Although the dot-com bubble has burst, the task of sorting through the debris is not yet complete. Over the course of the past decade, so many false, misleading, implausible and just plain stupid things have been said about the “information economy” that it may take another decade for us to clear the air. Consider, for example, the term “intellectual property.” With any luck, this will go the way of “clicks and mortar” as just another terrible 1990s cliché. At very least, it should be dismissed as a deeply unhelpful way of thinking and talking about the challenges of an increasingly knowledge-dependent economy.
The use of the term “property” in this context is, of course, a metaphor. We exercise property rights over land, houses, cars, and various medium-sized dry goods. But no one actually exercises a property right over an idea, or a piece of information, in Canada or anywhere else in the world. The only rights that individuals exercise over ideas are indirect: copyright protects the particular expression of an idea, while patents protect the practical application of an idea. Neither is intended to transform the idea itself into property. Furthermore, no one actually thinks that a state of affairs in which people exercised real property rights over ideas would be desirable. In fact, it would be economically disastrous.
Yet constant repetition of the phrase “intellectual property” has led far too many people to take this metaphor literally, to imagine that the system of property rights and markets used to organize an industrial economy might simply be extended, in order to structure an “information economy.” It suggests that we might someday like to buy and sell information, the way that we currently trade pork bellies.
To see what is wrong with this vision, one need only look at how the patent system is working (or rather, not working) in the software industry. Major firms pay out almost nothing in actual royalty payments, but spend millions defending themselves against “extortionary” patent infringement litigation. The SCO threat against Linux users is only the latest, most outrageous example. Adobe spent over $6 million, thousands of work hours and one full month of the CEO’s time just to defend itself against one such case. After several years of nonstop harassment, Adobe concluded that patents “promote stagnation rather than increased innovation.”
The standard strategy for firms in this and many other industries is to accumulate as many patents as possible, so that they can then barter patents with firms that might threaten them with litigation. According to the senior vice-president of Oracle, the firm “has selectively been applying for patents which will present the best opportunities for cross-licensing between Oracle and other companies who may allege patent infringement.” In other words, Oracle is specifically pursuing patents over processes currently in use by other firms, just to defend itself from nuisance legislation. Not only is this sort of “pseudoinnovation” an incredible waste of resources, but it also creates the possibility of legal cartelization of an industry. When two firms cross-license one part of a shared process to one another, not only can they exclude all competitors, they also acquire the ability to engage in perfectly legal price-fixing. The problem is that patents and copyrights were never intended to function like property rights. Ideas are classic public goods. They are nonrival, in that one person’s use does not diminish anyone else’s, and they are almost perfectly nonexcludable. Thus the most efficient way to deliver them is in the style of classic public goods— to make them freely available to all.
Unfortunately, even though the most efficient way to disseminate ideas is to make them free, the production of ideas is not free. Thus we need to provide individuals with an incentive to produce them, along with the necessary resources. One way of doing so is through the classic “taxation and state provision” model, which is how most university research is and should be produced. The other model is the “patent and copyright” model— we allow the inventor a temporary monopoly, along with the associated windfall gains, in order to provide an incentive for production.
No one imagines that such monopolies are desirable, or that the markets that result are efficient. Patents and copyrights are a necessary evil, to be tolerated only to the extent that they are necessary to secure the production of ideas. Unfortunately, all the talk about “intellectual property” seems to have governments in both the United States and Canada confused about the purpose of these protections. The granting of copyright extensions, for example, reflects a deep confusion over the purpose of these constraints. A copyright is not the expression of a claim to ownership, it is simply a special license, like a taxi permit or a dairy quota, designed to manipulate the prices at which goods and services trade. So when we think about “intellectual property” issues, it is important to keep our eye on the prize. The end state that we want is an information commons, not an information economy. All of our policies should be aimed at shepherding ideas into the commons as expeditiously as possible.
