Friday, March 29, 2013

Is "Intellectual Property" a Misnomer?

The terminology of "intellectual property" goes back to the eighteenth century. But some modern critics of how the patent and copyright law have evolved have come to view the term as a tendentious choice. One you have used the "property" label, after all, you are implicitly making a claim about rights that should be enforced by the broader society. But "intellectual property"  is a much squishier subject than more basic applications of property, like whether someone can move into your house or drive away in your car or empty your bank account.

The Oxford English Dictionary gives a first use of "intellectual property" in 1769, in an anonymous review of a book authored by a Dr. Smith and called New and General System of Physic, and published in a publication called Monthly Review (available here). The  book review is extremely negative, essentially accusing the author of copying copiously from other writers--but adding errors of his own. Apparently at various points in the book, the author Dr. Smith refers to wonderful and enlightening experiments of his own that he claims have worked extremely well, but says that he doesn't want to bore the reader with his own work. The reviewer notices this disjunction between extensive copying from others and bashfulness about revealing actual work of his own (if indeed such work existed) and writes: "What a niggard this Doctor is of his own, and how profuse he is of other people's intellectual property!"

In the U.S. legal system, the use of "intellectual property" is often traced back to the case of William Davoll et al. vs. James S. Brown, decided before the First Circuit Court of the United States in the October 1845 term, which is available various places on the web like here. The court wrote: “[A] liberal construction is to be given to a patent and inventors sustained, if practicable, without a departure from sound principles. Only thus can ingenuity and perseverance be encouraged to exert themselves in this way usefully to the community, and only in this way can we protect intellectual property, the labors of the mind, productions and interests as much a man's own, and as much the fruit of his honest industry, as the wheat he cultivates, or the flocks he rears.”

The rhetoric is sweeping enough to make an economist blink. Is it really true that using someone else's invention is the actually the same thing as stealing their sheep? If I steal your sheep, you don't have them any more. If I use your idea, you still have the idea, but are less able to profit from using it. The two concepts may be cousins, but they not identical.

Those who believe that patent protection has in some cases gone overboard, and is now in many industries acting more to protect established firms than to encourage new innovators, thus refer to "intellectual property as a "propaganda term." For a vivid example of these arguments, see "The Case Against Patents," by Michele Boldrin and David K. Levine, in the Winter 2013 issue of my own Journal of Economic Perspectives. (Like all articles in JEP back to the first issue in 1987, it is freely available on-line courtesy of the American Economic Association.)

Mark Lemley offers a more detailed unpacking of the concept of "intellectual  property" in a 2005 article he wrote for the Texas Law Review called "Property, Intellectual Property, and Free Riding"
Lemley writes: ""My worry is that the rhetoric of property has a clear meaning in the minds of courts,
lawyers and commentators as “things that are owned by persons,” and that fixed meaning will
make all too tempting to fall into the trap of treating intellectual property just like “other” forms
of property. Further, it is all too common to assume that because something is property, only
private and not public rights are implicated. Given the fundamental differences in the
economics of real property and intellectual property, the use of the property label is simply too
likely to mislead."

As Lemley emphasizes, intellectual property is better thought of as a kind of subsidy to encourage innovation--although the subsidy is paid in the form of higher prices by consumers rather than as tax collected from consumers and then spent by the government. A firm with a patent is able to charge more to consumers, because of the lack of competition, and thus earn higher profits. There is reasonably broad agreement among economists that it makes sense for society to subsidize innovation in certain ways, because innovators have a hard time capturing the social benefits they provide in terms of greater economic growth and a higher standard of living, so without some subsidy to innovation, it may well be underprovided.

But even if you buy that argument, there is room for considerable discussion of the most appropriate ways to subsidize innovation. How long should a patent be? Should the length or type of patent protection differ by industry? How fiercely or broadly should it be enforced by courts? In what ways might U.S. patent law be adapted based on experiences and practices in other major innovating nations like Japan or Germany? What is the role of direct government subsidies for innovation in the form of government-sponsored research and development? What about the role of indirect government subsidies for innovation in the form of tax breaks for firms that do research and development, or in the form of support for science, technology, and engineering education? Should trade secret protection be stronger, and patent protection be weaker, or vice versa?

These are all legitimate questions about the specific form and size of the subsidy that we provide to innovation. None of the questions about "intellectual property" can be answered yelling "it's my property."

The phrase "intellectual property" has been around a few hundred years, so it clearly has real staying power and widespread usage  I don't expect the term to disappear. But perhaps we can can start referring to intellectual "property" in quotation marks, as a gentle reminder that an overly literal interpretation of the term would be imprudent as a basis for reasoning about economics and public policy.