RE: IP Protection ...

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Date: Sun May 13 2001 - 00:35:06 PDT

Gordon's perspective was also neatly captured in an Economist article last
month. The point that the manifestations of ideas in systems like software
have zero distribution cost, and therefore zero harm of infringement, makes
patents a different kind of beast.

The counterargument comes primarily from the drug, chip and software
industries: the cost to manufacture and market a product has increased
exponentially. Therefore the thing to look at is the relative harm of, say,
zero-cost distribution versus the cost of developing the product amortized
over the term of the patent.

It's relatively easy to see this in small molecule patents, i.e. drugs,
where $500MM or more of R&D effort goes into an end to end pipeline, with a
90-99% failure rate. The lack of patent protection would severely strain the
economics of drug R&D both from the perspective of net economics and risk
economics. It would certainly concentrate novel development into large
companies, since startups would have way too much up front risk capital for
a VC.

The relevant example in chips is fabs, which have been exponentially more
expensive to make. But within a process, the actual chip design may or may
not fall into this category. Certainly there are areas BESIDES new process
that are taking exponentially more investment to produce a product (Intel's
chips are an example, partly due to the cost of maintaining legacy
compatibility), but there are also areas that are not. For a while, the
value of most network chip innovations was in the ideas independent of the
process (e.g. fab costs).

Put another way, it's interesting to look at IP protection as being one of
the ways that you can justify exponential economics; where you deploy an
exponentially increasing amount of money into successive generations of
product which have corresponding levels of exponential demand. Few markets
sustain this economics; in fact for those markets where the product
development costs go down (product, NOT productivity!) and manufacturing
tends to zero, perhaps you can argue that harm is reduced to zero so patents
should be either made weaker or shorter in duration.

-----Original Message-----
From: Gordon Mohr []
Sent: Friday, May 11, 2001 4:38 PM
Subject: Re: IP Protection ...

Regarding John Hall's arguments:

In the past, I've strongly believed in both the idea and
implementation of "intellectual property." Copyrights and
patents, I agreed, helped incent the creation of useful
knowledge and products, by applying the rules of physical
property to mere ideas and expressions.

However, my previous faith in IP is now in an advanced state
of collapse. Thus I feel I can understand both sides of the
IP debate, and perhaps present the IP critique in a manner
more palatable to IP defenders -- so that they can understand,
even if they don't agree.

Our constitution and culture grants no inherent, natural right
to control the use of one's ideas, after you've chosen to
communicate them. Unlike with physical property, there is no
absolute harm done to creators by appropriation of their works,
only "harm" relative to the *potential* benefits they could
extract from control. Ideas are not "used up" by replication
and reuse.

Instead, IP is a legally-manufactured right -- a societal
invention dating to around 1700. Before then, lacking the
means to efficiently produce and distribute faithful
reproductions of an original work, the idea of controlling
the right-to-reproduce-or-use creative works was almost
meaningless. The idea of "IP" was thus meant not just as
an incentive to create, but an incentive to propagate
worthwhile creations, given the cost and difficulty.

I would not dispute that IP has brought society many benefits,
and has probably even been net-beneficial up to this point.
It was a clever legal invention.

Now, however, IP seems increasingly obsolete. We still need
creativity, but the difficulty of creating new knowledge has
gone way down: the tools, supporting inputs, and range of
potential sponsors have grown in number and plummeted in cost.
Further, the cost of propagating worthwhile creations is rapidly
approaching zero. They pull themselves out to the widest
audience, and IP rights as often as not seem used to hold
innovations back for the interest of small groups, rather
helping to subsidize their dissemination, as was originally

IP may turn out to be a common and even necessary evolutionary
economic adaptation, but one that is eventually cast off as
irrelevant and even counterproductive. (Gold-backed currencies
might be considered another such invention, crucial in one
era, anachronistic in the next.)

That is, when wide reproduction and dissemination of ideas was
nearly impossible, the idea of IP wasn't even considered. When
reproduction and dissemination became possible but costly, IP
was a helpful construct. Now that creative works can be generated
efficiently and propagated almost for free, IP is an annoying
tax on the applied use of knowledge.

Even if IP rights do tend to create more knowledge, sooner,
that's not unambiguously a good thing. If you accept that
IP is just another product/property, then you should accept
that like anything else, it can be overproduced or produced
prematurely if the relative incentives are skewed by law
and policy.

Consider patents. Lets say your intense work in a certain
industry makes you realize, in January, that a new process
is possible and will soon be incredibly valuable, perhaps
next year. You "invent" it and apply for a patent. By July,
the same insight has become independently obvious to a much
wider field of people around the industry -- even without
any explanation from you, the "inventor". Next January, the
process becomes commercially valuable.

You receive the patent and, for 17 years thereafter, can
extract legal tribute from the economy. But you've done
nothing net-beneficial; in fact, your patent and collection
efforts are a drag on productivity, and may prevent the
most widespread societal benefit of an innovation that,
by the time it was truly needed, would have been obvious
to everyone involved. (These kinds of patents seem to be
granted all the time.)

Further, once the possibility of such a bonanza is shown to
people, they will drop other benficial activities -- such
as incremental improvements to non-protectable processes --
to search further ahead for "patentable" ideas. True
overall economic benefits (including simply "leisure") will
be foregone to chase the legally-created narrow benefits,
which may actually be a net loss for society.

I believe the same analysis can be applied to copyrights:
the fact that, for example, new love songs and romance
novels and action movies create "protectable" content causes
their production and propagation to be incented far
beyond their societal value, in preference to perfectly
acceptable comparable substitute content that is older and
unprotectable. IP rights can thus be seen as an engine of
cultural pollution, a "make-work" program driving people to
recreate trivial and/or substandard variations on classic
themes rather than pursuing the "optimal" levels of various
economic and entertainment-seeking activities.

A world without any IP protections would certainly mean
different works would be created, maybe even fewer works;
whether that actually would make us any worse off is very
disputable. Audiences and those that benefit from truly
new creations will still find ways to incent creation,
separate from the "copy tolls" and "idea licenses" demanded
by an IP regime.

- Gordon

Gordon Mohr -
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