Against Intellectual Monopoly

me-too imitation is explored theoretically in the market for textbooks by
Boldrin and Levine (2002), where we show that under certain circumstances - not
dissimilar from those in the pharmaceutical industry - the result can be the Pareto
worst outcome. This idea is not very distant from that advanced in the, apparently
now forgotten, literature on patent races and excess R&D spending; see, for example,
Fudenberg and Tirole (1991).

     

TEN
The Bad, the Good, and the Ugly
    In a famous 1958 study on the economics of the patent system, the distinguished economist Fritz Machlup, paraphrasing an earlier statement by his
longtime coauthor Edith Penrose, concluded'
    If we did not have a patent system, it would be irresponsible, on the basis of our
present knowledge of its economic consequences, to recommend instituting one.
But since we have had a patent system for a long time, it would be irresponsible, on
the basis of our present knowledge, to recommend abolishing it.
    Almost fifty years later, the first half of this illustrious sentence is more
valid than it has ever been. Sadly, the recommendation has not been followed: far from maintaining the status quo, the patent system has been
enormously extended, and there is no sign of the end of the expansion of
intellectual monopoly to every corner of our economic system. Moreover,
the fifty years since have turned up no evidence that patents serve to increase
innovation. It is time to reconsider the second recommendation.
    Defenders of intellectual monopoly like to portray intellectual property as
a powerful and beneficial medicine. If a medicine has serious side effects and
scientific studies have found at best weak evidence of temporary benefits,
would you employ such a drug on an otherwise healthy patient? Probably not, unless the illness was life threatening. Yet we have documented
that innovation thrives in the absence of intellectual monopoly (the patient
is healthy), that the latter has serious side effects (the evils of intellectual
monopoly), and that a series of scientific studies have found weak or no
evidence that it increases innovation (the proposed beneficial effect is probably absent). The case against intellectual monopoly is decisive, and we must
conclude that the second half of Machlup's policy advice is now obsolete.
    "On the basis of the present knowledge," progressively but effectively
abolishing intellectual property protection is the only socially responsible thing to do. Evidence has accumulated during the past fifty years leaving
little doubt about the damaging effects of current intellectual property
laws. At the same time, legal, economic, and business know-how has also
accumulated about how markets for innovation operate without intellectual
monopoly. To rule out abolition a priori would be as silly now as it would
have been to rule out the abolition of tariffs and trade barriers fifty years
ago, when the trade liberalization process that has given us prosperity and
globalization began. For a long time, the individuals and firms that profited
from trade barriers argued that these increased the wealth of the nation
and defended homeland companies and jobs, and that abolishing them
would lead to a disaster for many sectors of our economy. It took a while
to realize that this was not true, and that trade barriers were nothing more
than rent-seeking devices, favoring a minority and dramatically hurting the
overall economy and everyone else, beginning with low-income consumers.
The same is now true of patents and copyright.

    A realistic view of intellectual monopoly is that it is a disease rather than
a cure. It arises not from a principled effort to increase innovation, but
from an obnoxious combination of medieval institutions - guilds, royal
licenses, trade restrictions, religious and political censorship - and the rentseeking behavior ofwould-be monopolists seeking to fatten their purse at the
expense of public prosperity. We may debate whether, say, Social Security
is worth keeping given the current demographic and financial markets
evolution, but no one would doubt that it was designed to provide oldage insurance that financial markets were not always capable of providing.
Patents and copyright, by way of contrast, were never designed to efficiently
foster innovation.
    Essentially all scientific studies of the current system agree that it is badly
broken. So getting rid of it may not be such a bad