Tuesday, April 10, 2018
Intellectual Property, part 1. Theory
The great economist Ludwig von Mises observed that intellectual property (IP) differs from physical property, in that an idea can be shared without reducing the availability of the idea to the creator. But if the creator of an idea can't share in the benefits generated from an idea, her/his incentive to create ideas is reduced. Hence patent and copyright protection can be warranted, if they increase beneficial innovation. In most places, such legal rights are not permanent, but last only a matter of years, giving a creator short term profits to recoup the investment.
Note that trademark, another form of IP, is different. Trademark is a certification of the source or producer of a product, important if the producer has a reputation (another ephemeral IP of sorts) or guarantee of quality. This can be a life-or-death matter. I cannot find a news link, but some years back counterfeit Johnson & Johnson surgical membranes from China made it into hospitals and were implanted in patients. Unlike authentic J&J materials, the membranes slowly decomposed into toxic chemicals, and by the time this was detected, it was too late to save the patients, who were condemned to slow, agonizing deaths.
My own position on IP is nuanced. It seems to me that trademarks are perfectly legitimate. They are simply contractual guarantees and really not an example of IP at all. But they require that words and symbols. Rolex, for example, is a trademark that says a great deal about the watch bearing it, and a cheap Chinese copy that says "Rolex" is not the same thing. Of course, trademarks require that certain words (e.g. Kleenex, Xerox, Band-aid) and symbols be off-limits to competitors. If one could trademark a word or phrase already in common usage, that would be problematic, hence trademarks must usually be newly concocted, for the purpose at hand. (Someone tried to trademark one of Montana's mottos, "Big Sky Country," and charge royalties for use, an obvious abuse of the trademark idea. They failed.) Conclusion: trademarks are perfectly acceptable.
With respect to patents, I'm in line with Mises: what are the tradeoffs? In areas where it is likely that innovation requires substantial investment, patent protection is likely to be more important for inducing innovation. Pharmaceutical research is especially expensive, and it's certainly of high value when successful, so patent protection seems warranted. The research costs are substantially increased by government regulation, but even without that, developing new chemical formulations that work is difficult. It's hard to determine efficacy. It's hard to determine unwanted side effects. It's hard to determine whether an efficacious treatment is effective. Alternatively, new software is often not so expensive to develop, and many people are willing to undertake development, often just for the sake of doing it, e.g. R statistics environment and contributed statistical packages. (Yes, the best statistical software in the world is free. It's just ideas, and the developers willingly relinquish any property in them.) Thus patents make sense, if the benefit-cost tradeoff is made sensibly.
Copyright is similarly ambiguous. Large corporate music producers act as if downloading of music is among the most heinous crimes imaginable, while simultaneously paying performers as little as possible. That sort of rent-seeking is beside the point, though. What are the benefit-cost tradeoffs for copyright and development of new music? It's unclear to me that pop commercial music is superior to homegrown, homemade stuff. I cannot imagine what the loss in innovation would be if Lady Gaga, Miley Cyrus, the late plagiarist Michael Jackson, or George "My Sweet Lord" Harrison hadn't had copyrights to make them millions. I know far too many people who can concoct a catchy tune, or do justice to musical instrument or voice. Homegrown, live music is ubiquitous. Music can be improvised, songs made up on the spot. On the other hand, of course, there's higher, more complex, sophisticated symphonic music, which takes time and great effort to compose. Giuseppe Verdi did not receive copyrights on most of his works. But once he finally did, and consistent royalties began, his productivity plummeted. Oops. (Note: clicking the link will download a pdf from Harvard Kennedy School. The author of the linked article points out that Verdi's financial success still may have induced creative innovation by other composers; still, the evidence is that the music blossomed most in places without copyright.)
Written words are different yet. There's a great difference between an unauthorized performance of "Happy Birthday to You" and publishing a bootleg copy of a novel that perhaps someone took years to write. This ambiguity explains why copyrights and patents are not natural rights, and why they might reasonably be temporary legal rights.
Next... Part 2. China, Intellectual Property, and U.S. Trade Policy