammer
Dec 10 2018 at 5:07pm
David & Scott,
My graduate advisor was the best selling co-author of a biochemistry textbook that was used by almost everyone at the time. The USSR had published a translated copy for sale in that country without seeking the appropriate rights. At the time (1971), I don’t think the Soviets were a party to the Berne Convention so they could do so without facing legal recourse. They did however put aside royalties that could be claimed on a visit to the USSR as long as the funds were spent there. I don’t think my advisor ever made the visit. Maybe this classifies as “friendly” piracy since there was some compensation offered.
Scott Sumner
Dec 10 2018 at 6:15pm
David, Think about the example with the German providing trade secrets to the Chinese, which seems to bother some people. Is it different if the trade secrets are given away for free?
If information is freely given away, then the creators are not compensated. I believe that Nordhaus estimated that innovators earned only 2% of the value of their innovations.
Matthias Goergens
Dec 10 2018 at 8:25pm
That’s the crux of the problem. You can own a physical book or even CD, but you can’t do with your physical property as you wish, because of IP laws.
Dylan
Dec 11 2018 at 8:00am
You’re right that the key word is donated, but that’s not because the person owns the textbook, it is because they are not profiting off of the sale and there would be huge PR implications for any company that tried to stop a donation to a poor country. There have certainly been cases going the other way though, where a person resold textbooks bought at a lower price overseas to U.S. college students, and he was sued for copyright infringement. He eventually won at the Supreme Court, but there was another similar case with Costco and Omega watches, where the court found the other way, that Costco could not sell watches they had lawfully bought in another region in the world, and resell in the U.S.
RPLong
Dec 11 2018 at 9:18am
I agree with David. Perhaps a better example is the photocopying of textbooks, which I have seen occur in the developing world, and to a lesser extent, even here in the United States.
Hazel Meade
Dec 10 2018 at 2:59pm
Just focusing on patent law, it seems to me that the core principle underlying it is that it is kind of a deal in which the general public gets something in exchange for the monopoly rights to sell something. The patent is a disclosure of knowledge that would otherwise be a trade secret. It’s not primarily the incentive to invest that is the benefit – it is the actual public disclosure that occurs in the patent itself. This allows other people to build on the technology by reading the patent disclosure, which allows technology to progress more rapidly. The idea that it incentivizes investment is secondary and much more murky to me.
If you take this perspective than you would conclude that the only things that should be patentable are devices, processes, and techniques which are NOT easily copyable – things where you would want the inventors to publish papers so that others CAN copy and improve upon them.
Perhaps an argument can be made that incentivizing investment is also desirable, but I think in lots of ways it resembles social engineering similar to having tax subsidies for agriculture or for purchasing health insurance.
Jeff
Dec 11 2018 at 5:01pm
Except that patents generally are written obscurely so as to “disclose” almost nothing that would be of any use to someone trying to implement the same idea. This is particularly true of software patents, of which I’ve attempted to read a few, but I suspect the same is true of other kinds of patents as well. They are written, after all, by the patent holder, whose interest is best served by minimizing what is disclosed while maximizing what is claimed.
Hazel Meade
Dec 11 2018 at 5:55pm
Perhaps a classic example of regulatory capture.
I think if we could reform our patent law so that it actually worked as a contract in which someone gets monopoly rights in exchange for disclosing technology, China might agree to that. That would be right up their ally. You disclose your technology and in exchange, you get the exclusive right to sell this product in China.
robc
Dec 10 2018 at 3:39pm
I am one of those libertarians who believe property rights are natural rights*, but I don’t think it applies to intellectual property. Patents might be necessary, but they aren’t natural rights (if they were, they wouldn’t have a time limit!) so that is a political decision. I think the way the constitution words it makes it clear the founders didnt consider it a natural right either. I would favor 0 years for duration, but it is literally last on my list of things I would change.
*for those who have read my musings on other sites, you know I don’t think it applies to land, which is why I favor the Single Land Tax.
Matthias Goergens
Dec 10 2018 at 8:29pm
Arguing from American law is a bit like arguing form the Bible: rather unconvincing for people not already signed up to the cult.
(In your case, you carefully avoid that as an explicit argument, but there’s not much left after stripping out any implied appeal to authority.)
Matthias Goergens
Dec 10 2018 at 8:30pm
Sorry, replied to wrong comment.
Cliff
Dec 10 2018 at 4:36pm
It’s important to distinguish between IP infringement and IP theft. IP infringement is not theft, it’s a violation of some legal right that was created by the government and may be more or less just. But hacking into a company’s computer systems and stealing their trade secrets, even though the company may still get to keep a copy, is different in my view.
It’s more like breaking into someone’s house and taking pictures of their important and private documents, the inside and contents of their house, the occupants, etc. I don’t know if you would call that theft, but certainly a violation of a more fundamental right I think.
Matthias Goergens
Dec 10 2018 at 8:36pm
That seems like an important distinction, though the edges are blurry:
Eg you can pay (former) employees to reveal trade secrets. The employees might be breaking contracts they made but that doesn’t have to concern the buyer. And their erstwhile company won’t learn who leaked.
Second, even if you hack into their system to get the information, you can still claim that you got it via a leak. (Especially if the hack is either undetected, or just not connected to you.)
TMC
Dec 10 2018 at 5:02pm
I mostly agree with your points, and IP law does seem to favor businesses over consumers at first blush. I’ve also seen studies that claim consumer surplus is heavily weighted to the consumer over the inventor, ranging up to the consumer capturing 95% of the value. How would this figure into your calculations?
Scott Sumner
Dec 10 2018 at 6:34pm
TMC, That’s probably inevitable, as so much of the benefit is hard to capture with IP rights.
Daniel Hill
Dec 10 2018 at 6:35pm
Article I Section 8. Clause 8 – Patent and Copyright Clause of the Constitution. [The Congress shall have power] “To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.”
The founding fathers got it right – a temporary monopoly for just long enough to encourage the creation of IP. Extending copyright protection after the fact is pure crony capitalism – the previously extant protection was clearly sufficient encouragement…
mbka
Dec 10 2018 at 8:51pm
Scott,
thanks for using my example here. Completely agreed that IP law heavily favors businesses – but only in key sectors. Protecting restaurant menus or consumer experiences is a lot harder than protecting physical objects or software.
I also agree with you, and with commenter “mak” over at themoneyillusion, in that exchange of IP between companies has a lot of benefits too. It is well known that almost all innovation occurs by recombining pre-existing building blocks. It is rarely based on completely novel insights. All components of the iPhone pre-dated the iPhone: touch screen, wifi, processor, the basic GUI idea, even the rounded corners pioneered by the Braun company in the 60s. The innovation consisted in putting them together in a novel way and refining the result. Biology works like that too by recombining parents’ chromosomes btw. And if you think of an iPad as an iPhone that mated with a TV screen… you get the idea.
Now think of the Internet. All of its benefits, which we take for granted, come from sharing knowledge – most of the time for “free”. And just generically, if every knowledge transfer had a right to be monetized, innovation would stop in its tracks. The idea that no one should be able to learn from their elders without paying for the privilege … is just absurd.
So conclusion, patents are a unique and rightfully very limited legal protection, that should remain limited. Trade Secrets aren’t even legally protected. They’re just the act of not telling anyone how you do business. The act of hacking is illegal of course but the German selling out his tricks isn’t actually doing anything illegal. Most IP “theft” by China isn’t even legally theft but consists of practices just as common in the West.
Joseph Hertzlinger
Dec 11 2018 at 12:54am
One way to look at intellectual-property rights is that they have to be discovered instead of being dreamed up a priori. A society that can export its ideas has a good claim to be using a better approximation of the True Axioms of Property Rights. (I’m using exports to measure the worth of a society’s ideas since any society can claim they have better ideas but exporting ideas means people in other societies also agree.) For example, you can make a case that Finnish ideas are better for computer software but American ideas are better for pharmaceuticals.
john hare
Dec 11 2018 at 4:54am
I find this discussion fascinating. I am an inventor that has never filed for a patent. To me, a lot of simple and relatively straightforward ideas protect themselves via slow dissemination of ideas. The investment and profit is recouped in less time than it takes for the competition to use it against you. This attitude also gains me the ability to use the ideas of others in a fairly timely manner without a bunch of legal mumbo-jumbo. It is amazing to me how many times I have been warned about people stealing my ideas, when I have given them freely.
On the other hand, concepts that require considerable resources to bring to fruition often need considerable time to recover investment and profits. I don’t know where to draw the line either. I have done some song lyrics that took about an hour to write and have been repeatedly told to copyright. I was appalled to find that copyrights last for many years after the death of the writer compared to 17 years for patents. The depths of my confusion have yet to be plumbed.
Dylan
Dec 11 2018 at 7:37am
I think this is one of the key insights, that different industries have different needs for patents and a one-size-fits-all approach doesn’t make a lot of sense. I’ve got some experience with both tech and the pharma world, and the way they view patents is so different. In pharma, it takes something like 10 years and over a billion dollars to bring a new drug to market, which gives only a decade* to try and recoup that investment. Without patent protection, it isn’t obvious that we would be able to support much of any real breakthrough drug development work, it’s just too expensive and reverse engineering a product relatively easy.
Tech is just the opposite. IME, patents are seen mostly as a hindrance and something to be used defensively. They give you protection when you almost certainly end up accidentally infringing on some patent that probably never should have been granted in the first place, you can use licensing of your own patents as a means to avoid being sued. And tech moves so fast, and gets to market so soon, that by the time your patent expires it is almost certain that the world has already moved far beyond whatever it was you patented.
But of course, moving to a more individualized set of patent rules doesn’t really work either, since where you draw the line becomes even more difficult, and any patent-filer will argue for the longest term possible, because why wouldn’t they? The drug industry has partly gotten around this problem by moving a little away from patents to Congressionally legislated periods of exclusivity where, regardless of patent status, drugs approved that meet certain criteria are guaranteed a period of market exclusivity.
Patents were extended to 20 years from filing in the U.S. in 1995
Mark Z
Dec 11 2018 at 6:22am
I don’t agree that IP law or regulation can really be characterized as “pro-business.” They are, I think by definition, pro-“some business” at the expense of “other business.” (they are also beneficial to some consumers at the expense of other consumers; but these two go hand in hand, since businesses must consume the products of other businesses to produce).
I’m also not sure it’s clear that the tension really is, in general, tilted too far in the direction of protecting intellectual property, as opposed to being too far in the direction of seeming generous to poor people. You write: “No one thinks poor countries should have to pay the original creators of the fruits of Western civilization.” Maybe development economists should be more concerned about the inability of original creators to effectively profit in poor countries from their creations? Douglass North argued that the development of the west was closely tied to the ‘social rate of return’ coming into line with the ‘private rate of return’ (that is, producers being able to capture the social benefits better, reducing positive externalities, thanks largely to securer property rights) Perhaps poor countries (poor people in poor countries, really) actually would be better off if creators were able to procure better compensation? Perhaps an effective malaria vaccine would have already been invented if companies weren’t fairly sure they’d end up having to give it away in sub-Saharan Africa for free? Of course it’s also possible the optimum (I’m convinced this should be thought of as essentially an optimization problem) is the non-existence of enforced IP.
I actually think not having any legal concept of IP wouldn’t be as bad for innovation as some people think; markets are robust, and I think they’d find ways around the difficulty. Discoverers would just have to be compensated before hand by the potential beneficiaries of their discovery. I could imagine an arrangement where people pay ahead of time for a vaccine or a lifetime supply of some drug that doesn’t yet exist to a pharmaceutical company, with there obviously being some risk that the drug will never be successfully developed. A big legal issue here, of course, is that this might legally still be considered fraud. I’m not sure if, in America, I could legally sell someone the uncertain promise of a sandwich, then ultimately not give them the sandwich. I wouldn’t have actually lied, but I expect people would at the very least demand I be policed to make sure I didn’t plan on not making the sandwich when I made the transaction; they may demand that I give a refund.
Scott Sumner
Dec 11 2018 at 12:40pm
Everyone, Thanks. Lots of good comments.
Comments are closed.