Intellectual Property: When Protecting Ideas Destroys Them

The following post is part of the course work for “Live Exchange” the foundational course on communication for The MBA Design Strategy Program at California College of the Arts. The rest of the posts are presented here. [caption id="attachment_71832" align="alignright" width="292"] Ideas by Amanda Woodward. CC Attribution License[/caption] By Sandjar Kozubaev   More often than not, innovation and more specifically, invention, happens from a spontaneous exchange of ideas, observation and experimentation. The phenomenon how of two unrelated events or ideas can lead to the birth of an entirely new idea has been proven time and again. Matt Ridley, author of the Rational Optimist, famously described the process of new idea generation through the analogy of ideas having sex. Ridley refers to the fact that sexual reproduction gives the offspring the benefit of tapping into the gene pool of two unrelated parents, leading to greater chances of survival. Diversity is key. Similarly, I would say that generation of new ideas and their success is a function of access to other ideas. More importantly, this relationship is not linear but exponential. By gaining access to five additional ideas, I can produce 100 new ideas. But what if all those other ideas have owners and they want to control how I use it? I am of course referring to modern intellectual property (IP) laws and their relationship to innovation. An Advanced but Myopic System How does the current system of IP protection recognize the fact that new ideas depend on access to other ideas? Let’s look at what we (and by “we,” I mean society, markets, governments, civilization or whatever term you want to use) have done to capitalize on this concept. Over time, IP protection laws have become increasingly more restrictive. The basic concept of IP protection hasn’t changed, that is, the authors of ideas try to prevent others from copying the results of their work for free. I think protecting the rights of these authors is a fair and rational goal. The question is whether the author of the original idea owes anything to society in return for providing the fertile soil for that idea to originate. From the pure market economy point of view, the answer is no. It is clear that the author invested time and money and incurred risks in order to bring that idea to fruition. However, from an ecosystem point of view, the answer is not as clear. A large amount of scientific research and discovery relies on the information in the public domain. That includes not only the existing body of scientific work but also other domains like culture, language and media.  Should one expect inventors to contribute back to the ecosystem so it continues to generate new ideas into perpetuity? In my assessment yes, but the author also has to be appropriately compensated for the monetary cost of creating something and for the risk associated with undertaking the activity (i.e. risk premium). In my opinion, modern IP laws solely focus on the return on investment (ROI) to the author, but largely ignore the returns back to the ecosystem. Current IP law demonstrates an understanding of the connection between the risk and reward of the authors and the necessity to protect their rights, but lacks an appropriate level of understanding when it comes to knowing when an idea may have a greater net ROI if it remains openly accessible, as opposed to protected. What about the Evidence? A recently published study by MIT economist Heidi Williams provides empirical evidence of how IP protection impacts subsequent research and development (R&D) on the example of human genome sequencing. Specifically, Williams compared the scientific research of genes uncovered by the Human Genome Project (which was an open source venture) and a similar project run by Celera Corporation, which had the benefits of IP protection on genes sequenced on its own, but later lost the protection once those genes were re-sequenced by the public.  The results of the study suggested that genes protected by IP reduced subsequent innovation by the order of 30%, despite the fact that they were released into public domain afterwards. In this case, Williams measured the amount of subsequent innovation by the number of related publications for each sequenced gene. The study’s limitations do not completely take into account how these two IP ownership models affect the total welfare. However, the important insight from this study is that before giving a blanket monopoly power (albeit temporary) on any IP, we need to understand the tradeoffs in subsequent innovation. The question is not whether to give monopoly power to the IP owners, but for how long. This is highly critical given the recent trend of increased rights given to the IP holders over the last century. Take copyright law in the U.S. It was originally enacted in 1790, and gave the author 14 years of protection and another 14 if the author was still living. In 1909 those numbers doubled. Congress increased the renewal period to 47 years in 1976. As Davis Evans reported in Foreign Affairs, this was around the time Mickey Mouse's copyright term was about to expire. Disney convinced Congress to pass the Sonny Bono Copyright Term Extension Act of 1998. As a result, copyrights last for the author’s lifetime plus 70 years. Evans puts it very well: “.. this breaks the social bargain. Walt Disney created Mickey knowing that his company would profit from his creation for the 56 years that prevailed under the 1909 act. The public kept its end of the bargain. And since only ex ante incentives for investment matter, society gets nothing from giving more money for ideas already created.” The argument should not focus on whether Mickey Mouse was valuable to Disney. The appropriate benchmark is what the benefit to the market would be if, back in 1976, the U.S. law forced Mickey Mouse to become part of public domain, and eventually part of the U.S. folklore. It’s not an easy benchmark to quantify, but the fact that this kind of benchmarking is not even considered by the current IP law is a problem. Looking for A Sustainable Future Economic theory and practice tells us that firms always pursue monopolistic power because that is what they are designed to do. In a sustainable future, we should begin to ask ourselves how much monopoly over IP we should allow firms to have and what the larger systemic tradeoffs might be. James Boyle, a law professor at Duke University and the author of Public Domain: Enclosing the Commons of the Mind, puts it in the following terms: the legal system of copyright protection in the U.S. may be just about the only public policy that is based claims rather than empirical evidence. This is a very strong statement and one I tend to agree with. IP owners frequently cite the number of jobs they create and complain about the billions of dollars of lost profit due to infringement. But they rarely mention the true cost of the legal system that needs to support and enforce IP rights (which is ultimately the taxpayers's financial responsibility) or loss of productivity and innovation from abusive IP owners such as patent trolls. If we want to create a future of sustained innovation and collaboration, we need to take a more critical look and better understand how the true collaborative process of innovation happens and what the value of the public domain is to such a process. If we fail to recognize the value of the public domain, the trend will continue towards more control, less open collaboration and ultimately slower innovation. Just imagine what our civilization might look like if the original wheel, invented millennia ago, had a patent on it.