Intellectual monopoly, a burden on the economy

The media coverage of the legal battle between Apple and Samsung shows that there’s growing debate on copyright and patent issues.

In the past decades copyright protection has become stronger and stronger and public authorities have agreed upon extending patentability to several sectors that were not protected from competition.

The development of a huge IP normative framework is commonly perceived as one of the main factors that enabled the great wave of innovation we’ve been experiencing since the late seventies.

Facts, anyway, speak differently: the third globalization era has been caused by the diffusion of computer technologies and the dramatic fall of transport costs. Every observer in good faith must admit that these two sectors have not been protected by IP laws until recently. The birth and early development of tech industry were built on free competition and the absence of copyright or patents.

The economic role of intellectual monopoly is widely misunderstood: it does not spur innovation and growth, it simply protects the first innovator preventing the others from copying him. As you can imagine, this is not exactly the right way to achieve economic growth and increase social wealth: a patent is a reward to the entrepreneur who obtains it but is an obstacle to further innovation since it stops incremental innovation, which accounts for a great part of total technological progress.

People usually conceive innovation as the result of the lonely work of a laboratory-living genius: that’s wrong. Nobody has ever discovered or invented anything without basing his research on some previous knowledge. James Watt’s machine wouldn’t have been created without Newcomen’s one. Apple developed the first commercial PC after a visit to Xerox labs. Apple and Linux OSs come from the Unix system.

When Watt patented his machine, thus obtaining the exclusive right of producing and selling it, he paralyzed the british steam-powered machine sector for the length of the monopoly. The industrial revolution came to continental Europe when some engineers from Belgium and Germany copied the british machines and brought the projects to their countries.

As economic theory suggests and historical experience shows, IP legislation does not promote innovation: then, what is its rationale?

IP laws exist to reward someone’s work and to make sure that he’ll be repaid for his efforts. But does he deserve to be repaid? Does he deserve to deliver a sure profit at the collectivity’s expense? How long should this exclusive right last?

It’s very hard to find a good answer to the first two questions: from a theoretical point of view the innovator should not get any privilege, but for practical reason a certain degree of protection can be provided, at least in some sectors.

The core question is the third one: what about the length of this monopoly? In most western countries copyright lasts until 70 years after the author’s death; a patented product is protected from competition for twenty years. Do you think this is consistent with nowadays’ economic environment? I do not.

I think that a 5 year-lasting copyright could at the same time offer reasonable protection to the innovator and avoid the negative effects of a long-lasting monopoly. Experience shows that, if an artist is a best seller, he will always sell many copies; if he’s not successful, his work will be practically disappeared 5 years after its publication. Furthermore, copyright laws have an unpleasant side-effect: the vanishing of old copyrighted works.

As for patents, the most efficient solution would probably consist in different durations depending on the sector involved. For instance, software and hardware patents establish a monopoly in a market that’s fundamental for the global economy: therefore it would be wise to put a term far shorter than the existing one, say, two or three years. Other industries would instead benefit from a longer term, in any case less than 10 years.

Finding the right mix is not an easy task; what we know for sure is that the current system is not working anymore and will cause great damage to the economy if it continues this way: what about changing it?


For more info:

Michele Boldrin and David K. Levine, Against intellectual monopoly, available for free here.

Christian Engstrom and Rick Falkwinge, The case for copyright reform, downloadable here

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