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Foreign Affairs
Who Owns Ideas? The War Over Global Intellectual Property
By David S. Evans
Copy Fights. Edited by Adam Thierer and Wayne Crews. Washington: Cato Institute, 2002, 295 pp. $19.95.
David S. Evans is Senior Vice President at NERA Economic Consulting, Inc.
Last year, in a South African courtroom, global pharmaceutical firms challenged a law that permitted the manufacture and importation of generic aids drugs. The companies quickly dropped this claim, however, when the defense of their patent rights became a public relations fiasco. Indeed, just prior to last year’s World Trade Organization meeting in Doha, Qatar, South Africa’s health minister called the high prices for lifesaving medicines a “crime against humanity.” Ten thousand miles away in San Francisco, the music industry tried to take down Napster, a service that allowed users to swap digital music files over the Internet. In this case, the courts agreed that Napster’s file-sharing technology violated music copyrights. And across the Atlantic, advocates of “software libre” are introducing legislation in several European parliaments to give preferences in government procurement to software that can be freely copied and distributed. The Eurolinux Alliance argues that only free software “preserves privacy, individual liberties, and the right for every citizen to access public information.”
Battles such as these are erupting all over the globe. At stake are decisions about how society can best encourage the creation of ideas, when someone can stake a claim to intellectual property, and how far copyright- and patent-holders can go in preventing others from taking their property. The scope of the controversy is vast. It might encompass debates about ownership of the formula for an aids vaccine, a Miles Davis riff, a software algorithm, or a new way of uncorking a wine bottle. Each of these is an idea embodied in physical forms: formulas, notes, code, or drawings are turned into capsules, records, CD-ROMs, or corkscrews. The economic consequences of the dispute are also immense. The resolution of who gets to own what, where, and for how long will determine how much corporations and entrepreneurs invest in creating intellectual property, where they will sell products based on intellectual property protection, and how much they will be able to charge for these products.
Battle Lines
The meaning of these disputes and how they should be resolved is the focus of Copy Fights, a new book of essays on intellectual property published by the libertarian Cato Institute. It is a provocative and balanced collection that examines both the current theories and the practice of intellectual property protection. Its contributors are a diverse group. They include a member of Congress, a lobbyist for the recording industry, a chief executive of a communications company, and a mix of lawyers, journalists, and academics. All of them seek to address the new questions raised about intellectual property in the digital era.
Aside from abortion it is hard to think of a public-policy controversy in which the positions are more polarized, the claims more apocalyptic, and the language more colorful. Disney’s chief, Michael Eisner, claims, “There must be a reasonably secure environment to prevent widespread and crippling theft of the creative content that drives our economy.” In contrast, Stanford law professor Lawrence Lessig has suggested that most existing intellectual property law protects the establishment against aspiring innovators. “It’s like giving the Communists control over the future of the new Russia,” he recently told BusinessWeek. And one cannot identify the partisans in this conflict by their usual colors. Greens and Libertarians doubt anyone should own ideas, while spike-haired musicians and entertainment moguls do not want their creations Napsterized. The fervor is reminiscent of religious debates and for the same reason: “arguments over the proper scope of copyright and patent law ... assume knowledge of things unknown and unknowable,” as Tom Bell, a professor at Chapman University, writes in his contribution to Copy Fights.
Bell is right up to a point. We have known for centuries that owning mathematical theorems and other ideas raises more puzzles than does owning horses or other tangible property. Although no culture has allowed anyone to own a theorem, many modern ones let artists assert ownership over their writing, paintings, or music for some period of time, and most industrialized countries have given inventors of a better mousetrap a monopoly for a decade or two. These conventions vary across and within countries in maddening ways. But societies have not adopted these standards thoughtlessly. The fact that the U.S. patent office gave a 20-year monopoly to the inventor of the Santa Claus detector (patent #us5523741) should not make us lose sight of the fact that there is order amid this chaos. Broad principles that advance the public interest govern the ownership of intellectual property.
As the contributors to Copy Fights demonstrate, intellectual property protection is not a field of bright lines and clear rules. Protecting ideas always demands a delicate balance between competing objectives and values: stimulating creativity but thwarting monopoly; creating knowledge yet disseminating it broadly; enforcing rules while responding to change. Economic, technical, and social changes have complicated the balance between these competing goals and renewed debate over who should own what ideas and for how long. Nevertheless, it is a time-tested proposition that society benefits enormously when the expression or product of some ideas is owned and exploited for profit. The time has come to discuss once again the limits of that proposition, not its centrality.
Why Now?
The current explosion in controversy over the protection of ideas has three main causes. First, brainpower drives the modern economy: there are more demands to own ideas and more demands for cheaper access to ideas. Second, technological change has made it harder to protect ideas. More people want to use technology to get access to intellectual property. The owners of this property want to stop or at least limit these attempts. Third, globalization has made it easier for intellectual property to spread to parts of the world with weaker protection of ideas. In a variant of Gresham’s Law, the one nation that does not protect patents within its borders can drive down global standards, making it harder to enforce ownership rights everywhere.
On top of these trends, the output of the “idea industry” has grown exponentially. More books, movies, drugs, music, software, and video games exist today than at any time in history. Still, the basic tension over intellectual property remains the same. The originators of innovative ideas are trying to stop people from using the fruit of these ideas for free. Charles Dickens, for instance, was upset that he received no compensation when his work was copied in America – the United States did not honor foreign copyrights. Many of today’s novelists and musicians similarly see copyright infringement as a death blow – surely an exaggeration – to their ability to make money from their next big hit.
What is new today is that consumers and their advocates, using technology to gain increasing access to patented content, are undermining the very premise of intellectual property protection. In his contribution to Copy Fights, John Perry Barlow, a former lyricist for the Grateful Dead and cofounder of the Electronic Frontier Foundation, a digital civil liberties organization, says that “strict control over content by a handful of media companies limits free speech and thought.” He resents the idea that publishers can prevent someone from copying a poem off the Internet. Ideas, he argues, “need to be free to mix with one another, as living things do in nature.”
Free For You And Me
Despite such disagreements, the economic principles of intellectual property are widely accepted. Intellectual property differs from physical property in two key respects. First, you and I cannot both sit in the same seat at Boston’s Symphony Hall. But you and I can both listen to Mahler’s Ninth. Intellectual property is not an exhaustible resource. My consumption does not reduce your consumption. Second, making more seats to enlarge Symphony Hall costs money. Reproducing a recording of a Mahler symphony costs very little.
Non-exhaustibility and cheap reproducibility create an important dilemma: how to maximize the value of intellectual property for the public. Once an idea has been created it would seem best to make it available to everyone. It does not cost anything from society’s standpoint, and many benefit. But that leaves nothing for the idea creator. To get an idea created society may have to form a pact with the inventor. If you create that idea society will allow you to sell it (strictly speaking, the “expression of the idea”) for a profit. Advocates of free intellectual property always need to be reminded that making ideas free after the fact may kill the incentives to create ideas in the first place. The unsurprising effect of South Africa’s decision to allow generic drug manufacture was that multinational pharmaceutical firms either closed their plants or withdrew investment from the country.
Supporters of stronger intellectual property rights need a reminder too. They have struck a bargain with the public. You create, we reward. But rewards have strings attached. Patents, copyrights, and trademarks provide a way for creators to charge for their products. They also provide incentives for sharing ideas with the public – patents do this most clearly since the creator has to disclose the invention to get ownership rights.
Creators sometimes object to this bargain. “If I spend $100 million on a factory no one can ever take it from me, but if I spend $100 million on a cure for cancer I only get a 20-year patent. What is the difference?” One response is “I could have come up with the one-click shopping method if I had thought about it for 20 seconds. Why should Amazon.com get a 20-year patent on that?” And therein lies the problem. Many people can come up with the same idea by putting their minds to it. So creating an idea is not the same as creating a factory. The same goes for ownership.
The problem that societies have wrestled with is deciding when an idea warrants the reward. According to one of the contributors to Copy Fights, “the Venetians identified the same basic concepts that inform current patent policy: novelty, creativity, exclusivity, and the reduction of the creative idea to actual use and an embodiment in physical form, limited duration, and an explicit recognition of incentive effects. U.S. jurisprudence is built around the same factors, adding only a number of limitations on the patentability of laws of nature, mathematical formulae, natural substances, methods of operation, and similar phenomena.” Another factor is whether society has other ways of providing incentives. Much basic science leads to important discoveries that might at best give the creator a shot at a Nobel Prize – which, when shared by three, and after taxes, might pay for a beach house. Albert Einstein made more money, at least directly, from his more than 40 refrigerator patents than from the general theory of relativity (for which he did not even get another Nobel). Still, prizes, peer status, and personal satisfaction do elicit great creative effort. But they will not get us a better mousetrap.
How Much Is Too Much?
The entertainment industry has made intellectual property protection an easy target. The original copyright law in the United States, enacted in 1790, gave the author 14 years of protection and another 14 if he or she was still living. Those numbers doubled in 1909. As Lessig has pointed out, only half jokingly, it seems that every time Mickey Mouse is about to fall into the public domain Congress gives him (and other copyrights) a new lease on life. Congress increased the renewal period to 47 years in 1976, around the time Mickey’s number came up. Then, Disney wooed Congress to get the Sonny Bono Copyright Term Extension Act of 1998; copyrights now last for the inventor’s lifetime plus 70 years. This breaks the social bargain. Walt Disney created Mickey knowing that his company would profit from his creation for the 56 years that prevailed under the 1909 act. The public kept its end of the bargain. And since only ex ante incentives for investment matter, society gets nothing from giving more money for ideas already created.
The movie and music industries are now like the boy who cried wolf. Jack Valenti, the long-time head of the Motion Picture Association of America, once said that the “VCR is to the American film producer and the American public as the Boston Strangler is to the woman alone.” Record producers similarly claimed that audio cassettes would kill the record industry. One might think that complaints about Napster should make us go long on this industry’s stocks.
Yet, as economist Stan Leibowitz observes in his chapter in Copy Fights, this time there probably is a wolf. Consider the world in ten years. Internet connection speeds will be far faster than today’s, and more people will have them. Computer memory and processing speeds, hardly a constraint today, will be bigger and faster. All entertainment will be digital and easily copied. Without methods for preventing copying – and ways to prevent the cracking of those methods – the incentives for digital innovation will be severely weakened. These preventive methods are known as Digital Rights Management (DRM) and they will be debated fiercely in countries around the world in the years to come. Congress’ first attempt at DRM, the Digital Millennium Copyright Act, has caused great controversy in part because it provides jail time for people who help break into protected media. Forty-eight leading law professors said the DMCA is unconstitutional because it prevents people from making “fair use” of copyrighted material. Yet the new technology expands possible use beyond anything previously imaginable, and the new law tries to give copyright owners something like the protection they used to have.
Intellectual property faces the greatest criticism when it comes to the production and distribution of life-saving medicines. Pharmaceutical companies insist that they need patents to recoup the considerable financial investment they make in discovering drugs, getting them approved by regulators, and bringing them to market. The Tufts Center for the Study of Drug Development estimates that it costs more than $800 million to develop a new prescription drug. But in recent years public-health advocates, most notably the physicians group Medicins Sans Frontieres, have argued that stringent intellectual property protections make lifesaving medicine expensive or unavailable in the poorest countries. The inability of aids patients in Africa to obtain medications has put the vast international pharmaceutical industry on the defensive.
Mickey Mouse was funny. This failure is heart wrenching. But it reveals a fundamental misunderstanding on the part of those who oppose intellectual property rights, even as they appear to be the more human and compassionate figures in the debate. Preventing the distribution of copycat drugs because of adherence to patent laws invariably means that some desperately ill patients will not have access to medicines they need. Yet the act of ignoring patents in the name of helping sick people curbs the incentive to develop new, lifesaving drugs in the future. The critics of intellectual property protection have forgotten Abraham Lincoln’s statement that the patent system “added the fuel of interest to the fire of genius.”
Unfortunately, the public health field is not the only one in which the argument against the ownership of ideas is gaining ground. Today, governments around the globe are being asked to use only computer software that is available under an open-source license. The General Public License (GPL) is the most common license and is used for the most popular open-source software package, the Linux computer operating system. Although many Linux and open-source software users are content to co-exist with the for-profit world, the GPL can quickly suffocate intellectual property rights. The GPL allows anyone to distribute copies of open-source software for free or use the source code to create a derivative software program. But if anyone uses some of the Linux code in creating a derivative work or complementary program, that software, too, must be distributed for free and its source code made available to all. Adherents of the GPL refer to the system as “copyleft,” fully understanding that it forces any proprietary software maker who wants to use code licensed under the GPL to surrender its intellectual property to the commons.
Copyrights And Wrongs
The best response to these controversies might be to rediscover the link between strong intellectual property laws, private investment, and innovation. Although critics may point to some adverse consequences of intellectual property protection, the absence of such protection undermines the willingness of companies and individuals to invest in new ideas and products – the core purpose of protecting intellectual property for at least the last 500 years. Well-defined intellectual property rights also make it easier for inventors to enter into deals with global companies and reduce the worry that their partners will copy their work. At the same time, supporters of intellectual property laws need to recognize the problems with the current system, such as innovators who renege on their bargain with consumers by seeking to prolong patent protections. And they must also recognize the understandable backlash when an aggressive and litigious strategy to expand the coverage of patents is perceived as an effort to prevent new competitors from entering the market. As the editors of this volume point out in their introduction, “one imagines record companies would assert the right to copyright the 12-bar blues chord progression if they could get away with it.”
The patent system in the United States needs reform. The U.S. Patent Office lacks the resources to distinguish inventions that deserve protection from those – the silly, the obvious, and the hardly new – that do not. That problem is exacerbated by the legal system. Once granted, patents are hard to void, and juries and judges tend to favor the patent holder. Uncertainty over the scope and even existence of patents also creates expensive litigation. For instance, holders of “submarine patents” have launched huge royalty claims after having kept a patent secret, quietly waiting until the technology or business process becomes an industry standard. Companies also invest in patent portfolios just to have something to negotiate with when they are hit by legal claims. In changing the system, policymakers ought to remember that extremists from both ends of the protection spectrum cannot be trusted. Recommendations to grant blanket elimination of patents in certain industries – such as the claim that there should be no software patents – should be treated as skeptically as demands for blanket extension of patent rights to areas where they do not now exist.
If ideas are going to continue to receive appropriate protection, the global bargain of intellectual property needs to be reinvigorated. This is a real challenge. The 1994 Trade-Related Aspects of Intellectual Property agreement rests on the sound premise that the patent system fuels innovation and provides the best way for developing countries to attract investment and technology transfers. Critics of the agreement still see it as favoring the rich, patent-holding nations over the poor. But that is the wrong dividing line to draw in the intellectual property debate. Many countries are essentially idea importers. If all consumers keep up the bargain with innovators, everyone benefits regardless of whether they live in an idea-importing or an idea-exporting state. The bargain guarantees that innovators have an incentive to create, and their new ideas, once put on the marketplace, spread globally. This phenomenon occurs most clearly with drugs and software. Countries that are idea exporters, such as the United States, will have to persuade other nations that it is in their long-term interest to support the protection of ideas and to be part of a global bargain. Indeed, the backlash against intellectual property comes partially from poorer countries that saw U.S. demands in the 1990s for stronger patent protection as a wealth grab. In any event, we cannot wait for what it took to convince the United States to respect foreign copyrights: American authors in the mid-nineteenth century realized they were losing royalties on foreign sales and that they were facing competition from foreign books made cheaply in the United States, precisely because publishers did not have to pay royalties.
Yet despite all the dilemmas posed by intellectual property protection, the broad compromises developed by the Venetians have endured. It is difficult to see how society could improve on their framework for balancing private incentives with public benefits. The devil is in the details, however, of how that balance is struck.