Against Intellectual Monopoly

Against Intellectual Monopoly is a relentless, pounding, take no prisoners attack on patent and copyright law.  It joins Lessig’s Free Culture and Heller’s The Gridlock Economy as an instant classic and a must-read on these issues. 

Many people argue that the patent system has gone wrong in recent years, Boldrin and Levine argue that the patent system was rotten from the start.  James Watt they say was a "scoundrel" who with his politically-connected partner Matthew Boulton used the patent system to crush their innovative opposition and delay the industrial revolution. 

During the period of Watt’s patents, the United Kingdom added about 750 horsepower of steam engines per year.  In the thirty years following Watt’s patents, additional horsepower was added at a rate of more than 4,000 per year.  Moreover, the fuel efficiency of steam engines changed little during the period of Watt’s patent; however between 1810 and 1835 it is estimated to have increased by a factor of five.

Will books be published without copyright?  Boldrin and Levine point out that the 9-11 Commission Report was profitably published by Norton despite being available free for download. Not to mention the fact that most of the great works of literature were published without copyright.  Boldrin and Levine are top-notch theorists but AIM is widely accessible and it succeeds best with its many historical discussions and contemporary anecdotes.

AIM does suffer in places from a lack of a lack of nuance and a surprising ability to ignore trade-offs.  Boldrin and Levine argue, for example, that among the reasons we don’t need patents are a) because ideas aren’t copied immediately, they take time to diffuse, b) first movers have significant advantages and c) trade secrecy is often a more effective "means of appropriating returns" than patents.

Quite right on all three counts but each of these reasons also explains why patents are less costly than one might at first imagine.  After all, what Boldrin and Levine are really saying is that intellectual monopoly would exist even without intellectual property law

A standard model used to explain why patents might be useful implicitly
assumes that ideas are transmitted instantly at zero cost.  Boldrin
and Levine smash the premise of this argument but the premise is sufficient for the conclusion not
necessary.  Indeed, once you acknowledge that the slow diffusion of ideas helps entrepreneurs to appropriate the returns to their innovations it becomes an open question of how slow is best?   When is the appropriability of returns strong and when is it weak?  Doesn’t it differ for different goods?  Shouldn’t intellectual property law recognize these differences?  It’s clear, for example, that ideas are diffusing more quickly than ever before.  On Boldrin and Levine’s argument, faster diffusion of ideas implies lower appropriability and thus a stronger argument for intellectual property law.  Needless to say Boldrin and Levine are too busy using
a "mallet to smash shiny myths" to make this argument.  (To be fair, they are more nuanced in
the conclusion.).

Similarly, Boldrin and Levine argue that the larger the market the less patent protection is needed, hence globalization implies less patent protection.  Again, quite right (see also my paper, Patent Theory versus Patent Law, on this point).  But you won’t see Boldrin and Levine drawing the corollary conclusion that more intellectual property rights are optimal the smaller the market, despite the fact that we have a very successful example where increased patent rights for smaller markets generated considerably more innovation, namely the Orphan Drug Act.

For economists, it’s also surprising how little marginal analysis you find in AIM.  For example, Boldrin and Levine ask, Did Rowling really need a billion dollars to write Harry Potter?  Surely, a few million would have been enough.  But that’s like saying that taxing lottery winnings won’t reduce the number of buyers because the winner will still get a huge return on her dollar of investment.

The bottom line is that that there is a Laffer curve for innovation – more appropriability increases innovation at first but innovation declines when appropriability extends too far. I agree with Boldrin and Levine that rent-seeking has put us on the wrong side of the Laffer curve for innovation.  We need to reduce intellectual monopoly with patent reform, less copyright protection, and a greater use of patent substitutes like prizes.  But unfortunately, when it comes to innovation there is no invisible hand theorem which moves us automatically to the top of the curve. 


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