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* TODO: Chapter 1
* TODO: [[Against Intellectual Monopoly: Chapter 1]]
* TODO: Chapter 2
* TODO: [[Against Intellectual Monopoly: Chapter 2]]
* TODO: Chapter 3
* TODO: [[Against Intellectual Monopoly: Chapter 3]]
* TODO: Chapter 4
* TODO: [[Against Intellectual Monopoly: Chapter 4]]
* TODO: Chapter 5
* TODO: [[Against Intellectual Monopoly: Chapter 5]]
* TODO: Chapter 6
* TODO: [[Against Intellectual Monopoly: Chapter 6]]
* TODO: Chapter 7
* TODO: [[Against Intellectual Monopoly: Chapter 7]]
* TODO: Chapter 8
* TODO: [[Against Intellectual Monopoly: Chapter 8]]
* TODO: Chapter 9
* TODO: [[Against Intellectual Monopoly: Chapter 9]]
* TODO: Chapter 10
* TODO: [[Against Intellectual Monopoly: Chapter 10]]


* koko teksti http://www.dklevine.com/general/intellectual/against.htm  
* koko teksti http://www.dklevine.com/general/intellectual/againstfinal.htm


== Chapter 1: Introduction ==


Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
Chapter 1: Introduction
In late 1764, while repairing a small Newcomen steam engine, the
idea  of  allowing  steam  to  expand  and  condense  in  separate
containers sprang into the mind of James Watt. He spent the next
few months in unceasing labor building a model of the new engine.
In 1768, after a series of improvements and substantial borrowing,
he applied  for  a patent  on  the  idea.  August  1768  found Watt  in
London about  the patent  and he spent  another  6 months working
hard to obtain it. The patent was finally awarded in January 1769.
Nothing much happened,  in  terms of  production,  for  a  few years
until,  in  1775,  after  another  major  effort  supported  by  his  new
business  partner  Matthew  Boulton,  Watt  secured  an  Act  of
Parliament extending his 1769 patent until the year 1800. The great
statesman Edmund Burke  spoke  eloquently  in Parliament  in  the
name of economic freedom and against the creation of unnecessary
monopoly – but  to no  avail.  The  connections  of  Watt’s  partner
Boulton were too solid to be defeated by simple principle.


Once Watt’s patents were secured,  a substantial portion of
his energy was devoted to fending off rival inventors. In 1782, Watt
secured an additional patent, made “necessary in consequence of ...
having been so unfairly anticipated, by [Matthew] Wasborough in
the  crank  motion.”  More  dramatically,  in  the  1790s,  when  the
superior  and  independently designed Hornblower  engine was put
into production, Boulton and Watt went after him with the full force
of the legal system. In contrast to Watt, who died a rich man, the
inventor Jonathan Hornblower was not  only forced  to close shop,
but found himself ruined and in jail.
Prior to the start of Watt’s commercial production in 1776,
there were 510 steam engines in the U.K., most using the inefficient
Newcomen  design.  These  engines  generated  about  5,000
horsepower. By 1800, when Watt's patents expired, there were still
only 2,250 steam engines used in the U.K., of which only 449 were
the  superior  Boulton  and  Watt  engines,  the  rest  being  old
Newcomen  engines.  The  total  horsepower  of  these  engines  was
35,000 at best. In 1815, fifteen years after the expiration of the Watt
patents, it is estimated that nearly 100,000 horsepower was installed
in  the U.K.,  while  by 1830  the horsepower  coming  from  steam
engines reached 160,000. The fuel efficiency of steam engines is not
thought to have changed at all during the period of Watt’s patent;
while between 1810 and 1835 it is estimated to have increased by a
factor of five. After the expiration of the patents in 1800, not only
1Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
was  there  an  explosion  in  the  production of  engines,  but  steam
power finally came into its own as the driving force of the industrial
revolution. In the next 30 years steam engines were modified and
improved,  and  such  crucial  innovations  as  the  steam  train,  the
steamboat and the steam jenny all came into wide usage.  The key
innovation was  the  high-pressure  steam  engine  –development  of
which had been blocked by Watt  by strategically using his 1775
patent. Many new improvements to the steam engine, such as those
of  William Bull,  Richard Trevithick,  and Arthur  Woolf,  became
available  by  1804:  although  developed  earlier  these  innovations
were kept idle until the Boulton and Watt patent expired. None of
these  innovators  wished  to  incur  the  same  fate  as  Jonathan
Hornblower.
Ironically, not only did Watt use the patent system as a legal
cudgel  with which  to  smash competition,  but  his  own efforts  at
developing a superior steam engine were hindered by the very same
patent  system he used  to keep competitors  at  bay.  An  important
limitation  of  the  original  Newcomen  engine  was  its  inability  to
deliver  a  steady  rotary  motion.  The  most  convenient  solution,
involving the combined use of the crank and a flywheel, relied on a
method patented in 1780 by James Pickard, which prevented Watt
from  using  it.  Ironically,  Watt  also  made  various  attempts  at
efficiently transforming reciprocating into rotary motion, reaching,
apparently,  the  same  solution as  Pickard.  But  the existence of  a
patent forced him to contrive an alternative less efficient mechanical
device,  the “sun and planet” gear.  It  was only  in 1794,  after  the
expiration of  Pickard’s patent  that  Boulton and Watt  adopted  the
economically and technically superior crank.
The impact of the expiration of his patents on Watt’s empire
may  come  as  a  surprise  as  well.  Despite  the  fact  that  “many
establishments  for  making  steam-engines  of  Mr.  Watt's  principle
were then commenced” nevertheless “it would appear that the object
principally aimed at was cheapness rather than excellence, for they
fell  short  as  to  performance  of  the  Soho  [Boulton  and  Watt]
engines.” As a result we find that “Boulton and Watt for many years
afterwards kept up their price and had increased orders.”
In fact, it is only after their patents expired that Boulton and
Watt really started to manufacture steam engines. Before then their
activity  consisted  primarily  of  extracting  hefty  monopolistic
royalties.  Independent contractors produced most of the parts, and
Boulton and Watt merely oversaw the assembly of the components
by the purchasers.
2Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
In  most  histories,  James  Watt  is  a  heroic  inventor,
responsible for the beginning of the industrial revolution. The facts
above suggest a different interpretation. Watt is one of many clever
inventors working to improve steam power in the second half of the
eighteenth century.  After  getting one  step ahead of  the pack,  he
remained  ahead  not  by  superior  innovation,  but  by  superior
exploitation of the legal system. The fact that his business partner
was a wealthy man with strong connections in Parliament, was not a
minor help.
The evidence suggests  that  Watt’s efforts  to use  the  legal
system to inhibit competition set back the industrial revolution by a
decade or two. The granting of the 1769 and, especially, of the 1775
patents  likely  delayed  the  mass  adoption  of  the  steam  engine:
innovation was stifled until his patents expired; and very few steam
engines  were  built  during  the  period of  Watt’s  legal  monopoly.
From the number of innovations that occurred immediately after the
expiration of the patent, it appears that Watt’s competitors simply
waited until then before releasing their own innovations. Also, we
see that Watt’s inventive skills were badly allocated: we find him
spending more time engaged in legal action to establish and preserve
his monopoly than he did in the actual improvement and production
of his engine. From a strictly economic point of view Watt did not
need  such a  long  lasting patent  –  it  is estimated  that  by 1783 –
seventeen years  before his  patent  expired – his  enterprise  broke
even; so every dollar that came after was pure gravy.
While the view of Watt’s enterprise we are proposing here
may  appear  iconoclastic  to many  readers,  it  is  neither  new  nor
particularly  original.  Frederic  Scherer,  a  strong  and  prestigious
academic supporter  of  the patent  system,  after  going  through  the
details  of  the  Boulton  and  Watt  story,  concluded  his  1986
examination of their story with the following illuminating words
Had  there been no patent  protection at  all,…Boulton and
Watt certainly would have been forced to follow a business
policy quite different from that which they actually followed. 
Most of the firm’s profits were derived from royalties on the
use of  engines rather  than  from  the sale of  manufactured
engine components,  and without patent protection the firm
plainly could not  have collected royalties.  The alternative
would have been  to emphasize manufacturing and service
activities as  the principal  source of  profits,  which  in  fact 
was  the  policy  adopted  when  the  expiration  date  of  the
patent  for  the  separate  condenser  drew near  in  the  late
3Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
1790s…. It is possible to conclude more definitely that the
patent  litigation activities  of  Boulton & Watt  during  the
1790s  did  not  directly  incite  further  technological 
progress….  Boulton  and Watt’s  refusal  to  issue  licenses 
allowing  other  engine  makers  to  employ  the  separate-
condenser principle clearly retarded  the development  and
introduction of improvements.
  Indeed,  the  story  of  James  Watt  contains  most  of  the
important  elements of  our  argument  against  intellectual  property.
The new idea accrues almost by chance to the innovator while he is
carrying out a routine activity aimed at a completely different end.
The patent  comes many years after  that  and  it  is due more  to a
mixture of legal acumen and abundant resources available to “oil the
gears  of  fortune”  than  anything  else.  Finally,  after  the  patent
protection  is  obtained,  it  is  mostly  used  as  a  tool  to  prevent
economic progress and hurt competitors.
The  wasteful  effort  to  suppress  competition  and  obtain
special  privileges  we  have  seen  in  Watt  is  one  of  the  greatest
dangers of  monopoly.  It  is commonly  referred  to as  rent-seeking
behavior. Watt’s attempt to extend the duration of his 1769 patent is
an  especially  egregious  example  of  rent  seeking:  the  patent
extension  was  clearly  unnecessary  to  provide  incentive  for  the
original invention, which had already taken place. On top of this, we
see  Watt  using  patents  as  a  tool  to  suppress  innovation  by  his
competitors, such as Hornblower, Wasborough and others. Finally,
there is the slow rate at which the steam engine was adopted before
the  expiration  of  Watt’s  patent.  By  keeping  prices  high  and
preventing others from producing cheaper or better steam engines,
Boulton  and  Watt  hampered  capital  accumulation  and  slowed
economic growth.
Intellectual property, as it is currently conceived, still has all
these damaging social  effects – because  its enforcement  has been
strengthened, its term extended and its reach expanded, current law
is much worse. While the randomness in the procedure for obtaining
a  letter of patent  that  characterized Watt’s period may have been
reduced,  it  has  not  disappeared.  It  has  shifted  from  the  stage at
which a patent  is awarded  to  the stage at  which  it  is  litigated  in
court.  A patent  is  now  routinely  issued  to  anyone  that  files  an
application with the USPTO. Anything and everything – including
such allegedly “new” and “useful”  ideas as  the peanut  butter and
jelly sandwich – has been patented in recent years. The brutal legal
fight, the peddling of all kinds of influence from legal to legislative,
4Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
and the complete randomness of it all, are, nowadays, characteristics
of a different stage in the life of a patent. If the underlying invention
is good  for  anything,  either  dozens of  people will  claim  to have
invented it and sue the actual innovator, or the patent holder will sue
anyone anywhere who has come up with something similar, or who
has the funny idea of competing with him.
In addition to the corrupt rent-seeking, the legal suppression
of  innovation  and  the  reduced  economic  growth  attendant  upon
Watt’s monopolies, we may also add a significant loss of personal
freedom. These social harms are not the necessary evils that we, as a
society, must be willing to pay for innovative activity to occur. The
opposite, indeed, is true: they are unnecessary evils, a residual of the
middle ages from which free market societies emerged, a holdover
of the days when governments and royalty granted monopolies to
favored courtiers. Another world, a fairer and more decent world, is
possible – that of competitive innovation.
Economists,  beginning with Adam Smith  –  a  friend  and
teacher of James Watt – have carefully documented the problems of
monopoly.  Because  there  are  no  countervailing  market  forces,
government-enforced  monopolies  are  particularly  dangerous.
Intellectual property is one type of government-enforced monopoly.
Never the less, economists have generally argued in favor of patents
and  copyright  protection.  Despite  the  many  problems  with
government  grants  of  monopoly  power,  the  argument  is  that,
without the promise of monopoly that patents and copyrights entail,
there would be insufficient incentive to innovate and create.
In the case of Watt, the argument goes, he would never have
invested the time and effort to come up with his invention without
the prospect  of  a patent.  But  that  case  is weak.  Even after  their
patent expired, Boulton and Watt were able to maintain a substantial
premium over the market by virtue of having been first, despite the
fact  that  their  competitors  had had  thirty years  to  learn how  to
imitate  them.  Moreover,  when Watt  first  developed his  ideas and
models, it was far from certain that he would be able to get a patent:
at that time getting a patent was an uncertain proposition – part of
the reason he had to lobby nonstop for a long time to get it. Indeed,
it  may well be that  the  idea of obtaining a monopoly occurred  to
Watt only after he finished his invention – there is no evidence he
gave any  thought  to patent  law during  the development  process.
Finally,  Watt  had  many  competitors,  such  as  Hornblower  and
Wasborough; had he not invented the condenser, it seems virtually
certain someone else would have come up with the idea in the 35
years between the time it occurred to Watt, and the time his patents
5Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
finally expired. Why this is rather the rule than an isolated episode
and why the case for the protection of intellectual property is weak
are two things we will argue through both theory and evidence.
This book elaborates on the idea that intellectual property is
generally inhibiting to innovation, growth, prosperity and freedom.
We argue that not only would innovation thrive in the absence of
intellectual monopoly, but that we, as a society, would enjoy greater
growth and prosperity in its absence. We take the view point of the
average citizen-consumer when debating if a policy is desirable, not
that of a would be monopolist. There is no doubt in our minds that a
handful  of  powerful  monopolists would be worse off  in a world
without  intellectual  property;  what  matters  is  that  everybody else
would be substantially better off.
Our  focus  is  on  the  economics  of  intellectual  property:
patents, copyright, and downstream licenses. We are not seeking to
argue what might and might not be legitimate under the current legal
system, but to understand how new laws and institutions might be
crafted to encourage growth, innovation and creation. During those
not  so  distant  times  in  which  tariffs  and  other  protectionist
prohibitions  made  free  trade  illegal  and  dangerous,  economists
arguing  in  favor  of  free  trade did not  insist  that  smugglers were
carrying out lawful activities. They were breaking the foolish laws
of  the  time  in pretty much  the same way  that  people engaged  in
various forms of “piracy” these days are breaking current laws. But
legally  or  not,  by  violating  trade  prohibitions  smugglers  were
carrying out socially useful trades: consumers wanted the goods and
were willing  to pay  for  them;  producers had  the goods but  were
prevented from selling them by unjust legal restrictions; smugglers,
at a cost, allowed these two groups of people to trade. In the same
way, while current day pirates may be violating existing intellectual
property  laws,  they  are  also  carrying out  socially useful  trades.
Consumers are asking  for  cheap books,  music,  videos,  and other
products in convenient formats, and workers are willing to work to
produce these goods at low cost. By violating intellectual property
laws, contemporary “pirates” are allowing these socially beneficial
trades to take place.  This is why we advocate changing these laws
to make lawful and permissible what is already socially good.
This  is  why  too,  in order  to understand what  intellectual
property is and why it is socially damaging, some knowledge of the
existing legal framework is needed. There are three broad types of
intellectual  property  recognized  in  most  legal  systems:  patents,
copyrights and trademarks.
6Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
Trademarks  are  different  in  nature  than  patents  and
copyrights: they serve to identify the providers of goods, services or
ideas.  We  are  unaware  of  any  economic  rationale  for  allowing
market participants to masquerade as people they are not, and there
are strong economic advantages in allowing market participants to
voluntarily  identify  themselves.  While  we  may  wonder  if  it  is
necessary to allow the Intel Corporation a monopoly over the use of
the word “inside,” in general we have little dispute with trademarks.
Patents  and  copyrights,  the  two  forms  of  intellectual
property on which we focus,  differ in the extent of coverage they
provide.  Patents  apply  to  specific  implementations  of  ideas  –
although  in  recent  years  in  the  U.S.  there  has  been  decreasing
emphasis on specificity. Patents are of relatively short duration: in
the  United  States,  20  years  for  patents  covering  techniques  of
manufacture,  and  14  years  for  ornamentation.  Patents  provide
relatively broad protection: no one can legally use the idea, even if
they independently rediscover it without permission from the patent
holder.
Copyrights are much narrower in scope, protecting only the
specific details of a particular narrative. They are also much longer
in duration –  the  life  of  the author  plus  50 years  for  the many
signatory countries of the Berne Convention, and – in the U.S. since
the Sonny Bono Copyright  Extension Act  – the life of the author
plus 70 years.  In  the U.S.  there are  limitations on copyright  not
present in patent law: the right of fair use allows the purchaser of a
copyrighted item limited rights to employ it, make partial copies of
it and resell them, regardless of the desires of the copyright holder.
In  addition,  certain  derivative  works  are  allowed  without
permission:  parodies are allowed,  for  example,  while  sequels are
not.
In  the  case  of  both patents  and  copyright,  there  are  two
important economic features. The first is what we call the right of 
sale.  This is the right of a legitimate owner of intellectual property
to sell it. In copyright law, when applied to the creator this right is
sometimes  called  the  “right  of  first  sale,”  but  the  right  of  sale
extends  also  to  the  legitimate  rights  of  others,  for  example,
licensees, to sell the idea. The second feature of the law is the right
to control the use of the intellectual property after sale. This second
right  produces  a  monopoly  –  enforced  by  the  obligation of  the
government  to prosecute  individuals or  organizations  that  use  the
idea in ways prohibited by the copyright or patent holder.
We emphasize that we favor the right of sale.  It is crucial
that  producers of  intellectual  property be able to profit  from their
7Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
invention.  While sales could  take place even  in  the absence of  a
legal right, markets function best in the presence of clearly defined
property rights. Not only should the property rights of innovators be
protected but also the rights of those who have legitimately obtained
a copy of the idea, directly or indirectly, from the original innovator.
The  former  encourages  innovation,  the  latter  encourages  the
diffusion, adoption and improvement of innovations.
It is with the right of the owner of intellectual property to
control how the purchaser makes use of the idea or creation that we
disagree. Because this right gives the owner a monopoly over usage
of the idea and prevents buyers from using the intellectual property
they lawfully purchased, we refer to it as  intellectual monopoly  to
distinguish it from the right of sale. Hence, intellectual property is
composed  of  two  parts:  the  right  of  sale,  and  the  intellectual
monopoly. The first gives the producer or any rightful owner of a
copy of the idea the power to sell it to another party.  The second
gives the patent or copyright holder the right to control and limit the
usage of the idea by any other person. The latter is not just a simple
well-defined right of property. It establishes a monopoly that we do
not usually allow producers of other goods. We will argue that this
monopoly creates many social costs, yet has little social benefit. It
largely redistributes income and wealth from the many that do not
have it, to the “lucky” ones who have managed to obtain it.
To  foreshadow our argument,  the original  innovator  has a
natural  first-mover advantage by virtue of  initially being the only
one to know of the idea or how to implement it. Furthermore, ideas
are always scarce. The innovator can invariably use his first mover
advantage and the scarcity of his idea to earn a profit. In the case of
Watt, the first-mover advantage was extremely strong. Even after 31
years  had been available  for  competitors  to  reverse engineer  his
invention,  Boulton  and  Watt  were  still  able  to  command  a
substantial premium over the market. They were able to do so for
many  years,  by  virtue  of  the  special  expertise  that  comes  with
having  been  first.  Economic  research  shows  that  the  same
mechanism is at work, for example in the contemporary market for
pharmaceutical  products.  Many years  after  a  medical  patent  has
expired, when cheaper generic drugs are available that are perfect
substitute for the original product, the first innovator still retains a
substantial degree of market power and still charges a higher price.
In  thinking  about  abolishing  intellectual  monopoly,  it  is
important  to  recognize  that  even  if  existing copyright  and patent
laws  were  abolished,  much  of  their  impact  could  be  recreated
through private contracts.  That  is,  in selling  their  idea,  innovators
8Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
could require purchasers to sign a contract agreeing to make use of it
only  in  ways  approved  of  by  the  seller.  Shrink-wrap  software
agreements  are  a  simple  and  common  example  of  this  type  of
downstream  licensing.  Notice  that  private  agreements  could  not
completely  recreate  existing patent  protection,  since  independent
invention could not be controlled, which would already be a major
step  forward.  On  the  other  hand,  copyright  protection  would
effectively be  increased,  since current  copyright  law obligates  the
seller  to allow  fair  use,  and  this could be  ruled out  in a private
agreement. Indeed, the current legal situation is murky, since some
sellers  do  attempt  to  eliminate  fair  use  through  downstream
licensing  agreements.  In  any  case,  to  eliminate  intellectual
monopoly,  it  is necessary to go beyond merely abolishing patents
and copyright to also limit downstream licensing agreements.
Economists  as  a  rule  favor  both  freedom of  contract  and
well-defined property rights. It may come a surprise that the two of
us  –  two  conservative  economists  –  appear  to  be  arguing  the
opposite.  However,  economists  also  favor  competition  over
monopoly, and economists have come to learn and understand that
competition does not fall from the sky; it is a system of organizing
human economic interactions that requires nurturing and protection.
The  fact  is  that  –  like most  free-market  economists – we do not
favor  enforcing  collusive  contracts  that  are  used  to  create
monopolies – and this is what shrink wrap agreements are. Nor do
we argue against property rights, which we view as essential to the
smooth functioning of a competitive economy. Our argument is with
intellectual monopoly. We favor the right of sale, the right to sell
copies of  ideas.  We argue both  that  the original  innovator should
have  that  right,  and  that  those who have purchased a copy of  the
idea should have the same right to sell what is now their copy of the
idea.  It  is  the monopolistic  regulation of  the  right  to use  legally
available  technologies  to make  further copies of  ideas  after  their
lawful sale with which we disagree. When you buy a potato you can
eat it, throw it away, plant it or make it into a sculpture. When you
buy a potato you can use the idea of a potato embodied in it to make
better  potatoes  or  to  invent  french  fries.  Current  laws  allow
producers of  CDs,  books,  computer software or  medical  drugs  to
take  this  freedom  away  from  you.  It  is  this  confounding  of
intellectual  property with  intellectual  monopoly against  which we
argue.
Everyone  wants  a  monopoly,  and  all  producers  would
impose  downstream  licensing  agreements  if  they  could.  No one
wants to compete against his own customers, or against imitators for
9Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
that matter. Under current law only producers of (certain) ideas do
not have to do so. It is a long and dangerous jump from the assertion
that  innovators  deserve  compensation  for  their  efforts  to  the
conclusion  that  current patent  and copyright protection is the best
way of providing such reward. Statements such as “A patent is the
way  of  rewarding  somebody  for  coming  up  with  a  worthy
commercial idea” abound in the business, legal and economic press.
But there are many other ways in which innovators are rewarded,
most of them socially better than copyright and patents.
The  U.S.  Constitution  allows  Congress  “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.”  Our  perspective  on patents  and  copyright  is  a
similar one: promoting the progress of science and the useful arts is
a  crucial  ingredient  of  economic  welfare,  from  solving  such
profound economic problems as poverty, to such mundane personal
nuisances as boredom. The question we shall focus on is whether
intellectual monopoly is useful in promoting innovation and growth
for  the benefit  of  the average citizen,  or  if,  as we shall  argue,  it
stifles  innovation and growth and  it  redistributes wealth  from  the
“average  guy”  to  a  few  protected  individuals  who  are  either  in
control of, or closely associated with, the big monopolies lobbying
for intellectual property.
Traditionally, economists have been skeptical of government
intervention  in markets,  for example,  through  regulation or  trade-
restrictions. Economists are also skeptical of intellectual monopoly,
and  the  economics  literature  in  general  suggests  that  existing
protections should be  reduced.  In  the case of  regulation and  free
trade, economists also generally recognize that some regulation and
trade-restrictions are desirable.  They  recognize,  too,  that  allowing
some  intervention  triggers  rent-seeking  behavior  by  would-be
monopolists,  and  that  as a  result  it  is most  practical  to  focus on
eliminating  government  intervention.  Alas,  this  is  not  yet  the
conventional  view with  respect  to  intellectual  monopoly.  Until
recently, conventional wisdom held that markets could not function
at all in its absence. As a result, many economists still believe that
intellectual monopoly is an unavoidable evil if we are to have any
innovation at all.
Modern  economic  research,  however,  has  shown  that
markets for  ideas can function even  in  the absence of  intellectual
monopoly,  and we shall see that markets for ideas and innovation
function and function well absent intellectual monopoly. As a result,
we take the same position on intellectual monopoly that economists
10Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
take  on  trade  restrictions:  although  some  modest  amount  of
protection  might  be  desirable  in  very  special  cases,  it  is  more
practical and useful to focus on the elimination of restrictions as a
general  rule.  Similarly,  while some modest  amount  of  intellectual
monopoly  might  be  desirable  in  very  special  cases,  it  is  more
practical  and  useful  to  focus  on  the  elimination  of  intellectual
monopoly as a general rule.
Our  analogy  between  intellectual  property  and  trade
restrictions is not a purely rhetorical tool, nor a random comparison.
For centuries, human innovative activity took the form of creating
new consumption goods,  new machines and new staples of  food.
But  the  transmission of  ideas  from one producer  to another  and
across countries was not nearly as fast, standardized, and routinized
as it is today. Creative human activity was focused on the creation
and  reproduction of  physical  goods  and not  on  the creation and
reproduction of ideas. Free trade of commodities was therefore key
in fostering progress: the more competitors came in with shoes like
yours, the more you had to improve on your shoes to keep selling
them.
This dialectic we used to call economic progress, and, after a
few centuries of  intellectual  debate and numerous  wars,  Western
societies came to understand that restricting international trade was
damaging because protectionism prevents economic progress. Since
at least the late Middle Ages, the battle has been between the forces
of  progress,  individual  freedom,  competition  and  free  trade,  and
those of stagnation, regulation of individual actions, monopoly, and
trade protection. Now that the intellectual and political battle over
free trade of physical goods seems won, and an increasing number
of less advanced countries are joining the progressive ranks of free-
trading nations, pressure for making intellectual property protection
stronger is mounting in those very same countries that advocate free
trade. This is not coincidence.
Most  physical  goods  already  are  and,  in  the  decades  to
come, will increasingly be, produced in the less developed countries.
Most  innovations and creations are  taking place  in  the advanced
world, and the IT and bio-engineering revolutions suggest this will
continue for a while at  least.  It  is not  surprising  then,  that  a new
version of the eternal parasite of economic progress – mercantilism
– is emerging in the rich countries of North America, Europe and
Asia.
Economic progress springs from having things produced as
efficiently as possible, so that they can sell at the lowest price. This
wisdom applies to both the things we buy and to those we sell, and
11Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
therein lies the trap of mercantilism. Most of us have learned that
the surest  way  to make a profit  is  to “buy cheap and sell  dear.”
When there is adequate competition and everyone tries to buy cheap
and sell dear, then the only way I can buy cheap and sell dear is for
me  to be  more  efficient  than you.  This  generates  incentives  for
innovation and progress.  The  trap and  tragedy of  mercantilism  is
when  this  individually  correct  philosophy  is  transformed  into  a
national  policy:  that  we are all  better  off  when our  country as a
whole buys cheap and sells dear. It was this myopic and distorted
view of the way in which markets function that Smith, Ricardo, and
the other classic economists were fighting against 250 years ago. At
that time wheat producers in England wanted to restrict free trade in
wheat so English producers could sell it dear.
The contemporary variation of this economic pest is one in
which our collective interest is best served if we buy goods cheap
and sell ideas dear. In the mind of those preaching this new version
of  the  mercantilist  credo,  the  World  Trade  Organization  should
enforce  as  much  free  trade  as  possible,  so we  can  buy  “their”
products  at  a  low  price.  It  should  also  protect  our  “intellectual
property”  as  much  as  possible,  so  we  can  sell  “our”  movies,
software,  and medicines at a high price. What this folly misses is
that,  now like three centuries ago,  while  it  is good to buy “their”
food cheap, if “they” buy movies and medicines at high prices, so do
“we.” This has dramatic consequences on the incentives to progress:
when someone can sell  at  high prices because of  legal  protection
from imitators, they will not expend much effort looking for better
and cheaper ways of doing things.
For centuries, the battle for economic progress has identified
with the battle for free trade. In the decades to come, the battle for
economic progress  will  identify,  more and more,  with  the battle
against intellectual monopoly. As in the battle for free trade, the first
step must  consist  in destroying  the  intellectual  foundations of  the
obscurantist position. Back then the mercantilist fallacy taught that,
to become wealthy, a country must regulate trade and strive for trade
surpluses. Today, the same fallacy teaches that without intellectual
monopoly  innovations  would be  impossible.  Our  goal  here  is  to
demolish that glass house.
12Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
Notes
Much of the story of James Watt can be found in Carnegie
[1905],  Lord  [1923],  and  Marsden  [2004].  The  quotation  about
Wasborough is from Carnegie. Information on the role of Boulton in
Watt’s  enterprise  is  drawn  from  Mantoux  [1905].  A  lively
description of  the real Watt,  as well  of his  legal  wars against  the
Hornblowers – and many other – and of how he subsequently used
his status to alter the public memory of the facts, can be found in
Marsden [2004]. Lord [1923] gives figures on the number of steam
engines produced by Boulton and Watt  between 1775 and 1800,
while  the  The  Cambridge  Economic  History  of  Europe  [1965]
provides data on the spread of total horsepower between 1800 and
1815  and  the  spread  of  steam  power  more  broadly.  However,
Kanefsky [1979] has largely discredited the Lord numbers, and the
figures we quote on number of machines and horsepower are from
Kanefsky and Robey [1980]. The 100,000 horsepower estimate for
1815  is  the average of  the  figures  they give  for  1800 and 1830.
These two studies together with that of Smith [1977-78] provide a
careful  historical  account  of  the  detrimental  impact  of  the
Newcomen’s and of the Watt’s patents on the rate of adoption of the
steam technology.  Data of the fuel efficiency, the “duty,” of steam
engines is from Nuvolari [2004]. The story about Pickard’s patent
blocking adoption by Watt is told in von Tunzelmann [1978]. The
quotation about the fortunes of Boulton and Watt after the expiration
of the Watt patents is taken from Thompson [1847] p. 110 and is
quoted in Lord [1923]. Scherer’s quotation about Boulton and Watt
is from the pages 24-25 of Scherer [1984], while Scherer [1965] is
the source of the break-even point estimate reported a little earlier.
As both the Lord and Carnegie works are out of copyright,
both are available online at  the very good Rochester  site on  the
history  of  steam  power  www.history.rochester.edu/steam.  Later
drafts  of  this  chapter  benefited  enormously  from  the  arrival  of
Google Book Search, which allowed us to check so many original
historical  sources about  James Watt  and  the steam engine as we
would have never thought possible before.
Information on U.S.  Patent  Law can be  found at  the U.S.
Patent Office at www.uspto.gov/main/patents.htm. The Sony Bono
Copyright  Extension  Act  can  be  found  online  at
library.thinkquest.org/J001570/sonnybonolaw.html, while the Berne
Convention  on  Copyright  can  be  found  at
www.law.cornell.edu/treaties/berne/. A useful discussion of fair use,
including parodies, is Gall [2000].
For  the statistical  evidence about  leading drugs keeping a
large share of the market long after generic imitators are allowed to
enter see, for example, Caves et al [1991]
The quote about patents being the reward is taken from The
Economist, June 23rd
2001, page 42, with italics added.
13Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
The U.S.  Constitution,  not  being copyrighted,  is online at
various places, such as http://www.law.cornell.edu/constitution.
We are most grateful to George Selgin and John Turner, of
the University of Georgia Terry College of Business,  for pointing
out a number of factual mistakes and imprecisions in our rendition
of the James Watt story, as it had appeared in earlier versions of this
chapter and  in our 2003 Lawrence R.  Klein Lecture,  published  in
[2004]. 
14
== Chapter 2 ==
== Chapter 3 ==
== Chapter 4 ==
== Chapter 5 ==
== Chapter 6 ==
== Chapter 7 ==
== Chapter 8 ==
== Chapter 9 ==
== Chapter 10 ==


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Against Intellectual Monopoly

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