TCS Daily

Public Choice and Intellectual Property

By Ilya Shapiro - August 9, 2004 12:00 AM

Intellectual property is different than other kinds of property in that protecting rights in the former involves much greater state involvement. After all, most "physical" or "tangible" property, for lack of a better name -- Is real estate physical? Are stocks tangible? -- is privately owned and most transactions in such property are private. Moreover, use of such property is necessarily exclusive; you and I can't simultaneously drive my car, and once I drink my cup of coffee, it is no longer available for you to drink. On the other hand, I cannot prevent someone I've never met or talked to from appropriating and profiting from my invention, article, or logo without the government's creation and enforcement of patents, copyrights, and trademarks, respectively.

At the same time, if my proprietary right to control the use of my better mousetrap is absolute and unending, I will be able either to charge exorbitant amounts and skew the overall market for goods and services, or to sit on my hands and deprive the world of important innovation (often using the latter strategy to bid up the former pricetag).

Thus any intellectual property (IP) regime creates a philosophical and policy dilemma for those who are wary about extending governmental power over private resources: We want to strengthen property rights, but not create inefficiencies; promote literary and technological development, but not discourage competition. As Hayek warned, "In the field of industrial patents in particular we shall have seriously to examine whether the award of a monopoly privilege is really the most appropriate and effective form of reward for the kind of risk-bearing which investment in scientific research involves."

It is with these concerns in mind that two giants of the economic analysis of law, William Landes of the University of Chicago and Richard Posner of the U.S. Court of Appeals for the Seventh Circuit, recently published a monograph that will surely influence many fields. "The Political Economy of Intellectual Property Law" (AEI-Brookings, 2004) describes the expansion of IP law over the last half century and compares it to various forms of regulation -- and recent deregulation trends -- with particular attention to public choice explanations. ("Public choice" theory, for the uninitiated, models political and governmental processes as products of factors such as supply, demand, incentives, and disincentives.)

Landes and Posner begin by showing how the sheer verbal body of IP law has grown since the end of the Second World War. The Copyright Act now has eleven times the words its predecessor did in 1946; the patent statute has seen a fourfold increase; and the Lanham Act (covering trademarks) has more than doubled. These increases were not continuous but typically coincided with major statutory revisions, such as the 1998 Copyright Act amendments concerning digital copying and the copyright term -- C-SPAN junkies may recall the Sonny Bono Copyright Term Extension Act. They reflect both new areas of regulation (such as those relevant to the internet age) and amendments to existing laws, and include laws that both strengthen and weaken property rights.

The most significant change in American IP was the 1982 creation of the U.S. Court of Appeals for the Federal Circuit, and its designation as the exclusive court for patent appeals -- in the expectation that it would apply the law in a way that would strengthen inventors' rights. Thus statutory changes were for the most part replaced by judicial expansion of patent rights, just as the copyright and trademark areas saw an acceleration of legislative growth that continues to this day -- and now even encompasses the international sphere, with the ratification of the TRIPS (Trade-Related Aspects of Intellectual Property Rights) Convention -- though less so with trademarks because the Lanham Act is more broadly worded, leaving more discretion to the courts. As Landes and Posner make clear, however, such structural rationales do not explain the whole story of IP development; for that they turn to public choice (which they admit "has had only limited success in explaining political behavior and government action").

Most relevant to this discussion, public choice is often used by economists and political scientists (who sometimes call it rational choice) to explain why certain legislation was passed, or why movements toward regulation and deregulation occurred. It suggests, for example, that creators, inventors, and entrepreneurs, who derive great economic benefit from the enforcement of exclusive IP rights, are more likely to organize a lobby to expand IP protections, than are copiers and others who "free-ride" on innovation, who would only obtain competitive returns from being able to exploit others' creations. Music performing-rights organizations (mainly ASCAP and BMI) present an ideal recent example of IP owners who organize coalitions to defend their property interests. As does Disney's successful fight to lengthen the term of its copyright in Steamboat Willie (Mickey Mouse).

Landes and Posner go on to explain the various cross-pressures in the give-and-take arena of IP regulation, and that for IP, the story is not so simple as "concentrated benefits for inventors at a diffuse cost to competitors." Less innovative companies (or those less involved with basic research) prefer laxer IP laws because they use the IP created by others to either create their own or achieve profits from economies of scale -- much like some in regulated industries resist deregulation for fear of not being able to survive in a more competitive market.

Consumers are not necessarily benefited from stronger or weaker IP protections, as again we return to the difficulty of providing enough incentive to create without opening opportunities for monopoly profits.

The long and short of it -- to answer a rhetorical question that Landes and Posner pose midway through their paper -- is that examining shifts in intellectual property law is not like studying regulation. Growth in IP protections, whether by legislative or judicial means, is not per se anti-market, but neither is it always in the best interests of creators of IP.

Conversely, restricting exclusive rights over creative output is not always to be spurned as yet another aspect of creeping socialism, but neither is it necessarily beneficial to society at large.

The Founding Fathers said it best when they gave Congress the power 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." The rub, of course, is in determining what those rights should entail, and figuring out how to enact these determinations.

Landes and Posner do a workmanlike job in showing us how and why intellectual property law evolved to its present state without casting judgments as to the wisdom of the steps in that evolution. Getting it "right" in future will require the constant re-calibration of protections and enforcement mechanisms, as well as careful attention to social, technological, and economic developments that may outstrip previous IP paradigms.

Ilya Shapiro, who is clerking on the U.S. Court of Appeals for the Fifth Circuit, won the inaugural Henry G. Manne Moot Court Competition for Law & Economics.


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