Intellectual property: Extract from Economics in Two Lessons (expanded and amended)

by John Quiggin on May 25, 2016

Another draft extract from my book-in-progress, Economics in Two Lessons. It’s the last part of the section on “predistribution”, dealing with Intellectual Property. Next up, “redistribution” through taxation and public expenditure.

As always, encouragement is welcome, constructive criticism even more so.

The system of property rights in market societies is based primarily on private property rights, that is, the exclusive allocation of control over some asset to a single person (or, in modern forms of capitalism to a corporate entity). The concept of ‘private goods’ in economics refers to goods that are rival and excludable in consumption. There obvious similarity between these concepts, which often leads to the assumption that the two are identical

In reality, the are crucial differences. The economic concept of private goods relates to the technological properties of the good in question. Private property is a right created and ultimately enforced by law, which may be applied, or not, to almost anything, whether or not it corresponds to the economic idea of a private good.[1]

In particular, public goods (in the economic sense) may be the subject of private property rights. The most important example is that of ‘intellectual property’, that is, rights to control the use of information, such as copyrights, patents and trade marks. Enforcement of such rights typically involves the imposition, after the fact, or penalties for reproducing information without the consent of the owner of the rights.

More than any other kind of property, intellectual property rights such as patents are obviously creations of the states that define and enforce them. Patents were originally monopolies over common goods such as playing cards, used by the Tudor and Stuart monarchs in England to reward favorites or sold off to raise money to fund wars and other expenditure.

The creation of intellectual property rights provides an incentive to generate new ideas, or at least ideas that are sufficiently distinctive in their formulation to attract intellectual property protection. But the enforcement of these rights means that use of the ideas in question is restricted, even though, since ideas are non-rival, there is a social benefit to unrestricted use. Economists have examined the trade off between the costs and benefits of intellectual property protection and have concluded, in general, that the costs of strong forms of intellectual property protection outweigh the benefits.

By the time the US Constitution was drawn up in the 18th century, patents and copyrights were recognised as a way to encourage innovation, as were the dangers of excessive restrictions on the flow of information. The powers of Congress included (emphasis added)

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 first Copyright Act passed in 1790, granted authors the exclusive right to publish and vend “maps, charts and books” for a term of 14 years. This 14-year term was renewable for one additional 14-year term, if the author was alive at the end of the first time. Similarly, inventors could patent their ideas for 14 years.

The terms of copyrights and patents were extended moderately over the subsequent two centuries. Since the resurgence of market liberalism in the 1970s, however, both the duration and the scope of what now became known as ‘intellectual property’ have expanded massively.

Just about anything, from colours to chromosomes has now been made the subject of intellectual property. In 2010, Apple Computer even attempted to claim a trademark the letter ‘i’ but an Australian court rejected the claim.

The duration of copyright was extended to the life of the author plus 50 years in 1976, and to life plus 70 years by the Sonny Bono Copyright Term Extension Act of 1998, with corporate owners of ‘work for hire’ getting a further 25 years. The passage of the Act was due in part to pressure from the European Union, which has generally supported strong versions of IP [2], and in part to the efforts of the Disney Corporation, whose copyrights on cartoon characters such as Mickey Mouse and Winnie the Pooh were in danger of expiry (leading to the derisive label of the Mickey Mouse Protection Act,

The claims of IP have also been used to suppress public debate and support secrecy about wrongdoing by governments and corporations. The Church of Scientology is particularly notorious for its use of copyright claims to silence critics. Less spectacular, but almost certainly more damaging is the development of the doctrine of ‘commercial in confidence’ intellectual property. This doctrine is used, in particular to suppress information about dealings between corporations and governments, providing a convenient cloak for misrepresentation and corruption.

The expansion of patents is equally problematic. The barriers to claiming a patent have been steadily lowered, and the scope of patents expanded. Among the most problematic results have been the patenting of obvious and well-known ideas in computer programming and the development of ‘business method’ patents. The two coincided during the ‘dotcom’ boom of the 1990s, when just about any business transaction, from corporate procurement to selling dogfood, could be patented with the simple addition of the words ‘on the Internet’.

Paradoxically, this expansion of intellectual property rights has happened at the same time as the explosive developments in information and communications technology. Ideas, in the form of text, audiovisual material, open source software and the designs required to make physical products can now be shared globally on a massive scale and at almost no cost.

The result is a mess. On the one hand, intellectual property rights are routinely violated, on a massive scale, by just about everybody. On the other hand, the combination of massive scope and haphazard enforcement creates a minefield for anyone in a position to be sued. A snatch of an old song playing in the background of a movie or a few lines of recycled computer code can open up scope for costly litigation, with the result that it is usually easier to pay up than to fight.

“Patent trolls” make a profitable living in this fashion. And despite the name, these trolls include major corporations. Warner Brothers made millions suing anyone who had the temerity to perform the song “Happy Birthday to You” in public, even though the song had been in the public domain for at least a century. (The tune, with different lyrics, dates back to 1893. The words we sing evolved over time, through what is sometimes called the ‘folk process’)

Economic studies of patents and copyright have reached the similar conclusion that the damage caused by IP enforcement exceeds the benefits in terms of innovation. Is there a good survey on this?

The Copyright Term Extension Act of 1998 provoked an extraordinary response from the economics profession, spanning the gamut from free market advocates like Milton Friedman to interventionists like Akerlog. These and others (including a total of five winners of the Economics Nobel) joined an amicus brief to the US Supreme Court in a case challenging the constitutionality of the Act, a challenge which unfortunately failed.

The conversion of ideas into IP has had even more corrosive implications, by providing one of the key vehicles for global corporate tax avoidance. The basic method is simple: ideas developed or bought by corporations based in the US and other large countries are turned into the IP of a subsidiary located in a tax haven which specialises in concessional treatment of such property. Ireland, for example, charges only 6.25 per cent on income from IP. Companies then pay themselves (or rather their Irish subsidiaries) large amounts for the right to use their own ideas. This payment reduces their profits at home, while the Irish subsidiary pays almost no tax.

The basic method was, until recently, improved by using a second Irish company located in a Caribbean tax haven (the ‘double Irish’) and then rerouting the profits through the Netherlands (the ‘Dutch sandwich’) thereby eliminating tax altogether.

The problems of international tax avoidance and evasion are complex and the effort to curb such avoidance will take many years to succeed, if indeed it does. But reversing the shift towards stronger and stronger IP would be an important step in the process, as well as being beneficial in itself.

What could take the place of strong IP? In many cases, no replacement is needed. No social purpose is served by restricting publication of the works of long-dead authors, who could not possibly have anticipated this outcome when they wrote. Even looking forward, it’s absurd to suppose that I (or any author writing today) am writing in the hope of providing an income for my unborn great-grandchildren.

Similarly, most of the new categories of patents that have exploded in recent decades (business methods, adaptations of standard ideas to the Internet and so on) are positively undesirable. If a new patent required a positive demonstration that the alleged invention was in fact novel, non-obvious and socially beneficial most of these patents would disappear, along with the ‘patent trolls’ who exploit them to blackmail genuine innovators.

In some cases, such as pharmaceuticals, it is necessary to reward the private corporations that produce new medicines. Around 15 per cent of the total revenue of pharmaceutical companies is allocated to research and development, a figure matched only by the information technology and communications sector.

But nearly all of the money these corporations receive from patent-protected medicines comes, directly or indirectly, from governments. In the United States, and other developed countries, governments contribute to the pharmaceutical industry through support for basic research. Much more important, however, are payments through Medicaid and Medicare, which have greatly expanded as a result of Medicare Part D, introduced under the Bush Administration. In addition, the US government subsidises health insurance for most of the population through tax benefits for employer-provided health insurance and through the Affordable Care Act (Obamacare). A substantial part of this subsidy flows through to support the purchase of prescription drugs.

Unlike other governments, the US government does not bargain with pharmaceutical companies over the price of medications (Medicare is explicitly banned from doing so). Rather, companies set their own prices in bargains with private insurers. Unsurprisingly US pharmaceutical prices are around 50 per cent higher than those in other developed countries.[3]

Advocates for the pharmaceutical industry claim that this system enables funding for research and development, and that other countries are effectively being subsidised by the United States. There is some truth in this claim, but the higher prices in the US owe at least as much to marketing efforts and to the ability of pharmaceutical companies to secure monopoly profits thanks to the protection of intellectual property.

It would be far better for the US to follow the example of other countries and negotiate directly with pharmaceutical companies through mechanisms like the Australian Pharmaceutical Benefits Scheme. Companies with a new medication (or even a prospective new medication) could negotiate for an agreed rate of payment and a period after which generic alternatives would be allowed. Ideally, the current exemptions for poor countries would be expanded to allow immediate access to lifesaving treatments at or near the cost of production.

There would certainly be difficulties in sharing the global costs of such an arrangement between the US, EU and other national governments, replacing the current effective US subsidy. But these would be minor compared to that amounts currently wasted through the IP system.

Finally, and most importantly, governments could do more to support contributions to the public domain. Historically, the most important form of government support has been the funding of (mainly university) research through bodies like the National Science Foundation. However, the public good motivation for funding research sits uneasily with continuing pressure to ‘commercialise’ research through patents and other forms of intellectual property.

The emergence of the Internet creates a vast range of possibilities for expansion of the public domain. While much of this will take place spontaneously, governments could help in many ways. First, and most importantly, ‘fair use’ exemptions from …

A more active form of support would be the provision of grants to assist creative projects, ranging from cultural work to open source software that make their outcomes available through the public domain or through variants like the Creative Commons licensing. Repositories such as Github (for open source software) would be an obvious model. While it would be undesirable for governments to seek to control the outcomes of such projects, this is an area where relatively modest financial support could yield substantial social benefits.

As far as intellectual property rights were concerned, the drafters of the US Constitution2 understood the Two Lessons better than their successors two hundred years later[4]. Property rights are social constructions, with both benefits and opportunity costs. Markets cannot determine the appropriate balance between the two because they only permit trade in property rights that have already been created. So, the determination of property rights is a crucial aspect of predistribution.

——1 For example in Britain, army officers could buy and sell their commissions, a practice which continued until 1871 https://en.wikipedia.org/wiki/Purchase_of_commissions_in_the_British_Army

[2] Anecdotally, one of the forces pushing for protection was the Bavarian government, which held the copyright over Hitler’s Mein Kampf and had prohibited publication. While we might sympathise with the desire to suppress this evil book, the case indicates the way in which copyright limits the flow of ideas of all kinds

3. The absence of direct bargaining contributes substantially to this outcome, but it is not the only causal factor here. The quasi-private system prevailing in the United States produces higher costs in almost all areas of health care.
2 Of course, in other respects, most importantly the implicit acceptance of slavery, the Constitution’s treatment of property rights was appalling.

{ 54 comments }

1

Sebastian H 05.25.16 at 4:06 am

“In some cases, such as pharmaceuticals, it is necessary to reward the private corporations that produce new medicines. But nearly all of the money these corporations receive from patent-protected medicines comes, directly or indirectly, from governments. It would be far better for governments to pay directly for the development of new medicines through mechanisms like the Australian Pharmaceutical Benefits Scheme. There would certainly be difficulties in sharing the global costs of such an arrangement between the US, EU and other national governments. But these would be minor compared to the amounts currently wasted through the IP system.”

I think you have an excellent point throughout this section, but are likely wrong about this. No government system has come even close to being as good for pharmaceutical and medical discovery as access to the US drug market. I wish that weren’t true, but it seems to be. Even discoveries ‘in’ other countries are very largely funded by that market. If there were a government system more broadly successful, or even as broadly successful, I would agree with you. I wish the EU would make such a system because the silliness of the US market is subsidizing a huge part of medical research worldwide and we are paying for it through the nose. But there isn’t anything even close. Before we throw it away I’d like to see a very successful alternative play out.

But on some level that is a quibble, because there are hundreds of areas where the IP system is demonstrably strangling innovation, and where replacing it with nothing or almost nothing would be an improvement. The pharmaceutical case isn’t obviously one of those and I wonder if you aren’t inviting a huge distraction to your mostly correct argument by dealing with it in such a breezy way.

2

John Quiggin 05.25.16 at 4:28 am

Thanks, I meant to go back and tighten up that point, but it slipped my mind. The crucial data point is that the pharmaceutical industry spends almost twice as much on US marketing as it does on R&D.

Depending on how you calculate markups, that would explain a fair bit of the difference between US and EU prices (US is about 50 per cent higher).

3

Peter T 05.25.16 at 4:40 am

US NIH spending on medical R&D – $32.2 bn. Total US private pharmaceutical spending on R&D $31.5 bn. I don’t know if testing is included in R&D. My impression is that cutting-edge research and advances in critical public health areas is almost all NIH.

4

Sebastian H 05.25.16 at 6:03 am

Anyone who wants to know more about the topic should read Derek Lowe’s In the Pipeline. He is great for explaining why pharma is often terrible, but also why what it does is not remotely the same as what the NIH does. (Thumbnail, taking things from basic discovery to useful in humans is very hard and rarely done by public research). See for example his article on Drugs Purely from Academia.

John, I can’t find the specific discussion of that paper on In the Pipeline since they moved from their old Corante site and all my links are screwed up, but by memory there were a lot of problems:

1. They don’t properly address the most important feature of private research in the past 30 years or so–small pharmaceutical companies and start-ups which hope to eventually get bought out by the big companies. This doesn’t get expensed as “R&D” on a balance sheet, but for analyzing how the field operates it is clearly very important. The joke is that you can know dozens of PhDs who will work their whole lives at small pharma and never touch a product that goes to market for every one PhD that does. That’s expensive. That’s research.

2. They technically compare ‘promotion’ which includes all sorts of marketing plus the value of the write down of drugs given to people who can’t afford it. That kind of ‘promotion’ can be a huge portion of the total, which makes sense on a marginal cost perspective if you can get insurance to pay for even a small part.

3. Compared to what? A vast majority of companies that do anything have what was classified as ‘promotion’ as their biggest or one of their biggest line items. As I mention in 1) the cited study doesn’t capture field-wide ‘research’ very well for the analysis you’re trying to do. But even given their definition, they estimate 13% of revenue goes to R&D. I was trying to look up what a car company spends (as something with a similar though less deep-intensive research cycle and came across this listing the top researching companies in the world.

Volkswagen 5.2%
Samsung 6.4%
Intel 20.1%
Microsoft 13.4%
Roche 19%
Novartis 16.8%
Toyota 3.5%
Johnson & Johnson 11.5%
Google 13.2%
Merck 17%

Now this is weighted to large size, so there may be some small companies that do more, but the key here is that the auto companies that I was trying to compare with spend much less on R&D than I would have expected. The only major company which spends more is Intel, and the industry is spending as much as Google. Again, that is balance sheet allocations to R&D, so in most cases won’t count acquisitions of small pharma.

5

Brett 05.25.16 at 6:04 am

But nearly all of the money these corporations receive from patent-protected medicines comes, directly or indirectly, from governments.

“Indirectly” at best, and that’s assuming that the government did the basic research and maybe found some targets for further research. The vast majority of the research and testing is done by private firms. I’m wary of eliminating that, although I’d be amenable to allowing for the subsidization of those expensive clinical trial rounds in exchange for reducing the patent period time.

Even looking forward, it’s absurd to suppose that I (or any author writing today) am writing in the hope of providing an income for my unborn great-grandchildren.

This. Capping the total copyright period to 75 years would not only let someone realistically enjoy the fruits of said copyright, but would also provide for their children and grand-children in case they died early in the copyright period. I’m extremely skeptical that we’d need a longer period than that for incentive purposes.

6

Brett 05.25.16 at 6:10 am

Sebastian beat me to this-

The crucial data point is that the pharmaceutical industry spends almost twice as much on US marketing as it does on R&D.

That’s not really useful. What’s more useful is something that Derek Lowe (the guy referenced above) spoke of, which is that Pharma has the second highest percentage of spending on R&D out of all industries. They’re only behind the semiconductor industry.

Also, “vast majority of spending” might be too strong on my part, although “majority” isn’t. Here’s a breakdown from Lowe on medical research spending in the US over time by source.

7

Sebastian H 05.25.16 at 6:10 am

Brett, I think it would be a fair reading of John’s argument that government payments for medicine counts as one of the indirect methods that he is talking about. If he just means that the NIH did the important stuff he’s wrong. But if he means that government is paying for the research by doing a huge bulk of the buying of the drugs at the end, he’s right.

The problem is that the government (as a concept because there is no evidence of any non-US government doing better at discovering medical advances) doesn’t really seem to do great at going from basic research to human-ready application on a regular basis. I would tend to think that a prize system *could* be better, but I wish some big entity like the EU, or even just Germany or France would actually demonstrate that. They haven’t, which makes me very skeptical.

8

Sebastian H 05.25.16 at 6:15 am

And ack, I really didn’t mean to turn this into the pharmaceutical company thread. So at least for tonight I’ll lay of the subject.

John I think this is a VERY good section overall, but that the pharma industry really might be one of the outlying cases that is different. Patent trolling really is a horrible thing (even worse when done by Apple or Microsoft). Copyright really doesn’t need to be forever.

9

Brett Dunbar 05.25.16 at 6:51 am

This excerpt is extremely US centric in an area on international law where the US has basically lost the argument. The US amended copyright law in order to comply with the Berne convention as virtually every other country has done so. The Berne convention requires a minimum of life+50 and forbids requiring registration. The US eventually conceded that having a basically uniform world wide system made author’s life a lot easier.

Registration requirements are especially burdensome there are roughly 200 independent states so requiring an author to individually register copyright is every one would be a major administrative burden on an independent author and always ran the risk of accidentally losing copyright due to either omitting an application or making an error. The Berne rule is pretty clear and simple, provided you know the year the author died you know when all of their works become public domain.

The US has mostly been astonishingly incompetent in making transitional arrangements. The obvious approach would have been either apply the new rules to all works created after the date the act came into force, to all works still in copyright on the date the act came into force or to all works even if the original copyright had expired.

The EU applied the extended terms to all works as the harmonisation was required in order to meet the EU non-discrimination rule and Germany absolutely refused to consider any reduction from life + 70. One important reason for the was that Bavaria owned the copyright on Mein Kampf and wished to keep it out of print. The copyright expired 1st January 2016 the end of then year including the 70th anniversary of Hitler’s death.

The oldest form of intellectual property is heraldry. Which like trademark is intended to protect a set of identifying marks.

10

John Quiggin 05.25.16 at 7:41 am

Brett Dunbar @9

The oldest form of intellectual property is heraldry. Which like trademark is intended to protect a set of identifying marks.

And, of course, to protect and reinforce a particular social order.

Thanks for the points about the EU – I wasn’t aware of the Mein Kampf angle.

11

Gareth Wilson 05.25.16 at 8:43 am

I suppose it would be possible to have a National Drug Development Organisation, using public money to take drugs all the way from targets to clinical trials. But that’s not remotely the situation at the moment, and I don’t see how they would perform any better at drug development than drug companies. There are some hideous problems in drug development, but very few of them come from the developers being for-profit companies. You’d also need about a trillion dollars in public money to get things going, but hey.

12

Tim Worstall 05.25.16 at 8:58 am

“Since the resurgence of market liberalism in the 1970s, however, both the duration and the scope of what now became known as ‘intellectual property’ have expanded massively.”

A possibly unnecessary aside. Yes, the two coincide but the implication reads as “because”. Which ain’t really so. As your point about Friedman says.

“and to life plus 70 years by the Sonny Bono Copyright Term Extension Act of 1998”

Entirely true but that really is a result of globalisation. Much more cross border trade etc, OK, so whatever the standard is should probably be a global standard. The EU faced this and moved copyright up to the extant German standard. The US then moved to the EU standard.

Yes, obviously too long but it’s more than just and only the copyright holders creating a rent. That move to a global norm did mean that someone’s norm had to be what was moved to.

“It would be far better for governments to pay directly for the development of new medicines through mechanisms like the Australian Pharmaceutical Benefits Scheme.”

A lot more work needs to be done on the proof of that “far better”. We’ve really not got much evidence that government planning produces more innovation than markets do. As Baumol points out, that planned state system can indeed invent things, innovate not so much.

13

reason 05.25.16 at 9:55 am

Sebastian H.
“I think you have an excellent point throughout this section, but are likely wrong about this. No government system has come even close to being as good for pharmaceutical and medical discovery as access to the US drug market. I wish that weren’t true, but it seems to be. Even discoveries ‘in’ other countries are very largely funded by that market. If there were a government system more broadly successful, or even as broadly successful, I would agree with you. I wish the EU would make such a system because the silliness of the US market is subsidizing a huge part of medical research worldwide and we are paying for it through the nose. But there isn’t anything even close. Before we throw it away I’d like to see a very successful alternative play out. “

Can you really document this? And what exactly do you mean here by “discovery”?

14

reason 05.25.16 at 10:14 am

Tim Worstall
I don’t think “government” (and what do you actually mean by that word) and “markets” constitute a complete list of the possibilities.

15

reason 05.25.16 at 10:19 am

Tim Worstall,
I do think you are right by that globalisation is a significant factor. Arguably, making IP more international should have resulted in shorter not longer terms since the rights would be more valuable. But I see general issues in rampant internationalisation of property rights laws (TTIP et al). It makes regulatory innovation almost impossible.

16

Peter T 05.25.16 at 10:26 am

“As Baumol points out, that planned state system can indeed invent things, innovate not so much.”

I don’t know what the evidence base for this is, apart from broad hand-waving about the Soviet Union (which was in any case, in many fields, quite innovative). When, as a bureaucrat, I poked around the files, I was often astonished by the amount of creative innovation spawned by my predecessors. Here in Australia, the CSIRO and similar bodies were at the forefront of innovation in many fields for decades. Defence has been a reliable source of both invention and innovation for centuries (interchangeable parts, food preservation, standardisation, precision machining, propulsion reliability for both ships and aircraft, communications…). Part of it may be that looking at the US, which often disguises its public initiatives as private triumphs, distorts the picture.

17

BenK 05.25.16 at 11:01 am

A couple points; long term IP doesn’t matter because people look forward generations to future income per se, but because we have a system that presents current values for anticipated income via stock prices (for example), so, minus a discount and service charges, an author can put those long term rights to work – right now.

Second, you won’t find a more strident opponent of Sonny Bono, but I see government as a large part of the problem, not the solution. IP is a good example of how a two-legged stool between government and the market is inherently insufficient. However, your solutions are all ‘more government’ in essence. I’d like to hear some ideas about how families (which you would probably deride as feudalism) and non-governmental social organizations (to include, but not limited to, churches) could provide encouragement for the arts and sciences outside of the market and the state.

I think of one example – great-great-grandchildren proud of a family accomplishment in the distant past, memorialized in some way but not actively funded. Perhaps recognized in their social standing with other families, when it comes time for weddings,…

18

J-D 05.25.16 at 11:08 am

‘The oldest form of intellectual property is heraldry.’

In 1954 Manchester Council took legal action against a local theatre for its use of the city’s arms. The case was heard and decided in the High Court of Chivalry, which had not sat for over 200 years. It has not sat again since, but the 1954 case appears to establish that the law of heraldry is still enforceable.

19

Lee A. Arnold 05.25.16 at 11:16 am

You may want to add a brief coda on artificial intelligence, which promises to send the problems of IP into hypertrophic overdrive. (It isn’t clear that AI is capable of reproducing human brain processes, but it doesn’t have to. It produces results that are effectively indistinguishable from human brains. Increasingly so, and increasingly faster.) Soon, someone who holds a patent on an AI will be able to file patents on every other sort of marketable idea, at light speed, and own the world.

Here is a recent brief thought-piece on the threat to corporate labor, and this is only a little part of the coming problem:
http://techcrunch.com/2015/12/31/artificial-intelligence-poses-a-greater-risk-to-ip-than-humans-do/

20

derrida derider 05.25.16 at 12:14 pm

Brett@9 indeed gives an interesting take on how special interests managed to foist the utterly absurd copyright provisions on the world (though he is kind to the US Congress – let’s just say that, funded by Disney, they were not exactly reluctant to conform with the EU). He gives a good lawyer’s perspective on this, but it’s not an economist’s.

Because it does not at all change the point that John made – that Berne and the like are the creation of regulatory capture (in many countries, not just the US) and are doing really serious economic damage across the world.

21

Thomas Schmidt 05.25.16 at 1:10 pm

It should really be noted here that a lot of the issues John mentions are peculiar to, or at least more serious in, the US. Big upfront disclaimer: I’m a candidate patent attorney working outside of the US, so I deal with that system second-hand.

Generally; copyright terms in the US are longer than the rest of the world – although the generational increase in terms is an issue across the board. With regard to patents; computer programs/methods of doing business are not patentable outside of the US (with the exception of Australia and Japan). Patents are also a much more time-limited right than copyright, and attempts to artificially increase the effective term of protection (by, for instance, evergreening) have been resisted to a much larger extent than with copyright. Patent terms in the US are now also the same as the rest of the world (20 years from complete filing), and effectively shorter than they were previously.

My overall impression is that copyright terms keep getting more ludicrous because there aren’t deep-pocketed interests who stand to benefit from, say, selling off copies of Mickey Mouse films from the 1940s – the big boys can make and, more importantly, defend their own product. On the other hand, large corporations and governments have a very definite financial interest in making sure that drugs go off-patent at the correct time.

The result, paradoxically, is that the more necessary and/or utilitarian a given piece of IP is, the more limited the term of monopoly it will be granted. Witness copyright (over a hundred years) and trademarks (indefinite) versus patents and designs (10-15 years).

Finally, my opinion is that the biggest sin that IP has committed in the recent past has been to allow protection of computer programs (both as code and when running) under the rubric of copyright rather than patents or a de novo form of protection. This is because of the greater term of protection afforded to copyright, as well as the much lower requirements for protection when compared to patents and the like (originality versus novelty, inventiveness and utility). The result, along with a troubling expansion of the protection afforded by copyright in terms of similar products, is that computer programs can aqcuire relatively comprehensive protection for an obscenely long time so long as the organisation protecting them has the wherewithall to spend years in court.

This, in my view, constitutes a much greater danger to the public good (and economic efficiency) than slightly lower barriers/increased scope of patents (which I disagree about in any case, given the increasingly harmonised and increasingly strict US and international patent regime).

22

Mdc 05.25.16 at 1:35 pm

Maybe define/explain “rival” and “excludable” as soon as they are mentioned.

23

Clay Shirky 05.25.16 at 2:35 pm

24

Rich Puchalsky 05.25.16 at 2:49 pm

Lee: “Here is a recent brief thought-piece”

From said piece:
“It is undeniable that AI will rapidly replace human workers, will quickly self-evolve, cannot be taught or bound by morality and that the “AI of Things” is coming. “

Undeniable! That’s what I really like to see in a futurist: confident assertions that the future has to develop in only one, predictable way. I particularly like the combination of (paraphrased) “of course we all know that AI cannot be taught or bound by morality” and “leading minds are always working to enhance AI”.

This is a crank piece, but it illustrates exactly how TINA works so that alternatives are literally unthinkable. If I accepted the premises of this piece, I would say something like “So the best way to fix this would be to give up on intellectual property of this kind. Let machines create it all immensely quickly whenever it’s needed for something and we’ll do something else. Or, alternatively, once it’s no longer property let’s just decide not to build machines to do it because we’d rather that humans did it more slowly and shared it, and with no profit motive it’s unclear why someone would use AI to do it.” But instead the article goes into epicycles upon epicycles about how to save the existing system.

25

Quite Likely 05.25.16 at 3:30 pm

On the pharmaceutical subject, I’m surprised by the people saying it would be difficult to find a different/better way of producing innovation than the current system. Clearly the government has plenty of money to spend on research if needed. And once the research is done, it’s not like the government has to be the one to manufacture and market the drugs. That’s the whole point: it just needs to put its findings into the public domain and let the private sector take care of actually getting the results to people. The only difference is we’d essentially skip right to the end of pharmaceutical patents, with all drugs entering the market immediately as generics.

26

Brett Dunbar 05.25.16 at 4:14 pm

Copyright restricts your ability to create derived works. You are able to create original works inspired by the original work. You can’t write a sequel to The Chronicles of Narnia until 2034. Philip Pullman was still able to write His Dark Materials which was a response to and inspired by Narnia. He just couldn’t directly use Narnia.

Disney own a number of fairly old but still valuable IPs so they have a vested interest in retaining them. They may have had something to do with the peculiar treatment of work for hire in the US. It is common and gets 95 years from publication, in the EU is is much rarer and is treated like anonymous or pseudonymous works and gets 70 years from publication. To take a random example the Daleks belonged to Terry Nation, he produced them for the BBC but the copyright was his (he died in 1997 so the copyright expires Jan 1st 2068). The Berne rules are a lot more friendly to the individual creator as it is difficult to lose copyright unintentionally. The previous US rules mostly served to defraud foreigners e.g. the first US publication of The Lord of the Rings was made without paying Tolkien as the copyright had been accidentally lost.

However the main reason for the US agreeing the change to Berne is having basically uniform rules is beneficial and Berne had the support of most of the world. The US attempt to create a weaker alternative failed.

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Trader Joe 05.25.16 at 5:32 pm

Re: Pharma IP

I think it bears noting that pharma IP rarely involves simply “discovering a new drug” like there is some magical combination of elements out there that simply need to be stacked together the right way to do wonderous things.

Normally there are layers and layers of IP involved in a single tablet – everything from the process to synthesize the active ingredients to surrounding the actives with buffers so it is digestible and time releases properly. Beyond that there is then also IP related to mass production of said drug, packaging, color, shape, size of the tablet (or capsule or liquid or all of the above).

To infer that the government alone would provide a sufficient impetus for all of this development is false. They might be able to fund the original identification of the active ingredient (for example), but there would still be IP that went well beyond that in getting it to scale and distribution. One might say that once the basic research was done it could “all be generic” from there but very often the real innovation isn’t knowing how that a certain ingredient does a certain thing, but figuring out how to do that within a human, with a minimum of side-effects, fully tested and then distributed.

I wouldn’t say there’s no such thing, but I would say the IP protection provides a powerful incentive to try a lot of things, all funded by the capital markets, at a pace that wouldn’t be attempted if there was no IP.

I’d agree with the points on trademark and copyright.

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Lee A. Arnold 05.25.16 at 5:45 pm

Rich Puchalsky #23: “This is a crank piece, but it illustrates exactly how TINA works so that alternatives are literally unthinkable.”

This is absurd. There is clearly an alternative: Make sure that AI is not under intellectual protection; make sure that there is complete public access. And reduce patent lengths for all of the software that is currently protected.

There is however this:
https://arxiv.org/abs/1605.02817v1

29

Rogergathman 05.25.16 at 7:19 pm

The idea that the government auction patent use the money going to patentee is one alternative. Another is allowing competitors to manufacture patented products with some residual of earnings going to patentee is another. It is not obvious to me why monopoly is the best solution from any point of view.

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Bernard Yomtov 05.25.16 at 11:12 pm

Brett Dunbar @9

Registration requirements are especially burdensome there are roughly 200 independent states so requiring an author to individually register copyright is every one would be a major administrative burden on an independent author and always ran the risk of accidentally losing copyright due to either omitting an application or making an error.

I don’t understand why registration is so burdensome. Surely it’s easy enough to have a central registry that requires only one entry by the author. Or is that so non-obvious that I could get a patent?

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Bernard Yomtov 05.25.16 at 11:20 pm

Clay Shirky,

Thanks for the link. It may actually understate the problem.

In the kind of software business where sales involve direct negotiated contracts with customers buyers often demand indemnification against suits for patent violation stemming from the supplied software.

That doesn’t sound unreasonable, but one consequence is that such suits affect not only the immediate defendant but some of its suppliers as well, including smaller ones for whom defending such a suit would be a bankrupting event.

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Brett Dunbar 05.26.16 at 12:17 am

In practice that doesn’t work. Getting states to agree on some form of centralised administration is hard. Having an automatic system is highly decentralised and can be separately administered in each state. It certainly imposes a smaller burden on the author. Requiring registration seems to lack any useful purpose. It harms ignorant and naive authors who can lose copyright inadvertently which is why Berne forbids requiring any formalities to copyright as any formalities harm individuals.

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Brett Dunbar 05.26.16 at 12:23 am

You could set up ma copyright agency which would register the copyright in each individual country, this requires however that the author be aware they need t0 do this and would cost them a significant amount, simply due to it being a considerable amount of paperwork, simply maintaining a registry has an administrative cost. The Berne system costs the author nothing. Costs are only incurred if you take legal action against an infringer and there is no need to have a registry.

34

Mike Huben 05.26.16 at 12:34 am

The vast, vast majority of copyrighted IP has a tiny or no residual stream. My guess (with no data) would be that 95% of the sales and earnings come from the first 5 years. Why shouldn’t this IP enter the commons after 5 years?

Some exceptions might need to be made for IP with longer values, perhaps with taxes/fees for renewals after 5 years. Perhaps even mandatory auctioning of the IP by government to prevent giveaway of the value of IP and capture some of the value for social purposes.

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Brett Dunbar 05.26.16 at 1:37 am

That isn’t actually the case. While most books go out of print within five years, most sales are of books that remain in print after decades. The publishing industry depends on the books that stay in print for a long time for much of its income. Limiting the duration so severely would pretty much destroy publishing and make it extremely difficult for an author to do it full time. Most full time writers depend on the accumulated royalty stream from numerous in print books. Having a reasonably long period of exclusivity means that consumers are not incentivised to wait for the copyright to expire.

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Kurt Schuler 05.26.16 at 1:52 am

Generally accepted property rights can emerge without the state and even in opposition to it, as you are well aware from your master’s thesis and other work of many years ago for which you read Elinor Ostrom’s writings. A book from a few years ago, The Knockoff Economy, has examples of how that can happen even with intellectual property that is not recognized as such by the legal system. One such example is comedians’ jokes. Admittedly, property rights are strongest where law and custom run along the same path. Although your book is intended to be a popularization, it is important not to simplify so far as to give the impression that property rights are merely creations of the state.

37

Joshua Holmes 05.26.16 at 2:23 am

Some quibbles with the patent piece:

1. There has already been a strong reaction to poorly-written, overbroad software patents. In re Bilski, a 2010 Supreme Court case, fired the first shot, followed by Alice v. CLS Bank in 2014. As poorly as the Alice case was reasoned – it’s dreck – it essentially killed patenting an invention which was purely software. The US Patent Office and federal courts have been crushing software patents left and right, and the era of business methods and “do this on the Internet” patents is already over.

2. As an interesting quirk, the rise of software patents has less to do with forceful industry lobbying and more to do with the general incompetence of the courts and Congress to define how to treat software in patent law The case law is vague, contradictory, and scientifically ignorant, and Congress is too lazy, too broken, or both to address the issue.

3. The duration of patents hasn’t been massively extended. Before, patents ran 14 years from the dates they were granted. Today, they run from the date of grant until 20 years from the “earliest effective filing date”. Patent durations now run 12-17 years, depending on the length of the patent application process (patent “prosecution”) itself. Like the copyright law, this change was an attempt to harmonize US patent law with foreign patent law, specifically Europe.

4. “If a new patent required a positive demonstration that the alleged invention was in fact novel, non-obvious and socially beneficial…” is a bad idea, for two reasons. First, the standard for obviousness is that invention would be obvious to a “person having ordinary skill in the art” at the time the patent application is filed. In practice, any public knowledge in the relevant technical field – no matter how obscure, and not just previous patents – in any time or place ever can stop a patent application from proceeding to a patent. How is an inventor supposed to demonstrate upfront that the invention is not obvious, given the vast possibilities?

Second, it is not clear at all what should be considered “socially beneficial”. For example, the Haber-Bosch process enabled a massive boom in global agricultural productivity, which enabled a global population boom, which is wrecking the biosphere and endangering a global ecological collapse. Was the Haber-Bosch process a socially beneficial invention? I have no idea. Now put the question in an institutional setting: asking a patent examiner (a bureaucrat with a science or engineering degree) with limited time to evaluate the social beneficence arguments of a patent attorney (a lawyer with a science or engineering degree). Will you get anything`

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Joshua Holmes 05.26.16 at 2:23 am

Last sentence should be: Will you get anything but nonsense?

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derrida derider 05.26.16 at 2:27 am

Brett@34, there’s an income and a substitution effect here. If copyright on your latest blockbuster only lasts five years you may think it worthwhile to try and write another one in that time, rather than sit back and watch the royalties flow in for the rest of your life.
A better structure would be to have automatic copyright for (say) five years, but registration at the end of that period. Whatever the case sixty years ago, a central registry to allow people to easily determine whether the book is registered is technically very easy and politically/diplomatically almost as easy (you deal with Mein Kampf type hangups by simple grandfathering). That way all the out of print books eventually become available without much harming any author’s income (Google would make sure they’re no longer out of print electronically).

But books are a special case anyway as they are generally created by a single natural person, not a corporation employing a very large number of ‘authors’ for each piece. Mike@33 is dead right about movies – why not make them public domain after five years? After all, as Adam Smith (I think) noted “corporations have neither souls to be damned nor bodies to be punished so may do as they please”; the notion of justice for them is absurd so the focus should always be on their pragmatic effects.

40

Bernard Yomtov 05.26.16 at 3:03 am

Brett Dunbar,

Requiring registration seems to lack any useful purpose.

It allows those who may want to use copyrighted material to identify the holder and make reasonable arrangements, as well as letting them check to see if there is a copyright at all.

That’s a lot better than using it and hoping not to get sued, and it’s better for the holder than having someone not use the material to be safe.

41

John Quiggin 05.26.16 at 9:08 am

I’ve updated and amended the post in response to comments here and on my blog.

42

Gareth Wilson 05.26.16 at 9:48 am

Since you mention the Australian PBS, could you tell us which drugs have been invented in Australia?

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Brett Dunbar 05.26.16 at 3:30 pm

Five years is absurdly short. Works that actually make a profit tend to do so over a much longer period. The profit is front loaded but the continuing profit from long term sales is significant.

Bernard Yomtow @ 40

So nothing that makes up for the consider

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Brett Dunbar 05.26.16 at 4:07 pm

Five years is absurdly short. Works that actually make a profit tend to do so over a much longer period. The profit is front loaded but the continuing profit from long term sales is significant.

Bernard Yomtov @ 40

That doesn’t require a compulsory register of all works. The EU arrangements (Directive 2012/28/EU) for dealing with several types of orphan works this require a reasonably comprehensive search (using some existing voluntary registries) if this fails to find the copyright holder then the work is placed on the register of orphan works at which point it can be used safely.

45

Bernard Yomtov 05.26.16 at 6:06 pm

Brett Dunbar,

Well, good for the EU. I don’t think we have such a thing in the US.

Anyway, the EU system you describe sounds a lot like a central registry to me. OK, it’s voluntary, but from your description it sounds as if it’s necessary to register if you want to protect the copyright, and that by checking the registries the user is protected from a suit alleging violation.

Aside from there being several registries, hardly necessary, I don’t see the advantage of that scheme over the one suggested. Isn’t it easier to check one registry than many? And does having several registries to choose from make it significantly easier to register?

46

Brett Dunbar 05.26.16 at 7:17 pm

You’ve got it backwards, registration is of orphan works and is required to use them without permission. If you are one of a limited class of public bodies and after a diligent search cannot locate the copyright holder you can register the work as orphan, then you have protection if you provide access to0 them. It imposes no obligation on the copyright holder.

47

John Quiggin 05.26.16 at 8:40 pm

Kurt @34 Customary rights are property rights to the extent that they are recognised and enforced by the state, or, at a minimum, without any attempt by the state to stop enforcement. I’m going to need to add some material about moral rights, making the following points
(i) Where moral rights aren’t legally enforceable, they are a good example of the contradiction between rights that are generally recognised as legitimate and property rights enforceable by law
(ii) Where they are enforceable, they represent a constraint on property rights, not a new kind of property

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John Quiggin 05.26.16 at 8:47 pm

@42

Since you mention the Australian PBS, could you tell us which drugs have been invented in Australia?

Nice to be asked a straightforward question about my own country. The Commonwealth Serum Laboratories, established in 1916 and subsequently privatised as CSL, has made quite a few notable contributions, including working on human papilloma virus vaccine. The creator of the vaccine, Ian Frazer, is a colleague of mine at UQ and a former neighbor.

https://en.wikipedia.org/wiki/CSL_Limited

49

John Barker 05.27.16 at 5:34 am

Very informative, John, but one little point that I believe is in error- an error that I have seen many times before. It seems that you conflate, or use alternately, “intellectual property rights” and “intellectual property”.

Just as the title to a real Estate property is not the property itself, neither are intellectual property rights the intellectual property itself. With real estate, the title establishes certain rights under law to occupy, build on the property, refuse entrance etc.

Similarly, the intellectual property is the description of function (patents),writing, picture, music, etc, and the rights are the legal documents that refer to that property. In the case of copyright in Australia, the IP rights are automatically conferred by statute, so asserting those rights is like asserting any other civil legal rights, say, like fraud.

It’s kind odd semantic, but I think that it’s a point worth making.

50

pnee 05.29.16 at 1:04 am

In 2010, Apple Computer even attempted to claim a trademark the letter ‘i’ but an Australian court rejected the claim.

Such a glib oversimplification doesn’t serve your point well, here, in my opinion.

What Apple was asserting ownership of was the use of “i” as a prefix, not the letter itself, as in iMac, iPod, iTunes, etc. which is something no one was doing before they started to, and one can make a reasonable case that new coinages of such terms are an attempt to “cash in” on Apple’s reputation.

Whatever you think of the merits of this case, it’s a quirk of trademark law in particular that trademarks must be vigorously defended or they can be lost, as apparent infringement can be viewed by the courts as evidence that a trademark has become a generic term in the language, as famously happened with “aspirin” in many countries. Trademarks differ from copyright and patents in this respect.

Lastly, this is not a new outrage, as McDonald’s has been litigating uses of the “Mc” prefix around the world for decades with varying degrees of success. And that was a commonly used prefix long before fast food was invented.

51

James Wimberley 05.29.16 at 2:26 pm

I unsuccessfully proposed in 2009 a coinage: qatent is to patent as copyleft is to copyright. The term denotes the vast quantity of once patentable technical knowledge in the public domain. I also proposed that governments should set up Qatent Offices to register and safeguard it, including expired patents and published prior art.

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John Little 05.29.16 at 7:47 pm

I didn’t see a mention of this in the comments, so I feel it relevant to mention here a possible grammatical error:

“There obvious similarity between these concepts, which often leads to the assumption that the two are identical.”

What is the verb?

Also a small note from a very layperson:

Since I noticed discussion about the history of private property, I think it would be helpful to identify Chinese and Indian historical forms of this commodity. Perhaps the Persian, Latin and Greek dynasties could render even greater understanding of a concept that The Americas somehow missed entirely, at least the nomadic tribes of North America. I’m sure the Aztecs and Mayas and perhaps even the Incas had some form of “social” private poperty.

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ZM 05.30.16 at 10:28 am

I saw on Facebook today that Europe has announced all European scientific papers should be free by 2020

http://www.sciencealert.com/europe-announces-that-all-scientific-articles-should-be-freely-accessible-by-2020

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Chris Bertram 05.31.16 at 5:47 am

@John

Customary rights are property rights to the extent that they are recognised and enforced by the state, or, at a minimum, without any attempt by the state to stop enforcement.

This doesn’t seem to be quite right. Suppose we have a stateless society, but general mutual recognition of customary rights over things, we then have property don’t we?

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