Intellectual Property
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Intellectual Property
MICHELE BOLDRIN and DAVID K. LEVINE
Abstract
Intellectual property is a propaganda term used by proponents of copyrights and
patents to promote the idea that government-enforced monopolies over ideas and
parts of ideas share the beneficial effects of property. In fact, economic research shows
that both copyrights and patents do more economic harm than good. In many areas,
including copyright and software patents, the only reasonable policy conclusion is
abolition. In other areas such as pharmaceutical products, a complex web of regulation and laws have grown around patent protection, and the best method of unraveling this web is still to be found.
INTRODUCTION
Intellectual property is a propaganda term used by proponents of copyrights
and patents—and, to a lesser extent, trademarks—to promote the idea that
government-enforced monopolies over ideas and parts of ideas share the
beneficial effects of property. In fact, both copyrights and patents do more
economic harm than good and are more akin to the crony capitalism that ran
rampant in the monarchies of old than to modern property rights.
Let us unpack this one bit at a time. First: what do copyrights and patents
do? They do not give the creator or inventor the right to profit or sell—you
do not need a grant of monopoly from the government to do that. They
give the creator or inventor the right to tell other people—who may have
legally purchased the idea or recreated it on their own—how they can and
cannot make use of copyrighted works or patented ideas. There is plentiful
evidence that creators and inventors can profit and profit well without the
need for this monopoly or downstream use (“copying,” “imitation”) of their
work. A pretty good example of this would be Walmart: the biggest employer
in the world. Their owners—the Walton family—is the richest family in the
world—so they seem to have profited mightily. From what? From innovation.
From one-stop shopping, to the internal design of stores, to improvements
in methods of shipping and inventory management, Walmart has become a
success by relentlessly outthinking competitors. Yet, according to Honoring
Emerging Trends in the Social and Behavioral Sciences. Edited by Robert Scott and Stephen Kosslyn.
© 2015 John Wiley & Sons, Inc. ISBN 978-1-118-90077-2.
1
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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES
the Inventor (2009), competitor Target had 209 patents and Walmart only 37.
They got rich by and successful by innovating not by patenting.
But this is but one of many examples: In technology ranging from pharmaceuticals, to steam engines, to books and literature, innovation thrives
without the artificial monopoly of intellectual “property.”
Recall that, according to the US Constitution, the power of Congress to
issue laws on copyright and patents is “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.” Of course, if
copyright and patents do not promote that progress, then the proper length
of time should be zero. So: Do copyrights and patents lead to more creation
and innovation? The theory is ambiguous and the evidence suggests not.
FOUNDATIONAL RESEARCH
On the face of it, the theory that copyright and patents increase creation and
innovation is compelling: How can the added incentive of granting a creator
or innovator a monopoly not give more reason to create and innovate and so
lead to more creation and innovation? But this overlooks a crucial point: Creation and innovation build on existing creations and innovation. In the case
of copyright, we need look no further than the many successful adaptations
by the Disney Corporation of public domain works—Pocahontas, Cinderella,
Pinocchio. In the case of patents: Do you suppose the development of rocket
ships did not benefit from the technology of jet aircraft? So, in practice, there
is a trade-off. Stronger copyright and patent protection means creators and
innovators can earn more from their work—but it also makes it more costly
for them to do that work as they have to pay the owners of existing copyrights and patents. So, in the end, theory is useless and we must turn to the
evidence.
To summarize: Our concern is with the impact of copyright and patent laws
on the motivation to innovate in the first place—and the evidence is that, on
the balance, this motivation is not enhanced by copyright and patent laws.
COPYRIGHT
There are not a great many empirical studies of the impact of copyright. In
part, this is because to analyze the impact of copyright it is necessary to
compare systems with copyright to those without, and in modern times copyright is relatively ubiquitous. Moreover, as is always the case with empirical
work, there is the problem that in any comparison “everything else except
copyright is probably not equal.” That said, we are aware of three pieces of
evidence about the impact of copyright.
Intellectual Property
3
1. The recent study by Höffner (2010) comparing nineteenth century
England (with copyright) to nineteenth century Germany (without
copyright). The per capita production of literary works (titles) was
considerably higher in Germany.
2. The book by Scherer (2012) on classical music in the eighteenth century comparing countries with copyright to those without—he finds that
countries with copyright were no more productive in the output of classical music than those without.
3. Less formal evidence from the modern era concerning databases: Compilations of fact can be copyrighted in Europe but not in the United
States. However, the evidence suggests that the United States has been
far more active in creating databases of facts.
All this evidence indicates that creative output is, if anything, greater without copyright than with it. Given that copyright may not serve the intended
purpose, it is worth reiterating the theoretical elements that may discourage,
rather than encourage, creation.
1. The income effect—copyright, by enriching creators, may make them
less inclined to produce new works. The extreme example of this is the
Italian composer Verdi (see the Scherer book) who, after getting the law
changed so that his work was under copyright, ceased producing new
operas in favor of collecting royalties on old ones.
2. The downstream discouragement effect—existing copyright holders
may employ their copyrights to discourage creation by others; indeed,
the mere existence of these copyrights may have this effect without an
active effort on the part of existing rights holders. One good example of
this is the need to acquire music rights in order to produce movies—the
expense is sufficiently substantial that in one famous case the cost of
obtaining music rights vastly exceeded the cost of making the movie.
This problem has manifested itself in the controversy of sampling in
hip-hop music, but is relevant more broadly to the “remix” culture
described by Larry Lessig, among others. It arises not just in the case
of music in movies but often also when expression is moved from one
medium to another—the rights to stories for movies, sequels, and so
forth. While it is sometimes said that copyright is narrow in scope,
protecting merely the expression of ideas, in practice it is something
else—preventing the reuse of such things as characters in novels and
short musical segments.
3. Monopolization by large firms—the need to acquire clear rights to
avoid lawsuits favors large organizations with legal and copyright
search departments over the small creator.
4
EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES
In addition to the issue of incentives, there are two other issues often
raised in connection with copyright law: plagiarism and the moral rights of
authors. Plagiarism is taking credit for somebody else’s work, something
that we do not condone. However, what is not commonly understood is that
sanctions against plagiarism are not enforced through copyright law—in
fact, the sanctions against plagiarism (generally enforced through contract
law) are far more severe. For example, we might lose a law suit and be
forced to pay damages for violating a copyright—but if we were to be caught
plagiarizing—regardless of the state of copyright law—we would lose our
tenured jobs, our careers would be destroyed, and we would be subject to
public humiliation.
With respect to moral rights of authors, economists perhaps have not so
much to say on the subject—except this: the “right” in question is that of a
creator to have control of how other people make use of his creation after it
has been sold. Insofar as such a right is “moral,” we expect it is rather overshadowed by the right of relatively poor consumers not to be forced to pay
monopoly prices to relatively rich creators.
PATENTS
In Boldrin and Levine (2008), we analyzed the 24 studies we could find in
2006 that examined whether introducing or strengthening patent protection
leads to greater innovation. “These studies find weak or no evidence that
strengthening patent regimes increases innovation; they find evidence that
strengthening the patent regime increases patenting! They also find evidence
that, in countries with initially weak IP regimes, strengthening IP increases
the flow of foreign investment in sectors where patents are frequently used.”
Three of the studies were themselves surveys, and they reached conclusions
similar to ours. After failing to find a single study claiming that innovation
increased as a consequence of the strengthening of US patent protection in
the 1980s,
Gallini writes:
Although it seems plausible that the strengthening of U.S. Patents may have
contributed to the rise in patenting over the past decade and a half, the connection has proven difficult to verify.
Jaffe writes:
… despite the significance of the policy changes and the wide availability of
detailed data relating to patenting, robust conclusions regarding the empirical
consequences for technological innovations of changes in patent policy are few.
Intellectual Property
5
There is widespread unease that the costs of stronger patent protection may
exceed the benefits. Both theoretical and, to a lesser extent, empirical research
suggest this possibility.
Lerner (2009) examined all significant changes in patent law in all countries
over the past 150 years and finds that:
Consider, for instance, policy changes that strengthen patent protection. Once
overall trends in patenting are adjusted for, the changes in patents by residents
of the country undertaking the policy change are negative, both in Great Britain
and in the country itself. Subject to the caveats noted in the conclusion this
evidence suggests that these policy changes did not spur innovation.
Already in 1958, Fritz Machlup wrote in a report to Congress:
If we did not have a patent system, it would be irresponsible, on the basis of
our present knowledge of its economic consequences, to recommend instituting one. But because we have had a patent system for a long time, it would be
irresponsible, on the basis of our present knowledge, to recommend abolishing it.
CUTTING-EDGE RESEARCH
COPYRIGHT
It is important to understand that there are a variety of harms of copyright
that go beyond the issue of creation.
1. Free speech—copyright and especially its manifestation in laws, such
as the DMCA, can be used to discourage free speech. The Electronic
Frontier Foundation has extensive documentation1 of these abuses. One
example is the use of the DMCA by the Diebold Corporation in an effort
to prevent defects in its voting machines from becoming public. Abuse
of the legal system is not limited to copyright law, of course; but copyright is a particularly large problem because the suppression of copying
by others is intrinsically abusive. For example, copyright originated at
the time of printing presses as an effort of monarchs to suppress critical speech and the Soviet Union tightly controlled xerox machines in an
effort to prevent the distribution of critical samizdat literature.
2. Mandated technical means of protection (DRM in hardware or
software)—arguments are constantly made—and, for example, in the
case of Digital Audio Tapes with success—that laws should mandate
the implementation of hardware or software digital rights management.
1. See, for example, https://www.eff.org/takedowns.
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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES
This has the potential for widespread economic harm. Such systems
rarely work perfectly—and for the mandate to be effective they must
be installed not only on personal computing devices that might be used
for copyright violation but also on business and scientific machines
that are unlikely to be used for these purposes. When these systems
malfunction, they can cause the loss of both time and data. By ceding
control of general purpose computing devices to outsiders (who must
be able to erase offending material), they provide a vector of invasion
for malicious software. This consideration is especially important in
light of the fact that claims by the “copyright” industry about its size
and economic importance are vastly exaggerated.2
3. Discouragement of small businesses—innovation by small businesses in
consumer electronics has been greatly hampered by the litigious activity
of large media companies. The ReplayTV lawsuit in particular was enormously discouraging. Gary Shapiro, head of the Consumer Electronics
Association, has written eloquently about this problem.3
4. Excessive length of copyright—the period of a copyright’s validity has
been repeatedly lengthened. This makes no sense in terms of promoting
science and the useful arts. In economics, the present value of a future
return needs to be discounted at a current interest rate which reflects the
long-term rate on a security of comparable quality. After 10 years the
stream of revenue has essentially no present value. In the Eldred case, a
friends-of-the-court brief by a group of distinguished economists carefully runs through the computations. Moreover, copyright extensions
have applied retroactively to existing works—something that obviously
provides no incentive for the creation of new works—but, of course, a
large benefit to those whose copyrights are about to expire.4
5. The degradation of “fair use”—fair use is a legal doctrine developed
by the courts to allow public use of copyrighted material, for example,
as literary criticism or as factual discussion of scientific results or to
teach language or literary composition. To do so, one must be able to
quote the original to make sense to an extent that may be viewed by the
copyright holder as excessive. Large rights holders have successfully
degraded these rights. A good example is in the publishing industry
where copyright clearance is demanded by publishers for every use of
quoted material, photographs and the like—despite the fact that they
are clearly covered by fair use. In part this is due to conservatism on the
part of publishers—it is safer to get permission, but it also reflects the
2. See Boldrin and Levine (2008), Chapter 5.
3. See http://www.usatoday.com/story/opinion/2013/01/30/cbs-cnet-ces-hopper-sling/1877291/
for his discussion of the Hopper Sling, for example.
4. See the brief filed by 17 economists to the Eldred case http://cyber.law.harvard.edu/openlaw/
eldredvashcroft/supct/amici/economists.pdf.
Intellectual Property
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fact that publishers are themselves copyright holders and wish to preserve their own rights to file lawsuits. Of course, it is expensive not only
to ask permission but also to process requests for permission—and it is
often easier for copyright holders simply to ignore requests. This creates a variety of harms—one familiar to scholars is the increased length
of time required to publish and disseminate scholarly works.5
6. Network disruptions—large rights holders have attempted to disrupt
the Internet in a variety of ways ranging from imposing requirements
on ISPs for deep packet inspection, banning anonymous access to the
Internet, denying access to the Internet, denial of service attacks, and to
the poisoning of peer-to-peer networks. They have sought legal immunity from the damage they cause and have made and are attempting to
make the Internet less useful. Much of this is an attempt to shift the burden of copyright enforcement to third parties: ISPs and the government
in particular.6
7. The growth of litigation and its costs—for followers of copyright developments, it is constantly entertaining to find out who is suing whom for
some new wrinkle on infringement. The effort—related to the problem
of network disruption—is to find a way to extend the range of the copyright holders’ rights and to constrain those of the public. Less entertaining are the many cases where someone is sued in large measure because
the plaintiff knows he lacks the resources to fight back and will settle for
a modest amount. An entire new business of the “copyright troll” has
emerged—these are law firms without clearly established rights who
threaten legal action and attempt to extort small settlements from individuals who may or not be violating copyright.7
PATENTS
The story of the past six decades is the opposite of abolishing patents. In new
industries such as biotechnology and software, where innovation was thriving in the absence of patents—patents have been introduced. Has this led
to an explosion of innovation? No economist has been able to find a corresponding increase in aggregate productivity.
The software industry is a good example. Bessen and Meurer (2009) have
studied the consequences of the judge-made law, allowing a new category of
software patents starting in the early 1990s. The title of their book is Patent
Failure, which is also a summary of their findings.
5. http://chillingeffects.org/ documents many of the problems with current “fair use.”
6. See Boldrin and Levine (2008), Chapter 5.
7. For discussion of litigation, see Depoorter and Vanneste (2005).
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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES
Similar to copyright, patents are also associated with significant harms.
Patent litigation is driven by dying firms who in their heyday patented everything in sight. As they decline they sue their innovative rivals. A famous
example of this is Texas Instruments (TI). A once successful and highly innovative firm, TI could not make the transition to the PC revolution and for
a while tried to stay alive by suing the newcomers. Similarly, Microsoft has
been unable to make the transition to portable devices. Unable to produce
a product of their own that can succeed in the marketplace, they instead
attempt to use patent claims to garner a share of the profits from the Android
Market.
The sad fact is that the vast bulk of patents are not only useless, they do
not represent innovation at all. They are part of an arsenal used to fend
off—patent lawsuits! This creates large barriers to entry. For example, in the
smartphone market, the incumbent—Apple—has a large patent portfolio.
The new firm on the block—Google—does not. Hence, Apple has had some
success in slowing down Google’s entry into the market through a series
of frivolous patent lawsuit. If this tactic is effective against a giant—albeit
a giant lacking a large patent portfolio—such as Google—what are the
prospects for a lesser firm that wants to enter the market?
KEY ISSUES FOR FUTURE RESEARCH
While the basic theoretical and empirical elements of copyrights and patents
are known, there are several issues still to be investigated. Empirical research
in copyright is still relatively weak. In the case of patents, there are several missing ingredients. First, independent measures of research output are
crucial—here, the work of Nuvolari (2004) and Moser (2005) points the way.
Second, the pharmaceutical industry is a complex web of regulation beyond
merely patents, and this needs to be studied as a whole, as, for example, in
Grootendorst, Hollis, Levine, Pogge, & Edwards (2011).
REFERENCES
Bessen, J., & Meurer, M. J. (2009). Patent failure: How judges, bureaucrats, and lawyers
put innovators at risk. Princeton, PA: Princeton University Press.
Boldrin, M., & Levine, D. K. (2008). Against intellectual monopoly. Cambridge, England: Cambridge University Press.
Depoorter, B., & Vanneste, S. (2005). Norms and enforcement: The case against copyright litigation. Oregon Law Review, 84, 1127–1179.
Grootendorst, P., Hollis, A., Levine, D. K., Pogge, T., & Edwards, A. M. (2011). New
approaches to rewarding pharmaceutical innovation. Canadian Medical Association
Journal, 183(6), 681–685.
Intellectual Property
9
Höffner, E. (2010). Geschichte und Wesen des Urheberrechts. Munich, Germany: Verlag
Europäische Wirtschaft.
Honoring the Inventor (2009). Retrieved from http://honoringtheinventor.blogspot.
it/2009/01/patent-faceoff-target-vs-wal-mart.html
Lerner, J. (2009). The empirical impact of intellectual property rights on innovation:
Puzzles and clues. The American Economic Review P&P, 99(2), 343–348.
Machlup, F. (1958) An economic review of the patent system. Testimony before the
Senate Judiciary Subcommittee on Patents, Trademarks, and Copyrights, 85th
Congress, 2nd session.
Moser, P. (2005). How do patent laws influence innovation? Evidence from
nineteenth-century world fairs. The American Economic Review, 95, 1214–1236.
Nuvolari, A. (2004). Collective invention during the British Industrial Revolution:
The case of the Cornish Pumping Engine. Cambridge Journal of Economics, 28,
347–363.
Scherer, F. M. (2012). Quarter notes and bank notes: The economics of music composition
in the eighteenth and nineteenth centuries. Princeton, NJ: Princeton University Press.
FURTHER READING
Bessen, J., & Meurer, M. J. (2009). Patent failure: How judges, bureaucrats, and lawyers
put innovators at risk. Princeton, PA: Princeton University Press.
Boldrin, M., & Levine, D. K. (2008). Against intellectual monopoly. Cambridge, England: Cambridge University Press.
Boldrin, M., & Levine, D. K. (2013). The case against patents. Journal of Economic Perspectives, 27, 3–22.
Boldrin, M., Allamand, J. C., Levine, D. K. & Ornaghi, C. (2011). Competition and
innovation. Cato Papers on Public Policy, Cato, Washington.
Boldrin, M., & Levine, D. K. (2004). IER Lawrence Klein Lecture: The case against
intellectual monopoly. International Economic Review, 45, 327–350.
MICHELE BOLDRIN SHORT BIOGRAPHY
Michele Boldrin is Joseph Gibson Hoyt Distinguished Professor of Economics in Arts & Sciences in the Department of Economics, Washington
University in Saint Louis, where he also served as departmental chair for
four years. He is a Fellow of the Econometric Society, an Economic Theory
Fellow, a research associate of the CEPR, and of the Federal Reserve Bank
of St. Louis. He is the author of four books, including Against Intellectual
Monopoly with David Levine. He has published extensively in professional
journals, including the American Economic Review, Econometrica, the Review of
Economic Studies, the Journal of Political Economy, and the Journal of Economic
Theory.
Michele’s research concentrates on the development and use of Dynamic
General Equilibrium (DGE) models. Substantive areas of research in which
10
EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES
he has found the DGE viewpoint valuable are optimal growth and turnpike
theory; the application of chaotic models to economic dynamics; search
theory; growth and development; asset pricing and the business cycles; the
theory of innovation; public economics and the intergenerational welfare
state; the determinants of credit risk; the study of demographic behavior;
the theory of industrial organization and of intellectual property rights.
http://www.micheleboldrin.com
DAVID K. LEVINE SHORT BIOGRAPHY
David K. Levine is John H. Biggs Distinguished Professor of Economics at
Washington University in St. Louis and on leave as the Joint RSCAS Chair
at the European University Institute. He is a Fellow of the Econometric Society, an Economic Theory Fellow, a research associate of the NBER, and of
the Federal Reserve Bank of St. Louis, and managing editor of NAJ Economics. His scientific research is supported by grants from the National Science Foundation. He is the author with Michele Boldrin of Against Intellectual Monopoly, with Drew Fudenberg of Learning in Games and the editor of
several conference volumes. He has published extensively in professional
journals, including the American Economic Review, Econometrica, the Review
of Economic Studies, the Journal of Political Economy, the Journal of Economic
Theory, the Quarterly Journal of Economics, and the American Political Science
Review.
Professor Levine’s current research interests include the study of intellectual property and endogenous growth in dynamic general equilibrium
models, models of self-control, of the endogenous formation of preferences,
institutions and social norms, learning in games, evolutionary game theory,
virtual economies, and the application of game theory to experimental economics. At the graduate level, his teaching focuses on economic dynamics;
at the undergraduate level, he teaches intermediate level microeconomics,
focusing largely on elementary game theory.
www.dklevine.com
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-
Intellectual Property
MICHELE BOLDRIN and DAVID K. LEVINE
Abstract
Intellectual property is a propaganda term used by proponents of copyrights and
patents to promote the idea that government-enforced monopolies over ideas and
parts of ideas share the beneficial effects of property. In fact, economic research shows
that both copyrights and patents do more economic harm than good. In many areas,
including copyright and software patents, the only reasonable policy conclusion is
abolition. In other areas such as pharmaceutical products, a complex web of regulation and laws have grown around patent protection, and the best method of unraveling this web is still to be found.
INTRODUCTION
Intellectual property is a propaganda term used by proponents of copyrights
and patents—and, to a lesser extent, trademarks—to promote the idea that
government-enforced monopolies over ideas and parts of ideas share the
beneficial effects of property. In fact, both copyrights and patents do more
economic harm than good and are more akin to the crony capitalism that ran
rampant in the monarchies of old than to modern property rights.
Let us unpack this one bit at a time. First: what do copyrights and patents
do? They do not give the creator or inventor the right to profit or sell—you
do not need a grant of monopoly from the government to do that. They
give the creator or inventor the right to tell other people—who may have
legally purchased the idea or recreated it on their own—how they can and
cannot make use of copyrighted works or patented ideas. There is plentiful
evidence that creators and inventors can profit and profit well without the
need for this monopoly or downstream use (“copying,” “imitation”) of their
work. A pretty good example of this would be Walmart: the biggest employer
in the world. Their owners—the Walton family—is the richest family in the
world—so they seem to have profited mightily. From what? From innovation.
From one-stop shopping, to the internal design of stores, to improvements
in methods of shipping and inventory management, Walmart has become a
success by relentlessly outthinking competitors. Yet, according to Honoring
Emerging Trends in the Social and Behavioral Sciences. Edited by Robert Scott and Stephen Kosslyn.
© 2015 John Wiley & Sons, Inc. ISBN 978-1-118-90077-2.
1
2
EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES
the Inventor (2009), competitor Target had 209 patents and Walmart only 37.
They got rich by and successful by innovating not by patenting.
But this is but one of many examples: In technology ranging from pharmaceuticals, to steam engines, to books and literature, innovation thrives
without the artificial monopoly of intellectual “property.”
Recall that, according to the US Constitution, the power of Congress to
issue laws on copyright and patents is “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.” Of course, if
copyright and patents do not promote that progress, then the proper length
of time should be zero. So: Do copyrights and patents lead to more creation
and innovation? The theory is ambiguous and the evidence suggests not.
FOUNDATIONAL RESEARCH
On the face of it, the theory that copyright and patents increase creation and
innovation is compelling: How can the added incentive of granting a creator
or innovator a monopoly not give more reason to create and innovate and so
lead to more creation and innovation? But this overlooks a crucial point: Creation and innovation build on existing creations and innovation. In the case
of copyright, we need look no further than the many successful adaptations
by the Disney Corporation of public domain works—Pocahontas, Cinderella,
Pinocchio. In the case of patents: Do you suppose the development of rocket
ships did not benefit from the technology of jet aircraft? So, in practice, there
is a trade-off. Stronger copyright and patent protection means creators and
innovators can earn more from their work—but it also makes it more costly
for them to do that work as they have to pay the owners of existing copyrights and patents. So, in the end, theory is useless and we must turn to the
evidence.
To summarize: Our concern is with the impact of copyright and patent laws
on the motivation to innovate in the first place—and the evidence is that, on
the balance, this motivation is not enhanced by copyright and patent laws.
COPYRIGHT
There are not a great many empirical studies of the impact of copyright. In
part, this is because to analyze the impact of copyright it is necessary to
compare systems with copyright to those without, and in modern times copyright is relatively ubiquitous. Moreover, as is always the case with empirical
work, there is the problem that in any comparison “everything else except
copyright is probably not equal.” That said, we are aware of three pieces of
evidence about the impact of copyright.
Intellectual Property
3
1. The recent study by Höffner (2010) comparing nineteenth century
England (with copyright) to nineteenth century Germany (without
copyright). The per capita production of literary works (titles) was
considerably higher in Germany.
2. The book by Scherer (2012) on classical music in the eighteenth century comparing countries with copyright to those without—he finds that
countries with copyright were no more productive in the output of classical music than those without.
3. Less formal evidence from the modern era concerning databases: Compilations of fact can be copyrighted in Europe but not in the United
States. However, the evidence suggests that the United States has been
far more active in creating databases of facts.
All this evidence indicates that creative output is, if anything, greater without copyright than with it. Given that copyright may not serve the intended
purpose, it is worth reiterating the theoretical elements that may discourage,
rather than encourage, creation.
1. The income effect—copyright, by enriching creators, may make them
less inclined to produce new works. The extreme example of this is the
Italian composer Verdi (see the Scherer book) who, after getting the law
changed so that his work was under copyright, ceased producing new
operas in favor of collecting royalties on old ones.
2. The downstream discouragement effect—existing copyright holders
may employ their copyrights to discourage creation by others; indeed,
the mere existence of these copyrights may have this effect without an
active effort on the part of existing rights holders. One good example of
this is the need to acquire music rights in order to produce movies—the
expense is sufficiently substantial that in one famous case the cost of
obtaining music rights vastly exceeded the cost of making the movie.
This problem has manifested itself in the controversy of sampling in
hip-hop music, but is relevant more broadly to the “remix” culture
described by Larry Lessig, among others. It arises not just in the case
of music in movies but often also when expression is moved from one
medium to another—the rights to stories for movies, sequels, and so
forth. While it is sometimes said that copyright is narrow in scope,
protecting merely the expression of ideas, in practice it is something
else—preventing the reuse of such things as characters in novels and
short musical segments.
3. Monopolization by large firms—the need to acquire clear rights to
avoid lawsuits favors large organizations with legal and copyright
search departments over the small creator.
4
EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES
In addition to the issue of incentives, there are two other issues often
raised in connection with copyright law: plagiarism and the moral rights of
authors. Plagiarism is taking credit for somebody else’s work, something
that we do not condone. However, what is not commonly understood is that
sanctions against plagiarism are not enforced through copyright law—in
fact, the sanctions against plagiarism (generally enforced through contract
law) are far more severe. For example, we might lose a law suit and be
forced to pay damages for violating a copyright—but if we were to be caught
plagiarizing—regardless of the state of copyright law—we would lose our
tenured jobs, our careers would be destroyed, and we would be subject to
public humiliation.
With respect to moral rights of authors, economists perhaps have not so
much to say on the subject—except this: the “right” in question is that of a
creator to have control of how other people make use of his creation after it
has been sold. Insofar as such a right is “moral,” we expect it is rather overshadowed by the right of relatively poor consumers not to be forced to pay
monopoly prices to relatively rich creators.
PATENTS
In Boldrin and Levine (2008), we analyzed the 24 studies we could find in
2006 that examined whether introducing or strengthening patent protection
leads to greater innovation. “These studies find weak or no evidence that
strengthening patent regimes increases innovation; they find evidence that
strengthening the patent regime increases patenting! They also find evidence
that, in countries with initially weak IP regimes, strengthening IP increases
the flow of foreign investment in sectors where patents are frequently used.”
Three of the studies were themselves surveys, and they reached conclusions
similar to ours. After failing to find a single study claiming that innovation
increased as a consequence of the strengthening of US patent protection in
the 1980s,
Gallini writes:
Although it seems plausible that the strengthening of U.S. Patents may have
contributed to the rise in patenting over the past decade and a half, the connection has proven difficult to verify.
Jaffe writes:
… despite the significance of the policy changes and the wide availability of
detailed data relating to patenting, robust conclusions regarding the empirical
consequences for technological innovations of changes in patent policy are few.
Intellectual Property
5
There is widespread unease that the costs of stronger patent protection may
exceed the benefits. Both theoretical and, to a lesser extent, empirical research
suggest this possibility.
Lerner (2009) examined all significant changes in patent law in all countries
over the past 150 years and finds that:
Consider, for instance, policy changes that strengthen patent protection. Once
overall trends in patenting are adjusted for, the changes in patents by residents
of the country undertaking the policy change are negative, both in Great Britain
and in the country itself. Subject to the caveats noted in the conclusion this
evidence suggests that these policy changes did not spur innovation.
Already in 1958, Fritz Machlup wrote in a report to Congress:
If we did not have a patent system, it would be irresponsible, on the basis of
our present knowledge of its economic consequences, to recommend instituting one. But because we have had a patent system for a long time, it would be
irresponsible, on the basis of our present knowledge, to recommend abolishing it.
CUTTING-EDGE RESEARCH
COPYRIGHT
It is important to understand that there are a variety of harms of copyright
that go beyond the issue of creation.
1. Free speech—copyright and especially its manifestation in laws, such
as the DMCA, can be used to discourage free speech. The Electronic
Frontier Foundation has extensive documentation1 of these abuses. One
example is the use of the DMCA by the Diebold Corporation in an effort
to prevent defects in its voting machines from becoming public. Abuse
of the legal system is not limited to copyright law, of course; but copyright is a particularly large problem because the suppression of copying
by others is intrinsically abusive. For example, copyright originated at
the time of printing presses as an effort of monarchs to suppress critical speech and the Soviet Union tightly controlled xerox machines in an
effort to prevent the distribution of critical samizdat literature.
2. Mandated technical means of protection (DRM in hardware or
software)—arguments are constantly made—and, for example, in the
case of Digital Audio Tapes with success—that laws should mandate
the implementation of hardware or software digital rights management.
1. See, for example, https://www.eff.org/takedowns.
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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES
This has the potential for widespread economic harm. Such systems
rarely work perfectly—and for the mandate to be effective they must
be installed not only on personal computing devices that might be used
for copyright violation but also on business and scientific machines
that are unlikely to be used for these purposes. When these systems
malfunction, they can cause the loss of both time and data. By ceding
control of general purpose computing devices to outsiders (who must
be able to erase offending material), they provide a vector of invasion
for malicious software. This consideration is especially important in
light of the fact that claims by the “copyright” industry about its size
and economic importance are vastly exaggerated.2
3. Discouragement of small businesses—innovation by small businesses in
consumer electronics has been greatly hampered by the litigious activity
of large media companies. The ReplayTV lawsuit in particular was enormously discouraging. Gary Shapiro, head of the Consumer Electronics
Association, has written eloquently about this problem.3
4. Excessive length of copyright—the period of a copyright’s validity has
been repeatedly lengthened. This makes no sense in terms of promoting
science and the useful arts. In economics, the present value of a future
return needs to be discounted at a current interest rate which reflects the
long-term rate on a security of comparable quality. After 10 years the
stream of revenue has essentially no present value. In the Eldred case, a
friends-of-the-court brief by a group of distinguished economists carefully runs through the computations. Moreover, copyright extensions
have applied retroactively to existing works—something that obviously
provides no incentive for the creation of new works—but, of course, a
large benefit to those whose copyrights are about to expire.4
5. The degradation of “fair use”—fair use is a legal doctrine developed
by the courts to allow public use of copyrighted material, for example,
as literary criticism or as factual discussion of scientific results or to
teach language or literary composition. To do so, one must be able to
quote the original to make sense to an extent that may be viewed by the
copyright holder as excessive. Large rights holders have successfully
degraded these rights. A good example is in the publishing industry
where copyright clearance is demanded by publishers for every use of
quoted material, photographs and the like—despite the fact that they
are clearly covered by fair use. In part this is due to conservatism on the
part of publishers—it is safer to get permission, but it also reflects the
2. See Boldrin and Levine (2008), Chapter 5.
3. See http://www.usatoday.com/story/opinion/2013/01/30/cbs-cnet-ces-hopper-sling/1877291/
for his discussion of the Hopper Sling, for example.
4. See the brief filed by 17 economists to the Eldred case http://cyber.law.harvard.edu/openlaw/
eldredvashcroft/supct/amici/economists.pdf.
Intellectual Property
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fact that publishers are themselves copyright holders and wish to preserve their own rights to file lawsuits. Of course, it is expensive not only
to ask permission but also to process requests for permission—and it is
often easier for copyright holders simply to ignore requests. This creates a variety of harms—one familiar to scholars is the increased length
of time required to publish and disseminate scholarly works.5
6. Network disruptions—large rights holders have attempted to disrupt
the Internet in a variety of ways ranging from imposing requirements
on ISPs for deep packet inspection, banning anonymous access to the
Internet, denying access to the Internet, denial of service attacks, and to
the poisoning of peer-to-peer networks. They have sought legal immunity from the damage they cause and have made and are attempting to
make the Internet less useful. Much of this is an attempt to shift the burden of copyright enforcement to third parties: ISPs and the government
in particular.6
7. The growth of litigation and its costs—for followers of copyright developments, it is constantly entertaining to find out who is suing whom for
some new wrinkle on infringement. The effort—related to the problem
of network disruption—is to find a way to extend the range of the copyright holders’ rights and to constrain those of the public. Less entertaining are the many cases where someone is sued in large measure because
the plaintiff knows he lacks the resources to fight back and will settle for
a modest amount. An entire new business of the “copyright troll” has
emerged—these are law firms without clearly established rights who
threaten legal action and attempt to extort small settlements from individuals who may or not be violating copyright.7
PATENTS
The story of the past six decades is the opposite of abolishing patents. In new
industries such as biotechnology and software, where innovation was thriving in the absence of patents—patents have been introduced. Has this led
to an explosion of innovation? No economist has been able to find a corresponding increase in aggregate productivity.
The software industry is a good example. Bessen and Meurer (2009) have
studied the consequences of the judge-made law, allowing a new category of
software patents starting in the early 1990s. The title of their book is Patent
Failure, which is also a summary of their findings.
5. http://chillingeffects.org/ documents many of the problems with current “fair use.”
6. See Boldrin and Levine (2008), Chapter 5.
7. For discussion of litigation, see Depoorter and Vanneste (2005).
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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES
Similar to copyright, patents are also associated with significant harms.
Patent litigation is driven by dying firms who in their heyday patented everything in sight. As they decline they sue their innovative rivals. A famous
example of this is Texas Instruments (TI). A once successful and highly innovative firm, TI could not make the transition to the PC revolution and for
a while tried to stay alive by suing the newcomers. Similarly, Microsoft has
been unable to make the transition to portable devices. Unable to produce
a product of their own that can succeed in the marketplace, they instead
attempt to use patent claims to garner a share of the profits from the Android
Market.
The sad fact is that the vast bulk of patents are not only useless, they do
not represent innovation at all. They are part of an arsenal used to fend
off—patent lawsuits! This creates large barriers to entry. For example, in the
smartphone market, the incumbent—Apple—has a large patent portfolio.
The new firm on the block—Google—does not. Hence, Apple has had some
success in slowing down Google’s entry into the market through a series
of frivolous patent lawsuit. If this tactic is effective against a giant—albeit
a giant lacking a large patent portfolio—such as Google—what are the
prospects for a lesser firm that wants to enter the market?
KEY ISSUES FOR FUTURE RESEARCH
While the basic theoretical and empirical elements of copyrights and patents
are known, there are several issues still to be investigated. Empirical research
in copyright is still relatively weak. In the case of patents, there are several missing ingredients. First, independent measures of research output are
crucial—here, the work of Nuvolari (2004) and Moser (2005) points the way.
Second, the pharmaceutical industry is a complex web of regulation beyond
merely patents, and this needs to be studied as a whole, as, for example, in
Grootendorst, Hollis, Levine, Pogge, & Edwards (2011).
REFERENCES
Bessen, J., & Meurer, M. J. (2009). Patent failure: How judges, bureaucrats, and lawyers
put innovators at risk. Princeton, PA: Princeton University Press.
Boldrin, M., & Levine, D. K. (2008). Against intellectual monopoly. Cambridge, England: Cambridge University Press.
Depoorter, B., & Vanneste, S. (2005). Norms and enforcement: The case against copyright litigation. Oregon Law Review, 84, 1127–1179.
Grootendorst, P., Hollis, A., Levine, D. K., Pogge, T., & Edwards, A. M. (2011). New
approaches to rewarding pharmaceutical innovation. Canadian Medical Association
Journal, 183(6), 681–685.
Intellectual Property
9
Höffner, E. (2010). Geschichte und Wesen des Urheberrechts. Munich, Germany: Verlag
Europäische Wirtschaft.
Honoring the Inventor (2009). Retrieved from http://honoringtheinventor.blogspot.
it/2009/01/patent-faceoff-target-vs-wal-mart.html
Lerner, J. (2009). The empirical impact of intellectual property rights on innovation:
Puzzles and clues. The American Economic Review P&P, 99(2), 343–348.
Machlup, F. (1958) An economic review of the patent system. Testimony before the
Senate Judiciary Subcommittee on Patents, Trademarks, and Copyrights, 85th
Congress, 2nd session.
Moser, P. (2005). How do patent laws influence innovation? Evidence from
nineteenth-century world fairs. The American Economic Review, 95, 1214–1236.
Nuvolari, A. (2004). Collective invention during the British Industrial Revolution:
The case of the Cornish Pumping Engine. Cambridge Journal of Economics, 28,
347–363.
Scherer, F. M. (2012). Quarter notes and bank notes: The economics of music composition
in the eighteenth and nineteenth centuries. Princeton, NJ: Princeton University Press.
FURTHER READING
Bessen, J., & Meurer, M. J. (2009). Patent failure: How judges, bureaucrats, and lawyers
put innovators at risk. Princeton, PA: Princeton University Press.
Boldrin, M., & Levine, D. K. (2008). Against intellectual monopoly. Cambridge, England: Cambridge University Press.
Boldrin, M., & Levine, D. K. (2013). The case against patents. Journal of Economic Perspectives, 27, 3–22.
Boldrin, M., Allamand, J. C., Levine, D. K. & Ornaghi, C. (2011). Competition and
innovation. Cato Papers on Public Policy, Cato, Washington.
Boldrin, M., & Levine, D. K. (2004). IER Lawrence Klein Lecture: The case against
intellectual monopoly. International Economic Review, 45, 327–350.
MICHELE BOLDRIN SHORT BIOGRAPHY
Michele Boldrin is Joseph Gibson Hoyt Distinguished Professor of Economics in Arts & Sciences in the Department of Economics, Washington
University in Saint Louis, where he also served as departmental chair for
four years. He is a Fellow of the Econometric Society, an Economic Theory
Fellow, a research associate of the CEPR, and of the Federal Reserve Bank
of St. Louis. He is the author of four books, including Against Intellectual
Monopoly with David Levine. He has published extensively in professional
journals, including the American Economic Review, Econometrica, the Review of
Economic Studies, the Journal of Political Economy, and the Journal of Economic
Theory.
Michele’s research concentrates on the development and use of Dynamic
General Equilibrium (DGE) models. Substantive areas of research in which
10
EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES
he has found the DGE viewpoint valuable are optimal growth and turnpike
theory; the application of chaotic models to economic dynamics; search
theory; growth and development; asset pricing and the business cycles; the
theory of innovation; public economics and the intergenerational welfare
state; the determinants of credit risk; the study of demographic behavior;
the theory of industrial organization and of intellectual property rights.
http://www.micheleboldrin.com
DAVID K. LEVINE SHORT BIOGRAPHY
David K. Levine is John H. Biggs Distinguished Professor of Economics at
Washington University in St. Louis and on leave as the Joint RSCAS Chair
at the European University Institute. He is a Fellow of the Econometric Society, an Economic Theory Fellow, a research associate of the NBER, and of
the Federal Reserve Bank of St. Louis, and managing editor of NAJ Economics. His scientific research is supported by grants from the National Science Foundation. He is the author with Michele Boldrin of Against Intellectual Monopoly, with Drew Fudenberg of Learning in Games and the editor of
several conference volumes. He has published extensively in professional
journals, including the American Economic Review, Econometrica, the Review
of Economic Studies, the Journal of Political Economy, the Journal of Economic
Theory, the Quarterly Journal of Economics, and the American Political Science
Review.
Professor Levine’s current research interests include the study of intellectual property and endogenous growth in dynamic general equilibrium
models, models of self-control, of the endogenous formation of preferences,
institutions and social norms, learning in games, evolutionary game theory,
virtual economies, and the application of game theory to experimental economics. At the graduate level, his teaching focuses on economic dynamics;
at the undergraduate level, he teaches intermediate level microeconomics,
focusing largely on elementary game theory.
www.dklevine.com
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