Against Intellectual Monopoly

to
work glass, you moved to Venice.
    Indeed, we find that knowledge is so embodied that craftsmen were
bribed, and sometimes kidnapped and taken to an area where their skills
were lacking:
    An inquiry by the Bergskollegium in the 1660s into the emigration of Swedish iron
masters revealed that a number of workers sailed from Nykoping believing that they
were being taken to some other part of Sweden. Instead theywere brought to Lubeck,
from there to Hamburg, and finally to France, where Colbert was determined to
start an iron industry on the Swedish model.21

    Yet another example of the slow spread of knowledge is the use of doubleentry bookkeeping. This was invented in Italy at the end of the fourteenth
century, and widely used in Venice in the fifteenth century. It did not reach
the Hanseatic League cities in northern Europe until well into the sixteenth
century.
    However, one does not have to turn to the Middle Ages to find examples
of the difficulty in transferring ideas. The Economist of December 22, 2001,
ran an amusing piece on the "search for a perfect cup" of espresso coffee.
The point of the article is that, in spite of all its centuries of age and of the
apparent simplicity of its very publicly available formula, most bartenders
in the world outside Italy have no idea how to make a good espresso.
What is especially interesting is the embodiment of information in espresso
machines, in different varieties of coffee beans, and in different human
beings.
    Finally, let us go back from where we started and admit once again that
very mild unpriced spillover externalities are endemic to everyday life. For
example, when a beautifully dressed woman walks past one of the two of us,
his utility is substantially increased, although there is no reason to believe
that the woman gains from this admiration. Because beautifully dressed
women cannot easily charge their male admirers, this is an unpriced spillover
externality. To our knowledge, no public policy suggestion has been put
forward that public monopolies should be awarded to solve this particular
externality, nor many other similar minor externalities we encounter every
day.
Secrecy and Patents
    A common argument in favor of patent law is that to get a patent you
must reveal the secret of your invention.22 Are patent laws a cure for trade
secrecy? Granting a legal monopoly in exchange for revealing the secret of
the innovation is one way to make innovations more widely available in
the long run. However, as a number of economists have pointed out, in the
simplest case this argument fails.
    Suppose that each innovation can be kept secret for some period of time,
with the actual length varying from innovation to innovation, and that the
length of legal patent protection is twenty years. Then the innovator will
choose secrecy in those cases where it is possible to keep the secret for longer
than twenty years, and will choose patent protection in those cases where
the secret can be kept only for less than twenty years. In this case, patent
protection has a socially damaging effect. Secrets that can be kept for more than twenty years are still kept for the maximum length of time, while those
that without patent would have been monopolized for a shorter time are
now monopolized for twenty years. Indeed, it is important to realize that
outside the pharmaceutical industry, where the regulatory system effectively
forces revelation, trade secrecy is considerably more important than patent.
Repeatedly, in surveys of R&D lab and company managers, only 23 percent
to 35 percent indicate that patents are effective as a means of appropriating returns. By way of contrast, 51 percent argue that trade secrecy is
effective.23

    Although in the simplest case patent law does not have an impact on
trade secrecy, in cases where it is possible to expend real resources to make
secrets less accessible, the innovator faces a real trade-off between private
rent seeking through secrecy and public rent seeking through patents. This is
true also in the case of copyright, as publicly enforced copyright is potentially
an alternative to socially undesirable methods such as encryption and digital
rights management that are designed to limit reproduction. There is a small
literature in economics on this trade-of£24
    One issue is how information that changes rival firm beliefs may work
to the advantage of the firm releasing the information.