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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]] |
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| − | * koko teksti http://www.dklevine.com/general/intellectual/against.htm | + | * koko teksti http://www.dklevine.com/general/intellectual/againstfinal.htm |
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| − | == Chapter 1: Introduction ==
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| − | * HUOM! Tämä on kopsattu suoraan pdf:stä joten käännöstä tehdessä kannattaa samalla tarkistaa pdf:stä, että kaikki teksti on tallella.
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| − | Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
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| − | Chapter 1: Introduction
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| − | In late 1764, while repairing a small Newcomen steam engine, the
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| − | idea of allowing steam to expand and condense in separate
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| − | containers sprang into the mind of James Watt. He spent the next
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| − | few months in unceasing labor building a model of the new engine.
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| − | In 1768, after a series of improvements and substantial borrowing,
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| − | he applied for a patent on the idea. August 1768 found Watt in
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| − | London about the patent and he spent another 6 months working
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| − | hard to obtain it. The patent was finally awarded in January 1769.
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| − | Nothing much happened, in terms of production, for a few years
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| − | until, in 1775, after another major effort supported by his new
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| − | business partner Matthew Boulton, Watt secured an Act of
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| − | Parliament extending his 1769 patent until the year 1800. The great
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| − | statesman Edmund Burke spoke eloquently in Parliament in the
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| − | name of economic freedom and against the creation of unnecessary
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| − | monopoly – but to no avail. The connections of Watt’s partner
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| − | Boulton were too solid to be defeated by simple principle.
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| | | | |
| − | Once Watt’s patents were secured, a substantial portion of
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| − | his energy was devoted to fending off rival inventors. In 1782, Watt
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| − | secured an additional patent, made “necessary in consequence of ...
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| − | having been so unfairly anticipated, by [Matthew] Wasborough in
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| − | the crank motion.” More dramatically, in the 1790s, when the
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| − | superior and independently designed Hornblower engine was put
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| − | into production, Boulton and Watt went after him with the full force
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| − | of the legal system. In contrast to Watt, who died a rich man, the
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| − | inventor Jonathan Hornblower was not only forced to close shop,
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| − | but found himself ruined and in jail.
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| − |
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| − | Prior to the start of Watt’s commercial production in 1776,
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| − | there were 510 steam engines in the U.K., most using the inefficient
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| − | Newcomen design. These engines generated about 5,000
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| − | horsepower. By 1800, when Watt's patents expired, there were still
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| − | only 2,250 steam engines used in the U.K., of which only 449 were
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| − | the superior Boulton and Watt engines, the rest being old
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| − | Newcomen engines. The total horsepower of these engines was
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| − | 35,000 at best. In 1815, fifteen years after the expiration of the Watt
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| − | patents, it is estimated that nearly 100,000 horsepower was installed
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| − | in the U.K., while by 1830 the horsepower coming from steam
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| − | engines reached 160,000. The fuel efficiency of steam engines is not
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| − | thought to have changed at all during the period of Watt’s patent;
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| − | while between 1810 and 1835 it is estimated to have increased by a
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| − | factor of five. After the expiration of the patents in 1800, not only
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| − | 1Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
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| − | was there an explosion in the production of engines, but steam
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| − | power finally came into its own as the driving force of the industrial
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| − | revolution. In the next 30 years steam engines were modified and
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| − | improved, and such crucial innovations as the steam train, the
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| − | steamboat and the steam jenny all came into wide usage. The key
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| − | innovation was the high-pressure steam engine –development of
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| − | which had been blocked by Watt by strategically using his 1775
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| − | patent. Many new improvements to the steam engine, such as those
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| − | of William Bull, Richard Trevithick, and Arthur Woolf, became
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| − | available by 1804: although developed earlier these innovations
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| − | were kept idle until the Boulton and Watt patent expired. None of
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| − | these innovators wished to incur the same fate as Jonathan
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| − | Hornblower.
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| − |
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| − | Ironically, not only did Watt use the patent system as a legal
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| − | cudgel with which to smash competition, but his own efforts at
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| − | developing a superior steam engine were hindered by the very same
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| − | patent system he used to keep competitors at bay. An important
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| − | limitation of the original Newcomen engine was its inability to
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| − | deliver a steady rotary motion. The most convenient solution,
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| − | involving the combined use of the crank and a flywheel, relied on a
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| − | method patented in 1780 by James Pickard, which prevented Watt
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| − | from using it. Ironically, Watt also made various attempts at
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| − | efficiently transforming reciprocating into rotary motion, reaching,
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| − | apparently, the same solution as Pickard. But the existence of a
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| − | patent forced him to contrive an alternative less efficient mechanical
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| − | device, the “sun and planet” gear. It was only in 1794, after the
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| − | expiration of Pickard’s patent that Boulton and Watt adopted the
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| − | economically and technically superior crank.
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| − |
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| − | The impact of the expiration of his patents on Watt’s empire
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| − | may come as a surprise as well. Despite the fact that “many
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| − | establishments for making steam-engines of Mr. Watt's principle
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| − | were then commenced” nevertheless “it would appear that the object
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| − | principally aimed at was cheapness rather than excellence, for they
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| − | fell short as to performance of the Soho [Boulton and Watt]
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| − | engines.” As a result we find that “Boulton and Watt for many years
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| − | afterwards kept up their price and had increased orders.”
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| − | In fact, it is only after their patents expired that Boulton and
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| − | Watt really started to manufacture steam engines. Before then their
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| − | activity consisted primarily of extracting hefty monopolistic
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| − | royalties. Independent contractors produced most of the parts, and
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| − | Boulton and Watt merely oversaw the assembly of the components
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| − | by the purchasers.
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| − |
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| − | 2Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
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| − | In most histories, James Watt is a heroic inventor,
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| − | responsible for the beginning of the industrial revolution. The facts
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| − | above suggest a different interpretation. Watt is one of many clever
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| − | inventors working to improve steam power in the second half of the
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| − | eighteenth century. After getting one step ahead of the pack, he
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| − | remained ahead not by superior innovation, but by superior
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| − | exploitation of the legal system. The fact that his business partner
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| − | was a wealthy man with strong connections in Parliament, was not a
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| − | minor help.
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| − |
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| − | The evidence suggests that Watt’s efforts to use the legal
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| − | system to inhibit competition set back the industrial revolution by a
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| − | decade or two. The granting of the 1769 and, especially, of the 1775
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| − | patents likely delayed the mass adoption of the steam engine:
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| − | innovation was stifled until his patents expired; and very few steam
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| − | engines were built during the period of Watt’s legal monopoly.
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| − | From the number of innovations that occurred immediately after the
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| − | expiration of the patent, it appears that Watt’s competitors simply
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| − | waited until then before releasing their own innovations. Also, we
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| − | see that Watt’s inventive skills were badly allocated: we find him
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| − | spending more time engaged in legal action to establish and preserve
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| − | his monopoly than he did in the actual improvement and production
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| − | of his engine. From a strictly economic point of view Watt did not
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| − | need such a long lasting patent – it is estimated that by 1783 –
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| − | seventeen years before his patent expired – his enterprise broke
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| − | even; so every dollar that came after was pure gravy.
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| − | While the view of Watt’s enterprise we are proposing here
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| − | may appear iconoclastic to many readers, it is neither new nor
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| − | particularly original. Frederic Scherer, a strong and prestigious
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| − | academic supporter of the patent system, after going through the
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| − | details of the Boulton and Watt story, concluded his 1986
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| − | examination of their story with the following illuminating words
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| − | Had there been no patent protection at all,…Boulton and
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| − | Watt certainly would have been forced to follow a business
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| − | policy quite different from that which they actually followed.
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| − | Most of the firm’s profits were derived from royalties on the
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| − | use of engines rather than from the sale of manufactured
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| − | engine components, and without patent protection the firm
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| − | plainly could not have collected royalties. The alternative
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| − | would have been to emphasize manufacturing and service
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| − | activities as the principal source of profits, which in fact
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| − | was the policy adopted when the expiration date of the
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| − | patent for the separate condenser drew near in the late
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| − | 3Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
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| − | 1790s…. It is possible to conclude more definitely that the
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| − | patent litigation activities of Boulton & Watt during the
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| − | 1790s did not directly incite further technological
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| − | progress…. Boulton and Watt’s refusal to issue licenses
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| − | allowing other engine makers to employ the separate-
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| − | condenser principle clearly retarded the development and
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| − | introduction of improvements.
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| − |
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| − | Indeed, the story of James Watt contains most of the
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| − | important elements of our argument against intellectual property.
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| − | The new idea accrues almost by chance to the innovator while he is
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| − | carrying out a routine activity aimed at a completely different end.
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| − | The patent comes many years after that and it is due more to a
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| − | mixture of legal acumen and abundant resources available to “oil the
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| − | gears of fortune” than anything else. Finally, after the patent
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| − | protection is obtained, it is mostly used as a tool to prevent
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| − | economic progress and hurt competitors.
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| − |
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| − | The wasteful effort to suppress competition and obtain
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| − | special privileges we have seen in Watt is one of the greatest
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| − | dangers of monopoly. It is commonly referred to as rent-seeking
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| − | behavior. Watt’s attempt to extend the duration of his 1769 patent is
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| − | an especially egregious example of rent seeking: the patent
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| − | extension was clearly unnecessary to provide incentive for the
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| − | original invention, which had already taken place. On top of this, we
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| − | see Watt using patents as a tool to suppress innovation by his
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| − | competitors, such as Hornblower, Wasborough and others. Finally,
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| − | there is the slow rate at which the steam engine was adopted before
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| − | the expiration of Watt’s patent. By keeping prices high and
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| − | preventing others from producing cheaper or better steam engines,
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| − | Boulton and Watt hampered capital accumulation and slowed
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| − | economic growth.
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| − |
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| − | Intellectual property, as it is currently conceived, still has all
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| − | these damaging social effects – because its enforcement has been
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| − | strengthened, its term extended and its reach expanded, current law
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| − | is much worse. While the randomness in the procedure for obtaining
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| − | a letter of patent that characterized Watt’s period may have been
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| − | reduced, it has not disappeared. It has shifted from the stage at
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| − | which a patent is awarded to the stage at which it is litigated in
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| − | court. A patent is now routinely issued to anyone that files an
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| − | application with the USPTO. Anything and everything – including
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| − | such allegedly “new” and “useful” ideas as the peanut butter and
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| − | jelly sandwich – has been patented in recent years. The brutal legal
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| − | fight, the peddling of all kinds of influence from legal to legislative,
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| − | 4Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
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| − | and the complete randomness of it all, are, nowadays, characteristics
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| − | of a different stage in the life of a patent. If the underlying invention
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| − | is good for anything, either dozens of people will claim to have
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| − | invented it and sue the actual innovator, or the patent holder will sue
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| − | anyone anywhere who has come up with something similar, or who
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| − | has the funny idea of competing with him.
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| − |
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| − | In addition to the corrupt rent-seeking, the legal suppression
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| − | of innovation and the reduced economic growth attendant upon
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| − | Watt’s monopolies, we may also add a significant loss of personal
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| − | freedom. These social harms are not the necessary evils that we, as a
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| − | society, must be willing to pay for innovative activity to occur. The
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| − | opposite, indeed, is true: they are unnecessary evils, a residual of the
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| − | middle ages from which free market societies emerged, a holdover
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| − | of the days when governments and royalty granted monopolies to
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| − | favored courtiers. Another world, a fairer and more decent world, is
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| − | possible – that of competitive innovation.
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| − |
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| − | Economists, beginning with Adam Smith – a friend and
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| − | teacher of James Watt – have carefully documented the problems of
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| − | monopoly. Because there are no countervailing market forces,
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| − | government-enforced monopolies are particularly dangerous.
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| − | Intellectual property is one type of government-enforced monopoly.
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| − | Never the less, economists have generally argued in favor of patents
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| − | and copyright protection. Despite the many problems with
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| − | government grants of monopoly power, the argument is that,
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| − | without the promise of monopoly that patents and copyrights entail,
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| − | there would be insufficient incentive to innovate and create.
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| − | In the case of Watt, the argument goes, he would never have
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| − | invested the time and effort to come up with his invention without
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| − | the prospect of a patent. But that case is weak. Even after their
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| − | patent expired, Boulton and Watt were able to maintain a substantial
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| − | premium over the market by virtue of having been first, despite the
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| − | fact that their competitors had had thirty years to learn how to
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| − | imitate them. Moreover, when Watt first developed his ideas and
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| − | models, it was far from certain that he would be able to get a patent:
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| − | at that time getting a patent was an uncertain proposition – part of
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| − | the reason he had to lobby nonstop for a long time to get it. Indeed,
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| − | it may well be that the idea of obtaining a monopoly occurred to
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| − | Watt only after he finished his invention – there is no evidence he
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| − | gave any thought to patent law during the development process.
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| − | Finally, Watt had many competitors, such as Hornblower and
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| − | Wasborough; had he not invented the condenser, it seems virtually
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| − | certain someone else would have come up with the idea in the 35
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| − | years between the time it occurred to Watt, and the time his patents
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| − | 5Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
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| − | finally expired. Why this is rather the rule than an isolated episode
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| − | and why the case for the protection of intellectual property is weak
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| − | are two things we will argue through both theory and evidence.
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| − | This book elaborates on the idea that intellectual property is
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| − | generally inhibiting to innovation, growth, prosperity and freedom.
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| − | We argue that not only would innovation thrive in the absence of
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| − | intellectual monopoly, but that we, as a society, would enjoy greater
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| − | growth and prosperity in its absence. We take the view point of the
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| − | average citizen-consumer when debating if a policy is desirable, not
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| − | that of a would be monopolist. There is no doubt in our minds that a
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| − | handful of powerful monopolists would be worse off in a world
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| − | without intellectual property; what matters is that everybody else
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| − | would be substantially better off.
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| − |
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| − | Our focus is on the economics of intellectual property:
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| − | patents, copyright, and downstream licenses. We are not seeking to
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| − | argue what might and might not be legitimate under the current legal
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| − | system, but to understand how new laws and institutions might be
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| − | crafted to encourage growth, innovation and creation. During those
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| − | not so distant times in which tariffs and other protectionist
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| − | prohibitions made free trade illegal and dangerous, economists
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| − | arguing in favor of free trade did not insist that smugglers were
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| − | carrying out lawful activities. They were breaking the foolish laws
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| − | of the time in pretty much the same way that people engaged in
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| − | various forms of “piracy” these days are breaking current laws. But
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| − | legally or not, by violating trade prohibitions smugglers were
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| − | carrying out socially useful trades: consumers wanted the goods and
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| − | were willing to pay for them; producers had the goods but were
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| − | prevented from selling them by unjust legal restrictions; smugglers,
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| − | at a cost, allowed these two groups of people to trade. In the same
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| − | way, while current day pirates may be violating existing intellectual
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| − | property laws, they are also carrying out socially useful trades.
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| − | Consumers are asking for cheap books, music, videos, and other
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| − | products in convenient formats, and workers are willing to work to
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| − | produce these goods at low cost. By violating intellectual property
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| − | laws, contemporary “pirates” are allowing these socially beneficial
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| − | trades to take place. This is why we advocate changing these laws
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| − | to make lawful and permissible what is already socially good.
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| − | This is why too, in order to understand what intellectual
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| − | property is and why it is socially damaging, some knowledge of the
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| − | existing legal framework is needed. There are three broad types of
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| − | intellectual property recognized in most legal systems: patents,
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| − | copyrights and trademarks.
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| − |
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| − | 6Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
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| − | Trademarks are different in nature than patents and
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| − | copyrights: they serve to identify the providers of goods, services or
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| − | ideas. We are unaware of any economic rationale for allowing
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| − | market participants to masquerade as people they are not, and there
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| − | are strong economic advantages in allowing market participants to
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| − | voluntarily identify themselves. While we may wonder if it is
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| − | necessary to allow the Intel Corporation a monopoly over the use of
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| − | the word “inside,” in general we have little dispute with trademarks.
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| − | Patents and copyrights, the two forms of intellectual
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| − | property on which we focus, differ in the extent of coverage they
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| − | provide. Patents apply to specific implementations of ideas –
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| − | although in recent years in the U.S. there has been decreasing
| |
| − | emphasis on specificity. Patents are of relatively short duration: in
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| − | the United States, 20 years for patents covering techniques of
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| − | manufacture, and 14 years for ornamentation. Patents provide
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| − | relatively broad protection: no one can legally use the idea, even if
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| − | they independently rediscover it without permission from the patent
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| − | holder.
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| − |
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| − | 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
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| − | signatory countries of the Berne Convention, and – in the U.S. since
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| − | the Sonny Bono Copyright Extension Act – the life of the author
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| − | plus 70 years. In the U.S. there are limitations on copyright not
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| − | 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
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| − | 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.
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| − |
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| − | In the case of both patents and copyright, there are two
| |
| − | important economic features. The first is what we call the right of
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| − | sale. This is the right of a legitimate owner of intellectual property
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| − | 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 ==
| |
| | | | |
| | [[Luokka:Käännöstyöt]] | | [[Luokka:Käännöstyöt]] |
