Against Intellectual Monopoly

a monopoly as a reward for innovating should, all other things
equal, increase the incentive to innovate. But the fact that an argument is
logically correct does not mean that it has practical importance for policy.
    Consider the problem of automobiles and air pollution. When I drive my
car, I do not have to pay you for the harm the poison in my exhaust does to your health. So, naturally, people drive more than is socially desirable and
there is too much air pollution. Economists refer to this as a negative externality, and we all agree that it is a problem. Even conservative economists
usually agree that government intervention of some sort is required.

    We propose the following solution to the problem of automobile pollution: the government should grant us the exclusive right to sell automobiles.
Naturally, as a monopolist, we will insist on charging a high price for automobiles, fewer automobiles will be sold, there will be less driving, and so
less pollution. The fact that this will make us filthy rich is, of course, beside
the point; the sole purpose of this policy is to reduce air pollution. This is
all logically correct - but so far we don't think anyone has had the chutzpah
to suggest that this is a good solution to the problem of air pollution.
    If someone were to make a serious suggestion along these lines, we would
simply point out that this "solution" has actually been tried. In Eastern
Europe, under the old Communist governments, each country did in fact
have a government monopoly over the production of automobiles. As the
theory predicts, this did indeed result in expensive automobiles, fewer automobiles sold, and less driving. It is not so clear, however, that it actually
resulted in less pollution. Sadly, the automobiles produced by the Eastern
European monopolists were of such miserably bad quality that, for each
mile they were driven, they created vastly more pollution than the automobiles driven in the competitive West. And, despite their absolute power, the
monopolies of Eastern Europe managed to produce a lot more pollution
per capita than the West did.
    Arguments in favor of intellectual monopoly often have a similar flavor.
They may be logically correct, but they tend to defy common sense. Ed
Felten suggests applying what he calls the "pizzaright" test.The pizzaright
is the exclusive right to sell pizza and makes it illegal to make or serve pizza
without a license from the pizzaright owner.' We all recognize, of course,
that this would be a terrible policy and that we should allow the market
to decide who can make and sell pizza. The pizzaright test says that when
evaluating an argument in favor of intellectual monopoly, if your argument
serves equally well as an argument for a pizzaright, then your argument is
defective - it proves too much. Whatever your argument is, it had better not
apply to pizza.
    Three things stand out in the case of arguments in favor of intellectual
monopoly. First, all other things are never equal. A system of intellectual
monopoly may well increase the amount of money that an innovator can
make by selling his idea, but it also raises the cost of producing that idea. The
innovator must pay all the other monopolists more to use their ideas to create his own. The system also creates a variety of other costs - innovators must
engage in costly patent searches to make sure that they are not infringing
existing patents - and the substantial legal and court fees earned by lawyers
are all part of the cost of operating a system of intellectual monopoly.
Because of all these costs, a system of intellectual monopoly may well lead
to less innovation than a competitive system does. Second, monopoly is
not widely viewed as the friend of innovation - the Eastern European state
monopolies are only the most extreme of many examples. So, we may
well wonder whether creating monopolies is really a good way to increase
innovation. Finally - the bottom line. If intellectual monopoly is a good
idea then it must be because it increases innovation and - given all the costs
we have documented - it must increase innovation substantially over the
competitive system. As we shall see, when we turn to the facts in the next
chapter, there is no evidence that it does so.

    Before returning to data and historical facts, we nevertheless choose, in
this chapter, to entertain our readers with a few more theoretical debates.
Probing critically the many