Who Owns Ideas? The War Over Global Intellectual Property

David S. Evans

From Foreign Affairs, November/December 2002

Summary:  Copy Fights provides a provocative and balanced introduction to the brewing global battle over intellectual property rights.

David S. Evans is Senior Vice President at NERA Economic Consulting, Inc.

The movie and music industries are now like the boy who cried wolf. Jack Valenti, the long-time head of the Motion Picture Association of America, once said that the "VCR is to the American film producer and the American public as the Boston Strangler is to the woman alone." Record producers similarly claimed that audio cassettes would kill the record industry. One might think that complaints about Napster should make us go long on this industry's stocks.

Yet, as economist Stan Leibowitz observes in his chapter in Copy Fights, this time there probably is a wolf. Consider the world in ten years. Internet connection speeds will be far faster than today's, and more people will have them. Computer memory and processing speeds, hardly a constraint today, will be bigger and faster. All entertainment will be digital and easily copied. Without methods for preventing copying -- and ways to prevent the cracking of those methods -- the incentives for digital innovation will be severely weakened. These preventive methods are known as Digital Rights Management (DRM) and they will be debated fiercely in countries around the world in the years to come. Congress' first attempt at DRM, the Digital Millennium Copyright Act, has caused great controversy in part because it provides jail time for people who help break into protected media. Forty-eight leading law professors said the DMCA is unconstitutional because it prevents people from making "fair use" of copyrighted material. Yet the new technology expands possible use beyond anything previously imaginable, and the new law tries to give copyright owners something like the protection they used to have.

Intellectual property faces the greatest criticism when it comes to the production and distribution of life-saving medicines. Pharmaceutical companies insist that they need patents to recoup the considerable financial investment they make in discovering drugs, getting them approved by regulators, and bringing them to market. The Tufts Center for the Study of Drug Development estimates that it costs more than $800 million to develop a new prescription drug. But in recent years public-health advocates, most notably the physicians group Medicins Sans Frontieres, have argued that stringent intellectual property protections make lifesaving medicine expensive or unavailable in the poorest countries. The inability of aids patients in Africa to obtain medications has put the vast international pharmaceutical industry on the defensive.

Mickey Mouse was funny. This failure is heart wrenching. But it reveals a fundamental misunderstanding on the part of those who oppose intellectual property rights, even as they appear to be the more human and compassionate figures in the debate. Preventing the distribution of copycat drugs because of adherence to patent laws invariably means that some desperately ill patients will not have access to medicines they need. Yet the act of ignoring patents in the name of helping sick people curbs the incentive to develop new, lifesaving drugs in the future. The critics of intellectual property protection have forgotten Abraham Lincoln's statement that the patent system "added the fuel of interest to the fire of genius."

Unfortunately, the public health field is not the only one in which the argument against the ownership of ideas is gaining ground. Today, governments around the globe are being asked to use only computer software that is available under an open-source license. The General Public License (GPL) is the most common license and is used for the most popular open-source software package, the Linux computer operating system. Although many Linux and open-source software users are content to co-exist with the for-profit world, the GPL can quickly suffocate intellectual property rights. The GPL allows anyone to distribute copies of open-source software for free or use the source code to create a derivative software program. But if anyone uses some of the Linux code in creating a derivative work or complementary program, that software, too, must be distributed for free and its source code made available to all. Adherents of the GPL refer to the system as "copyleft," fully understanding that it forces any proprietary software maker who wants to use code licensed under the GPL to surrender its intellectual property to the commons.

COPYRIGHTS AND WRONGS

The best response to these controversies might be to rediscover the link between strong intellectual property laws, private investment, and innovation. Although critics may point to some adverse consequences of intellectual property protection, the absence of such protection undermines the willingness of companies and individuals to invest in new ideas and products -- the core purpose of protecting intellectual property for at least the last 500 years. Well-defined intellectual property rights also make it easier for inventors to enter into deals with global companies and reduce the worry that their partners will copy their work. At the same time, supporters of intellectual property laws need to recognize the problems with the current system, such as innovators who renege on their bargain with consumers by seeking to prolong patent protections. And they must also recognize the understandable backlash when an aggressive and litigious strategy to expand the coverage of patents is perceived as an effort to prevent new competitors from entering the market. As the editors of this volume point out in their introduction, "one imagines record companies would assert the right to copyright the 12-bar blues chord progression if they could get away with it."

The patent system in the United States needs reform. The U.S. Patent Office lacks the resources to distinguish inventions that deserve protection from those -- the silly, the obvious, and the hardly new -- that do not. That problem is exacerbated by the legal system. Once granted, patents are hard to void, and juries and judges tend to favor the patent holder. Uncertainty over the scope and even existence of patents also creates expensive litigation. For instance, holders of "submarine patents" have launched huge royalty claims after having kept a patent secret, quietly waiting until the technology or business process becomes an industry standard. Companies also invest in patent portfolios just to have something to negotiate with when they are hit by legal claims. In changing the system, policymakers ought to remember that extremists from both ends of the protection spectrum cannot be trusted. Recommendations to grant blanket elimination of patents in certain industries -- such as the claim that there should be no software patents -- should be treated as skeptically as demands for blanket extension of patent rights to areas where they do not now exist.

If ideas are going to continue to receive appropriate protection, the global bargain of intellectual property needs to be reinvigorated. This is a real challenge. The 1994 Trade-Related Aspects of Intellectual Property agreement rests on the sound premise that the patent system fuels innovation and provides the best way for developing countries to attract investment and technology transfers. Critics of the agreement still see it as favoring the rich, patent-holding nations over the poor. But that is the wrong dividing line to draw in the intellectual property debate. Many countries are essentially idea importers. If all consumers keep up the bargain with innovators, everyone benefits regardless of whether they live in an idea-importing or an idea-exporting state. The bargain guarantees that innovators have an incentive to create, and their new ideas, once put on the marketplace, spread globally. This phenomenon occurs most clearly with drugs and software. Countries that are idea exporters, such as the United States, will have to persuade other nations that it is in their long-term interest to support the protection of ideas and to be part of a global bargain. Indeed, the backlash against intellectual property comes partially from poorer countries that saw U.S. demands in the 1990s for stronger patent protection as a wealth grab. In any event, we cannot wait for what it took to convince the United States to respect foreign copyrights: American authors in the mid-nineteenth century realized they were losing royalties on foreign sales and that they were facing competition from foreign books made cheaply in the United States, precisely because publishers did not have to pay royalties.

Yet despite all the dilemmas posed by intellectual property protection, the broad compromises developed by the Venetians have endured. It is difficult to see how society could improve on their framework for balancing private incentives with public benefits. The devil is in the details, however, of how that balance is struck.