Libertarians against Innovation?

Two researchers at the Mercatus Center, a think tank that produces excellent research on any number of economic issues, have published a challenge to intellectual property — trademark, copyright, and patents. The paper ridicules claims made by a number or sources in the last few years that laws which protect intellectual property (IP) create jobs. For example, The U.S. Chamber of Commerce’s Global Intellectual Property Center, which estimates that 55.7 million jobs are created by IP. The paper challenges the evidence presented by these sources, and rebuts them with — to be blunt — a purely theoretical, evidence-free argument that:

Proponents of the IP-created-jobs argument also tend to underestimate the extent to which resources not spend on IP-protected products are spent elsewhere. Other issues aside, this means that stronger IP protection is more likely to change the distribution of employment than the overall number of jobs.

Anyone familiar with this strain of ultra-libertarian anti-IP argument soon learns that if he opposes it, he grapples with a cloud. What to make, for example, of the claim that people employed in IP-intensive industries would have other jobs if there were no IP? Of course, they probably would. People who currently work in the biotech industry would, instead, toil behind a plow or blacksmith’s forge, as their ancestors did not too long ago.

Or what of the claim that there are other means — prizes, philanthropy, or government funding — which also stimulate innovation? Of course they do, and no entrepreneur dependent on IP-protection denies others the right to compete for prizes or grants from philanthropies or government. These other means, however, simply do not provide adequate stimulus for innovation. That is the major reason for the Bayh-Dole Act of 1980, which extended IP-protection to innovation generated in government-funded labs. Before that law, very little government-funded science was finding its way into marketable products.

Perhaps the greatest fallacy in this paper (although not unique to this paper), is the notion that a patent creates a monopoly. Monopoly describes a market, not a process or product. If we look at the market for statins, for example, patent protection caused a number of entrants to launch statins — creating more choices for doctors and patients. Opponents of patens claim that patents increase the prices of goods higher than they would be without patents. They forget that the patented goods would not have been invented without patents.

Thankfully, the Mercatus Center’s scholars stop short of advocating repealing laws protecting IP. Unfortunately, in only critiquing others’ estimates of the benefits of IP, it misses an opportunity to propose improvements to current IP law.

Comments (11)

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  1. Studebaker says:

    I’ve never really understood the attraction to prizes as a means to foster competition for a given goal. Prizes make about as much sense to me as buying a lottery ticket or entering a raffle. The premise is: work your butt off, if you are one of the lucky few, you’ll share in a prize. The research on prizes finds that participants spend more time competing for a prize than they would if paid for their time. That’s supposedly a good thing if you’re the beneficiary, but bad if you’re on the losing team.

    OK, if it’s such a great idea, why don’t I hold a contest to build my house with a prize for the winning team.

    Guidelines: I want a $250,000 house. There are various amenities I want in my house. I want the plumbers to compete with the tile setters. Everyone has to supply their own materials and labor. The team that wins will receive $100,000 to share among the members. How’s that sound?

    • Jay says:

      There is only payoff for the group that wins the prize. There is major upside for the winner, but for others, they will sink costs in competing for the prize. What then?

    • Bill B. says:

      As a prospective homebuyer, I am all for your scenario!

  2. Thomas says:

    Well patents are the best source for innovation that we have. You make a great point that products that are patented are at a higher price, yet without the patent they wouldn’t have been invented!

    Are we better off with no patents and no innovation?

  3. Frank says:

    I tend to agree. IP protection is necessary to catalyze innovation. There are some industries where anti-IP voices may have legitimate concerns, but for the most part, IP protections are good.

  4. Matthew says:

    Patents do, in a sense, give a product monopoly power, mostly because it is as good that is unique to itself.

  5. Devon Herrick says:

    The only area where you hear people routinely complain about patents is in pharmaceutical innovation. I would argue that the current system of patents are a form of prize. Of all the new drug entities that are screened, only a few make it to clinical trials. Of those that make it to the clinical trial stage, only a few will pass muster and become drugs. The patent life is anywhere from 8 to 12 years by the time a drug is approved. Of approved drugs, not all compete successful against their rivals. The risks are higher for a new class of drugs, but so are the rewards. The patent system allows successful innovation to offset the cost of the unsuccessful attempts.

    The problem isn’t with our system of protecting intellectual property, the problem is the bottleneck allowing innovators to bring new drugs to market.

    We don’t often hear about patents being too long on iPhones, or too long on flat screen TVs because competition has rendered the patent worth little long before it’s expired.

    • John R. Graham says:

      Yes, I think that pharmaceutical-patent critics have misidentified the culprit. The problem is that the FDA gums up the rate of introduction of new therapies.

      In other industries, the commercial life of the product ends before the patent expires, because there is no gate-keeper stopping new products from coming on the market.

  6. Don Levit says:

    We have a patent for our Health Matching insurance product
    If other insurers want to participate we want them to be part of our team
    All we require is a small
    Fee for each policy sold and a way to verify the consumer knows exactly what they are buying
    Don Levit
    Treasurer of National Prosperity Life and Health

  7. Bart I. says:

    Since when is “creation of jobs” the justification for IP protection? New drugs are presumably developed to benefit the people who need them, not as an employment program.

    The only question should be whether IP protection fosters creation of useful IP.

  8. Joe Barnett says:

    Contests aren’t an alternative to patent protection, they are an alternative to government contracts or private grants. The most famous recent instance is the Ansari X prize, annd, historically, one of the most important was the contest held by the British Navy for the development of an accurate, seagoing clock — allowing ships to determine their longitude. Prizes for innovations are common — for high schoolers’ science projects, e.g., where the prize is a college scholarship. Prizes for desirable innovations are a less risky way of spurring innovation than handing out grants in the hope something useful will be produced, since it pays only for success.