State of Innovation

Patents and Innovation Economics

Intellectual Property’s Great Fallacy: Another Rambling Diatribe for Open Source Marxist Utopia

Intellectual Property’s Great Fallacy,by Eric Johnson

This paper starts with a bold statement that the theoretical underpinning for intellectual property (patents & copyrights) “has been washed away.”  Shortly thereafter it states “it’s hard to imagine big-budget Hollywood movies being made without copyrights.  And many new pharmaceuticals would not have been brought to market without the inducement of the patent laws.”  The paper never attempts to resolve this contradiction.  But this is far from the only problems and errors with the paper.

Property Rights:  Mr. Johnson does not seem to understand the basis of property rights or the difference between property rights and monopolies.  He incorrectly states that patents and copyrights are monopolies.  Patents and Copyrights are property rights and any definition of monopoly that includes patents also includes all property rights.  This of course leads to the nonsense that all property rights are monopolies.  For more information see The Myth That Patent are Monopolies.

Mr. Johnson tries to denigrate patents and copyrights by showing that their origin is from arbitrary government grants.  In the case of patents this was reformed by the Statue of Monopolies.  The exact same thing can be said of all property rights.  All land was considered to be owned by the King and he arbitrarily gave monopolies over certain areas of land.  This usually included the right to profit from the peasants on the land.  If the noble who received this arbitrary grant of land crossed the King, the King could and did take back the grant.  This practice continued at least until the U.S. Revolutionary War.  For instance, most of the colonies were arbitrary grants of land and President Washington was given large tracts of land for his service in the French and Indian War.  It was not until Locke that the theoretical basis for property was established, which is productive effort.  Patents and copyrights are property rights given for the inventor’s or author’s productive effort.  This theory of property rights acknowledges the reality that but for the creator the property would not exist and therefore the creator is the owner.

Extrinsic vs. Intrinsic Rewards:  The main thesis of the paper is that creative activities do not need extrinsic rewards.  In fact, the author argues that extrinsic rewards actually reduce the amount of creativity.  His evidence appears to be survey data.  However, survey data tends to be subject to a number of bias errors.  The paper ignores the actual empirical evidence.  The industrial revolution was an outpouring of new inventions.  As explained in the book The Most Powerful Idea in the World “For a thousand centuries, the equation that represented humanity’s rate of invention could be plotted on an X-Y graph as a pretty straight line.”[1] “Then during a few decades of the eighteenth and nineteenth centuries” in England and the US that equation changed.[2] Michael Kremer published a study (Population Growth and Technological Change: One Million B.C. to 1990) that argued that inventive talent and motivation are randomly distributed throughout the population.  His model works well until the industrial revolution.  Then England and other common law countries significantly out invent the rest of the world and their GDP per capita also grows much faster than the other countries in the world.[3]

Mr. Johnson also repeats the myth of the First Mover Advantage.  Even the author of the seminal paper on the first mover advantage has admitted that he overstated the case.  There are numerous business books that have argued that it is better to be a copier, including In search of Excellence and more recently Copycats: How Smart Companies Use Imitation to Gain a Strategic Edge.  For more information see More Evidence that Stealing Invention is a Business Strategy.  My post Invention – A Financial Analysis, show that an inventor is always disadvantaged compared to a copier without property rights in his invention.

The paper argues that R&D managers at large corporations believe there are plenty of incentives for companies to invent aside from patents.  First of all this survey data is selective.  There are plenty of studies that show patents are critical for the success of start-ups.  See Patent Signaling, Entrepreneurial Performance, and Venture Capital Financing .  Once again Mr. Johnson’s data is selective at best.  Large corporations are not highly inventive.  According the SBA most emerging technologies are created by individual inventors and startups.  See An Analysis of Small Business Patents by Industry and Firm Size.

Free Markets and Patents

Mr. Johnson makes a number of statements like “While intellectual property entitlements are conceded to be modes of interfering in a free market, they are nonetheless understood to be necessary to address a problem of “market failure.”  This statement is based on the “Efficient Market Hypothesis.”  This hypothesis has been an major excuse for interfering with markets and property rights by statists, while pretending to support free market capitalism.  For instance, it is used to justify government involvement in education, labor markets, and limiting property rights through antitrust laws.  Free market capitalism is not based on the efficient market hypothesis.  It is based on property rights and contracts and the right of individuals to exercise these rights without government interference.

Value of Patents

Mr. Johnson makes the outrageous and completely unsupported statement that, “Patents have turned to be largely worthless to own, and, even worse, costly to defend against.”  As shown above Patents (property rights for inventions) were essential for humans in escaping the Malthusian Trap.  Patents have been shown to be critical for startups, see Patent Signaling, Entrepreneurial Performance, and Venture Capital Financing.  IBM makes over $3B a year from licensing fees.  Once again Mr. Johnson’s assertion is selective at best and perhaps purposely misleading.

Open Source

Mr. Johnson argues that the low cost of inventing has opened up opportunities for most people to be inventive and they are doing so in increasingly large numbers.  Again his data is selective at best if not outright misleading.  Since the advent of the open source and anti-patent movement the U.S. has faded from the clear technological and innovation leader of the world to being a second tier country according to most observers.  People in the US are not talking about the explosion of innovation, but the implosion.  Mr. Johnson seems to live in an academic fantasyland.

Conclusion

This paper may pass for an academic paper in today’s world, but it is not science.  At best is a selective survey of existing research in this area.  It does not add any new data, informatio, or conclusions.  If it were a patent application, it would not pass the novelty test.  However, this appears to be the norm for most of what is considered academic research today.

 

Intellectual Property’s Great Fallacy, by Eric Johnson

 


[1] Rosen, William, The Most Powerful Idea in the World”: A Story of Steam: A Story of Steam, Industry, and Invention, Random House, Kindle Version, location 258-264,  2011.

[2] Rosen, William, The Most Powerful Idea in the World”: A Story of Steam: A Story of Steam, Industry, and Invention, Random House, Kindle Version, location s64-270,  2011

[3]Kremer, Michael, Population Growth and Technological Change: One Million B.C. to 1990, Quarterly Journal of Economics, Vol 103, p. 681-716, 1993.

 

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March 5, 2011 - Posted by | -Philosophy, Patents | , , , , ,

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