Intellectual property, not

intellectual monopoly
Zia Qureshi
July 11, 2018

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Technology & Information

U.S. Economy

PROGRAM

Global Economy and Development

PROJECT

The Technology-Productivity-Inequality Nexus

Editor's note: This op-ed was originally published by Project Syndicate.

“The copyright and patent laws we have today look more like intellectual
monopoly than intellectual property,” wrote Brink Lindsey and Steven Teles in
their recent book about the U.S. economy. Concerns about overprotection of
intellectual property acting as a barrier to innovation and its diffusion are not
new. But they have gained greater salience now that knowledge has emerged
as a dominant driver of economic activity and competitive advantage.

Digital technologies have enabled the emergence of an “intangible economy,”

based on soft assets like algorithms and lines of code, rather than physical
assets like buildings and machinery. In this environment, intellectual-property
rules can now make or break business models and reshape societies, as they
determine how economic gains are shared.
Yet the main features of today’s IP regime were established for a very different
economy. Patent rules, for example, reflect the long-held assumption that
strong protection provides an essential incentive for businesses to pursue
innovation. In fact, recent studies by Petra Moser and Heidi Williams, among
others, find little evidence that patents boost innovation. On the contrary,
because they lock in incumbents’ advantages and drive up the costs of new
technology, such protections are associated with less new or follow-on
innovation, weaker diffusion, and increased market concentration. This has
contributed to growing monopoly power, slowing productivity growth, and
rising inequality in many economies over the past couple of decades.

Patents also invite considerable lobbying and rent-seeking. A majority of

patents are used not to produce commercial value, but to create defensive
legal thickets that can keep potential competitors at bay. As the system
expands, patent trolling and litigation soar. Lawsuits by patent trolls comprise
more than three-fifths of all lawsuits for IP infringement in the U.S., and cost
the economy an estimated $500 billion in 1990-2010.

Some argue that the patent system should simply be dismantled. But that
would be too radical an approach. What is really needed is a top-to-bottom
reexamination of the system, with an eye to changing excessively broad or
stringent protections, aligning the rules with current realities, and enabling
competition to drive innovation and technological diffusion.
One set of reforms to consider would focus on improving institutional
processes, such as by ensuring that the litigation system does not favor
patent holders excessively. Other reforms concern the patents themselves,
and include shortening patent terms, introducing use-it-or lose-it provisions,
and instituting stricter criteria that limit patents to truly meaningful inventions.

The key to success may lie in replacing the “one-size-fits-all” approach of the
current patent regime with a differentiated approach that may be better suited
to today’s economy. Patents typically carry terms of 20 years (copyright
protections run for 70-plus years). But while a relatively long patent term may
be appropriate for pharmaceutical innovations, which involve protracted and
expensive testing, the case is less clear-cut for most other industries. In digital
technologies and software, for example, new advances have much shorter
gestation periods and typically build on previous innovations in an incremental
fashion, meaning that much shorter patent terms may be appropriate.

In an increasingly knowledge-intensive economy, public policy should seek to

democratize innovation, in order to boost the creation and dissemination of
new ideas and promote healthy competition.

Of course, if regulators do decide to tailor patents to different types of

innovations, they must take care not to complicate patent regimes
excessively. Finding the right combination of reforms would inevitably require
some experimentation, as well as the careful monitoring of outcomes, so that
necessary adjustments could be made.

But designing the right reforms is only part of the challenge: powerful vested
interests will make reform politically difficult. Fortunately, the case for reform
of the decades-old patent system could not be stronger. If the system’s
defenders truly seek to promote innovation, they should welcome it in their
own backyard.

Patents, however, are not the only important element of the innovation
ecosystem. Governments also promote innovation through direct funding of
research and development and through fiscal incentives. And here, too, action
is needed.

Government R&D spending focuses on supplying the public good of basic

research, which often produces knowledge spillovers that benefit the
economy at large. Yet in the U.S., government R&D spending has fallen from
1.2 percent of GDP in the early 1980s to half that level in recent years. This
underscores the need to revitalize public research programs and ensure broad
access to their discoveries.

Moreover, R&D incentives for the private sector—provided through tax relief,
grants, or prizes—must be made accessible to firms in an equitable way.
Patent reform could complement such reforms, say, by prohibiting patents
from government-supported research, which should be available to all market
participants.

Many breakthrough innovations developed commercially by private firms

originate from government-supported research. Recent examples include
Google’s basic search algorithm, key features of Apple smartphones, and even
the Internet itself. Governments should consider how to give taxpayers a stake
in such profitable outcomes from publicly supported research, not least to
replenish public R&D budgets. Here, the tax system has an important role to
play.

More broadly, in an increasingly knowledge-intensive economy, public policy

should seek to democratize innovation, in order to boost the creation and
dissemination of new ideas and promote healthy competition. And that means
overhauling an intellectual-property system that is moving in the opposite
direction.