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Boldrin & Levine: Against Intellectual Monopoly, Chapter 8

Chapter 8: Does Intellectual Monopoly IncreaseInnovation?

What we have argued so far ay not sound altogether

incredi!le to the alert o!server of the econoics of innovation"What have we shown, after all# $hat thriving innovation has !een

and still is coonplace in the a!sence of intellectual onopoly

and that intellectual onopoly leads to su!stantial and well%

docuented reductions in econoic freedo and general prosperity"

owever, while e'pounding the theory of copetitive innovation,

we also recogni(e that under perfect copetition, soe socially

desira!le innovations will not !e produced" When this is the case,

onopoly power ay generate the necessary incentive for the

putative innovator to introduce socially valua!le goods" And the

value for society of these goods could dwarf the social losses wehave docuented" )o, !y our own adission, it is a theoretical

possi!ility that intellectual onopoly could, at the end of the day, !e

!etter than copetition" But does intellectual onopoly actually

lead to greater innovation than copetition#

*ro a theoretical point of view, the answer is ur+y" In the

long%run, intellectual onopoly provides increased revenues to

those that innovate, !ut also a+es innovation ore costly"

Innovations generally !uild on e'isting innovations" While each

individual innovator ay earn ore revenue fro innovating if he

has an intellectual onopoly, he also faces a higher cost ofinnovating: he ust pay off all those other onopolists owning

rights to e'isting innovations" Indeed, in the e'tree case when

each new innovation reuires the use of lots of previous ideas, the

presence of intellectual onopoly ay !ring innovation to a

screeching halt"

*urther, theoretical considerations also suggest that the

response of innovation to the strengthening of intellectual onopoly

is not unifor over tie" In the short%run - for e'aple,

iediately after the first introduction of legislation allowing for

patents - we would e'pect innovation to increase, as the revenuesfro innovating go up, !ut costs will not increase until soe tie in

the future when any ideas have !een patented" )tri+ingly - fro a

theoretical point of view - it is possi!le that, in the short%run

introducing patents leads to ore innovation and eliinating patents

after they have !een in place for a while - !y reducing the cost of

innovation - increases innovation as well"

.

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By the sae to+en, theory suggests that sall countries with

low I/ protection should witness a surge in the inflow of I/%related

investent after their I/ protection is increased, as they capture

investents fro other countries where intellectual onopoly is

protected less" $he latter unfortunately appears to have gone !eyond

a ere theoretical possi!ility to !ecoe an appropriate descriptionof current policy trends, which is why we place it at center stage in

our discussion of $0I/) later in the !oo+"

$he issue, then, is again the one we posed at the outset: does

onopoly really lead to ore innovation, on average, than

copetition# $heory gives an a!iguous answer, so let1s loo+ at

evidence, supported !y a !it of statistical coon sense"

What is the evidence# 2iven the continued e'tension of

patent protection to new areas - !usiness practices and coputer

software, for e'aple - one ight hope that there is strong evidence

that the introduction of patent protection has lead to a su!stantialincrease in innovation in recent years" $hese hopes, alas, are not to

!e fulfilled: It is already apparent that the recent e'plosion of

patents in the 3")", the 4"3" and 5apan, has not !rought a!out

anything copara!le in ters of useful innovations and aggregate

productivity" 6evertheless, one ay clai that it is too early to

7udge and that the process of progressive e'tension of intellectual

onopoly to alost every area of huan endeavor has not yet run

its full course" Beneficial results will coe, !ut in due tie, so !e

patient and let the tide of intellectual onopoly run its course" $o

us, as it should !e clear !y now, the tide of intellectual onopolyrese!les ore those of destructive tsunais or hurricanes than the

!enevolent one supposedly lifting all !oats" ence, instead of letting

it run its alevolent course and then o!serve the devastation fro

soe helicopter flying high over the scene, we would rather learn

now fro the past and !egin erecting strong levees" Indeed, the

historical evidence provides little or no support for the view that

intellectual onopoly is an effective ethod of increasing

innovation"

Copyright and Music in the 18thCentury

$he effect of copyright is difficult to analy(e !ecause it is

hard to get relia!le data prior to the .th century" Copyright was

fairly u!iuitous across 4urope early in the .thcentury, and its ter

there has changed little since then"

$he one e'ception turns out to !e in the case of classical

usic" Copyright was un+nown in the world of usic until around

the end of the .8th century" As a result, a large proportion of

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classical usic, still today accounting for a!out ; of all usic

sales !ut, o!viously, a uch larger portion of usic production until

late in the .th century, was produced without the !enefit of

copyright protection"

In this case, as in others, 4ngland was the path!rea+er" $he

)tatute of Anne did not cover printed usic until a case filed !y5ohann Christian Bach lead, in .

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/rofessor )cherer also e'ploited the variations !etween

4uropean countries copyright law regarding usic to conduct a

natural e'perient" e copared the average nu!er of coposers

!orn per illion population per decade in various 4uropean

countries" $urning first to 4ngland, he considers the precopyrightperiod . =".F ."EF

Germany ="E9< ="F= =">E

Italy ="E8< =".E =".

Austria ="8F< ="

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copyright law was a significant factor in deterining the aount of

usical coposition ta+ing place"

Patents and Innovation in the 19thCentury

enneth )o+oloff, together with 6aoi Laoreau' and

Gorina ahn e'ained the role of patents in the 3")" in the .thandearly 9=thcentury" In .8> the 3")"

instituted an e#amination system under which, before granting

patents, technical e#perts scrutini&ed applications for novelty

and for the appropriateness of claims about invention. This

procedure made patent rights more secure by increasing the

li%elihood that a grant for a specified technology would survive

a court challenge, and may also have provided some signal

about the significance of the new technology. Thereafter, both

patenting and sales of patent rights boomed.

)u!seuently, they docuent the developent of an ela!orate

syste of trading ideas" $his includes !oth speciali(ed

interediaries and 7ournals advertising the e'istence of patents"

)oe of these interediaries not only assisted inventors in

o!taining patents, !ut in soe cases see to have acted as odern

day venture capitalists, providing start up funding to put ideas into

production"

As a study of innovation in the late . th and early 9=th

century, this research is of great interest" It does not, however,provide uch evidence that the patent syste prootes innovation"

It should !e o!served that the institutional change that led to the

!ooing of patenting and the sales of patent rights was to a+e it

ore difficult to get patents - uite the opposite of odern

institutional changes" In addition, while this research a+es it clear

that the nu!er of patent agents and inventors a+ing use of their

services !ooed, they also docuent that an iportant portion of

the services were to assist inventors in getting patents, and in

navigating the thic+et of e'isting patents - socially wasteful

activities that would !e unnecessary in the a!sence of a patentsyste"

Hne iportant difficulty is in deterining the level of

innovative activity" Hne easure is the nu!er of patents, of course,

!ut this is eaningless in a country that has no patents, or when

patent laws change" /etra Moser gets around this pro!le !y

e'aining the catalogs of innovations fro .th century World

*airs" Hf the catalogued innovations, soe are patented, soe are

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not, soe are fro countries with patent systes, and soe are

fro countries without" Moser catalogues over =,=== innovations

fro a variety of industries"

'id(nineteenth century Swit&erland )a country without patents*,

for e#ample, had the second highest number of e#hibits percapita among all countries that visited the +rystal alace

E#hibition. 'oreover, e#hibits from countries without patent

laws received disproportionate shares of medals for outstanding

innovations.

Moser does, however, find a significant ipact of patent law on the

direction of innovation

The analysis of e#hibition data suggests that patent laws may be

an important factor in determining the direction of innovativeactivity. E#hibition data show that countries without patents

share an e#ceptionally strong focus on innovations in two

industries- scientific instruments and food processing. t the

+rystal alace, every fourth e#hibit from a country without

patent laws is a scientific instrument, while no more than one

seventh of other countries innovations belong to this category.

t the same time, the patentless countries have significantly

smaller shares of innovation in machinery, especially in

machinery for manufacturing and agricultural machinery. fter

the /etherlands abolished her patent system in 0123 forpolitical reasons, the share of 4utch innovations that were

devoted to food processing increased from 00 to 56 percent.

Moser then goes on to say that

/ineteenth(century sources report that secrecy was particularly

effective at protecting innovations in scientific instruments and

in food processing. 7n the other hand, patenting was essential

to protect and motivate innovations in machinery, especially for

large(scale manufacturing.

4vidence that secrecy was iportant for scientific instruents

and food processing is provided, !ut no evidence is given that

patenting was actually essential to protect and otivate innovations

in achinery" 6otice that in an environent in which soe

countries provide patent protection, and others do not, !ias caused

!y the e'istence of patent laws will !e e'aggerated" Countries with

>

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patent laws will tend to speciali(e in innovations for which secrecy

is difficult, while those without will tend to speciali(e in innovations

for which secrecy is easy" $his does not ean that eliination of

patent protection in all countries would have the sae effect"

It is interesting also that patent laws ay reflect the state of

industry and innovation in a country

necdotal evidence for the late nineteenth and for the twentieth

century suggests that a countrys choice of patent laws was

often influenced by the nature of her technologies. $n the 0118s,

for e#ample, two of Swit&erlands most important industries

chemicals and te#tiles were strongly opposed to the introduction

of a patent system, as it would restrict their use of processes

developed abroad.

$he .thcentury type of innovation - sall process innovations- are of the type for which patents ay !e ost socially !eneficial"

espite this and the careful study of econoic historians, it is

difficult to conclude that patents played an iportant role in . thand

early 9=thcentury innovation"

Intellectual Property and Innovation in the 20thCentury

A nu!er of scientific studies have attepted to e'aine

whether introducing or strengthening patent protection leads to

greater innovation" We have identified seventeen econoic studies

that have e'ained this issue epirically" $he e'ecutive suary:these studies find wea+ or no evidence that strengthening patent

regies increases innovation they find evidence that strengthening

the patent regie increases J patentingK $hey also find evidence

that, in countries with initially wea+ I/ regies, strengthening I/

increases the flow of foreign investent in sectors where patents are

freuently used"

Authors Years Country Industry

Arundel Many Many Many

Bessen and Hunt .8=%.> 3")" )oftwareGallini .8=s 3")" Many

Hall and Ham .8=%.F 3")" )eiconductor

Hall an Zeidonis .

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Kortum and #erner .8=%9=== 3")" Many

#an$ou .=s India /haraceutical

#an$ou and

Coc%&urn

. India /haraceutical

#erner'( .8E=%9=== Many Many

#erner') .

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... despite the significance of the policy changes and the

wide availability of detailed data relating to patenting,

robust conclusions regarding the empirical consequences

for technological innovations of changes in patent policy are

few.

Adding, in the conclusion that

There is widespread unease that the costs of stronger patent

protection may e#ceed the benefits. Both theoretical and, to

a lesser e#tent, empirical research suggest this possibility.

)everal of these studies e'aine or are influenced !y the

upswing in patenting that occurred in the 3nited )tates in the id%

.8=1s" $his upswing followed the esta!lishent of a special patentcourt in the 3")" in .89 it turned into an e'plosion in the roaring

.=s, paralleling the dotco stoc+ ar+et !u!!le, !ut it did not

stop after that !u!!le !urst" In .8 in the 3")" E, refor in $aiwan, while the forer use

tie series data fro a cross section of countries to regress 0& as

fraction of 2/ on various varia!les including a ualitative easureof I/ protection" Both sets of results are worth e'aining a !it ore

closely than the rest"

Lo finds increased innovation !y $aiwanese inventors as

easured !y 0& e'penditure and !y the nu!er of 3")" patents

they were awarded" owever, given the worldwide surge in 3")"

patents a!out this tie and the fact that the nu!er of $aiwanese

patents awarded to these sae inventors did not uch increase, we

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can neither relia!ly conclude that the effect of the .8> law was an

increase in innovation, nor a 7up in aggregate or sectorial

productivity" What the refor certainly did, and Lo docuents

convincingly, was to increase the nu!er of patents awarded to

$aiwanese firs, especially in the 3")", which is altogether not

surprising" Lo hiself points out that the ain channel throughwhich the $aiwanese refor had a positive effect was !y fostering

foreign direct investent in $aiwan especially in those sectors in

which patents are widely used"

$his is an iportant point, which deserves a separate

coent" In a world in which strong patent protection in soe

countries co%e'ists with wea+ protection in other, a country that

increases patent protection should o!serve an increase in the inflow

of foreign investent, especially in those sectors where patented

technologies are used" /rofit a'ii(ing entrepreneurs always

choose to operate in those legal environents where their rights arethe strongest" In the 3")", for e'aple, econoists and people with

coon sense ali+e, have long argued that the policy of offering ta'

incentives and su!sidies to copanies that relocate in one state or

another is not a good policy for the 3nited )tates as a whole"

6o!ody denies that, if you provide a copany with high enough

su!sidies and ta' incentives, it will pro!a!ly ta+e the and relocate

to your state, at least teporarily" $he pro!le is that, after you do

so, other states will respond !y doing the sae, or ore" In the

ensuing euili!riu, the total aount of investent is roughly the

sae as when no one was offering a ta' incentive, !ut everyone isnow paying a distorting ta'" When capital oves freely across

countries, the very sae logic applies to the international

deterination of I/ rights" In what econoists call the 6ash

4uili!riu of this gae, it is o!vious that patent holders prefer to

locate in countries with strong I/ laws" $his increases the stoc+ of

capital in the receiving country and reduces it everywhere else,

especially in countries with low I/ protection" ence, a!sent

international cooperation, the strong incentive of ost countries to

+eep increasing patent protection, even in the a!sence of lo!!ying

and !ri!ing !y intellectual onopolists" Which is why in the ne'tchapter we invest a!undant tie discussing international

haroni(ation of I/ laws, and the $0I/) agreeent"

As for the study !y anwar and 4vanson, they have data on

. countries for the period .8.%.=" 3sing two E year averages

they find support for the idea that higher protection leads to higher

0& as a fraction of 2/" $heir easures of I/ protection do not

always see to a+e sense, !ut this is not the proper place to

.=

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engage into a statistical diatri!e" $here are five levels of I/

protection and 0& as a fraction of 2/ ranges fro a ten year

average of "9.; in 5ordan to 9"899; in )weden" $hey find that

increasing I/ !y one level raises 0& as a fraction of 2/ !etween

=">; to ."=;" As !efore, the ost favora!le interpretation of this

result is that countries offering higher levels of I/ protection alsoattract investents in those sectors in which 0& and patents are

ost relevant" A less favora!le interpretation of this result, instead,

points out that anwar and 4venson have forgotten to include a

ain deterinant of the ratio of 0& to 2/: that is, ar+et si(e

as easured !y 2/" $he ost eleentary theory of innovation,

either under copetition or under onopoly, shows that the

innovative effort is increasing in the si(e of the ar+et, and that

large and rich countries will invest a larger share of their 2/ in

0& than sall and poor countries" /utting anwar and 4vanson1s

data together with 2/ data fro the .= CIA World *act Boo+,we find that a .; increase in the si(e of a country as easured !y

2/ increases the ratio of 0& to 2/ !y ="F;"

It is interesting to loo+s at the residual error that is left over

after we predict the ratio of the logarith ofD 0& to 2/ fro

the logarith ofD 2/" )orted !y I/ level we find

IP #e"el A"era/e Residual

0 %="E

( %="F>

) ="9=1 ="9=

2 =".=

What does this show# Hnce you control for ar+et si(e,

higher I/ protection increases the 0&N2/ ratio at the very low

levels, !ut !ecoes uncorrelated with the 0&N2/ ratio at any

level of I/ protection higher than . in the anwar and 4venson

scale" $his reinforces the idea that what we are seeing is priarily

the effect of foreign investent" Aong poor countries with low I/

protection, increases !ring in ore foreign investent and raise

0&" In richer countries with high levels of I/, foreign investentis not an issue, and increases in I/ have little or no effect on

innovation"

$he )cherer and Weis!rod study shows that it is perhaps not

too wise for countries to rely on strengthening patent protection to

!ring in foreign investent" $hey show that when Italy introduced

pharaceutical patents in the .

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industry which had !een thriving !y a+ing generic drugs, largely

disappeared"

$he Lerner study is especially nota!le, !ecause he e'ained

all significant changes in patent law in all countries over the last .E=

years" is conclusion#

+onsider, for instance, policy changes that strengthen

patent protection. 7nce overall trends in patenting are

ad=usted for, the changes in patents by residents of the

country underta%ing the policy change are negative, both in

!reat Britain and in the country itself. Sub=ect to the caveats

noted in the conclusion this evidence suggests that these

policy changes did not spur innovation.

$he reaining studies, li+e Lerner, find little or negative evidence

that increased patent protection lead to increased innovation"

>e find evidence that patents substitute for R?4 effort at

the firm level@ they are associated with lower R?4 intensity.

Bessen and unt

The results suggest that stronger patents may have

facilitated entry by firms in niche product mar%ets, while

spawning Apatent portfolio races among capital(intensive

firms. all and a

... the 0318s strengthening of :S patent rights spawned

Apatent portfolio races among capital(intensive firms, but

also facilitated entry by speciali&ed design firms.all and

Geidonis

$t is too soon to draw any conclusion about what the effects

will be of $ndias upcoming introduction of product patents

for pharmaceuticalsC+urrently $ndian firms are quite quic%

to bring imitations to mar%etsCbecause of concern over

global price regulationsCinnovative pharmaceuticals mayactually become available to $ndian consumers more slowly.

Lan7ouw

C small firms prefer other mechanisms ;e.g. secrecy< toprotect their innovation or distrust patents, maybe becauseof the large costs involved in defending a patent. nothere#planation of this result would be that small firms ( on

.9

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average ( are more engaged in incremental innovationwhich does not fulfill the novelty requirement of patents.'oreover, large firms more probably apply for patent due toinstitutional requirements .... $n addition, firms apply forpatents because patents are used in cross(licencingagreements with other firms.Licht and Go(

4o patents matterD $t may still be too early to tell in this

caseC/one(the(less we do identify some distinct signs of

stirring activityCit is hard to avoid the conclusion that the

historical absence of $Rs played an important role in the

retarding of development of new treatments for )malaria*.

But, we cannot yet place too much confidence in this result.

The upward trend seems in the data series to have

disappeared in recent years. Lan7ouw and Coc+!urn

The main findings of this study are that in the group of

sampled countries the implementation of patent laws by

itself does not promptly stimulate domestic innovation.

Oian

owever, econometric analysis using both Fapanese and

:.S. patent data on 586 Fapanese firms finds no evidence of

an increase in either R?4 spending or innovative output

that could plausibly be attributed to patent reform.

)a+a+i!ara and Branstetter

Route 128 and Silicon Valley

We now ta+e up the tale not of traditional intellectual

onopoly such as patents and copyright, !ut that of restrictive ?non%

copete@ la!or contract clauses"

Pou have pro!a!ly heard of )ilicon Qalley" /erhaps you

have not heard of 0oute .98" Pet, 0oute .98 has !een a high

technology district since the .F=s, long !efore farers were

displaced fro )anta Clara Qalley, as )ilicon Qalley was then

+nown, to a+e space for coputer firs" In .>E !oth )iliconQalley and 0oute .98 were centers of technology eployent of

eual iportance, and with siilar potentials and aspirations for

further growth"

Route 0G1 began the race well ahead. $n 032H, total

technology employment in the Route 0G1 area was roughly

.

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triple that of Silicon "alley. By 036H, Silicon "alley

employment had increased fivefold, but it had not quite

doubled in Route 0G1, putting Silicon "alley about fifteen

percent ahead in total technology employment. Between

036H and 0338, the gap substantially widened. 7ver this

period, Silicon "alley created three times the number of newtechnology(related =obs as Route 0G1. By 0338, Silicon

"alley e#ported twice the amount of electronic products as

Route 0G1, a comparison that e#cludes fields li%e software

and multimedia, in which Silicon "alleyIs growth has been

strongest. $n 033H, Silicon "alley reported the highest gains

in e#port sales of any metropolitan area in the :nited

States, an increase of thirty(five percent over 033J@ the

Boston area, which includes Route 0G1, was not in the top

five.

What e'plains this radical difference in growth of the two

areas# Certainly !oth had access to iportant universities,

instruental in the coputer revolution - arvard and MI$ in the

case of 0oute .98 and )tanford in the case of )ilicon Qalley" A

careful analysis !y 0onald 5" 2ilson shows that the only significant

difference !etween the two areas lay in a sall !ut significant

difference !etween Massachusetts and California la!or laws"

According to 2ilson

postemployment covenant not to compete prevents%nowledge spillover of an employerIs proprietary %nowledge

not, as does trade secret law, by prohibiting its disclosure or

use, but by bloc%ing the mechanism by which the spillover

occurs- employees leaving to ta%e up employment with a

competitor or to form a competing start(up. Such a covenant

provides that, after the termination of employment for any

reason, the employee will not compete with the employer in

the employerIs e#isting or contemplated businesses for a

designated period of time((typically one to two years((in a

specified geographical region that corresponds to themar%et in which the employer participates.

In Massachusetts

'assachusetts law is generally representative of the

approach ta%en toward postemployment covenants not to

compete by the great ma=ority of states. :nited States law in

.F

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this area largely derives from English law that developed

the basic pattern of blan%et enforcement of covenants not to

compete given by the seller in connection with the sale of a

business, and the application of a rule of reason to

covenants associated with employment. +ovenants not to

compete would be enforced against a departing employee ifthe covenantIs duration and geographic coverage were no

greater than necessary to protect an employerIs legitimate

business interest, and not otherwise contrary to the public

interest. This formulation is commonplace in 'assachusetts

covenant cases, and dates to the late nineteenth century.

By way of contrast, in California

+alifornia law governing covenants not to compete is both

unusual and radically different from that of 'assachusetts.+alifornia Business and rofessions +ode section 02288

provides that Aevery contract by which anyone is restrained

from engaging in a lawful profession, trade, or business of

any %ind is to that e#tent void. The courts have interpreted

section 02288 Aas broadly as its language reads. C$ndeed,

+alifornia courtsI application of choice of law rules

underscores the seriousness with which they view section

02288. Even if the employment agreement which contains a

postemployment covenant not to compete e#plicitly

designates the law of another state, under which thecovenant would be enforceable, as controlling, and even if

that state has contacts with the contract, +alifornia courts

nonetheless will apply section 02288 on behalf of +alifornia

residents to invalidate the covenant.

Contrary to any !usiness pundits, the reader of this !oo+

will perhaps not !e surprised at the !eneficial conseuences of the

)ilicon Qalley copetitive environent" While )e'anian, in her

otherwise inforative !oo+, rear+s

The parado# of Silicon "alley was that competitiondemanded continuous innovation, which in turn requiredcooperation among firms.

we +now that there are good econoic reasons why it ust !e so:

copetition is the echanis that !reeds innovation, and sustained

copetitive innovation, parado'ical as that ay sound to those that

.E

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do not understand it, often is !est ipleented via cooperation

aong copeting firs"

While 0oute .98 copanies spent resources to +eep

+nowledge secret - inhi!iting and preventing the growth of the high

tech industry - in California this was not possi!le" And so, )ilicon

Qalley - freed of the illstone of onopoli(ation - grew !y leapsand !ounds as eployees left to start new firs, re7oined old firs

and generally spread socially useful +nowledge far and wide"

Data Bases

$he case of data!ases is still an e'perient in the a+ing"

3nusually enough, the 3")" is, at least for now, on the right side of

the divide" ata!ases are ?copilations of atter,@ which is !road

and generic enough to include your personal list of people to who

you send Qalentine cards, the uan 2enoa, the local yellow

pages, and the ailing list of those daned spaers" ata!ases, itsees o!vious, have !ecoe increasingly iportant for private

individuals, !usinesses, acadeic researchers, industrial 0& and,

unfortunately, also for national security"

$he e'perient%in%the%a+ing and the intense de!ate

accopanying it, !oth !egan in .>" Hn March .., the 4uropean

3nion issued a irective reuiring e!er states to provide

statutory protection of data%!ases on the !asis of copyright, even if

the data !ase in uestion contained aterial that was not itself under

copyright" $he 4"3" also tried to force none!er states to accept

its irective" It did this !y deciding that 43 protection would !ee'tended to their citi(ens only if the none!er states provided

siilar protection" By 9==. all 43 countries had fully ipleented

the 43 irective"

ow a!out the 3nited )tates# )tephen Maurer and )u(an

)cotcher suari(e the situation here in the following ters

E#cept for opposition from the scientific and engineering

communities, the :nited States probably would have signed

a database protection treaty in 0336 and adopted

corresponding domestic legislation in 0331. revised bill%nown as .R. 5HJ, the +ollections of $nformation

ntipiracy ct, is currently pending in +ongress.

As far as we +now, the revised !ill has not yet !een approved, and

the discussion is still open" $his eans that in the 3")" until now, at

least, data!ases are not the o!7ects of intellectual onopoly"

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ata!ases, if you thin+ of it, coe e'treely close to the

ideali(ed ?pure inforation@ that intellectual onopoly apologists

tal+ a!out and that, according to doinant econoic theory, is

e'pensive to produce !ut a!solutely cheap to copy" Maurer and

)cotcheer are aware of this, and also of the pu((ling fact that very

e'pensive data !ases +eep !eing produced and traded without I/protection

The usual argument for statutory protection sounds simple

and compelling. 4atabases are e#pensive to ma%e but cheap

to copy. or this reason, private and commercial database

owners cannot compete with copiers in an open mar%et. $f

databases cannot earn a fair return under e#isting law, no

rational business would invest in them until +ongress

changed the rules. $nstead, databases flourish

*urther

inally, many of the most popular and powerful methods

depend on the mar%etplace. $f consumers want frequent

updates, a would(be copier has little to gain by offering last

monthIs database at a bargain price. Similarly, consumers

may thin% that a particular database is more valuable if it

comes with copyrighted search software. $n either case,

copiers can only compete by ma%ing substantial investments

of their own. The resulting protection is particularlyeffective in the sciences, where up(to(date, searchable data

sets are at a premium.

Why after pointing out all this and convincingly docuenting the

draatically negative ipact that introducing I/ coverage of data

!ases would have on !oth acadeic research and !usiness activity in

the 3")", Maurer and )cotcher decide to open up the door to soe

aount of intellectual onopoly !y adding

+ongress could strengthen these methods still further byprotecting each update or correction for 0 to G years. Such

legislation would be far less restrictive than .R. 5HJIs

proposed 0H(year period.

!eats us, !ut that is a different de!ate, which we leave for later"

In the eanwhile the e'perient continues along another

diension" Which one do you thin+ is higher: $he rate of creation of

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data!ases in the 4"3" - where they are protected !y I/ - or in the

3")" - where they are not# Well, you guessed it right this tie: in

the 3")" In fact, it is not even a race, the 3")" wins hands down, as

Bloc+ points out" After docuenting in details the e'cellent state of

the data !ase industry in the 3")", its aa(ing growth rate and

productivity as well as the fact that the adoption of the irectivedoes not see to have produced any sustained increase in the 4"3"1s

production of data!ases, he adds

or the entire period measured, :.S. online database

production outpaced all of Europe by a factor of nearly

G.H-0 ... merican dominance of database production cannot

be e#plained by incentives given to creators because

merican protection of database rights is much wea%er

than the 4irective.

$o which we only add that, ost pro!a!ly, Aerican doinance of

the industry can!e e'plained !y econoic incentives to creators as

easured !y the actual profits accruing to the and !y the

copetitive environent in which they operate, and that, alost

certainly, neither of the is increased uch !y the 43 irective"

Hur con7ecture is that, within a few years, soe sart applied

econoist will write an interesting /h"" dissertation showing 7ust

this"

Simultaneous DiscoveryInsofar as inventors have uniue ideas it ay a+e sense to

reward the with onopolies to a+e sure we get advantage of

their unusual talents" *or e'aple, if, in the a!sence of 5aes Watt,

the stea condenser would not have !een invented until long after

his patent e'pired, there is soe 7ustification for having awarded

hi a onopoly" Hf course if others were going to discover it in a

few years anyway, then it scarcely ade sense to give hi a long%

ter onopoly" As it happens siultaneous discoveries tend to !e

the rule rather than the e'ception, and they alost always lead to

soe ugly stories" $hose that follow ay not !e the ostrear+a!le, they are 7ust those we happen to have learned a!out"

Many ore, ost certainly, are sitting out there, 7ust waiting to !e

told" Because, you see, siultaneous discovery is not the e'ception,

it is the rule and even that greatest of all the odern innovators, our

!eloved 5aes Watt, stu!led into it, as Carnegie reports

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is first discovery was that of latent heat. >hen

communicating this to rofessor Blac% he found that his

friend had anticipated him, and had been teaching it in

lectures to his students for some years past.

)ince then, things have changed little along this diension - ifanything, siultaneous discovery has !ecoe ore and ore the

rule, not the e'ception, nowadays"

Radio Waves

$he radio, according to popular history, was invented !y the

great inventor 2uglielo Marconi" Indeed, soe authors, such as

ong, go to great pains to argue the originality of Marconi relative

to his conteporaries and the various other people that, !etween

.8> and .88 claied to have reached, or !eing poised to reach,

wireless transission of radio signals at a su!stantial distance"A!undant evidence, including the very sae evidence

reported !y ong hiself in his passionate defense of Marconi,

suggests otherwise" $here are any copetitors, which is to say:

any people who have claied to have invented the radio in a for

ore or less siilar, !ut functionally euivalent, to Marconi" $hey

range fro the ost official ones, the British physicist Hliver Lodge

in the 3nited ingdo, and the forgotten genius 6i+oli $elsa in the

3nited )tates, to the least loved one, the 0ussian Ale+sander /opov

who, it is now clearly docuented, descri!ed his findings in a paper

pu!lished in .8E and deonstrated the functioning of his apparatusin front of the )t /eters!urg /hysical )ociety in March .8>, to the

ost relevant !ut least visi!le one, enry B" 5ac+son, an engineer

wor+ing for the 0oyal 6avy"

$he latter, who never coplained a!out Marconi1s patent

and was in fact a friend of Marconi1s, writes in an official report of

May 9, .8ith this

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e#ception, the details of my apparatus, which so closely

resembles his, have been wor%ed out quite

Marconi was using esta!lished science at the tie" ?Long%run

detection of ert( waves@ was a widely studied topic" *rontier

science, certainly, !ut there is no real scientific discovery in his!lac+ !o'" )iilar e'perients were carried out !y 4rnest

0utherford at Ca!rige Cavendish La!oratory as early as .8E%>"

In descri!ing Marconi1s euipent, which is e'treely siilar to

that of 0utherford and 5ac+son, even in the si(e of any parts, ong

concludes that ?$here was an eleent of Rnon%o!viousness1 in

Marconi1s solutions: his grounding of one pole of the transitter

and one pole of the receiver"@ )o Marconi1s contri!ution to solving

the pu((le was the grounding of antenna and transitter"

$rotter, $hrelfall, and Croo+es were all anticipators of

Marconi1s findings" Lodge1s lecture to the August .8F eeting ofthe British Association for the Advanceent of )ciences at H'ford

on using ert(ian waves to transitting signals also anticipated

Marconi" Marconi started wor+ on this in .8E" As it is clear fro

his first filing for patent on 5une 9, .8>, he does not really

understand ert(ian waves yet

$n his patent for wireless telegraphy, 'arconi claimed

almost everything about the use of the coherer ;hich had

&een in"ented &y Branly and im.ro"ed &y Fit*Gerald and

#od/e )emphasis ours*< in wireless telegraphy. $n 'ay0136, Kodge had applied a patent for a system of wireless

telegraphy of his own C but he had had to withdraw his

claims on the coherer and the tapper because they had been

so throughly covered by 'arconi.

Marconi1s final specification for the patent in .8< is a ?different

+ind of docuent entirely@ fro the initial one, than+s to the

contri!ution of 5" *letcher Moulton and others, and it successfully

anages to patent pretty uch ?everything@ that goes into a radio, a

radio transitter, and a radio receiver" 6ot !ad for a guy whosecontri!ution was to ground the antennaK

Because Marconi cae fro an aristocratic faily and had

very good connections in London, he was a!le to patent first and to

get away with patenting under his nae lots of coponents that had

!een invented !y other" Also !ecause of his faily connections in

the City1s financial circles, the Marconi Wireless $elegraph

Copany, Ltd" was readily esta!lished and handsoely financed in

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of 4dison and Carnegie, +ept haering the 3")" /atent Hffice

until, in .=F, they reversed course and gave Marconi a patent for

the invention of radio" We read that

The reasons for this have never been fully e#plained, but the

powerful financial bac%ing for 'arconi in the :nited Statessuggests one possible e#planation.

We will spare you the sad story of 6i+olas $esla1s hapless fight

against Marconi, you can figure that out !y yourself" In fact: we are

sparing you also the stories of the any other fights poor $esla lost

against soe of the great ?inventors@ and ?entrepreneurial geniuses@

of the tie, 4dison foreost" $he !otto line is that $esla never got

to see the rewards of his genius"

We !eg you to note that the issue here is not whether $esla

or Marconi was the rightful onopolist of radio" 0ather, the oralof this story is that siultaneous inventions are freuent, they are

the rule and not the e'ception" $he oral is that the patent syste

prevents siultaneous inventions fro !eing recogni(ed and

utili(ed !y society" And the oral, finally, is that the patent syste

destroys productive capacity, generates useless and daaging

onopoly and, last !ut not least, huiliates and destroys decent and

hu!le geniuses li+e Ale+sander /opov and 6i+olas $esla"

$he story of in7ustice to 6i+olas $esla has a tragicoic

ending: in .F the 3")" )upree Court upheld $eslaTs radio patent

reversing the earlier decision of the 3")" /atent Hffice" Hf course,$esla was dead !y this tie - and indeed that is why he was

awarded the patent" $he 3nited )tates 2overnent had !een sued

!y the Marconi Copany for use of its patents during the *irst

World War" By awarding the patent to $esla, they eliinated the

clai !y Marconi - and faced no siilar clai fro $esla, who,

!eing dead, was una!le to sue"

Locking and Unlocking the Skies

As the radio was invented !y the great inventor Marconi, so

was the airplane invented !y the great Wright Brothers"Again, however, the popular history turns out to !e rather

isleading" At the !eginning of the nineteen century, )ir 2eorge

Cayley had already written down and detailed the necessary

specification for the design of a successful airplane" $he ain

difficulties: the lac+ of a lightweight power source, and the control

of flight, especially changing direction and altitude" Htto Lilienthal

.8F8%.8>D had ade any successful flights on a hang gliders

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!uilt !y hiself there!y learning a nu!er of crucial things a!out

the anageent of flying" e +illed hiself in the tentative

!eginning of applying power to the hang glider" It is to Lilienthal, in

fact, that the idea of ?wing warping@ is to !e attri!uted" When the

Wright !rothers applied for the first patent in .=9, it was for the

syste of flight control o!tained !y the co!ined used of warpingand the rudder - that is, a very arginal iproveent over e'isting

technology"

It should !e noticed as well that odern airplanes are not

controlled !y ?wing warping@ !ut rather !y ova!le control

surfaces - elevators and ailerons" $hese were invented not !y the

Wright !rothers, !ut !y 2lenn Curtis - a fact that did not prevent the

Wright !rothers fro suing 2lenn Curtis !ased on their patent over

?wing warping"@

Indeed, the story of the Wright !rothers is not so terri!ly

different than those of 5aes Watt and Marconi: li+e Watt andMarconi they ade a arginal iproveent in an e'isting

technology, and then used the patent syste in an effort to

onopoli(e an entire industry" $he Wright !rothers were erely

less successful - perhaps lac+ing a politically connected partner

such as Boulton or Marconi1s aristrocratic connections - and were

also una!le to prevent innovation fro ta+ing place in *rance where

ost serious airplane developent too+ place !eginning in around

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!y a nu!er of ore or less disconnected inventors" In all three

cases one of the inventors participating in the cuulative effort -

generally the one with the sallest contri!ution !ut the !est

connections and the ost cunning instinct for the onopoly gae -

got the patent, the glory, and the onopoly profits" $han+s to the

patent syste, the other innovators were left out in the cold, withouteconoic reward, without the right to a+e copies of their own

invention, without the right to copete in the ar+et, and without

any fae" Hf course, it ay !e that the 9==9 declaration !y the 3")"

Congress that Antonio Meucci invented the telephone was a suita!le

for of copensation for his invention" 2iven that, at the tie of

the ruling, Meucci had !een dead for any decades we very uch

dou!t that he would have felt that this was the case"

The Moal

$he oral of these, and do(ens of other stories is siple"Most great inventions are cuulative and siultaneous ost great

inventions could have !een introduced siultaneously, or alost so,

!y any different inventors and copanies, copeting aong the

to iprove the product and to sell it to consuers at a price as low

as possi!le ost great inventions could have spread ore rapidly

and iproved ore uic+ly if the social productive capacity that

siultaneous inventions generate had !een usa!le all of us, !ut a

do(en undeserving onopolists, would have !een !etter off" 6one

of this has happened, and none of this is happening, !ecause the

syste of intellectual onopoly !loc+s it" Intellectual onopoly hashistorically given and still gives all the rewards to a luc+y and often

undeserving person who anages, in one way or other to get the

patent and gra! the onopoly power" As the stories we have told

show, this is a!solutely not necessary for great inventions to ta+e

place" It is daaging for society, as valua!le productive capacity is

literally destroyed and thrown away" *inally, if you forgive us, it is

also awfully unfair"

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Notes

$he advantages and disadvantages of intellectual onopoly

when innovations !uild on previous innovations is discussed in

)cotcher .. and Boldrin and Levine ., who construct

e'aples in which copetition achieves the first !est, whileintellectual onopoly fails to innovate at all" More ela!orate

odeling and a ore e'haustive analysis of the very negative role

intellectual onopoly plays when cople'ity of innovations

increases can !e found in Boldrin and Levine 9==Ea, 9==Ec"

Writing a!out the use of patents to lure investents away

fro other countries tepted us to engage in a, possi!ly not

irrelevant, digression on the role that patents played in 4urope,

roughly, !etween .F== and .8==" We resisted the teptation, !ut

here are soe hints for further reading" $he original purpose of

patents was to attract specific groups of artisans and highly s+illedprofessionals that were, for a reason or another, lac+ing in the

country proising the patent" Monopoly was the carrot offered !y

ost Italian and 6orthern%4uroepan cities to inventors that accepted

to iigrate" In 4ngland, during the seventeenth, eighteenth and

ost of the nineteenth centuries a royal patent privilege was

awarded to those citi(ens who would travel a!road and !e the first to

!ring !ac+ new goods and technologies" 3nited )tates patent laws

were less inclined to provide incentives to pirate foreign innovators,

!ut it still discriinated heavily against foreign citi(ens and

innovations until the .8>. refor pirating of foreign inventions,especially British, was thriving" 6otice the interesting fact: all these

practices 7ust aounted to iitation, or piracy in odern 7argon,

rewarded with local onopolyK $his is soething worth +eeping in

ind in the light of current serons against Indian, Chinese,

Me'ican and Bra(ilian people ?pirating our inventions"@ Hur

reading of historical records is that all this ?reciprocal stealing@ had

no effect on the total aount of inventions" If you care reading

ore, a few good !oo+s fro where to start are ahn 9==E,

Chapter 9, Landes .> and Landes .8"

It should !e apparent that everything we +now a!out theipact of copyright on classical usic we have learned fro

)cherer 9==F, and references thereof"

$he research wor+ of ahn, Laoreu' and )o+oloff we

ention is covered in a variety of articles and !oo+s, including the

!oo+ !y ahn 9==E already uoted, which contains a very !road

!i!liography" Hn the growth of interediaries and their role see

Laoreau' and )o+oloff 9==9"

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/etra Moser1s dissertation, which won the 9==

2erschen+ron /ri(e awarded !y the 4conoic istory Association

to the !est dissertation in the field, is a ine of valua!le inforation

on the role of patents in deterining innovative activity during the

.th and early 9=th century" $he ain findings are suari(ed in

Moser 9==, fro which we uote"All the epirical studies listed in the long ta!le can !e found

in the references at the end" $he data a!out patents coe fro the

9== Annual 0eport of the 3)/$H, which can !e found on line at

NNwww"uspto"govNwe!NofficesNcoNannual, additional !asic data is

fro www"cs"hhs"gov"

*or the 0oute .98 versus )ylicon Qalley story our ain

source is 2ilson ., fro which we uote" *or ore details,

though, see also the !oo+s !y )a'enian .F, and enney and von

Burg 9===" $he uote fro )a'enian is at page F>"

We have learned a!out data!ases fro Bloc+ 9===, avid9==., Maurer ., Maurer et al" 9=== and Maurer and

)cotcher 9==., fro which we also uote"

Carnegie1s uotation is fro Chapter of his .=E !oo+

eulogi(ing 5aes Watt"

$o learn a!out Marconi and his contested invention we

started with ong 9==., if anything !ecause he tries harder than

ost to show that there was no siultaneous invention" $he uote is

fro 5ac+son .8

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that Bell stole the telephone invention fro Antonio Meucci, hence

Broc+ reports only that Bell1s patent was filed two hours earlier of

an euivalent one !y 4lisha 2ray, descri!ing the sae ?invention"@

$his, o!viously, a+es the whole thing even ore entertaining in

retrospect, as it proves once again that !ig siultaneous inventions

are ore the rule than the e'ception, and that !ig siultaneousstealing is also part of the feasi!le set on the latter, see

www"esanet"itNche(U!asilioNschiavoU'v"ht"D istorical details

a!out Antonio Meucci can now !e found everywhere for the 3")"

Congress resolution, passed on 5une .>, 9==9, see

www"guardian"co"u+NinternationalNstoryN=,>=F,

ip.ch.8.m1004

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