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More Thoughts on Patents and Copyrights

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Tuesday, 25 June 2013 04:34

Since my comments on Greg Mankiw's defense of the one percent prompted so much response, I thought I should add some clarification on the treatment of patents and copyrights. First off, my main point is that these are government policies designed to meet a public purpose (i.e. promoting innovation and creative work), not natural rights that are an end in themselves. In this sense altering them does not raise questions of rights as would restricting the freedom of speech or assembly.

Those who like to point to the constitutional origin of these forms of property should note where patents and copyrights appear in the constitution. They are listed as a power of Congress along with other powers, like the power to tax. They do not appear in the Bill of Rights where rights of individuals are explicitly described.

The constitution authorizes Congress to create monopolies for limited periods of time "to promote the Progress of Science and useful Arts." In this sense, patents and copyrights are explicitly linked to a public purpose. If it were determined that patents and copyrights are not the most efficient means for promoting innovation and creative work, and therefore Congress decided to stop authorizing these monopolies, individuals would have no more constitutional basis for complaint than if Congress decided that it didn't need to raise taxes.

Once we recognize that patents and copyrights are policies to promote innovation and creative work then the question is whether they are best policy and if so, are they best structured now for this purpose. Neither assumption is obvious and I would argue that the latter is almost certainly not true.

In terms of whether these are the best policies, in my earlier post I was simply pointing out that alternative mechanisms already exist and support a great deal of work. I actually didn't advocate any specific policy, but I have written on alternatives to both. Here's a discussion of alternatives to patent supported drug research and here is a proposal modeled after the tax deduction for charitable contributions for supporting creative work. (By the way, the folks who were arguing for the merits of markets over central planning are in the wrong place. You were looking for Joe Stalin's blog, there is no proposal for central planning in my work.) 

 

I would also point out, especially in the case of patents, that the best policy may not be the same in all areas. For example in the case of prescription drugs, the monopoly provided by patent protection essentially provides the basis for the price of the product, often raising the price many thousand percent above the free market price.This provides enormous incentive to drug companies to mislead the public about the safety and quality of their drugs. Given the enormous asymmetry of information (the drug companies know much more about their drugs than patients or doctors), they are likely to be able to get away with considerable deception.

The story is very different with a patent on an industrial process, where the licensing fees may be a small portion of the price of a car or a television set. It's entirely possible that we would want to rely largely on patents in some areas while developing alternative mechanisms in others. 

The other point which seemed to confuse many readers was my comment that the length and scope of patents and copyrights are infinitely malleable. Comments focused on the length part whereas the scope part is probably more important.

There have been efforts in recent years to make very broad patent claims. For example, Apple sued Microsoft over Windows, claiming that it had the same "touch and feel" of the Apple operating system. (Apple lost.) In the same vein, Amazon sought to patent its "one-click" ordering system where a company retained shipping and billing information, thereby allowing consumers to buy a product with a single click of a mouse. (Amazon also lost.)

Whether patent claims in general are interpreted very broadly or narrowly will make an enormous difference to their value. There are also important questions as to how much of an innovation is necessary to get a patent. The U.S. patent office has been notoriously lax in issuing patents, having once issued a patent for a peanut butter and jelly sandwich. If patents are granted too easily, then large areas of commerce will be locked up by monopoly protections that serve no purpose. And the number of patent suits will expand enormously.

In the case of copyright, there are many important issues apart from duration, most notably with respect to derivative works. J.K. Rowling may own the exclusive rights to the Harry Potter books she wrote, but can she have the government throw me in jail for writing the best-seller Harry Potter Becomes an Economist? How about if I make a movie or write a song on Harry Potter? if people want to read my writing on how Harry Potter became a Nobel prize winning economist why should the government get in the way?

With both patent and copyrights there are also enormously important issues on questions of enforcement. The U.S. has very patent/copyright friendly legal rules that give an enormous advantage to the holders of these claims. This is hugely important since the vast majority of disputes are settled without going to court. If the default legal judgements tend to benefit patent and copyright holders (e.g. it is easy to get injunctions in patent and copyright disputes), then we have made these forms of property far more valuable.

There is also the question of the enforcement responsibilities of third parties. For example, I can be told by J.K. Rowling to remove the Harry Potter poem that someone put in the comment section of my blog. I would face fines and possibly imprisonment (if I don't pay the fines) if I ignore her request. There are efforts to take third party responsibilities even further with SOPA and PIPA. Such strong rules also do not follow directly from the existence of copyrights.

I could go on beyond the point of boring everyone, but the point should be clear. Patents and copyrights are government policies that could be altered in a wide variety of ways, many of which may allow us to much better meet the intended goals. For Greg Mankiw to imagine that patents and copyrights in their current form are optimal is just silly. If he wants to argue this position, that's fine, but he will have to do lots of homework. 

 

Note: Here's an example of the point I was making about stringent enforcement measures. A bank that wrongly forecloses on a mortgage would not face anywhere near as serious a penalty.

Comments (19)Add Comment
Patents and copyrights in emerging countries
written by Heinz Roggenkemper, June 25, 2013 6:51
There is a good article in Foreign Affairs titled 'Fake It Till You Make It'.
I think Dean would agree with most of the points raised, w the exception being the remark that patents are essential for pharmaceuticals.
IP Rights: What Does It Take to Create and Produce that First Copy?
written by Last Mover, June 25, 2013 7:48

True enough. IP protection is similar to the justification for protectionist policies designed to shield selected infant industries from competition over the years until they could grow strong enough to stand on their own.

Ironically the same critics of Dean Baker on alternatives to IP protection would be the first to blast the protection given to infant industries conveniently never lifted to give them unwarranted market power after the fact.

The other key point is the difference between physical property rights and IP rights in terms of control and theft.

The essential problem with IP is enforcement by the owner as creator and producer, which unlike physical property with clear boundaries, requires interference in the property rights of others regarding acquisition, use and redistribution.

For example, consider how insanely controlling and suppressive Microsoft has been over the years with its products which resulted in enormous economic losses.

In labor economics is something called the reservation price, that wage just high enough to convince one to work for it. That's all Dean Baker is talking about in terms of alternatives to traditional IP protection.

Specifically, if alternatives to IP protection could be used to offer creators and producers the expected (required) present value of creating and producing that essential and otherwise prohibitively expensive first copy, much more would be created and produced.

Once the economic rent portion of IP protection is sliced out of the equation with some method necessary to overcome the inherent market failure associated with the creation and production component of IP, suddenly competition and efficiency (for all second copies and beyond) can be introduced for IP the same way it can for physical property.

Of course that's the problem isn't it. Can't have competition and efficiency can we. After all, it destroys all those inalienable rights of freedom and property granted in the Constitution.
The small changes could make a difference
written by Jennifer, June 25, 2013 9:33
So appreciate this post, and your work on this topic in general. It is really an amazing media accomplishment-the same media that can't get budget numbers or math right-- that the general public is so sure that we "have" to have patents and copyright laws in their current form. As you point out, patents and copyrights are relatively recent phenomena, much innovation occurred before them, and would if they were gone. While I would advocate radical reform even small changes here and there could be helpful. Specifically we could make the bar for a patent, especially in software/tech areas much higher and simply limit the length of copyright. Most importantly the government could choose to exercise discretion in what or how copyright/patent cases were tried in court. Just imagine if the government treated such cases the way they treated labor law violations.
What would Shakespear have done...
written by nassim sabba, June 25, 2013 9:58
Without copyrights, we would not have had his works... his creativity would have been stifled from fear of people reproducing his work...
Ooops, wrong example. Sorry. He was just plain uniformed and produced his work with no protection what so ever. Yes, I can see how awful the world would be without such protection.
And the millions of lines of poetry in various cultures... The bloom pressure gauge...
On the other hand, where would the computer industry be without patents and copyrights?
Probably only about a century ahead of where it is now. Gates and Jobs used their companies to actually stifle brilliant but less powerful competitors and snuff any challenge to their methods, even if the challenge would have been publicly more beneficial to the society outside their publicly granted monopoly armories.
...
written by skeptonomist, June 25, 2013 10:07
Central planning has always been used at times and for certain things. We don't rely on private enterprise to find the best way to resist a foreign invasion, or even to fight fires. When patents were set up in the Constitution, governments themselves were small and not able to mount many kinds of enterprise, except in war when typically huge debts were run up (and still are). Thus private enterprise had to be fostered by patents and also by granting rights to corporations, which at that time were allowed only for specific things with an obvious national or local benefit and were not the default for "free market" companies. Now government enterprises, especially research, are much more important.

Anyway when there is an emergency or a major societal need the government has to step in and direct enterprise - it has always been thus. Dean makes good arguments that drug research and maybe production, at least for disease fighting, would be better handled by governments. The NIH and other government health research agencies use central planning. There is no guarantee that private enterprise will be able to find a replacement for fossil fuels and successfully integrate it into society, whatever the tax penalties or patent incentives. This may require direct government investment, as for fighting wars and as in development of nuclear weapons and power. Patent and copyright laws need reform, but there is no reason to think that they will allow private enterprise to fill all society's needs.
Archon
written by bill n, June 25, 2013 11:14
This is a great blog post. Thank you.
The public benefit of patents...the externality
written by pete, June 25, 2013 11:15
The cost of applying for a patent is revealing to the world the extent of the invention. This is a huge tradeoff. In other words, I must reveal to the world my invention, everybody can see how it works, and use that invention and knowledge to pursue their own ideas. In compensation for my revelation, I get a brief period of monopoly. Otherwise, if I was worried about copycatters, I would keep my invention a secret, to the extent possible. This would somewhat reduce the general level of knowledge in society. That is the trade off that is addressed by the patent system...I'll show you mine if you show me yours.
re: government funded research...
written by david helveticka, June 25, 2013 12:52
A lot of patents---especially medical patents--- were discovered because the government funded grants and contracts for specific purposes. These patents should be public domain, especially if they are abused as in the case of many prescription drugs.
Don't confuse commercialization with innovation...
written by david helveticka, June 25, 2013 1:20
The private sector is very good at commercializing an innovation, but bad at actually funding basic research and development. Wall Street wants a payback in 5 years...

Much of so-called "innovation" in technology comes from the public sector, defense contracts, NASA, NIH....We shouldn't confuse commercialization with innovation..while private enterprise should be allowed to reap rewards from their efforts at commercialization of a public sector innovation, merely commercializing an existing technology is not the same as if the commercialization was "private property".

Biggest example is the government funding research into the human gene pool...then some company demands a patent on human dna? What's wrong with this system?
Keeping an idea secret rather than filing for a patent may not be too viable now
written by John Wright, June 25, 2013 3:58
One commenter suggested that someone pursuing a patent could elect to keep it a trade secret.

I believe the trade secret route (see Coca Cola) is the first and best choice for an inventor.

So innovative products that can be maintained as trade secrets are done this way today.

An inventor goes the the patent route BECAUSE the trade secret option is frequently not viable as today's analysis equipment is so capable at reverse engineering new products.

So changing the patent laws to weaken them will not encourage inventors to hide new inventions as trade secrets, they are already doing this if at all practical.

Mostly agree with Dean
written by Floccina, June 25, 2013 5:24
Mostly agree with Dean but a downside I can think of would be the things that people would do to hide what is today IP.

I think that the internet could be used to help solve some software copying problems. Trade groups could fund industry specific software. I think that today the software industry could do OK absent copyright.

One problem with patent is that it bars independent discovery of a patented idea. If two companies independently make a discovery days apart the first get the patent and the second gets nothing.
I think it would net out positive if we had no patent or copyright laws but I do have serious doubts, in other words I understand that I could be very wrong. That argues for moving slowly to weaken.
ditto
written by squeezed turnip, June 25, 2013 6:17
Patents are to independent inventors what superstores are to mom & pop shops.
I'm confused
written by Kat, June 25, 2013 6:18
There's no talk of central planning here at Uncle Joe's Blog
http://unclejoed.wordpress.com/
...
written by watermelonpunch, June 25, 2013 10:10
... I thought I should add some clarification on the treatment of patents and copyrights. First off, my main point is that these are government policies designed to meet a public purpose (i.e. promoting innovation and creative work), not natural rights that are an end in themselves.


Are we sure all Americans know this, and agree upon this?
Because I get the impression that some people see patents as sort of a way to say "this is owned" under the law. Kind of like a deed to a house.
I can't help but think it goes along with a serious jealous obsessive occupation with one's stuff & collection of things.

I'd really find interesting a study that tracked across nations, patent laws in relation to people with hoarding problems.
Ebay is a government created monopoly
written by Kenneth Almquist, June 25, 2013 10:11
In addition to patents and copyrights, there's also the "trespass to chattels," a legal concept I only stumbled across a couple of days ago.

EBay gets almost all auction traffic, because other auction sites don't have enough buyers and sellers to make them attractive. In other words, it's a natural monopoly.

The thing is that this isn't a natural consequence of internet technology. The advantages of size to an auction site would be much less if there were auction aggregators, which would allow someone searching for an item to list all of the auctions for that item. The reason we don't have auction aggregators is the law, not the technology. See the Wikipedia article on EBay v. Bidder's Edge.
Intellectual property
written by GA, June 26, 2013 1:34
It's really rather remarkable that so many have bought into the concept of 'intellectual property', thereby equating it (mentally) with other property rights. From an economic perspective, of course, intellectual property does not have rivalry or exclusivity - my enjoying my copy of Lady Chatterly does not deprive anyone else enjoying their copy. Likewise, me paying the author for my copy does not prevent the author from selling a copy to someone else.

And historically, the concept of intellectual property is not coincident with patents or copyright, entering common usage much, much later - in the US, arguably not until late in the 20th century.

All this to say, intellectual property is different from 'regular' property, and the use of the term equates the two in a way that is not justifiable. One could argue that the term intellectual property is itself just propaganda - an attempt to equate the two in a way that biases the discussion in favour of those who benefit from these government-created temporary monopolies.
Let's find out
written by crosspalms, June 26, 2013 3:08
There once was a Potter named Harry
Whose copyright power was scary.
He flew over the pond
To waggle his wand
And today gay people can marry.
The sun will still rise regardless of what the roosters would have us believe! (cont'd)
written by Perplexed, June 26, 2013 4:40
While many of the comments on your earlier post refer to what the "Founders'" intentions were, what the "Founders" actually wrote was: "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" It sure seems pretty clear from that language that the objective was "To promote the Progress of Science and useful Arts..." It doesn't appear from these words that their intention was to transfer enormous amounts of money from everyone else to those who could perfect the "art" of extracting monopoly profits and retaliating, with the full power and resources of the government, against anyone who attempts to interfere with those profits. It also says specifically that these "exclusive rights" were to be made only to "authors and inventors." Just how is a "corporation" or other organization allowed to insist that these rights be "turned over" to them if the actual "author or inventor" is an employee of that corporation or other organization? It seems that a "strict" interpretation of what was was actually written would insist that "only" an "author" or "inventor" would be entitled to any "exclusive rights." Nothing written here suggests that these "rights" are "marketable" and can be "sold" to anyone who is not the "author" or "inventor" without violating this provision. Are monopoly profits that find their way into the pockets of corporate managers, stockholders, directors, and political campaigns really constitutional under this provision? It stretches what was actually written into something quite different than the original text, and serves quite different objectives than those originally stated.

As it turns out, the paradigm that patent monopolies are doing more to "promote the Progress of Science and useful Arts..." than they are to impede this progress is coming apart at the seems if one cares to examine the actual evidence: http://pubs.aeaweb.org/doi/pdf...jep.27.1.3

You mention the "importance" of these issues multiple times just in this post. If they are so "important" why aren't they measured? Where's the "arithmetic?" What are the current and historical statistics on rents/GDP? How much are "We the People" shelling out (and what's the growth rate) in support of this religion and what can "We the People" no longer "afford" because the money "must" be used, off budget, unaccounted for, to pay for these monopolies? Are these undisclosed gift more important than education? Health care? Safety net protections for those who may be victims of the inequality these gifts themselves perpetuate and exacerbate? Why do economists "participate" in this concealment without objection? Is it beyond our "mathematical capabilities" to estimate?

There's another "theory" out there that the intentions of the "Founders" was to provide a benefit to the "citizens of the republic" by allowing limited patent monopolies, if, and only if, "the peoples'" representatives thought that end could be achieved by so doing. Their emphasis was on providing benefits to "We the People," not having "We the People" provide enormous government granted gifts to "We the Plutocrats." It appears they never fully anticipated the risks that this Constitutional clause, combined with the right lawyers (Bill Gates's real, and possibly only "innovation") and idea (propaganda) marketers, could and would be used to protect the rents of a small group of enormously wealthy plutocrats and enable them to insulate themselves from competitive capitalism and undermine the democracy itself. We (at least some of the "we") know better now; but altering the course we're on may be much more difficult than "we the people" ever imagined: www.rootstrikers.org/ted_promo?splash=1&splash=1
...
written by Perplexed, June 26, 2013 5:27
Thanks for providing some clarification on the "Constitutional" basis for patent monopolies. That the idea that patents are an integral part of "free market capitalism" (another myth itself) is largely the product of propaganda by its beneficiaries needs to exposed for what it is.

It was suggested by a commenter on your earlier post that "This idea has a rather long and distinguished pedigree." As if somehow a "long and distinguished pedigree" of an idea somehow enhances its believability or factual foundations. Implying that somehow the "truth" of something somehow increases with repetition and acceptance over time. It seems to me that history is replete with examples of ideas with "long and distinguished pedigrees" being added to the junk heap of ideas as science progresses. Others that have studied innovation have observed that the process of innovation itself is often marked by the examination and refutation of the assumptions underlying these ideas that, while they seemed plausible at the time, fell far short of explaining what was really going on. "In 1962, Thomas Kuhn wrote The Structure of Scientific Revolution, and fathered, defined and popularized the concept of 'paradigm shift' (p.10). Kuhn argues that scientific advancement is not evolutionary, but rather is a 'series of peaceful interludes punctuated by intellectually violent revolutions', and in those revolutions 'one conceptual world view is replaced by another'.

Think of a Paradigm Shift as a change from one way of thinking to another. It's a revolution, a transformation, a sort of metamorphosis. It just does not happen, but rather it is driven by agents of change." See:http://www.taketheleap.com/define.html

We need to apply these same principles to our understanding of the role of "permitted monopolies" to make any progress on this issue. Innovation itself is often marked by the death of old "pedigreed" ideas that prevent us from seeing what's really happening. Innovation has occurred throughout history without patent monopolies and many, perhaps most, of our most impactful innovations were never protected or influenced by governments granting monopolies (e.g. Norman Borlaug & Jonas Salk for two of the most extreme examples). The sun will still "rise" in the morning regardless of whether the roosters crow just before dawn or not. Just because they have convinced themselves and a few horny hens that they are the ones causing it to happen doesn't mean the rest of us have to go along with the ruse and let them "have their way" with us too.

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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