Not all "property" is equal

Against Intellectual Monopoly
by Michele Boldrin and David K Levine
(Imprint, 2008, 572 pages)

Intuitively, there seems to be nothing wrong with the argument for intellectual property.  Innovation improves living standards and a functioning IP system provides a mechanism by which innovators are rewarded with a form of protection for their ideas.

There is little point spending big for research if your competitors simply copy the innovation and reduce its price to the point where the innovator cannot make up the initial investment.

There has certainly been an explosion in IP extension around the world.  It is inevitable then that such a rapidly expanding regulatory framework should contain costs as well as benefits.  Against Intellectual Monopoly is a powerfully argued book by two distinguished economists on the unintended consequences of intellectual property.

Michele Boldrin and David K Levine argue that intellectual property should not be considered as a form of property rights.  Intellectual property seeks to protect copies of the property, not the property itself.  A world without patents doesn't prevent you from selling or using your idea, but it does prevent you from controlling what other people do with copies of your idea.  The idea itself is not "stolen", and hence, intellectual property is designed to provide the initial innovator with a monopoly over a good -- preventing new entrants from using it without paying the necessary license fee.

More controversially, Boldrin and Levine argue that it's the existence of this kind of legal monopoly that actually prevents innovation by blocking competition.  Particularly when innovation is made incrementally, patented goods make it too costly or even impossible for innovating entrepreneurs to improve upon existing patented ideas.  The emphasis here is on patents;  copyright is discussed by the authors but is not the focus of the book.  Trademarks are generally supported by Boldrin and Levine.  The disproportionate focus on the patent system weakens the holistic attack by the authors on intellectual property as a whole.

The authors note that every empirical study they have found on patent protection and innovation in the twentieth century has concluded that there is "weak or no evidence that strengthening patent regimes increases innovation;  they find evidence that strengthening the patent regime increases ... patenting!"  Even more interesting are some of the opinion polls taken of businesses in regards to their attitudes to patents.  A Carnegie survey conducted in 2000 from 1,118 firms showed that patents were one of the least effective methods in reaping the benefits of innovation, the most effective being lead time and secrecy.

That businesses should cite the importance of lead-time is not surprising.  This is one of the reasons why the authors reject the fixed cost argument put forward by patent advocates.  Instead, Boldrin and Levine argue that competitive rents may be enough to make a return on the initial investment of an innovation without the need of a patent.  This is because a new market is typically not big enough to produce all the goods necessary to meet demand, and this limited capacity for supply allows businesses to price goods above the marginal cost, a condition necessary for profit.  The return won't be as big as it would with intellectual property, but it would be enough to make the innovation worthwhile and allow competitors the freedom to make improvements to the product without the legal cost.

Boldrin and Levine are keen to point out that the free rider problem associated with competitive markets is not as strong as convention dictates it to be.  While patents make more sense if the new idea can be quickly translated into a competing product, this is typically not the case.  In most scenarios, the time needed to take an idea, hire employees who have the training to convert it to an actual product, package it and sell it back on the market, is typically not "instantaneous".  This makes the first-mover advantage particularly important.

The book provides a strong theoretical backing for a competitive system to provide just as much innovation as a market with intellectual property.  The author's are more radical than this though, declaring that "abolishing intellectual property protection is the only socially responsible thing to do".

The results are not enough to completely blow away the IP system as a whole.  There is certainly evidence that patents can and have encouraged innovation, particularly in markets that were initially without IP protection.  But it may be enough to encourage further research into a notoriously difficult field.  There is certainly an element of groupthink surrounding the benefits of patents, particularly amongst lawyers.  This book is a worthwhile contribution to challenging that belief.