State of Innovation

Patents and Innovation Economics

Scarcity and Intellectual Property: Empirical Evidence of Adoption/Distribution of Technology

A number of scholars[1] have suggested that the logical basis for property rights is scarcity.  Property rights efficiently allocate these resources and avoid conflicts.  These scholars argue that ideas and inventions are not subject to scarcity and therefore intellectual property rights should not exist.  These arguments seem to be particularly prevalent among Libertarians, including the Cato Institute and Von Mises Institute, and the open source community. 

 In this article we will examine whether there is a lack of scarcity in the adoption and distribution of new technology.

            Tangible property rights include real property rights in land and buildings and personal property rights in things like cars and furniture.  Tangible or physical property is scarce since it can only be owned by one person at a time and it takes resources to create.  Intangible or intellectual property such as patents and copyrights, and software in the case of the open source community, is not scarce according to this theory.  Multiple people may own intellectual property without excluding others from the property.  According to Tom G. Palmer a proponent of the scarcity theory of property:

It is this scarcity that gives rise to property rights.  Intellectual property rights, however, do not rest on a natural  scarcity of goods, but on an “artificial, self created scarcity.”[2]

If Mr. Palmer is correct we would expect that in the absence of intellectual property rights new technologices would be instantly and universally adopted.

            Scientific principles are not subject to intellectual property rights.  Calculus was discovered over 300 year ago and is not the subject of intellectual property rights.  Despite this only a small percentage of the population understands it even in the most advanced economies.  Those people that do understand calculus generally paid an instructor to learn this area of math even though books on the subject can be reviewed for free at many libraries.  Almost everything a student learns through formal education, even in graduate school, is information that is readily available.  Even if the text book is copyrighted, the information is usually available in a non-copyrighted form or available for free from a library.  Despite this the U.S. spends over $500 billion a year on all forms of education.  Clearly, the cost of adopting and distribution ideas including inventions is not free and is subject to scarcity.

            According to venture capitalists, most start-ups will spend 2-10 times the amount on marketing their inventions than on developing them.  If the distribution of ideas was free, not subject to scarcity, this would clearly be unnecessary.

            University professors, doctors, lawyers, engineers, judges, marketers, sales people and computer scientists are mainly in the business of distributing or implementing known information.  If distributing information is free, not subject to scarcity, then all these people should either be thrown in jail for fraud or paid less than the average day laborer. 

            The U.S. has historically provided the strongest legal protection for inventions.[3]  The U.S. is not only the leader in the creation of new technology, but has had the fastest adoption and diffusion of new technologies.  Countries that had or have weak patent laws are associated with the slowest adoption and diffusion rates for new technologies.  This is in complete contradiction to the expected result predicted by advocates of the scarcity theory of property.

            The libertarians and open source advocates are clearly incorrect that inventions and ideas are not subject to scarcity.  This scarcity is not artificially induced, since strong patent laws are associate with greater rates of technology adoption and diffusion. 

            Advocates of the scarcity theory of property are correct that two people can understand the same idea (calculus) without diminishing the supply of the idea.  However, this is not the same thing as both people being the inventor of or discover of the idea.  Just because I understand calculus does not make me the discoverer of calculus any more than understanding how a steam engine works makes me the inventor of the steam engine.  If I were to conceive special relativity without any knowledge that Einstein had already discovered special relativity, this would not make me the discoverer of special relativity.  I did not add any information to the store of human knowledge, by my independent discovery.  The same is true of inventors, just because someone independently comes up with an idea after the inventor, does not make them an inventor.  An inventor is the person who adds to the store of human knowledge.  Being second, even without knowing that you are second does not add to the store of human knowledge or make you an inventor.  The patent laws require the inventor to be the first in the world to create an idea.

            The debate over the whether property rights are conceptually based on scarcity or based on the right of a person to their labor both physical and mental is not just an academic exercise.  Failure to provide strong legal protection to inventors has severe consequences for our economic growth rate.  The U.S. does not have the luxury of just adopting other countries’ technology to provide economic growth, it must innovate in order to have an increasing standard of living for its citizens.  By denying the value of intellectual labor, libertarians have more closely aligned themselves with Marx’s labor (physical) theory of value than with the free market.  Adopting their approach will result in the same disastrous consequences as has occurred to countries that have adopted socialism and communism. 

 

 


[1] Kinsella, Stephen, Against Intellectual Property  and Palmer, Tom G., “Are Patents and Copyright Morally Justified? The Philosophy of Property Rights and Ideal Objects”, Harvard Journal of Law & Public Policy, Vol. 13, No. 3, Summer 1990, pp. 817- 865.

[2] Palmer, Tom G., “Are Patents and Copyright Morally Justified? The Philosophy of Property Rights and Ideal Objects”, Harvard Journal of Law & Public Policy, Vol. 13, No. 3, Summer 1990, p. 865.

[3] Khan, Zorina B., The Democratization of Invention: Patents and Copyrights in American Economic Development, 1790-1920, Cambridge University Press, 2005, p. 298.

June 25, 2009 - Posted by | -Economics, -Legal, -Philosophy, Innovation, Patents | , , , , , , ,

13 Comments »

  1. Whoever is bankrolling you should ask for their money back.

    Ideas and arguments that seek to justify rent seeking behavior can have value for a rent seeker but still impoverish society.

    Comment by JTG | June 26, 2009 | Reply

  2. The empirical evidence does not support your point of view. The richest countries in the world have the strongest intellectual property laws. The poorest countries have weak or non-existent intellectual property laws.

    The industrial revolution and attendant enormous increase personal income in western countries corresponds with the advent of modern intellectual property law.

    Inventors are not “rent seeking,” but economists who push the rent seeking theory of intellectual property are.

    Comment by dbhalling | June 27, 2009 | Reply

  3. Rich countries have better educated innovators, entrepreneurs, and greater accessibility to investment capital.

    It is just as valid to postulate that these conditions are created by capital aggregating in places with the greatest rent seeking opportunities.

    Smart capital taking advantage of government enabled rents is no argument for the rents. If it were, your same utilitarian argument could be made for slavery, lack of pollution regulations, corruption and cronyism, etc.

    Noting how the industrial revolution “corresponds with the advent of modern intellectual property law” does little to prove your argument. Though in fairness to you, the coincidence of “enormous increase personal income” [sic] with “the advent of modern intellectual property law” does prove mine.

    Comment by JTG | June 27, 2009 | Reply

    • Your argument about the level of education as being the cause for economic growth does not correspond with reality. The U.S. had the strongest patent laws in the world in the 19th century, was the most innovative country in the world, but did not have the most educated inventors or entrepreneurs. See The Democratization of Invention: Patent and Copyrights in American Economic Development, 1790-1920, by B. Zorina Khan.

      If patent laws impeded growth as you suggest, you would have expected those smart entrepreneurs and inventors to move to countries with more favorable laws. By moving to a country with weak or non-existent patent laws they would have gained the advantage of no artificial scarcity of ideas and inventions. However, that is not what happened. The empirical evidence is unambiguous that economic growth is associated with strong patent laws. The logical case for the scarcity theory of property rights fails also. See my early post Scarcity – Does it Prove Intellectual Property is Unjustified?

      Comment by dbhalling | June 27, 2009 | Reply

      • “The empirical evidence is unambiguous that economic growth is associated with strong patent laws.”
        Nice.

        ‘The empirical evidence is unambiguous that economic growth is associated with not having the most educated inventors or entrepreneurs.’
        No problem with this statement right?

        If you were to argue that the intellectual property method of rent extracted ‘profits’ is the most efficient and/or successful means of matching production capital with ideas, that would at least be a comprehensible way to argue the point – not that it would be possible to credibly compare the trajectory of past innovation with an alternate scenario or to calculate the opportunities gained or lost.

        Your cynical use of the term “empirical” displays the fraud of your position.

        Comment by JTG | June 28, 2009

  4. OK, my shot at this: the richest countries benefited from strong protection of physical property and enforcement of contracts. This has allowed wealth to build and be funneled into innovation, new markets, new products. By pure coincidence, these same countries had the strongest IP laws too. That said, attributing the progress of Western capitalist economies entirely to IP looks like muddying the water.
    Also, this labor-theory-of-everything sounds very Soviet to me. I had grown in the USSR. The Soviets were not only successful in turning labor into a cult, they also had a rudimentary IP system (“authorship certificates” for inventors, along with recognizing literary copyrights under the Berne Convention). Still the lack of the most basic market – free exchange – had led to huge distortions.
    I tend to view the present worldwide obsession with “protecting the fruits of intellectual labor” with enormous enforcement costs as a similar distortion of markets.

    Comment by Andrew | June 28, 2009 | Reply

  5. Andrew, with regard to the “labor theory of property rights” you may want to read John Locke’s Treaties on Government. The U.S. was founded on John Locke’s natural rights philosophy. There is no overlap between Marx’s “physical labor theory of value” and natural rights.

    You may also want to read Ayn Rand, who escaped from the USSR. Particularly her books Capitalism the Unknown Ideal and The Virtue of Selfishness, which develop the labor theory of property in more detail. Below is a quote from her on this subject:

    The right to life is the source of all rights—and the right to property is their only implementation. Without property rights, no other rights are possible. Since man has to sustain his life by his own effort, the man who has no right to the product of his effort has no means to sustain his life. The man who produces while others dispose of his product, is a slave.

    Tragedy of the Commons with Respect to Inventions
    Inventions and ideas are subject to a tragedy of the commons without intellectual property. In the tragedy of the commons there are two problems, one is overuse of a resource no one owns and the other is underinvestment in the resource no one owns. For intellectual property, there is no problem with overuse of ideas, but there is the problem of underinvestment in innovation. The only manner in which per capita income increases is by innovation and invention. Failure to protect intellectual property results in an underinvestment in the common resource of inventions. The potential number of inventions is unlimited (see my post: Scarcity and Intellectual Property: Empirical Evidence of Adoption/Distribution of Technology). However, the cost of discovering these inventions and developing them into useful products is very costly (scarcity). Intellectual property encourages the investment in and efficient allocation of resources towards developing inventions.

    Comment by dbhalling | June 28, 2009 | Reply

    • “For intellectual property, there is no problem with overuse of ideas, but there is the problem of underinvestment in innovation.

      “…the cost of discovering these inventions and developing them into useful products is very costly (scarcity). Intellectual property encourages the investment in and efficient allocation of resources towards developing inventions.”

      Sensible remarks. You seem to unjustifiably conclude however that a market forces would fail to develop an alternate model.

      Can you conceive of an industrial model where most investment is channelled into extremely flexible and efficient manufacturing facilities that would offer low prototype and tooling costs to inventors (and a shared incentive to honor non-disclosure agreements) where design elegance with respect to manufacture is rewarded. A situation where the production of existing products is continually streamlined until standardization organically develops
      as with most widgets and fasteners. This happens to an extent in the current system, but in isolated and largely uncompetitive ways. See this video for further thoughts: http://mitworld.mit.edu/video/262)

      Obviously there are myriad alternate ways of organizing innovation and industry that don’t prevent improvements of existing parts and products. I suspect that your distrust of market mechanisms blinds you to the possibility of their being discovered and proven – so sadly you call for these unseen innovations to be crowded out with the continuation of the mercantilistic intellectual property system.

      Comment by JTG | June 28, 2009 | Reply

      • JTG, thanks for the link to that very interesting video. I agree completely with Eric Von Hippel’ facts, which I would characterize as: 1) more people innovating is better than fewer people innovating and 2) wide distribution of the knowledge underlying innovations is better than keeping them secret. I disagree that intellectual property is inconsistent with these goals.

        It is easy to show that more people innovating results in more innovation. If you see my post, Scarcity and Intellectual Property: Empirical Evidence for Inventions, it shows that number of potential invention/innovations is unlimited. All inventions are combination of existing elements (conservation of matter). The greater the number of people trying out new combinations, the greater probability someone will find a solution or innovation. This is why highly structured environments found in large corporations tend to not be innovation leaders. Democratization of Invention: Patent and Copyrights in American Economic Development, 1790-1920, by B. Zorina Khan, shows that the U.S. had the most democratic patents laws in the world. She shows (sorry I don’t have the page numbers in front of me) that this resulted in a greater percentage of the population in the U.S. to engage in inventive activities compared to European countries that had “elitist” patent systems. This conforms completely with Professor Hippel’s point of having more innovators/inventors leads to more inventions/innovations.

        Wide distribution of knowledge prevents reinventing the wheel and allows people to focus on new inventions. One of the major goals of a patent system, is the distribution of knowledge. Professor Khan’s book shows how this goal was and is a part of the U.S. patent system and how it is effectively implemented. She also shows that some European countries did not design their patent system with this goal in mind. The patent system does not prevent you from building upon another person’s invention and provides you with the knowledge of their invention so you can build upon it.

        It is interesting to note that even the open source community and professor Hippel have used their intellectual property rights to ensure that the information/inventions they create are used in a manner consistent with their goals. The open source community found that they had to enforce their intellectual property rights to ensure their work is used in a manner consistent with open source goals. Professor Hippel’s book is similarly protected by a license that limits how you may use it.

        How you use your intellectual property rights is a personal or business decision. Sony’s decision to be overly restrictive in who could use their betamax video technology, doomed the technology to obscurity. The personal computer was more successful than Apple, because it allowed users to configure their computer in many different ways. These are important business decisions worthy of discussion related to business strategies. However, these are not arguments against intellectual property rights just the manner in which those property rights should be used to further a company’s or inventor’s goals.

        An interesting business model that I foresee emerging is manufacturing being divorced from development. There are many bright engineers, software developers, and others who do want to focus on the creation of inventions not the marketing and manufacturing of devices/software. In the future, I can see companies that want to harness these independent creators openly soliciting their ideas and paying them for their intellectual property. In other words, research and development are completely outsourced. Since the independent creators have property rights in their inventions, they can be paid to specialize in development without having to be part of the bureaucracy of a larger organization that focuses on manufacturing and marketing. This is all consistent with Adam Smith’s idea that economic progress occurs when people specialize.

        Comment by Dale B. Halling | June 28, 2009

  6. Great Post. I posted this blog entry here… http://www.facebook.com/note.php?note_id=419697204177&comments&ref=notif&notif_t=note_reply

    Comment by froivinber | August 5, 2010 | Reply

  7. […] by froivinber NOTE: Guest Post here by patent attorney Dale B. Halling, from the excellent blog State of Innovation. (I highly recommend a visit.) This excellent article who’s got the real Marxist tendencies. […]

    Pingback by Scarcity and Intellectual Property: Empirical Evidence of Adoption/Distribution of Technology « THE VINCENTON POST | August 17, 2010 | Reply

  8. […] by froivinber NOTE: Guest Post here by patent Atty. Dale B. Halling, from the excellent blog State of Innovation. (I highly recommend a visit.) This excellent article reveals who’s got the real Marxist […]

    Pingback by Scarcity and Intellectual Property: Empirical Evidence of Adoption/Distribution of Technology « THE VINCENTON POST | August 19, 2010 | Reply

  9. […] at my post Scarcity: Does it Prove Intellectual Property is Unjustified and Scarcity -2 and Scarcity -3.  Mossoff points out that this is the philosophical point of view used by the Cato Institute and […]

    Pingback by Adam Mossoff Lecture: Ayn Rand on Intellectual Property « State of Innovation | April 24, 2011 | Reply


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 2,934 other followers

%d bloggers like this: