Against Intellectual Monopoly

introduced even when the market was small. Now, lowering intellectual
property protection decreases the monopoly distortions for all consumers
of the good ideas. With a larger market, many more consumers benefit
from the greater usefulness and availability of all these good ideas. Second,
lowering intellectual property protection makes it harder for marginal ideas
to make it into the market. But in a larger market, more of these marginal
ideas are going to be produced anyway, as there are more consumers to pay
for the cost of inventing them.
    So, the bottom line is that as the size of the market increases, by lowering
intellectual property protection, you can get a lot more use out of good ideas
at the cost of not getting quite as many marginal ideas as you would have
otherwise. If expanding the market meant only a few new people coming in,
and there were lots of valuable marginal ideas to be produced if only they
could earn a few dollars more, then maybe lowering intellectual property
protection would not be such a good idea. Try, however, adding up China
and India to your market, and then tell us if that gives you "a few people."
If you also think that the world is full of great marginal ideas that would be
produced if only they earned a few dollars more, then go ahead and insist
that we trade with China and India only after they adopt our ever-increasing
intellectual property terms. We looked at data, and we looked at theory, and
then we looked at data again; we discovered that China and India are a
lot of people, and that the great marginal ideas that do not get produced
just because they do not make those few extra bucks are quite rare, at best.
Hence, we concluded, we are a lot better off with lower intellectual property
protection when the market size increases, not vice versa.

    On the basis of a more technical analysis, we argue that a simple rule of
thumb that allows for some additional marginal ideas to be created while
reducing the overall monopoly distortion is to reduce the length of term
of patents and copyrights in proportion to the scale of the market.37 This
simple rule of thumb would be that if the size of market grows by 4 percent,
the length of protection should be cut by 1 percent.
    Take, for example, the World Trade Organization. The G-7 nations
account for about two-thirds of world gross domestic product. Adding
the one-third from the rest of the world would increase the size of the market by about 50 percent. If we think of the intellectual property changes in
the World Trade Organization as extending the protection that exists in the
G-7 to the rest of the world, this suggests a reduction in the length of term
by about one-twelfth. Similarly, as the world economy grows, copyright and
patent terms should be reduced. If the world economy grows at a rate of
2 percent a year, our simple rule of thumb would be to reduce protection
terms by 0.5 percent per year. Because the world economy has been growing
for a while at around 4 percent to 5 percent a year, protection terms should
have been decreasing at around 1 percent a year. Unfortunately, in the case
of copyright, terms have been moving in the wrong direction; they have
grown by a factor of about four, while world gross domestic product has
grown by nearly two orders of magnitude. Hence, if the copyright term of
twenty-eight years at the beginning of the twentieth century was socially
optimal, the current term should be about a year rather than the current
term of approximately one hundred years!
    Notice that the conventional wisdom is quite different. As Hal Varian
says, "One prominent feature of information goods is that they have large
fixed costs of production and small variable costs of reproduction. Costbased pricing makes little sense in this context; value-based pricing is much
more appropriate."38 In fact technological change is reducing the fixed cost
for many creations, especially in music and movies, and value-based pricing
here means a higher, and hence more distortionary, price. As the economy
expands, there is less need for these price distortions, and we may hope that
intellectual monopoly will eventually join communism on the scrap heap
of history.
The Public Domain and the Commons
    We are almost done with using our mallet to smash shiny myths, but an
important one is still standing, which is quite popular among legal scholars
and, more generally, people working in the law