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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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Boldrin & Levine: Against Intellectual Monopoly, Chapter 8
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
9
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Boldrin & Levine: Against Intellectual Monopoly, Chapter 8
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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Boldrin & Levine: Against Intellectual Monopoly, Chapter 8
/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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Boldrin & Levine: Against Intellectual Monopoly, Chapter 8
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
E
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Boldrin & Levine: Against Intellectual Monopoly, Chapter 8
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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Boldrin & Levine: Against Intellectual Monopoly, Chapter 8
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 $hey also find evidence
that, in countries with initially wea+ I/ regies, strengthening I/
increases the flow of foreign investent in sectors where patents are
freuently used"
Authors Years Country Industry
Arundel Many Many Many
Bessen and Hunt .8=%.> 3")" )oftwareGallini .8=s 3")" Many
Hall and Ham .8=%.F 3")" )eiconductor
Hall an Zeidonis .
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Boldrin & Levine: Against Intellectual Monopoly, Chapter 8
Kortum and #erner .8=%9=== 3")" Many
#an$ou .=s India /haraceutical
#an$ou and
Coc%&urn
. India /haraceutical
#erner'( .8E=%9=== Many Many
#erner') .
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Boldrin & Levine: Against Intellectual Monopoly, Chapter 8
... 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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Boldrin & Levine: Against Intellectual Monopoly, Chapter 8
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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Boldrin & Levine: Against Intellectual Monopoly, Chapter 8
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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Boldrin & Levine: Against Intellectual Monopoly, Chapter 8
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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Boldrin & Levine: Against Intellectual Monopoly, Chapter 8
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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Boldrin & Levine: Against Intellectual Monopoly, Chapter 8
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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Boldrin & Levine: Against Intellectual Monopoly, Chapter 8
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
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Boldrin & Levine: Against Intellectual Monopoly, Chapter 8
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"
$he latter, who never coplained a!out Marconi1s patent
and was in fact a friend of Marconi1s, writes in an official report of
May 9, .8ith this
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Boldrin & Levine: Against Intellectual Monopoly, Chapter 8
e#ception, the details of my apparatus, which so closely
resembles his, have been wor%ed out quite
Marconi was using esta!lished science at the tie" ?Long%run
detection of ert( waves@ was a widely studied topic" *rontier
science, certainly, !ut there is no real scientific discovery in his!lac+ !o'" )iilar e'perients were carried out !y 4rnest
0utherford at Ca!rige Cavendish La!oratory as early as .8E%>"
In descri!ing Marconi1s euipent, which is e'treely siilar to
that of 0utherford and 5ac+son, even in the si(e of any parts, ong
concludes that ?$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,
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