Intellectual Property, revisited

Mar 12, JDN 2457825

A few weeks ago I wrote a post laying out the burden of proof for intellectual property, but didn’t have time to get into the empirical question of whether our existing intellectual property system can meet this burden of proof.

First of all, I want to make a very sharp distinction between three types of regulations that are all called “intellectual property”.

First there are trademarks, which I have absolutely no quarrel with. Avoiding fraud and ensuring transparency are fundamental functions without which markets would unravel, and without trademarks these things would be much harder to accomplish. Trademarks allow a company to establish a brand identity that others cannot usurp; they ensure that when you buy Coca-Cola (R) it is really in fact the beverage you expect and not some counterfeit knockoff. (And if counterfeit Coke sounds silly, note that counterfeit honey and maple syrup are actually a major problem.) Yes, there should be limits on how much you can trademark—no one wants to live in a world where you feel Love ™ and open Screen Doors ™—but in fact our courts are already fairly good about only allowing corporations to trademark newly-coined words and proper names for their products.

Next there are copyrights, which I believe are currently too strong and often abused, but I do think should exist in some form (or perhaps copylefts instead). Authors should have at least certain basic rights over how their work can be used and published. If nothing else, proper attribution should always be required, as without that plagiarism becomes intolerably easy. And steps should be taken to ensure that if any people profit from its sale, the author is among them. I publish this blog under a by-sa copyleft, which essentially means that you can share it with whomever you like and even adapt its content into your own work, so long as you properly attribute it to me and you do not attempt to claim ownership over it. For scientific content, I think only a copyleft of this sort makes sense—the era of for-profit journals with paywalls must end, as it is holding back our civilization. But for artistic content (and I mean art in the broadest sense, including books, music, movies, plays, and video games), stronger regulations might well make sense. The question is whether our current system is actually too strong, or is protecting the wrong people—often it seems to protect the corporations that sell the content rather than the artists who created it.

Finally there are patents. Unlike copyright which applies to a specific work of art, patent is meant to apply to the underlying concept of a technology. Copyright (or rather the by-sa copyleft) protects the text of this article; you can’t post it on your own blog and claim you wrote it. But if I were to patent it somehow (generally, verbal arguments cannot be patented, fortunately), you wouldn’t even be able to paraphrase it. The trademark on a Samsung ™ TV just means that if I make a TV I can’t say I am Samsung, because I’m not. You wouldn’t copyright a TV, but the analogous process would be if I were to copy every single detail of the television and try to sell that precise duplicate. But the patents on that TV mean that if I take it apart, study each component, find a way to build them all from my own raw materials, even make them better, and build a new TV out of them that looks different and performs better—I would still be infringing on intellectual property. Patents grant an extremely strong notion of property rights, one which actually undermines a lot of other, more basic concepts of property. It’s my TV, why can’t I take it apart and copy the components? Well, as long as the patent holds, it’s not entirely my TV. Property rights this strong—that allow a corporation to have its cake of selling the TV but eat it too by owning the rights to all its components—require a much stronger justification.

Trademark protects a name, which is unproblematic. Copyright protects a work, which carries risks but is still probably necessary in many cases. But patent protects an idea—and we should ask ourselves whether that is really something it makes sense to do.

In previous posts I’ve laid out some of the basic philosophical arguments for why patents do not seem to support innovation and may actually undermine it. But in this post I want to do something more direct and quantitative: Empirically, what is the actual effect of copyrights and patents on innovation? Can we find a way to quantify the costs and benefits to our society of different modes of intellectual property?

Economists quantify things all the time, so I briefly combed the literature to see what sort of empirical studies had been done on the economic impact of copyrights and patents.

Patents definitely create barriers to scientific collaboration: Scientific articles with ideas that don’t get patented are about 10-20% more likely to be cited than scientific articles with ideas that are patented. (I would have expected a larger effect, but that’s still not trivial.)

A 1995 study found that creased patent protections do seem to be positively associated with more trade.

A 2009 study of Great Britain published in AER found it “puzzling” that stronger patents actually seem to reduce the rate of innovation domestically, while having no effect on foreign innovation—yet this is exactly what I would have predicted. Foreign innovations should be largely unaffected by UK patents, but stricter patent laws in the UK make it harder for most actual innovators, only benefiting a handful of corporations that aren’t even particularly innovative.

This 1996 study did find a positive effect of stronger patent laws on economic growth, but it was quite small and only statistically significant when using instrumental variables that they couldn’t be bothered to define except in an appendix. When your result hinges on the use of instrumental variables that you haven’t even clearly defined in the paper, something is very fishy. My guess is that they p-hacked the instruments until they got the result they wanted.

This other 1996 study is a great example of why economists need to listen to psychologists. It found a negative correlation between foreign direct investment and—wait for it—the number of companies that answered “yes” to a survey question, “Does country X have intellectual property protection too weak to allow you to transfer your newest or most effective technology to a wholly-owned subsidiarythere?” Oh, wow, you found a correlation between foreign direct investment and a question directly asking about foreign direct investment.

his 2004 study found a nonlinear relationship whereby increased economic development affects intellectual property rights, rather than the other way around. But I find their theoretical model quite odd, and the scatter plot that lies at the core of their empirical argument reminds me of Rexthor, the Dog-Bearer. “This relationship appears to be non-linear,” they say when pointing at a scatter plot that looks mostly like nothing and maybe like a monotonic increase.

This 1997 study found a positive correlation between intellectual property strength, R&D spending, and economic growth. The effect is weak, but the study looks basically sound. (Though I must say I’d never heard anyone use the words “significant at the 24% level” before. Normally one would say “nonsignificant” for that variable methinks. It’s okay for it not to be significant in some of your regressions, you know.)

This 1992 paper found that intellectual property harms poor countries and may or may not benefit rich countries, but it uses a really weird idiosyncratic theoretical model to get there. Frankly if I see the word “theorem” anywhere in your empirical paper, I get suspicious. No, it is not a theorem that “For economies in steady state the South loses from tighter intellectual property rights.” It may be true, but it does not follow from the fundamental axioms of mathematics.

This law paper is excellent; it focuses on the fact that intellectual property is a unique arrangement and a significant deviation from conventional property rights. It tracks the rise of legal arguments that erroneously equate intellectual property with real property, and makes the vital point that fully internalizing the positive externalities of technology was never the goal, and would in fact be horrible should it come to pass. We would all have to pay most of our income in royalties to the Newton and Faraday estates. So, I highly recommend reading it. But it doesn’t contain any empirical results on the economic effects of intellectual property.

This is the best paper I was able to find showing empirical effects of different intellectual property regimes; I really have no complaints about its econometrics. But it was limited to post-Soviet economies shortly after the fall of the USSR, which were rather unique circumstances. (Indeed, by studying only those countries, you’d probably conclude that free markets are harmful, because the shock of transition was so great.)

This 1999 paper is also quite good; using a natural experiment from a sudden shift in Japanese patent policy, they found almost no difference in actual R&D. The natural experiment design makes this particularly credible, but it’s difficult to generalize since it only covered Japan specifically.

This study focused in particular on copyrights and the film industry, and found a nonlinear effect: While having no copyright protection at all was harmful to the film industry, making the copyright protections too strong had a strangling effect on new filmmakers entering the industry. This would suggest that the optimal amount of copyright is moderate, which sounds reasonable to me.

This 2009 study did a much more detailed comparison of different copyright regimes, and was unable to find a meaningful pattern amidst the noise. Indeed, they found that the only variable that consistently predicted the number of new works of art was population—more people means more art, and nothing else seemed to matter. If this is correct, it’s quite damning to copyright; it would suggest that people make art for reasons fundamentally orthogonal to copyright, and copyright does almost nothing useful. (And I must say, if you talk to most artists, that tends to be their opinion on the matter!)

This 1996 paper found that stronger patents had no benefits for poor countries, but benefited rich countries quite a large amount: Increased patent protection was estimated to add as much as 0.7% annual GDP growth over the whole period. That’s a lot; if this is really true, stronger patents are almost certainly worth it. But then it becomes difficult to explain why more precise studies haven’t found effects anywhere near that large.

This paper was pretty interesting; they found a fat-tailed distribution of patents, where most firms have none, many have one or a few, and a handful of firms have a huge number of patents. This is also consistent with the distribution of firm revenue and profit—and I’d be surprised if I didn’t find a strong correlation between all three. But this really doesn’t tell us whether patents are contributing to innovation.
This paper found that the harmonization of global patents in the Uruguay Round did lead to gains from trade for most countries, but also transferred about $4.5 billion to the US from the rest of the world. Of course, that’s really not that large an amount when we’re talking about global policy over several years.

What does all that mean? I don’t know. It’s a mess. There just don’t seem to be any really compelling empirical studies on the economic impact of copyrights and patents. The preponderance of the evidence, such as it is, would seem to suggest that copyrights provide a benefit as long as they aren’t too strong, while patents provide a benefit but it is quite small and likely offset by the rent-seeking of the corporations that own them. The few studies that found really large effects (like 0.7% annual GDP growth) don’t seem very credible to me; if the effect were really that large, it shouldn’t be so ambiguous. 0.7% per year over 25 years is a GDP 20% larger. Over 50 years, GDP would be 42% larger. We would be able to see that.

Does this ambiguity mean we should do nothing, and wait until the data is better? I don’t think so. Remember, the burden of proof for intellectual property should be high. It’s a fundamentally bizarre notion of property, one which runs against most of our standard concepts of real property; it restricts our rights in very basic ways, making literally the majority of our population into criminals. Such a draconian policy requires a very strong justification, but such a justification does not appear to be forthcoming. If it could be supported, that 0.7% GDP growth might be enough; but it doesn’t seem to be replicable. A free society does not criminalize activities just in case it might be beneficial to do so—it only criminalizes activities that have demonstrable harm. And the harm of copyright and patent infringement simply isn’t demonstrable enough to justify its criminalization.

We don’t have to remove them outright, but we should substantially weaken copyright and patent laws. They should be short-term, they should provide very basic protection, and they should never be owned by corporations, always by individuals (corporations should be able to license them—but not own them). If we then observe a substantial reduction in innovation and economic output, then we can put them back. But I think that what defenders of intellectual property fear most is that if we tried this, it wouldn’t be so bad—and then the “doom and gloom” justification they’ve been relying on all this time would fall apart.

What does it mean to “own” an idea?

JDN 2457195 EDT 11:29.

For a long time I’ve been suspicious of intellectual property as current formulated, but I’m never quite sure what to replace it with. I recently finished reading a surprisingly compelling little book called Against Intellectual Monopoly, which offered some more direct empirical support for many of my more philosophical concerns. (Fitting their opposition to copyright law, the authors, Michele Boldrin and David Levine, offer the full text of the book for free online.)

Boldrin and Levine argue that they are not in fact opposed to intellectual property, but intellectual monopoly. I think this is a bit of a silly distinction myself, and in fact muddles the issue a little because most of what we currently call “intellectual property” is in fact what they call “intellectual monopoly”.

The problems with intellectual property are well-documented within, but I think it’s worth repeating at least the basic form of the argument. Intellectual property is supposed to incentivize innovation by rewarding innovators for their investment, and thereby increase the total amount of innovation.

This requires three conditions to hold: First, the intellectual property must actually reward the innovators. Second, innovation must be increased when innovators seek rewards. And third, the costs of implementing the policy must be exceeded by the benefits provided by it.

As it turns out, none of those three conditions to hold. For intellectual property to make sense, they would all need to hold; and in fact none do.

First—and worst—of all, intellectual property does not actually reward innovators. It instead rewards those who manipulate the intellectual property system. Intellectual property is why Thomas Edison was wealthy and Nikola Tesla was poor. Intellectual property is why we keep getting new versions of the same pills for erectile dysfunction instead of an AIDS vaccine. Intellectual property is how we get patent troll corporations, submarine patents, and Samsung owing Apple $1 billion for making its smartphones the wrong shape. Intellectual property is how is proposing to sue an entire genre of video games.

Second, the best innovators are not motivated by individual rewards. This has always been true; the people who really contribute the most to the world in knowledge or creativity are those who do it out of an insatiable curiosity, or a direct desire to improve the world. People who are motivated primarily by profit only innovate as a last resort, instead preferring to manipulate laws, undermine competitors, or simply mass-produce safe, popular products.

I can think of no more vivid an example here than Hollywood. Why is it that every single new movie that comes out is basically a more expensive rehash of the exact same 5 movies that have been coming out for the last 50 years? Because big corporations don’t innovate. It’s too risky to try to make a movie that’s fundamentally new and different, because, odds are, that new movie would fail. It’s much safer to make an endless series of superhero movies and keep coming out with yet another movie about a heroic dog. It’s not even that these movies are bad—they’re often pretty good, and when done well (like Avengers) they can be quite enjoyable. But thousands of original screenplays are submitted to Hollywood every year, and virtually none of them are actually made into films. It’s impossible to know what great works of film we might have seen on the big screen if not for the stranglehold of media companies.

This is not how Hollywood began; it started out wildly innovative and new. But did you ever know why it started in Los Angeles and not somewhere else? It was to evade patent laws. Thomas Edison, the greatest patent troll in history, held a stranglehold on motion picture technology on the East Coast, so filmmakers fled to California to get as far away from there as possible, during a time when Federal enforcement was much more lax. The innovation that created Los Angeles as we know it not only was not incentivized by intellectual property protection—it was only possible in its absence.

And then of course there is the third condition, that the benefits be worth the costs—but it’s trivially obvious that this is not the case, since the benefits are in fact basically zero. We divert billions of dollars from consumers to huge corporations, monopolize the world’s ideas, create a system of surveillance and enforcement that makes basically everyone a criminal (I’ll admit it; I have pirated music, software, and most recently the film My Neighbor Totoro, and I often copy video games I own on CD or DVD to digital images so I don’t need the CD or DVD every time to play—which should be fair use but has been enforced as copyright violation). When everyone is a criminal, enforcement becomes capricious, a means of control that can be used and abused by those in power.

Intellectual property even allows corporations to undermine our more basic sense of property ownership—they can prevent us from making use of our own goods as we choose. They can punish us for modifying the software in our computers, our video game systems—or even our cars. They can install software on our computers that compromises our security in order to protect their copyright. This is a point that Boldrin and Levine repeat several times; in place of what we call “intellectual property” (and they call “intellectual monopoly”), they offer a system which would protect our ordinary property rights, our rights to do what we choose with the goods that we purchase—goods that include books, computers, and DVDs.

That brings me to where I think their argument is weakest—their policy proposal. Basically the policy they propose is that we eliminate all intellectual property rights (except trademarks, which they rightly point out are really more about honesty than they are about property—trademark violation typically amounts to fraudulently claiming that your product was made by someone it wasn’t), and then do nothing else. The only property rights would be ordinary property rights, which would know apply in full to products such as books and DVDs. When you buy a DVD, you would have the right to do whatever you please with it, up to and including copying it a hundred times and selling the copies. You bought the DVD, you bought the blank discs, you bought the burner; so (goes their argument), why shouldn’t you be able to do what you want with them?

For patents, I think their argument is basically correct. I’ve tried to make lists of the greatest innovations in science in technology, and virtually none of them were in any way supported by patents. We needn’t go as far back as fire, writing, and the wheel; think about penicillin, the smallpox vaccine, electricity, digital computing, superconductors, lasers, the Internet. Airplanes might seem like they were invented under patent, but in fact the Wright brothers made a relatively small contribution and most of the really important development in aircraft was done by the military. Important medicines are almost always funded by the NIH, while private pharmaceutical companies give us Viagra at best and Vioxx at worst. Private companies have an incentive to skew their trials in various ways, ranging from simply questionable (p-value hacking) to the outright fraudulent (tampering with data). We know they do, because meta-analyses have found clear biases in the literature. The NIH has much less incentive to bias results in this way, and as a result more of the drugs released will be safe and effective. Boldrin and Levine recommend that all drug trials be funded by the NIH instead of drug companies, and I couldn’t agree more. What basis would drug companies have for complaining? We’re giving them something they previously had to pay for. But of course they will complain, because now their drugs will be subject to unbiased scrutiny. Moreover, it undercuts much of the argument for their patent; without the initial cost of large-scale drug trials, it’s harder to see why they need patents to make a profit.

Major innovations have been the product of individuals working out of curiosity, or random chance, or university laboratories, or government research projects; but they are rarely motivated by patents and they are almost never created by corporations. Corporations do invent incremental advancements, but many of these they keep as trade secrets, or go ahead and share, knowing that reverse-engineering takes time and investment. The great innovations of the computer industry (like high-level programming languages, personal computers, Ethernet, USB ports, and windowed operating systems) were all invented before software could be patented—and since then, what have we really gotten? In fact, it can be reasonably argued that patents reduce innovation; most innovations are built on previous innovations, and patents hinder that process of assimilation and synthesis. Patent pools can mitigate this effect, but only for oligopolistic insiders, which almost by definition are less innovative than disruptive outsiders.

And of course, patents on software and biological systems should be invalidated yesterday. If we must have patents, they should be restricted only to entities that cannot self-replicate, which means no animals, no plants, no DNA, nothing alive, no software, and for good measure, no grey goo nanobots. (It also makes sense at a basic level: How can you stop people from copying it, when it can copy itself?)

It’s when we get to copyright that I’m not so convinced. I certainly agree that the current copyright system suffers from deep problems. When your photos can be taken without your permission and turned into works of art but you can’t make a copy of a video game onto your hard drive to play it more conveniently, clearly something is wrong with our copyright system. I also agree that there is something fundamentally problematic about saying that one “owns” a text in such a way that they can decide what others do with it. When you read my work, copies of the information I convey to you are stored inside your brain; do I now own a piece of your brain? If you print out my blog post on a piece of paper and then photocopy it, how can I own something you made with your paper on your printer?

I release all my blog posts under a “by-sa” copyleft, “attribution-share-alike”, which requires that my work be shared without copyright protection and properly attributed to me. You are however free to sell them, modify them, or use them however you like, given those constraints. I think that something like this may be the best system for protecting authors against plagiarism without unduly restricting the rights of readers to copy, modify, and otherwise use the content they buy. Applied to software, the Free Software Foundation basically agrees.

Boldrin and Levine do not, however; they think that even copyleft is too much, because it imposes restrictions upon buyers. They do agree that plagiarism should be illegal (because it is fraudulent), but they disagree with the “share-alike” part, the requirement that content be licensed according to what the author demands. As far as they are concerned, you bought the book, and you can do whatever you damn well please with it. In practice there probably isn’t a whole lot of difference between these two views, since in the absence of copyright there isn’t nearly as much need for copyleft. I don’t really need to require you to impose a free license if you can’t impose any license at all. (When I say “free” I mean libre, not gratis; free as in speech, not as in beerRed Hat Linux is free software you pay for, and Zynga games are horrifically predatory proprietary software you get for free.)

One major difference is that under copyleft we could impose requirements to release information under certain circumstances—I have in mind particularly scientific research papers and associated data. To maximize the availability of knowledge and facilitate peer review, it could be a condition of publication for scientific research that the paper and data be made publicly available under a free license—already this is how research done directly for the government works (at least the stuff that isn’t classified). But under a strict system of physical property only this sort of licensing would be a violation of the publishers’ property rights to do as they please with their servers and hard drives.

But there are legitimate concerns to be had even about simply moving to a copyleft system. I am a fiction author, and I submit books for publication. (This is not hypothetical; I actually do this.) Under the current system, I own the copyright to those books, and if the publisher decides to use them (thus far, only JukePop Serials, a small online publisher, has ever done so), they must secure my permission, presumably by means of a royalty contract. They can’t simply take whatever manuscripts they like and publish them. But if I submitted under a copyleft, they absolutely could. As long as my name were on the cover, they wouldn’t have to pay me a dime. (Charles Darwin certainly didn’t get a dime from Ray Comfort’s edition of The Origin of Species—yes, that is a thing.)

Now the question becomes, would they? There might be a competitive equilbrium where publishers are honest and do in fact pay their authors. If they fail to do so, authors are likely to stop submitting to that publisher once it acquires its shady reputation. If we can reach the equilibrium where authors get paid, that’s almost certainly better than today; the only people I can see it hurting are major publishing houses like Pearson PLC and superstar authors like J.K. Rowling; and even then it wouldn’t hurt them all that much. (Rowling might only be a millionaire instead of a billionaire, and Pearson PLC might see its net income drop from over $500 million to say $10 million.) The average author would most likely benefit, because publishers would have more incentive to invest in their midlist when they can’t crank out hundreds of millions of dollars from their superstars. Books would proliferate at bargain prices, and we could all double the size of our libraries. The net effect on the book market would be to reduce the winner-takes-all effect, which can only be a good thing.

But that isn’t the only possibility. The incentive to steal authors’ work when they submit it could instead create an equilibrium where hardly anyone publishes fiction anymore; and that world is surely worse than the one we live in today. We would want to think about how we can ensure that authors are adequately paid for their work in a copyleft system. Maybe some can make their money from speaking tours and book signings, but I’m not confident that enough can.

I do have one idea, similar to what Thomas Pogge came up with in his “public goods system”, though he primarily intended that to apply to medicine. The basic concept is that there would be a fund, either gathered from donations or supported by taxes, that supports artists. (Actually we already have the National Endowment for the Arts, but it isn’t nearly big enough.) This support would be doled out based on some metric of the artists’ popularity or artistic importance. The details of that are quite tricky, but I think one could arrange some sort of voting system where people use range voting to decide how much to give to each author, musician, painter, or filmmaker. Potentially even research funding could be set this way, with people voting to decide how important they think a particular project is—though I fear that people may be too ignorant to accurately gauge the important of certain lines of research, as when Sarah Palin mocked studies of “fruit flies in Paris”, otherwise known as literally the foundation of modern genetics. Maybe we could vote instead on research goals like “eliminate cancer” and “achieve interstellar travel” and then the scientific community could decide how to allocate funds toward those goals? The details are definitely still fuzzy in my mind.

The general principle, however, would be that if we want to support investment in innovation, we do that—instead of devising this bizarre system of monopoly that gives corporations growing power over our lives. Subsidize investment by subsidizing investment. (I feel similarly about capital taxes; we could incentivize investment in this vague roundabout way by doing nothing to redistribute wealth and hoping that all the arbitrage and speculation somehow translates into real investment… or, you know, we could give tax credits to companies that build factories.) As Boldrin and Levine point out, intellectual property laws were not actually created to protect innovation; they were an outgrowth of the general power of kings and nobles to enforce monopolies on various products during the era of mercantilism. They were weakened to be turned into our current system, not strengthened. They are, in fact, fundamentally mercantilist—and nothing could make that clearer than the TRIPS accord, which literally allows millions of people to die from treatable diseases in order to increase the profits of pharmaceutical companies. Far from being this modern invention that brought upon the scientific revolution, intellectual property is an atavistic policy borne from the age of colonial kings. I think it’s time we try something new.
(Oh, and one last thing: “Piracy”? Really? I can’t believe the linguistic coup it was for copyright holders to declare that people who copy music might as well be slavers and murderers—somehow people went along with this ridiculous terminology. No, there is no such thing as “music piracy” or “software piracy”; there is music copyright violation and software copyright violation.)