{"id":3193,"date":"2012-08-14T14:34:04","date_gmt":"2012-08-14T13:34:04","guid":{"rendered":"http:\/\/emilkirkegaard.dk\/en\/?p=3193"},"modified":"2012-10-02T05:48:44","modified_gmt":"2012-10-02T04:48:44","slug":"thoughts-and-quotes-against-intellectual-monopoly-boldrin-levine","status":"publish","type":"post","link":"https:\/\/emilkirkegaard.dk\/en\/2012\/08\/thoughts-and-quotes-against-intellectual-monopoly-boldrin-levine\/","title":{"rendered":"Thoughts and quotes: Against Intellectual Monopoly (Boldrin & Levine)"},"content":{"rendered":"

Against intellectual Monopoly<\/a><\/p>\n

In general, this is an interesting book about patents. It is at times combatant in its language use, other times more neutral. I think it wud have been wiser to use less loaded terms, but it didnt bother me too much. The criticism of IPR is generally sensible, and their case persuasive and plausible, but not as plausible as the case in Patent Failure<\/em>. References are sometimes missing for questionable claims, but in general there are lots of references. The reference system is annoying, as the notes are at the end of chapters and not in links (it was intended to be published as an ebook, after all) or footnotes or something of that sort.<\/p>\n

 <\/p>\n

Below are some more comments and a lot of quotes.<\/p>\n

 <\/p>\n

As usual. Colored text is a quote. Colored+italic text is a quote which is also a quote in the source. Black text is my comments. Blue text also mine i.e. links.<\/p>\n

–<\/p>\n

Why, however, should creators have the right to control<\/span><\/p>\n

how purchasers make use of an idea or creation? This gives<\/span><\/p>\n

creators a monopoly over the idea. We refer to this right as<\/span><\/p>\n

\u201cintellectual monopoly,\u201d to emphasize that it is this monopoly over<\/span><\/p>\n

all copies of an idea that is controversial, not the right to buy and<\/span><\/p>\n

sell copies. The government does not ordinarily enforce<\/span><\/p>\n

monopolies for producers of other goods. This is because it is<\/span><\/p>\n

widely recognized that monopoly creates many social costs.<\/span><\/p>\n

Intellectual monopoly is no different in this respect. The question<\/span><\/p>\n

we address is whether it also creates social benefits commensurate<\/span><\/p>\n

with these social costs.<\/span><\/p>\n

–<\/p>\n

Even on the desktop \u2013 open source is spreading and not<\/span><\/p>\n

shrinking. Ten years ago there were two major word processing<\/span><\/p>\n

packages, Word and Wordperfect. Today the only significant<\/span><\/p>\n

competitor to Microsoft for a package of office software including<\/span><\/p>\n

word-processing is the open source program Openoffice.<\/span><\/p>\n

 <\/p>\n

Or rather LibreOffice now. But there is also Google Docs, which isnt open source. It is, however, free.<\/p>\n

–<\/p>\n

Start with English authors selling books in the United<\/span><\/p>\n

States in the nineteenth century. \u201cDuring the nineteenth century<\/span><\/p>\n

anyone was free in the United States to reprint a foreign<\/span><\/p>\n

publication\u201d10 without making any payment to the author, besides<\/span><\/p>\n

purchasing a legally sold copy of the book. This was a fact that<\/span><\/p>\n

greatly upset Charles Dickens whose works, along with those of<\/span><\/p>\n

many other English authors, were widely distributed in the U.S.,<\/span><\/p>\n

and<\/span><\/p>\n

 <\/p>\n

yet American publishers found it profitable to make<\/em><\/span><\/p>\n

arrangements with English authors. Evidence before the<\/em><\/span><\/p>\n

1876-8 Commission shows that English authors sometimes<\/em><\/span><\/p>\n

received more from the sale of their books by American<\/em><\/span><\/p>\n

publishers, where they had no copyright, than from their<\/em><\/span><\/p>\n

royalties in [England]11<\/em><\/span><\/p>\n

 <\/p>\n

where they did have copyright. In short without copyright, authors<\/span><\/p>\n

still got paid, sometime more without copyright than with it.12<\/span><\/p>\n

How did it work? Then, as now, there is a great deal of<\/span><\/p>\n

impatience in the demand for books, especially good books.<\/span><\/p>\n

English authors would sell American publishers the manuscripts of<\/span><\/p>\n

their new books before their publication in Britain. The American<\/span><\/p>\n

publisher who bought the manuscript had every incentive to<\/span><\/p>\n

saturate the market for that particular novel as soon as possible, to<\/span><\/p>\n

avoid cheap imitators to come in soon after. This led to mass<\/span><\/p>\n

publication at fairly low prices. The amount of revenues British<\/span><\/p>\n

authors received up front from American publishers often<\/span><\/p>\n

exceeded the amount they were able to collect over a number of<\/span><\/p>\n

years from royalties in the UK. Notice that, at the time, the US<\/span><\/p>\n

market was comparable in size to the UK market.13<\/span><\/p>\n

 <\/p>\n

More broadly, the lack of copyright protection, which<\/span><\/p>\n

permitted the United States publishers\u2019 \u201cpirating\u201d of English<\/span><\/p>\n

writers, was a good economic policy of great social value for the<\/span><\/p>\n

people of United States, and of no significant detriment, as the<\/span><\/p>\n

Commission report and other evidence confirm, for English<\/span><\/p>\n

authors. Not only did it enable the establishment and rapid growth<\/span><\/p>\n

of a large and successful publishing business in the United States;<\/span><\/p>\n

also, and more importantly, it increased literacy and benefited the<\/span><\/p>\n

cultural development of the American people by flooding the<\/span><\/p>\n

market with cheap copies of great books. As an example: Dickens\u2019<\/span><\/p>\n

A Christmas Carol sold for six cents in the US, while it was priced<\/span><\/p>\n

at roughly two dollars and fifty cents in England. This dramatic<\/span><\/p>\n

increase in literacy was probably instrumental for the emergence of<\/span><\/p>\n

a great number of United States writers and scientists toward the<\/span><\/p>\n

end of the nineteenth century.<\/span><\/p>\n

 <\/p>\n

But how relevant for the modern era are copyright<\/span><\/p>\n

arrangements from the nineteenth century? Books, which had to be<\/span><\/p>\n

moved from England to the United States by clipper ship, can now<\/span><\/p>\n

be transmitted over the internet at nearly the speed of light.<\/span><\/p>\n

Furthermore, while the data show that some English authors were<\/span><\/p>\n

paid more by their U.S. publishers than they earned in England \u2013<\/span><\/p>\n

we may wonder how many, and if they were paid enough to<\/span><\/p>\n

compensate them for the cost of their creative efforts. What would<\/span><\/p>\n

happen to an author today without copyright?<\/span><\/p>\n

 <\/p>\n

This question is not easy to answer \u2013 since today virtually<\/span><\/p>\n

everything written is copyrighted, whether or not intended by the<\/span><\/p>\n

author. There is, however, one important exception \u2013 documents<\/span><\/p>\n

produced by the U.S. government. Not, you might think, the stuff<\/span><\/p>\n

of best sellers \u2013 and hopefully not fiction. But it does turn out that<\/span><\/p>\n

some government documents have been best sellers. This makes it<\/span><\/p>\n

possible to ask in a straightforward way \u2013 how much can be earned<\/span><\/p>\n

in the absence of copyright? The answer may surprise you as much<\/span><\/p>\n

as it surprised us.<\/span><\/p>\n

 <\/p>\n

The most significant government best seller of recent years<\/span><\/p>\n

has the rather off-putting title of The Final Report of the National<\/em><\/span><\/p>\n

Commission on Terrorist Attacks Upon the United States<\/em>, but it is<\/span><\/p>\n

better known simply as the 9\/11 Commission Report<\/em>.14 The report<\/span><\/p>\n

was released to the public at noon on Thursday July 22, 2004. At<\/span><\/p>\n

that time, it was freely available for downloading from a<\/span><\/p>\n

government website. A printed version of the report published by<\/span><\/p>\n

W.W. Norton simultaneously went on sale in bookstores. Norton<\/span><\/p>\n

had signed an interesting agreement with the government.<\/span><\/p>\n

 <\/p>\n

The 81-year-old publisher struck an unusual publishing<\/em><\/span><\/p>\n

deal with the 9\/11 commission back in May: Norton agreed<\/em><\/span><\/p>\n

to issue the paperback version of the report on the day of<\/em><\/span><\/p>\n

its public release.\u2026Norton did not pay for the publishing<\/em><\/span><\/p>\n

rights, but had to foot the bill for a rush printing and<\/em><\/span><\/p>\n

shipping job; the commission did not hand over the<\/em><\/span><\/p>\n

manuscript until the last possible moment, in order to<\/em><\/span><\/p>\n

prevent leaks. The company will not reveal how much this<\/em><\/span><\/p>\n

cost, or when precisely it obtained the report. But expedited<\/em><\/span><\/p>\n

printings always cost extra, making it that much more<\/em><\/span><\/p>\n

difficult for Norton to realize a profit.<\/em><\/span><\/p>\n

 <\/p>\n

In addition, the commission and Norton agreed in May on<\/em><\/span><\/p>\n

the 568-page tome’s rather low cover price of $10, making<\/em><\/span><\/p>\n

it that much harder for the publisher to recoup its costs.<\/em><\/span><\/p>\n

(Amazon.com is currently selling copies for $8 plus<\/em><\/span><\/p>\n

shipping, while visitors to the Government Printing Office<\/em><\/span><\/p>\n

bookstore in Washington, D.C. can purchase its version of<\/em><\/span><\/p>\n

the report for $8.50.) There is also competition from the<\/em><\/span><\/p>\n

commission’s Web site, which is offering a downloadable<\/em><\/span><\/p>\n

copy of the report for free. And Norton also agreed to<\/em><\/span><\/p>\n

provide one free copy to the family of every 9\/11 victim.15<\/em><\/span><\/p>\n

 <\/p>\n

This might sound like Norton struck a rather bad deal \u2013 one<\/span><\/p>\n

imagines that other publishers were congratulating themselves on<\/span><\/p>\n

not having been taken advantage of by sharp government<\/span><\/p>\n

negotiators. It turns out, however, that Norton\u2019s rivals were in fact<\/span><\/p>\n

envious of this deal. One competitor in particular \u2013 the New York<\/span><\/p>\n

Times \u2013 described the deal as a \u201croyalty-free windfall,\u201d16 which<\/span><\/p>\n

does not sound like a bad thing to have.<\/span><\/p>\n

 <\/p>\n

Thats pretty cool!<\/p>\n

–<\/p>\n

Literature and a market for literary works emerged and<\/span><\/p>\n

thrived for centuries in the complete absence of copyright. Most of<\/span><\/p>\n

what is considered \u201cgreat literature\u201d and is taught and studied in<\/span><\/p>\n

universities around the world comes from authors who never<\/span><\/p>\n

received a penny of copyright royalties. Apparently the<\/span><\/p>\n

commercial quality of the many works produced without copyright<\/span><\/p>\n

has been sufficiently great that Disney, the greatest champion of<\/span><\/p>\n

intellectual monopoly for itself, has made enormous use of the<\/span><\/p>\n

public domain. Such great Disney productions as Snow White,<\/span><\/p>\n

Sleeping Beauty, Pinocchio and Hiawatha are, of course, all taken<\/span><\/p>\n

from the public domain. Quite sensibly, from its monopolistic<\/span><\/p>\n

viewpoint, Disney is reluctant to put anything back. However, the<\/strong><\/span><\/p>\n

economic argument that these great works would not have been<\/strong><\/span><\/p>\n

produced without an intellectual monopoly is greatly weakened by<\/strong><\/span><\/p>\n

the fact that they were.<\/strong><\/span><\/p>\n

 <\/p>\n

Hah! :D<\/p>\n

–<\/p>\n

At least in the case of sheet music, the police campaign did<\/span><\/p>\n

not work. After a few months, police stations were filled with tons<\/span><\/p>\n

of paper on which various musical pieces were printed. Being<\/span><\/p>\n

unable to bring to court what was a de-facto army of \u201cillegal\u201d<\/span><\/p>\n

music reproducers, the police itself stopped enforcing the<\/span><\/p>\n

copyright law.<\/span><\/p>\n

 <\/p>\n

Pretty much that which i suggested earlier today that we shud do with DMCA notices. Just send them en masse<\/em> and overwhelm the system from within. After all, companies already send out a massive amount of DMCA notices, and lots of them are bogus auto-generated ones, and this is true even tho they must stand for perjury if they are caught lying!<\/p>\n

 <\/p>\n

Surely, there is no intent to deceive if we do the same, since there is no intent at all in writing<\/span> generating them.<\/p>\n

–<\/p>\n

The authors mention some obscure catholic principle in passing. Their reference for it is to AiG. But that makes no sense. AiG<\/a> is a YEC<\/a> organisation, not catholic. Catholics are theistic evolutionists<\/a>, not creationists.<\/p>\n

–<\/p>\n

Effective price discrimination is costly to implement and<\/span><\/p>\n

this cost represents pure waste. For example, music producers love<\/span><\/p>\n

Digital Rights Management (DRM) because it enables them to<\/span><\/p>\n

price discriminate. The reason that DVDs have country codes, for<\/span><\/p>\n

example, is to prevent cheap DVDs sold in one country from being<\/span><\/p>\n

resold in another country where they have a higher price. Yet the<\/span><\/p>\n

effect of DRM is to reduce the usefulness of the product. One of<\/span><\/p>\n

the reasons the black market in MP3s is not threatened by legal<\/span><\/p>\n

electronic sales is that the unprotected MP3 is a superior product to<\/span><\/p>\n

the DRM protected legal product. Similarly, producers of computer<\/span><\/p>\n

software sell constrained products to consumers in an effort to<\/span><\/p>\n

price discriminate and preserve their more lucrative corporate<\/span><\/p>\n

market. One consequence of price discrimination by monopolists,<\/span><\/p>\n

especially intellectual monopolists, is that they artificially degrade<\/span><\/p>\n

their products in certain markets so as not to compete with other<\/span><\/p>\n

more lucrative markets.<\/span><\/p>\n

–<\/p>\n

In recent years there have been innovative efforts to extend<\/span><\/p>\n

the use of patents to block competitors. For example we find<\/span><\/p>\n

 <\/p>\n

A federal trade agency might impose $13 million in<\/em><\/span><\/p>\n

sanctions against a New Jersey company that rebuilds used<\/em><\/span><\/p>\n

disposable cameras made by the Fuji Photo Film Company<\/em><\/span><\/p>\n

and sells them without brand names at a discount. Fuji said<\/em><\/span><\/p>\n

yesterday that the International Trade Commission found<\/em><\/span><\/p>\n

that the Jazz photo Corporation infringed Fuji\u2019s patent<\/em><\/span><\/p>\n

rights by taking used Fuji cameras and refurbishing them<\/em><\/span><\/p>\n

for resale. The agency said Jazz sold more that 25 million<\/em><\/span><\/p>\n

cameras since August 2001 in violation of a 1999 order to<\/em><\/span><\/p>\n

stop and will consider sanctions. Fuji, based in Tokyo, has<\/em><\/span><\/p>\n

been fighting makers of rebuilt cameras for seven years.<\/em><\/span><\/p>\n

Jazz takes used shells of disposable cameras, puts in new<\/em><\/span><\/p>\n

film and batteries and then sells them. Jazz\u2019s founder, Jack<\/em><\/span><\/p>\n

Benun, said the company would appeal. \u201cIt\u2019s unbelievable<\/em><\/span><\/p>\n

that the recycling of two plastic pieces developed into such<\/em><\/span><\/p>\n

a long case.\u201d Mr. Benun said. \u2018There\u2019s a benefit to the<\/em><\/span><\/p>\n

customer. The prices have come down over the years. And<\/em><\/span><\/p>\n

recycling is a good program. Our friends at Fuji do not like<\/em><\/span><\/p>\n

it.20<\/em><\/span><\/p>\n

 <\/p>\n

Sigh.<\/p>\n

–<\/p>\n

One annoying thing about this book is that it uses the annoying and misleading loaded terms that IP maximalists use. I.e. \u201csteal an idea\u201d instead of \u201ccopy an idea\u201d etc.<\/p>\n

–<\/p>\n

Another astounding example of American intellectual imperialism<\/span><\/p>\n

is in \u2013 not so surprising \u2013 Iraq<\/span><\/p>\n

 <\/p>\n

The American Administrator of [Iraq] Paul Bremer,<\/em><\/span><\/p>\n

updated Iraq’s intellectual property law to \u2018meet current<\/em><\/span><\/p>\n

internationally-recognized standards of protection.\u2019 The<\/em><\/span><\/p>\n

updated law makes saving seeds for next year’s harvest,<\/em><\/span><\/p>\n

practiced by 97% of Iraqi farmers in 2002, the standard<\/em><\/span><\/p>\n

farming practice for thousands of years across human<\/em><\/span><\/p>\n

civilizations, newly illegal. Instead, farmers will have to<\/em><\/span><\/p>\n

obtain a yearly license for genetically modified seeds from<\/em><\/span><\/p>\n

American corporations. These GM seeds have typically<\/em><\/span><\/p>\n

been modified from IP developed over thousands of<\/em><\/span><\/p>\n

generations by indigenous farmers like the Iraqis, shared<\/em><\/span><\/p>\n

freely like agricultural \u2018open source.\u2019 Other IP provisions<\/em><\/span><\/p>\n

for technology in the law further integrate Iraq into the<\/em><\/span><\/p>\n

American IP economy.24<\/em><\/span><\/p>\n

 <\/p>\n

Fucking derp.<\/p>\n

–<\/p>\n

The private sector has no monopoly on inadequacy.<\/span><\/p>\n

Government bureaucrats are notorious for their inefficiency. The<\/span><\/p>\n

U.S. Patent office is no exception. Their questionable competence<\/span><\/p>\n

increases the cost of getting patents, but this is a small effect, and,<\/span><\/p>\n

perhaps a good thing, rather than bad. They also issue many<\/span><\/p>\n

patents of dubious merit. Since the legal presumption is that a<\/span><\/p>\n

patent is legitimate unless proven otherwise, there is a substantial<\/span><\/p>\n

legal advantage to the patent holder, who may use it for blackmail,<\/span><\/p>\n

or other purposes. Moreover, while some bad patents may be<\/span><\/p>\n

turned down, an obvious strategy is simply to file a great many bad<\/span><\/p>\n

patents in hopes that a few will get through. Here is a sampling of<\/span><\/p>\n

some of the ideas the US Patent office thought worthy of patenting<\/span><\/p>\n

in recent years.41<\/span><\/p>\n

 <\/p>\n

# U.S. Patent 6,080,436: toasting bread in a toaster operating<\/em><\/span><\/p>\n

beween 2500 and 4500 degrees.<\/em><\/span><\/p>\n

# U.S. Patent 6,004,596: the sealed crustless peanut butter and<\/em><\/span><\/p>\n

jelly sandwich.<\/em><\/span><\/p>\n

# U.S. Patent 5,616,089: a \u201cputting method in which the golfer<\/em><\/span><\/p>\n

controls the speed of the putt and the direction of the putt<\/em><\/span><\/p>\n

primarily with the golfer\u2019s dominant throwing hand, yet uses<\/em><\/span><\/p>\n

the golfer\u2019s nondominant hand to maintain the blade of the<\/em><\/span><\/p>\n

putter stable.\u201d<\/em><\/span><\/p>\n

# U.S. Patent 6,368,227: \u201cA method of swing on a swing is<\/em><\/span><\/p>\n

disclosed, in which a user positioned on a standard swing<\/em><\/span><\/p>\n

suspended by two chains from a substantially horizontal tree<\/em><\/span><\/p>\n

branch induces side to side motion by pulling alternately on<\/em><\/span><\/p>\n

one chain and then the other.\u201d<\/em><\/span><\/p>\n

# U.S. Patent 6,219,045, from the press release by Worlds.com:<\/em><\/span><\/p>\n

\u201c[The patent was awarded] for its scalable 3D server<\/em><\/span><\/p>\n

technology \u2026 [by] the United States Patent Office. The<\/em><\/span><\/p>\n

Company believes the patent may apply to currently, in use,<\/em><\/span><\/p>\n

multi-user games, e-Commerce, web design, advertising and<\/em><\/span><\/p>\n

entertainment areas of the Internet.\u201d This is a refreshing<\/em><\/span><\/p>\n

admission that instead of inventing something new,<\/em><\/span><\/p>\n

Worlds.com simply patented something already widely used.<\/em><\/span><\/p>\n

# U.S. Patent 6,025,810: \u201cThe present invention takes a<\/em><\/span><\/p>\n

transmission of energy, and instead of sending it through<\/em><\/span><\/p>\n

normal time and space, it pokes a small hole into another<\/em><\/span><\/p>\n

dimension, thus, sending the energy through a place which<\/em><\/span><\/p>\n

allows transmission of energy to exceed the speed of light.\u201d<\/em><\/span><\/p>\n

The mirror image of patenting stuff already in use: patent stuff<\/em><\/span><\/p>\n

that can’t possibly work.<\/em><\/span><\/p>\n

 <\/p>\n

I had thought of the same shotgun style idea.<\/p>\n

–<\/p>\n

That monopoly is generally bad for society is well<\/span><\/p>\n

accepted. It is not surprising that the same should be true of<\/span><\/p>\n

intellectual monopoly: the evidence presented here is no more than<\/span><\/p>\n

the tip of the iceberg. Many other inefficiencies, bad business<\/span><\/p>\n

practices, technological regressions, etc. are documented daily by<\/span><\/p>\n

the press. These are a consequence of the especially strong form of<\/span><\/p>\n

monopoly power that current IP legislation bestows upon patent<\/span><\/p>\n

and copyright holders. We insist on documenting and discussing a<\/span><\/p>\n

subset of these facts for the simple reason that we have become so<\/span><\/p>\n

accustomed to them that we inclined to take them for granted. Yet<\/span><\/p>\n

these inefficiencies are not natural \u2013 they are manmade, and we<\/span><\/p>\n

need not choose to tolerate them. We argue in later chapters that<\/span><\/p>\n

neither patents nor copyright succeed in fostering innovation and<\/span><\/p>\n

creativity. So we must ask: what is the point of keeping institutions<\/span><\/p>\n

that provide so little good while inflicting so much harm?<\/span><\/p>\n

–<\/p>\n

Examples of individual creativity abound. An astounding<\/span><\/p>\n

example of the impact of copyright law on individual creativity is<\/span><\/p>\n

the story of Tarnation.120<\/span><\/p>\n

 <\/p>\n

Tarnation, a powerful autobiographical documentary by<\/em><\/span><\/p>\n

director Jonathan Caouette, has been one of the surprise<\/em><\/span><\/p>\n

hits of the Cannes Film Festival – despite costing just $218<\/em><\/span><\/p>\n

(\u00a3124) to make. After Tarnation screened for the second<\/em><\/span><\/p>\n

time in Cannes, Caouette – its director, editor and main<\/em><\/span><\/p>\n

character – stood up. [\u2026] A Texan child whose mother was<\/em><\/span><\/p>\n

in shock therapy, Caouette, 31, was abused in foster care<\/em><\/span><\/p>\n

and saw his mother’s condition worsen as a result of her<\/em><\/span><\/p>\n

\u201ctreatment.\u201d He began filming himself and his family aged<\/em><\/span><\/p>\n

11, and created movie fantasies as an escape. For<\/em><\/span><\/p>\n

Tarnation, he has spliced his home movie footage together<\/em><\/span><\/p>\n

to create a moving and uncomfortable self-portrait. And<\/em><\/span><\/p>\n

using a home computer with basic editing software,<\/em><\/span><\/p>\n

Caouette did it all for a fraction of the price of a<\/em><\/span><\/p>\n

Hollywood blockbuster like Troy. [\u2026] As for the budget,<\/em><\/span><\/p>\n

which has attracted as much attention as the subject<\/em><\/span><\/p>\n

matter, Caouette said he had added up how much he spent<\/em><\/span><\/p>\n

on video tapes – plus a set of angel wings – over the years.<\/em><\/span><\/p>\n

But the total spent will rise to about $400,000 (\u00a3230,000),<\/em><\/span><\/p>\n

he said, once rights for music and video clips he used to<\/em><\/span><\/p>\n

illustrate a mood or era have been paid for.9<\/em><\/span><\/p>\n

 <\/p>\n

Yes, you read this right. If he did not have to pay the copyright<\/span><\/p>\n

royalties for the short clips he used, Caouette\u2019s movie would have<\/span><\/p>\n

cost a thousand times less.<\/span><\/p>\n

–<\/p>\n

The most disturbing feature of the DMCA is section 1201,<\/span><\/p>\n

the anti-circumvention provision. This makes it a criminal offense<\/span><\/p>\n

to reverse engineer or decrypt copyrighted material, or to distribute<\/span><\/p>\n

tools that make it possible to do so. On July 27, 2001, Russian<\/span><\/p>\n

cryptographer Dmitri Sklyarov had the dubious honor of being the<\/span><\/p>\n

first person imprisoned under the DMCA. Arrested while giving a<\/span><\/p>\n

seminar publicizing cryptographical weaknesses in Adobe\u2019s<\/span><\/p>\n

Acrobat Ebook format, Sklyarov was eventually acquitted on<\/span><\/p>\n

December 17, 2002.<\/span><\/p>\n

The DMCA has had a chilling effect on both freedom of<\/span><\/p>\n

speech, and on cryptographical research. The Electronic Frontier<\/span><\/p>\n

Foundation (EFF) reports on the case of Edward Felten and his<\/span><\/p>\n

Princeton team of researchers<\/span><\/p>\n

 <\/p>\n

In September 2000, a multi-industry group known as the<\/em><\/span><\/p>\n

Secure Digital Music Initiative (SDMI) issued a public<\/em><\/span><\/p>\n

challenge encouraging skilled technologists to try to defeat<\/em><\/span><\/p>\n

certain watermarking technologies intended to protect<\/em><\/span><\/p>\n

digital music. Princeton Professor Edward Felten and a<\/em><\/span><\/p>\n

team of researchers at Princeton, Rice, and Xerox took up<\/em><\/span><\/p>\n

the challenge and succeeded in removing the watermarks.<\/em><\/span><\/p>\n

 <\/p>\n

When the team tried to present their results at an academic<\/em><\/span><\/p>\n

conference, however, SDMI representatives threatened the<\/em><\/span><\/p>\n

researchers with liability under the DMCA. The threat<\/em><\/span><\/p>\n

letter was also delivered to the researchers employers and<\/em><\/span><\/p>\n

the conference organizers. After extensive discussions with<\/em><\/span><\/p>\n

counsel, the researchers grudgingly withdrew their paper<\/em><\/span><\/p>\n

from the conference. The threat was ultimately withdrawn<\/em><\/span><\/p>\n

and a portion of the research was published at a<\/em><\/span><\/p>\n

subsequent conference, but only after the researchers filed<\/em><\/span><\/p>\n

a lawsuit.<\/em><\/span><\/p>\n

 <\/p>\n

After enduring this experience, at least one of the<\/em><\/span><\/p>\n

researchers involved has decided to forgo further research<\/em><\/span><\/p>\n

efforts in this field.13<\/em><\/span><\/p>\n

 <\/p>\n

Disgusting!<\/p>\n

–<\/p>\n

The DMCA is not just a threat to economic prosperity and<\/span><\/p>\n

creativity, it is also a threat to our freedom. The best illustration is<\/span><\/p>\n

the recent case of Diebold, which makes computerized voting<\/span><\/p>\n

machines now used in various local, state and national elections.<\/span><\/p>\n

Unfortunately, it appears from internal corporate documents that<\/span><\/p>\n

these machines are highly insecure and may easily be hacked.<\/span><\/p>\n

Those documents were leaked, and posted at various sites on the<\/span><\/p>\n

Internet. Rather than acknowledge or fix the security problem,<\/span><\/p>\n

Diebold elected to send \u201ctakedown\u201d notices in an effort to have the<\/span><\/p>\n

embarrassing \u201ccopyrighted\u201d material removed from the Internet.<\/span><\/p>\n

Something more central to political discourse than the<\/span><\/p>\n

susceptibility of voting machines to fraud is hard to imagine. To<\/span><\/p>\n

allow this speech to be repressed in the name of \u201ccopyright\u201d is<\/span><\/p>\n

frightening.<\/span><\/p>\n

 <\/p>\n

Perhaps this sounds cliched and exaggerated \u2013 a kind of<\/span><\/p>\n

\u201cleftist college kids\u201d over-reactive propaganda. In keeping with<\/span><\/p>\n

this tone here is a college story about the leaked documents, and<\/span><\/p>\n

how the Diebold and the DMCA helped to teach our future<\/span><\/p>\n

generations about the first amendment.<\/span><\/p>\n

 <\/p>\n

Last fall, a group of civic-minded students at Swarthmore<\/em><\/span><\/p>\n

[… came] into possession of some 15,000 e-mail messages<\/em><\/span><\/p>\n

and memos \u2013 presumably leaked or stolen \u2013 from Diebold<\/em><\/span><\/p>\n

Election Systems, the largest maker of electronic voting<\/em><\/span><\/p>\n

machines in the country. The memos featured Diebold<\/em><\/span><\/p>\n

employees’ candid discussion of flaws in the company’s<\/em><\/span><\/p>\n

software and warnings that the computer network was<\/em><\/span><\/p>\n

poorly protected from hackers. In light of the chaotic 2000<\/em><\/span><\/p>\n

presidential election, the Swarthmore students decided that<\/em><\/span><\/p>\n

this information shouldn’t be kept from the public. Like<\/em><\/span><\/p>\n

aspiring Daniel Ellsbergs with their would-be Pentagon<\/em><\/span><\/p>\n

Papers, they posted the files on the Internet, declaring the<\/em><\/span><\/p>\n

act a form of electronic whistle-blowing. Unfortunately for<\/em><\/span><\/p>\n

the students, their actions ran afoul of the 1998 Digital<\/em><\/span><\/p>\n

Millennium Copyright Act (D.M.C.A.), […] Under the law,<\/em><\/span><\/p>\n

if an aggrieved party (Diebold, say) threatens to sue an<\/em><\/span><\/p>\n

Internet service provider over the content of a subscriber’s<\/em><\/span><\/p>\n

Web site, the provider can avoid liability simply by<\/em><\/span><\/p>\n

removing the offending material. Since the mere threat of a<\/em><\/span><\/p>\n

lawsuit is usually enough to scare most providers into<\/em><\/span><\/p>\n

submission, the law effectively gives private parties veto<\/em><\/span><\/p>\n

power over much of the information published online — as<\/em><\/span><\/p>\n

the Swarthmore students would soon learn.<\/em><\/span><\/p>\n

 <\/p>\n

Not long after the students posted the memos, Diebold sent<\/em><\/span><\/p>\n

letters to Swarthmore charging the students with copyright<\/em><\/span><\/p>\n

infringement and demanding that the material be removed<\/em><\/span><\/p>\n

from the students’ Web page, which was hosted on the<\/em><\/span><\/p>\n

college’s server. Swarthmore complied. […]19<\/em><\/span><\/p>\n

 <\/p>\n

The story did not end there, nor did it end too badly. The<\/span><\/p>\n

controversy went on for a while. The Swarthmore students held<\/span><\/p>\n

their ground and bravely fought against both Diebold and<\/span><\/p>\n

Swarthmore. They managed to create enough negative publicity<\/span><\/p>\n

for Diebold and for their liberal arts college, that Diebold<\/span><\/p>\n

eventually had to back down and promise not to sue for copyright<\/span><\/p>\n

infringement. Eventually the memos went back on the net.<\/span><\/p>\n

All\u2019s well what ends well? When the wise man points at the<\/span><\/p>\n

moon, the dumb man looks at the finger.<\/span><\/p>\n

–<\/p>\n

Economists refer to the net benefit to society from an<\/span><\/p>\n

exchange as \u201csocial surplus.\u201d With intellectual property the<\/span><\/p>\n

innovator collects a share of the social surplus she generates,<\/span><\/p>\n

without intellectual property the innovator collects a smaller share:<\/span><\/p>\n

this is the competitive value of an innovation. When such<\/span><\/p>\n

competitive value is enough to compensate the innovator for the<\/span><\/p>\n

cost of creation the allocation of resources is efficient, neither too<\/span><\/p>\n

few nor too many innovations are brought about, and social surplus<\/span><\/p>\n

is maximized. One can show mathematically that, under a variety<\/span><\/p>\n

of competitive mechanisms, the private value accruing to an<\/span><\/p>\n

innovator increases with the social surplus: inventors of better<\/span><\/p>\n

gadgets make more money. This is true even when the private<\/span><\/p>\n

value becomes a smaller share of the social surplus as the latter<\/span><\/p>\n

increases.<\/span><\/p>\n

 <\/p>\n

Notice that we insist on \u201ca share of the social surplus\u201d, not<\/span><\/p>\n

the entire surplus. Contrary to what many pundits repeat over and<\/span><\/p>\n

over, there is nothing terrifying about this: even under intellectual<\/span><\/p>\n

monopoly innovators receives a less than 100% share of the social<\/span><\/p>\n

surplus from innovation, the rest going to consumers. Under<\/span><\/p>\n

competition for those innovations that are produced both<\/span><\/p>\n

consumers and imitators receive a portion of the social surplus an<\/span><\/p>\n

innovation generates, and such portion is strictly larger than in the<\/span><\/p>\n

previous case. These pundits use the jargon \u201cuncompensated<\/span><\/p>\n

spillovers\u201d to refer to the social surplus accruing to those besides<\/span><\/p>\n

the original innovator. There is nothing wrong with such<\/span><\/p>\n

spillovers, however. That competitive markets do allow for social<\/span><\/p>\n

surplus to accrue to people other than producers is, indeed, one of<\/span><\/p>\n

their most valuable features, at least from a social perspective; it is<\/span><\/p>\n

what makes capitalism a good system also for the not-so-<\/span><\/p>\n

successful among us. The goal of economic efficiency is not that of<\/span><\/p>\n

making monopolists as rich as possible, in fact: it is almost the<\/span><\/p>\n

opposite. The goal of economic efficiency is that of making us all<\/span><\/p>\n

as well off as possible. To accomplish this producers must be<\/span><\/p>\n

compensated for their costs, thereby providing them with the<\/span><\/p>\n

economic incentive of doing what they are best at doing. But they<\/span><\/p>\n

do not need to be compensated more than this. If, by selling her<\/span><\/p>\n

original copy of the idea in a competitive market and thereby<\/span><\/p>\n

establishing the root of the tree from which copies will come, the<\/span><\/p>\n

innovator earns her opportunity cost, that is: she earns as much or<\/span><\/p>\n

more than she could have earned while doing the second best thing<\/span><\/p>\n

she knows how to do, then efficient innovation is achieved, and we<\/span><\/p>\n

should all be happy.<\/span><\/p>\n

 <\/p>\n

This no copyright at all is interesting. Notice how it instantly solves all problems with sampling. Under a for profit copyright only, sampling is difficult to deal with.<\/p>\n

–<\/p>\n

Consider the problem of automobiles and air pollution.<\/span><\/p>\n

When I drive my car, I do not have to pay you for the harm the<\/span><\/p>\n

poison in my exhaust does to your health. So naturally, people<\/span><\/p>\n

drive more than is socially desirable and there is too much air<\/span><\/p>\n

pollution. Economists refer to this as a negative externality, and we<\/span><\/p>\n

all agree it is a problem. Even conservative economists usually<\/span><\/p>\n

agree that government intervention of some sort is required.<\/span><\/p>\n

 <\/p>\n

We propose the following solution to the problem of<\/span><\/p>\n

automobile pollution: the government should grant us the exclusive<\/span><\/p>\n

right to sell automobiles. Naturally, as a monopolist, we will insist<\/span><\/p>\n

on charging a high price for automobiles, fewer automobiles will<\/span><\/p>\n

be sold, there will be less driving, and so less pollution. The fact<\/span><\/p>\n

that this will make us unspeakably rich is of course beside the<\/span><\/p>\n

point; the sole purpose of this policy is to reduce air pollution. This<\/span><\/p>\n

is of course all logically correct \u2013 but so far we don\u2019t think anyone<\/span><\/p>\n

has had the chutzpah to suggest that this is a good solution to the<\/span><\/p>\n

problem of air pollution.<\/span><\/p>\n

 <\/p>\n

If someone were to make a serious suggestion along these<\/span><\/p>\n

lines, we would simply point out that this \u201csolution\u201d has actually<\/span><\/p>\n

been tried. In Eastern Europe, under the old communist<\/span><\/p>\n

governments, each country did in fact have a government<\/span><\/p>\n

monopoly over the production of automobiles. As the theory<\/span><\/p>\n

predicts, this did indeed result in expensive automobiles, fewer<\/span><\/p>\n

automobiles sold, and less driving. It is not so clear, however, that<\/span><\/p>\n

it actually resulted in less pollution. Sadly, the automobiles<\/span><\/p>\n

produced by the Eastern European monopolists were of such<\/span><\/p>\n

miserably bad quality that for each mile they were driven they<\/span><\/p>\n

created vastly more pollution than the automobiles driven in the<\/span><\/p>\n

competitive West. And, despite their absolute power, the<\/span><\/p>\n

monopolies of Eastern Europe managed to produce a lot more<\/span><\/p>\n

pollution per capita than the West.<\/span><\/p>\n

 <\/p>\n

Arguments in favor of intellectual monopoly often have a<\/span><\/p>\n

similar flavor. They may be logically correct, but they tend to defy<\/span><\/p>\n

common sense. Ed Felten suggests applying what he calls the<\/span><\/p>\n

\u201cpizzaright\u201d test. The pizzaright is the exclusive right to sell pizza<\/span><\/p>\n

and makes it illegal to make or serve pizza without a license from<\/span><\/p>\n

the pizzaright owner.1 We all recognize, of course, that this would<\/span><\/p>\n

be a foolhardy policy and that we should allow the market to<\/span><\/p>\n

decide who can make and sell pizza. The pizzaright test says that<\/span><\/p>\n

when evaluating an argument in favor of intellectual monopoly, if<\/span><\/p>\n

your argument serves equally well as an argument for a pizzaright,<\/span><\/p>\n

then your argument is defective \u2013 it proves too much. Whatever<\/span><\/p>\n

your argument is, it had better not apply to pizza.<\/span><\/p>\n

 <\/p>\n

Heh<\/p>\n

–<\/p>\n

While replacing secrecy with legal monopoly may have<\/span><\/p>\n

some impact on the direction of innovation, there is little reason to<\/span><\/p>\n

believe that it actually succeeds in making important secrets public<\/span><\/p>\n

and easily accessible to other innovators. For most innovations, it<\/span><\/p>\n

is the details that matter, not the rather vague descriptions required<\/span><\/p>\n

in patent applications. Take for example, the controversial Amazon<\/span><\/p>\n

one-click patent, U.S. Patent 5,960,411. The actual idea is rather<\/span><\/p>\n

trivial, and there are a variety of ways in which one-click purchase<\/span><\/p>\n

can be implemented by computer, any one of which can be coded<\/span><\/p>\n

by a competent programmer given a modest investment of time<\/span><\/p>\n

and effort. For the record, here is the detailed description of the<\/span><\/p>\n

invention from the patent application:<\/span><\/p>\n

 <\/p>\n

The present invention provides a method and system for<\/em><\/span><\/p>\n

single-action ordering of items in a client\/server<\/em><\/span><\/p>\n

environment. The single-action ordering system of the<\/em><\/span><\/p>\n

present invention reduces the number of purchaser<\/em><\/span><\/p>\n

interactions needed to place an order and reduces the<\/em><\/span><\/p>\n

amount of sensitive information that is transmitted between<\/em><\/span><\/p>\n

a client system and a server system. In one embodiment, the<\/em><\/span><\/p>\n

server system assigns a unique client identifier to each<\/em><\/span><\/p>\n

client system. The server system also stores purchaser-<\/em><\/span><\/p>\n

specific order information for various potential purchasers.<\/em><\/span><\/p>\n

The purchaser-specific order information may have been<\/em><\/span><\/p>\n

collected from a previous order placed by the purchaser.<\/em><\/span><\/p>\n

The server system maps each client identifier to a<\/em><\/span><\/p>\n

purchaser that may use that client system to place an order.<\/em><\/span><\/p>\n

The server system may map the client identifiers to the<\/em><\/span><\/p>\n

purchaser who last placed an order using that client<\/em><\/span><\/p>\n

system. When a purchaser wants to place an order, the<\/em><\/span><\/p>\n

purchaser uses a client system to send the request for<\/em><\/span><\/p>\n

information describing the item to be ordered along with its<\/em><\/span><\/p>\n

client identifier. The server system determines whether the<\/em><\/span><\/p>\n

client identifier for that client system is mapped to a<\/em><\/span><\/p>\n

purchaser. If so mapped, the server system determines<\/em><\/span><\/p>\n

whether single-action ordering is enabled for that<\/em><\/span><\/p>\n

purchaser at that client system. If enabled, the server<\/em><\/span><\/p>\n

system sends the requested information (e.g., via a Web<\/em><\/span><\/p>\n

page) to the client computer system along with an<\/em><\/span><\/p>\n

indication of the single action to perform to place the order<\/em><\/span><\/p>\n

for the item. When single-action ordering is enabled, the<\/em><\/span><\/p>\n

purchaser need only perform a single action (e.g., click a<\/em><\/span><\/p>\n

mouse button) to order the item. When the purchaser<\/em><\/span><\/p>\n

performs that single action, the client system notifies the<\/em><\/span><\/p>\n

server system. The server system then completes the order<\/em><\/span><\/p>\n

by adding the purchaser-specific order information for the<\/em><\/span><\/p>\n

purchaser that is mapped to that client identifier to the item<\/em><\/span><\/p>\n

order information (e.g., product identifier and quantity).<\/em><\/span><\/p>\n

Thus, once the description of an item is displayed, the<\/em><\/span><\/p>\n

purchaser need only take a single action to place the order<\/em><\/span><\/p>\n

to purchase that item. Also, since the client identifier<\/em><\/span><\/p>\n

identifies purchaser-specific order information already<\/em><\/span><\/p>\n

stored at the server system, there is no need for such<\/em><\/span><\/p>\n

sensitive information to be transmitted via the Internet or<\/em><\/span><\/p>\n

other communications medium.28<\/em><\/span><\/p>\n

 <\/p>\n

As can be seen, the \u201csecret\u201d that is revealed is, if anything, less<\/span><\/p>\n

informative than the simple observation that the purchaser buys<\/span><\/p>\n

something by means of a single click. Information that might<\/span><\/p>\n

actually be of use to a computer programmer \u2013 for example the<\/span><\/p>\n

source code to the specific implementation used by Amazon \u2013 is<\/span><\/p>\n

not provided as part of the patent, nor is it required to be. In fact,<\/span><\/p>\n

the actual implementation of the one-click procedure consists of a<\/span><\/p>\n

complicated system of subcomponents and modules requiring a<\/span><\/p>\n

substantial amount of human capital and of specialized working<\/span><\/p>\n

time to be assembled. The generic idea revealed in the patent is<\/span><\/p>\n

easy to understand and \u201ccopy,\u201d but of no practical value<\/span><\/p>\n

whatsoever. The useful ideas are neither revealed in the patent nor<\/span><\/p>\n

easy to imitate without reinventing them from scrap, which is what<\/span><\/p>\n

lots of other people beside Amazon\u2019s direct competitors (books are<\/span><\/p>\n

not the only thing sold on the web, after all) would have done to<\/span><\/p>\n

everybody\u2019s else benefit, had the U.S. Patent 5,960,411 not<\/span><\/p>\n

prevented them from actually doing so. Certainly it is hard to argue<\/span><\/p>\n

that the social cost of giving Amazon a monopoly over purchasing<\/span><\/p>\n

by clicking a single button is somehow offset by the social benefit<\/span><\/p>\n

of the information revealed in the patent application.<\/span><\/p>\n

–<\/p>\n

What we have argued so far may not sound altogether<\/span><\/p>\n

incredible to the alert observer of the economics of innovation.<\/span><\/p>\n

Theory aside, what have we shown, after all? That thriving<\/span><\/p>\n

innovation has been and still is commonplace in the absence of<\/span><\/p>\n

intellectual monopoly and that intellectual monopoly leads to<\/span><\/p>\n

substantial and well-documented reductions in economic freedom<\/span><\/p>\n

and general prosperity. However, while expounding the theory of<\/span><\/p>\n

competitive innovation, we also recognized that under perfect<\/span><\/p>\n

competition some socially desirable innovations will not be<\/span><\/p>\n

produced because the indivisibility involved with introducing the<\/span><\/p>\n

first copy or implementation of the new idea is too large, relative<\/span><\/p>\n

to the size of the underlying market. When this is the case,<\/span><\/p>\n

monopoly power may generate the necessary incentive for the<\/span><\/p>\n

putative innovator to introduce socially valuable goods. And the<\/span><\/p>\n

value for society of these goods could dwarf the social losses we<\/span><\/p>\n

have documented. In fact, were standard theory correct so that<\/span><\/p>\n

most innovators gave up innovating in a world without intellectual<\/span><\/p>\n

property, the gains from patents and copyright would certainly<\/span><\/p>\n

dwarf those losses. Alas, as we noted, standard theory is not even<\/span><\/p>\n

internally coherent, and its predictions are flatly violated by the<\/span><\/p>\n

facts reported in chapters 2 and 3.<\/span><\/p>\n

 <\/p>\n

Nevertheless, when in the previous chapter we argued<\/span><\/p>\n

against all kinds of theoretical reasons brought forward to justify<\/span><\/p>\n

intellectual monopoly on \u201cscientific grounds\u201d, we carefully<\/span><\/p>\n

avoided stating that it is never the case the fixed cost of innovation<\/span><\/p>\n

is too large to be paid for by competitive rents. We did not argue it<\/span><\/p>\n

as a matter of theory because, as a matter of theory, fixed costs can<\/span><\/p>\n

be so large to prevent almost anything from being invented. So, by<\/span><\/p>\n

our own admission, it is a theoretical possibility that intellectual<\/span><\/p>\n

monopoly could, at the end of the day, be better than competition.<\/span><\/p>\n

But does intellectual monopoly actually lead to greater innovation<\/span><\/p>\n

than competition?<\/span><\/p>\n

 <\/p>\n

From a theoretical point of view the answer is murky. In<\/span><\/p>\n

the long-run, intellectual monopoly provides increased revenues to<\/span><\/p>\n

those that innovate, but also makes innovation more costly.<\/span><\/p>\n

Innovations generally build on existing innovations. While each<\/span><\/p>\n

individual innovator may earn more revenue from innovating if he<\/span><\/p>\n

has an intellectual monopoly, he also faces a higher cost of<\/span><\/p>\n

innovating: he must pay off all those other monopolists owning<\/span><\/p>\n

rights to existing innovations. Indeed, in the extreme case when<\/span><\/p>\n

each new innovation requires the use of lots of previous ideas, the<\/span><\/p>\n

presence of intellectual monopoly may bring innovation to a<\/span><\/p>\n

screeching halt.1<\/span><\/p>\n

 <\/p>\n

Difficult indeed to say on theoretical grounds alone. Only empirical data can show.<\/p>\n

–<\/p>\n

On the problem of measuring innovation.<\/p>\n

 <\/p>\n

One important difficulty is in determining the level of<\/span><\/p>\n

innovative activity. One measure is the number of patents, of<\/span><\/p>\n

course, but this is meaningless in a country that has no patents, or<\/span><\/p>\n

when patent laws change. Petra Moser gets around this problem by<\/span><\/p>\n

examining the catalogs of innovations from 19th century World<\/span><\/p>\n

Fairs. Of the catalogued innovations, some are patented, some are<\/span><\/p>\n

not, some are from countries with patent systems, and some are<\/span><\/p>\n

from countries without. Moser catalogues over 30,000 innovations<\/span><\/p>\n

from a variety of industries.<\/span><\/p>\n

 <\/p>\n

Mid-nineteenth century Switzerland [a country without<\/span><\/p>\n

patents], for example, had the second highest number of<\/span><\/p>\n

exhibits per capita among all countries that visited the Crystal<\/span><\/p>\n

Palace Exhibition. Moreover, exhibits from countries without<\/span><\/p>\n

patent laws received disproportionate shares of medals for<\/span><\/p>\n

outstanding innovations.7<\/span><\/p>\n

 <\/p>\n

Moser does, however, find a significant impact of patent law on<\/span><\/p>\n

the direction of innovation<\/span><\/p>\n

 <\/p>\n

The analysis of exhibition data suggests that patent laws may<\/em><\/span><\/p>\n

be an important factor in determining the direction of<\/em><\/span><\/p>\n

innovative activity. Exhibition data show that countries without<\/em><\/span><\/p>\n

patents share an exceptionally strong focus on innovations in<\/em><\/span><\/p>\n

two industries: scientific instruments and food processing. At<\/em><\/span><\/p>\n

the Crystal Palace, every fourth exhibit from a country without<\/em><\/span><\/p>\n

patent laws is a scientific instrument, while no more than one<\/em><\/span><\/p>\n

seventh of other countries innovations belong to this category.<\/em><\/span><\/p>\n

At the same time, the patentless countries have significantly<\/em><\/span><\/p>\n

smaller shares of innovation in machinery, especially in<\/em><\/span><\/p>\n

machinery for manufacturing and agricultural machinery.<\/em><\/span><\/p>\n

After the Netherlands abolished her patent system in 1869 for<\/em><\/span><\/p>\n

political reasons, the share of Dutch innovations that were<\/em><\/span><\/p>\n

devoted to food processing increased from 11 to 37 percent.8<\/em><\/span><\/p>\n

 <\/p>\n

Moser then goes on to say that<\/span><\/p>\n

 <\/p>\n

Nineteenth-century sources report that secrecy was<\/em><\/span><\/p>\n

particularly effective at protecting innovations in scientific<\/em><\/span><\/p>\n

instruments and in food processing. On the other hand,<\/em><\/span><\/p>\n

patenting was essential to protect and motivate innovations in<\/em><\/span><\/p>\n

machinery, especially for large-scale manufacturing.9<\/em><\/span><\/p>\n

 <\/p>\n

Evidence that secrecy was important for scientific instruments<\/span><\/p>\n

and food processing is provided, but no evidence is given that<\/span><\/p>\n

patenting was actually essential to protect and motivate<\/span><\/p>\n

innovations in machinery. Notice that in an environment in which<\/span><\/p>\n

some countries provide patent protection, and others do not, bias<\/span><\/p>\n

caused by the existence of patent laws will be exaggerated.<\/span><\/p>\n

Countries with patent laws will tend to specialize in innovations<\/span><\/p>\n

for which secrecy is difficult, while those without will tend to<\/span><\/p>\n

specialize in innovations for which secrecy is easy. This means<\/span><\/p>\n

that variations of patent protection would have different effects in<\/span><\/p>\n

different countries.<\/span><\/p>\n

 <\/p>\n

It is interesting also that patent laws may reflect the state of<\/span><\/p>\n

industry and innovation in a country<\/span><\/p>\n

 <\/p>\n

Anecdotal evidence for the late nineteenth and for the twentieth<\/span><\/p>\n

century suggests that a country\u2019s choice of patent laws was<\/span><\/p>\n

often influenced by the nature of her technologies. In the<\/span><\/p>\n

1880s, for example, two of Switzerland\u2019s most important<\/span><\/p>\n

industries chemicals and textiles were strongly opposed to the<\/span><\/p>\n

introduction of a patent system, as it would restrict their use of<\/span><\/p>\n

processes developed abroad.10<\/span><\/p>\n

 <\/p>\n

The 19th century type of innovation \u2013 small process innovations<\/span><\/p>\n

\u2013 are of the type for which patents may be most socially beneficial.<\/span><\/p>\n

Despite this and the careful study of economic historians, it is<\/span><\/p>\n

difficult to conclude that patents played an important role in<\/span><\/p>\n

increasing the rate of 19th and early 20th century innovation.<\/span><\/p>\n

 <\/p>\n

More recent work by Moser,11 exploiting the same data set<\/span><\/p>\n

from two different angles, strengthens this finding \u2013 that is, that<\/span><\/p>\n

patents did not increase the level of innovation. In her words:<\/span><\/p>\n

\u201cComparisons between Britain and the United States suggest that<\/span><\/p>\n

even the most fundamental differences in patent laws failed to raise<\/span><\/p>\n

the proportion of patented innovations.\u201d12 Her work appears to<\/span><\/p>\n

confirm two of the stylized facts we have often repeated in this<\/span><\/p>\n

book. First that, as we just mentioned in discussing the work of<\/span><\/p>\n

Sokoloff, Lamoreaux and Khan, innovations that are patented tend<\/span><\/p>\n

to be traded more than those that are not, and therefore to disperse<\/span><\/p>\n

geographically farther away from the original area of invention.<\/span><\/p>\n

Based on data for the period 1841-1901, innovation for industries<\/span><\/p>\n

in which patents are widely used is not higher but more dispersed<\/span><\/p>\n

geographically than innovation in industries in which patents are<\/span><\/p>\n

not or scarcely used. Second, when the \u201cdefensive patenting\u201d<\/span><\/p>\n

motive is absent, as it was in 1851, an extremely small percentage<\/span><\/p>\n

of inventors (less than one in five) chooses patents as a method for<\/span><\/p>\n

maximizing revenues and protect intellectual property.<\/span><\/p>\n

 <\/p>\n

Summing up: careful statistical analyses of the 19th century\u2019s <\/span><\/p>\n

available data, carried out by distinguished economic historians,<\/span><\/p>\n

uniformly shows two things. Patents neither increase the rate of<\/span><\/p>\n

innovation, nor are the best instrument to maximizes inventors\u2019<\/span><\/p>\n

revenue. Patents create a market in patents and in the legal and<\/span><\/p>\n

technical services required to trade and enforce them.<\/span><\/p>\n

 <\/p>\n

Very interesting data.<\/p>\n

–<\/p>\n

Quoting this for linguistic reasons…<\/span><\/p>\n

Nevertheless, the core idea of a unified European patent<\/span><\/p>\n

system was not abandoned and continued to be pursued in various<\/span><\/p>\n

forms, first under the leadership of the European Commission, and<\/span><\/p>\n

then under the European Union. In 2000 a Community Patent<\/span><\/p>\n

Regulation proposal was approved, which was considered a major<\/span><\/p>\n

step toward the final establishment of a European Patent. Things,<\/span><\/p>\n

nevertheless, did not proceed as expeditiously as the supporters of<\/span><\/p>\n

a E.U. Patent had expected. As of 2007 the project is still, in the<\/span><\/p>\n

words of E.U. Commissioner Charlie McCreevy, \u201cstuck in the<\/span><\/p>\n

mud\u201d13 and far from being finalized. Interestingly the obstacles are<\/span><\/p>\n

neither technical nor due to a particularly strong political<\/span><\/p>\n

opposition to the establishment of a continent-wide form of<\/span><\/p>\n

intellectual monopoly. The obstacles are purely due to rent-seeking<\/span><\/p>\n

by interest groups in the various countries involved, the number of<\/span><\/p>\n

which notoriously keeps growing. Current intellectual monopolists<\/span><\/p>\n

(and their national lawyers) would rather remain monopolists<\/span><\/p>\n

(legal specialists) for a bit longer in their own smaller markets than<\/span><\/p>\n

risk the chance of loosing everything to a more powerful<\/span><\/p>\n

monopolist (or to a foreign firm with more skilled lawyers) in the<\/span><\/p>\n

bigger continental market.<\/span><\/p>\n

 <\/p>\n

That feel when reading academic books in revised editions… and they still fail to do lose<\/em> vs. loose<\/em> distinction. Useless distinction. At least, they chose the most sensible spelling. The spelling loose<\/em> still has a pointless and silent e<\/em> in the end.<\/p>\n

–<\/p>\n

It could be, and sometimes is, argued that the modern<\/p>\n

pharmaceutical industry is substantially different from the<\/p>\n

chemical industry of the last century. In particular, it is argued that<\/p>\n

the most significant cost of developing new drugs lies in testing<\/p>\n

numerous compounds to see which ones work. Insofar as this is<\/p>\n

true, it would seem that the development of new drugs is not so<\/p>\n

dependent on the usage and knowledge of old drugs. However, this<\/p>\n

is not the case according to the chief scientific officer at Bristol<\/p>\n

Myers Squib, Peter Ringrose, who<\/p>\n

 <\/p>\n

told The New York Times that there were \u2018more than 50<\/em><\/p>\n

proteins possibly involved in cancer that the company was<\/em><\/p>\n

not working on because the patent holders either would not<\/em><\/p>\n

allow it or were demanding unreasonable royalties.18<\/em><\/p>\n

 <\/p>\n

Truth-telling remarks by pharmaceutical executives aside,<\/p>\n

there is a deeper reason why the pharmaceutical industry of the<\/p>\n

future will be more and more characterized by complex innovation<\/p>\n

chains: biotechnology. As of 2004, already more than half of the<\/p>\n

research projects carried out in the pharmaceutical industry had<\/p>\n

some biomedical foundation. In biomedical research gene<\/p>\n

fragments are, in more than a metaphorical sense, the initial link of<\/p>\n

any valuable innovation chain. Successful innovation chains depart<\/p>\n

from, and then combine, very many gene fragments, and cannot do<\/p>\n

without at least some of them. As gene fragments are in finite<\/p>\n

number, patenting them is equivalent to artificially fabricating<\/p>\n

what scientists in this area have labeled an \u201canticommons\u201d<\/p>\n

problem. So it seems that the impact of patent law in either<\/p>\n

promoting or inhibiting research remains, even in the modern<\/p>\n

pharmaceutical industry.19<\/p>\n

–<\/p>\n

A few additional facts may help the reader get a better<\/span><\/p>\n

understanding of why, at the end, we reach the conclusion we do.<\/span><\/p>\n

Sales are growing, fast; at about 12% a year for most of the 1990s,<\/span><\/p>\n

and still now at around 8% a year; R&D expenditure during the<\/span><\/p>\n

same period has been rising of only 6%. A company such as<\/span><\/p>\n

Novartis (a big R&D player, relative to industry\u2019s averages) spends<\/span><\/p>\n

about 33% of sales on promotion, and 19% on R&D. The industry<\/span><\/p>\n

average for R&D\/sales seems to be around 16-17%, while<\/span><\/p>\n

according to the CBO [1998] report the same percentage was<\/span><\/p>\n

approximately 18% for American pharmaceuticals in 1994;<\/span><\/p>\n

according to PhRMA [2007] it was 19% in 2006. The point here is<\/span><\/p>\n

not that the pharmaceutical companies are spending \u201ctoo little\u201d in<\/span><\/p>\n

R&D \u2013 no one has managed (and we doubt anyone could manage)<\/span><\/p>\n

to calculate what the socially optimal amount of pharmaceutical<\/span><\/p>\n

R&D is. The point here is that the top 30 firms spend about twice<\/span><\/p>\n

as much in promotion and advertising as they do in R&D; and the<\/span><\/p>\n

top 30 are where private R&D expenditure is carried out, in the<\/span><\/p>\n

industry.<\/span><\/p>\n

 <\/p>\n

Next we note that no more than 1\/3 \u2013 more likely 1\/4 \u2013 of<\/span><\/p>\n

new drug approvals are considered by the FDA to have therapeutic<\/span><\/p>\n

benefit over existing treatments, implying that, under the most<\/span><\/p>\n

generous hypotheses, only 25-30% of the total R&D expenditure<\/span><\/p>\n

goes toward new drugs. The rest, as we will see better in a<\/span><\/p>\n

moment, goes toward the so called \u201cme-too\u201d drugs. Related to this,<\/span><\/p>\n

is the more and more obvious fact that the amount of price<\/span><\/p>\n

discrimination carried out by the top 30 firms between North<\/span><\/p>\n

America, Europe and Japan is dramatically increasing, with price<\/span><\/p>\n

ratios for identical drugs reaching values as high as two or three.<\/span><\/p>\n

The designated victims, in this particular scheme, are apparently<\/span><\/p>\n

the U.S. consumers and, to a lesser extent, the Northern European<\/span><\/p>\n

and the Swiss. At the same time, operating margins in the<\/span><\/p>\n

pharmaceutical industry run at about 25% against 15% or less for<\/span><\/p>\n

other consumer goods, with peaks, for US market-based firms, as<\/span><\/p>\n

high as 35%. The U.S. pharmaceutical industry has been topping<\/span><\/p>\n

the list of the most profitable sectors in the U.S. economy for<\/span><\/p>\n

almost two decades, never dropping below third place; an<\/span><\/p>\n

accomplishment unmatched by any other manufacturing sector.<\/span><\/p>\n

Price discrimination, made possible by monopoly power, does<\/span><\/p>\n

have its rewards.<\/span><\/p>\n

 <\/p>\n

Summing up and moving forward, here are the symptoms<\/span><\/p>\n

of the malaise we should investigate further.<\/span><\/p>\n

\u2022 There is innovation, but not as much as one might think<\/span><\/p>\n

there is, given what we spend.<\/span><\/p>\n

\u2022 Pharmaceutical innovation seems to cost a lot and<\/span><\/p>\n

marketing new drugs even more, which makes the final<\/span><\/p>\n

price for consumers very high and increasing.<\/span><\/p>\n

\u2022 Some consumers are hurt more than others, even after the<\/span><\/p>\n

worldwide extension of patent protection.<\/span><\/p>\n

 <\/p>\n

Very interesting data. Perhaps some kind of government sponsorship cud do better?<\/p>\n

–<\/p>\n

Where do Useful Drugs Come From?<\/strong><\/span><\/p>\n

Useful new drugs seem to come in a growing percentage<\/span><\/p>\n

from small firms, startups and university laboratories. But this is<\/span><\/p>\n

not an indictment of the patent system as, probably, such small<\/span><\/p>\n

firms and university labs would have not put in all the effort they<\/span><\/p>\n

did without the prospect of a patent to be sold to a big<\/span><\/p>\n

pharmaceutical company.<\/span><\/p>\n

 <\/p>\n

Next there is the not so small detail that most of those<\/span><\/p>\n

university laboratories are actually financed by public money,<\/span><\/p>\n

mostly federal money flowing through the NIH. The<\/span><\/p>\n

pharmaceutical industry is much less essential to medical research<\/span><\/p>\n

than their lobbyists might have you believe. In 1995, according to<\/span><\/p>\n

a study by two well reputed University of Chicago economists, the<\/span><\/p>\n

U.S. spent about $25 billion on biomedical research. About $11.5<\/span><\/p>\n

billion came from the Federal government, with another $3.6<\/span><\/p>\n

billion of academic research not funded by the feds. Industry spent<\/span><\/p>\n

about $10 billion.26 However, industry R&D is eligible for a tax<\/span><\/p>\n

credit of about 20%, so the government also picked up about $2<\/span><\/p>\n

billion of the cost of \u201cindustry\u201d research. That was then, but are<\/span><\/p>\n

things different now? They do not appear to be. According to<\/span><\/p>\n

industry\u2019s own sources27<\/span><\/p>\n

, total research expenditure by the industry<\/span><\/p>\n

was, in 2006, about $57 billion while the NIH budget in the same<\/span><\/p>\n

year (the largest but by no means the only source of public funding<\/span><\/p>\n

for biomedical research) reached $28.5 bn. So, it seems, things are<\/span><\/p>\n

not changing: private industry pays for only about 1\/3rd of<\/span><\/p>\n

biomedical R&D. By way of contrast, outside of the biomedical<\/span><\/p>\n

area, private industry pays for more than 2\/3rds of R&D.<\/span><\/p>\n

Many infected with HIV can still recall the 1980s when no<\/span><\/p>\n

effective treatment for AIDS was available, and being HIV<\/span><\/p>\n

positive was a slow death sentence. Not unnaturally many of these<\/span><\/p>\n

individuals are grateful to the pharmaceutical industry for bringing<\/span><\/p>\n

to market drugs that \u2013 if they do not eliminate HIV \u2013 make life<\/span><\/p>\n

livable.<\/span><\/p>\n

 <\/p>\n

the “evil” pharmaceutical companies are, in fact, among<\/em><\/span><\/p>\n

the most beneficent organizations in the history of mankind<\/em><\/span><\/p>\n

and their research in the last couple of decades will one<\/em><\/span><\/p>\n

day be recognized as the revolution it truly is. Yes, they’re<\/em><\/span><\/p>\n

motivated by profits. Duh. That’s the genius of capitalism –<\/em><\/span><\/p>\n

to harness human improvement to the always-reliable yoke<\/em><\/span><\/p>\n

of human greed. Long may those companies prosper. I owe<\/em><\/span><\/p>\n

them literally my life.28<\/em><\/span><\/p>\n

 <\/p>\n

But it is wise to remember that the modern \u201ccocktail\u201d that is used<\/span><\/p>\n

to treat HIV was not invented by a large pharmaceutical company.<\/span><\/p>\n

It was invented by an academic researcher: Dr. David Ho.<\/span><\/p>\n

–<\/p>\n

The bottom line is rather simple: even today, more than<\/p>\n

thirty years after Germany, Italy and Switzerland adopted patents<\/p>\n

on drugs and a good half a century after pharmaceutical companies<\/p>\n

adopted the policy of patenting anything they could develop, more<\/p>\n

than half of the top selling medicines around the world do not owe<\/p>\n

their existence to pharmaceutical patents. Are we still so certain<\/p>\n

that valuable medicines would stop to be invented if drug patents<\/p>\n

were either abolished or drastically curtailed?<\/p>\n

 <\/p>\n

This is not particularly original news, though. Older<\/p>\n

American readers may remember of the Kefauver Committee of<\/p>\n

1961, which investigated monopolistic practices in the<\/p>\n

pharmaceutical industry.33 Among the many interesting findings<\/p>\n

reported, the study showed that 10 times as many basic drug<\/p>\n

inventions were made in countries without product patents as were<\/p>\n

made in nations with them. It also found that countries that did<\/p>\n

grant product patents had higher prices than those who did not,<\/p>\n

again something we seem to be well aware of.<\/p>\n

 <\/p>\n

The next question then is, if not in fundamental new<\/p>\n

medical discoveries, where does all that pharmaceutical R&D<\/p>\n

money go?<\/p>\n

Rent-Seeking and Redundancy<\/strong><\/p>\n

There is much evidence of redundant research on<\/p>\n

pharmaceuticals. The National Institutes of Health Care<\/p>\n

Management reveals that over the period 1989-2000, 54% of FDA-<\/p>\n

approved drug applications involved drugs that contained active<\/p>\n

ingredients already in the market. Hence, the novelty was in<\/p>\n

dosage form, route of administration, or combination with other<\/p>\n

ingredients. Of the new drug approvals, 35% were products with<\/p>\n

new active ingredients, but only a portion of these drugs were<\/p>\n

judged to have sufficient clinical improvements over existing<\/p>\n

treatments to be granted priority status. In fact, only 238 out of<\/p>\n

1035 drugs approved by the FDA contained new active ingredients<\/p>\n

and were given priority ratings on the base of their clinical<\/p>\n

performances. In other words, about 77% percent of what the FDA<\/p>\n

approves is \u201credundant\u201d from the strictly medical point of view.34<\/p>\n

The New Republic, commenting on these facts, pointedly<\/p>\n

continues<\/p>\n

 <\/p>\n

If the report doesn’t convince you, just turn on your<\/em><\/p>\n

television and note which drugs are being marketed most<\/em><\/p>\n

aggressively. Ads for Celebrex may imply that it will enable<\/em><\/p>\n

arthritics to jump rope, but the drug actually relieves pain<\/em><\/p>\n

no better than basic ibuprofen; its principal supposed<\/em><\/p>\n

benefit is causing fewer ulcers, but the FDA recently<\/em><\/p>\n

rejected even that claim. Clarinex is a differently packaged<\/em><\/p>\n

version of Claritin, which is of questionable efficacy in the<\/em><\/p>\n

first place and is sold over the counter abroad for vastly<\/em><\/p>\n

less. Promoted as though it must be some sort of elixir, the<\/em><\/p>\n

ubiquitous \u201cpurple pill,\u201d Nexium, is essentially<\/em><\/p>\n

AstraZeneca’s old heartburn drug Prilosec with a minor<\/em><\/p>\n

chemical twist that allowed the company to extend its<\/em><\/p>\n

patent. (Perhaps not coincidentally researchers have found<\/em><\/p>\n

that purple is a particularly good pill color for inducing<\/em><\/p>\n

placebo effects.)35<\/em><\/p>\n

 <\/p>\n

Sad but ironically true, me-too or copycat drugs are largely<\/p>\n

the only available tool capable of inducing some kind of<\/p>\n

competition in an otherwise monopolized market. Because of<\/p>\n

patent protection lasting long enough to make future entry by<\/p>\n

generics nearly irrelevant, the limited degree of substitutability and<\/p>\n

price competition that copycat drugs bring about is actually<\/p>\n

valuable. We are not kidding here, and this is a point that many<\/p>\n

commentators often miss in their \u201canti Big Pharma\u201d crusade.<\/p>\n

Given the institutional environment pharmaceutical companies are<\/p>\n

currently operating in, me-too drugs are the obvious profit<\/p>\n

maximizing tools, and there is nothing wrong with firms<\/p>\n

maximizing profits. They also increase the welfare of consumers,<\/p>\n

if ever so slightly, by offering more variety of choice and a bit<\/p>\n

lower prices. Again, they are an anemic and pathetic version of the<\/p>\n

market competition that would take place without patents, but<\/p>\n

competition they are. The ironic aspect of me-too drugs, obviously,<\/p>\n

is that they are very expensive because of patent protection, and<\/p>\n

this cost we have brought upon ourselves for no good reason.<\/p>\n

 <\/p>\n

Very interesting. One thing i want to point out, tho, is that it may be worth it to develop drugs that work via a different route or with a slightly different form. Even tho to many people these differences make no difference medically, they can increase comfort by being administered by a difference route. Compare orally taking a pill vs. getting a shot vs. suppositories<\/a>. It might also be the case that some patients cannot use, for medical reasons, a given route of delivery. In such cases it is medically useful to use another route, ofc. Finally, some patients may be allergic to a drug, and in that case having slightly different form may help.<\/p>\n

 <\/p>\n

But in general, i agree with the authors.<\/p>\n

–<\/p>\n

The Bad<\/strong><\/p>\n

Despite the fact that our system of intellectual property is<\/span><\/p>\n

badly broken, there are those who seek to break it even further.<\/span><\/p>\n

The first priority must be to stem the tide of rent-seekers<\/span><\/p>\n

demanding ever greater privilege. Within the United States and<\/span><\/p>\n

Europe, there is a continued effort to expand the scope of<\/span><\/p>\n

innovations subject to patent, to extend the length of copyright, and<\/span><\/p>\n

to impose ever more draconian penalties for intellectual property<\/span><\/p>\n

violation. Internationally, the United States \u2013 as a net exporter of<\/span><\/p>\n

ideas \u2013 has been negotiating dramatic increases in protection of<\/span><\/p>\n

U.S. intellectual monopolists as part of free trade agreements; the<\/span><\/p>\n

recent Central American Free Trade Agreement (CAFTA) is an<\/span><\/p>\n

outstanding example of this bad practice.<\/span><\/p>\n

 <\/p>\n

There seems to be no end to the list of bad proposals for<\/span><\/p>\n

strengthening intellectual monopoly. To give a partial list starting<\/span><\/p>\n

with the least significant<\/span><\/p>\n

 <\/p>\n

# Extend the scope of patent to include sports moves and plays.2<\/span><\/p>\n

# Extend the scope of copyright to include news clips, press<\/span><\/p>\n

releases and so forth.3<\/span><\/p>\n

# Allow for patenting of story lines \u2013 something the U.S. Patent<\/span><\/p>\n

Office just did by awarding a patent to Andrew Knight for his<\/span><\/p>\n

\u201cThe Zombie Stare\u201d invention.4<\/span><\/p>\n

# Extend the level of protection copyright offers to databases,<\/span><\/p>\n

along the lines of the 1996 E.U. Database Directive, and of the<\/span><\/p>\n

subsequent WIPO\u2019s Treaty proposal.5<\/span><\/p>\n

# Extend the scope of copyright and patents to the results of<\/span><\/p>\n

scientific research, including that financed by public funds;<\/span><\/p>\n

something already partially achieved with the Bayh-Dole Act.6<\/span><\/p>\n

# Extend the length of copyright in Europe to match that in the<\/span><\/p>\n

U.S. \u2013 which is most ironic, as the sponsors of the CTEA and<\/span><\/p>\n

the DMCA in the USA claimed they were necessary to match<\/span><\/p>\n

… new and longer European copyright terms.7<\/span><\/p>\n

# Extend the set of circumstances in which \u201crefusal to license\u201d is<\/span><\/p>\n

allowed and enforced by anti-trust authorities. More generally,<\/span><\/p>\n

turn around the 1970\u2019s Antitrust Division wisdom that lead to<\/span><\/p>\n

the so called \u201cNine No-No\u2019s\u201d to licensing practices. Previous<\/span><\/p>\n

wisdom correctly saw such practices as anticompetitive<\/span><\/p>\n

restraints of trade in the licensing business. Persistent and<\/span><\/p>\n

successful, lobbying from the beneficiaries of intellectual<\/span><\/p>\n

monopoly has managed to turn the table around, portraying<\/span><\/p>\n

such monopolistic practices as \u201cnecessary\u201d or even \u201cvital\u201d<\/span><\/p>\n

ingredients for a well functioning patents\u2019 licensing market.8<\/span><\/p>\n

# Establish, as a relatively recent U.S. Supreme Court ruling in<\/span><\/p>\n

the case of Verizon vs Trinko did, that legally acquired<\/span><\/p>\n

monopoly power and its use to charge higher prices is not only<\/span><\/p>\n

admissible, it \u201cis an important element of the free-market<\/span><\/p>\n

system\u201d because \u201cit induces innovation and economicgrowth.\u201d9<\/span><\/p>\n

# Impose legal restrictions on the design of computers forcing<\/span><\/p>\n

them to \u201cprotect\u201d intellectual property.10<\/span><\/p>\n

# Make producers of software used in P2P exchanges directly<\/span><\/p>\n

liable for any copyright violation carried out with the use of<\/span><\/p>\n

their software, something that may well be in the making after<\/span><\/p>\n

the Supreme Court ruling in the Grokster case.11<\/span><\/p>\n

# Allow the patenting of computer software in Europe \u2013 this we<\/span><\/p>\n

escaped, momentarily, due to a sudden spark of rationality by<\/span><\/p>\n

the European Parliament.12<\/span><\/p>\n

# Allow the patenting of any kind of plant variety outside of the<\/span><\/p>\n

United States, where it is already allowed.13<\/span><\/p>\n

# Allow for generalized patenting of genomic products outside of<\/span><\/p>\n

the United States, where it is already allowed.14<\/span><\/p>\n

# Force other countries, especially developing countries, to<\/span><\/p>\n

impose the same draconian intellectual property laws as the<\/span><\/p>\n

U.S., the E.U. and Japan.15<\/span><\/p>\n

 <\/p>\n

–<\/p>\n

Pharmaceuticals<\/strong><\/span><\/p>\n

Handling properly the pharmaceutical industry constitutes<\/span><\/p>\n

the litmus test for the reform process we are advocating. Simple<\/span><\/p>\n

abolition, or even a progressive scaling down of patent term, would<\/span><\/p>\n

not work in this sector for the reasons outlined earlier. Reforming<\/span><\/p>\n

the system of intellectual property in the pharmaceutical industry is<\/span><\/p>\n

a daunting task that involves multiple dimensions of government<\/span><\/p>\n

intervention and regulation of the medical sector. While we are<\/span><\/p>\n

perfectly aware that knowledgeable readers and practitioners of the<\/span><\/p>\n

pharmaceutical and medical industry will probably find the<\/span><\/p>\n

statements that follow utterly simplistic, when not arrogantly<\/span><\/p>\n

preposterous, we will try nevertheless. In sequential order, here is<\/span><\/p>\n

our list of desiderata.<\/span><\/p>\n

 <\/p>\n

\u2022 Free the pharmaceutical industry of the stage II and III<\/span><\/p>\n

clinical trials\u2019 costs, which are the cost-intensive ones.<\/span><\/p>\n

Have them financed by the NIH, on a competitive basis:<\/span><\/p>\n

pharmaceutical companies that have completed stage I<\/span><\/p>\n

trials, submit applications to the NIH for having stages II<\/span><\/p>\n

and III financed. In parallel, medical clinics and university<\/span><\/p>\n

hospitals submit competitive bids to the NIH to have the<\/span><\/p>\n

approved trials assigned to them. Match the winning drugs<\/span><\/p>\n

to the best bids, and use public choice common sense to<\/span><\/p>\n

minimize the most obvious risks of capture. Clinical trial<\/span><\/p>\n

results become public goods and are available, possibly for<\/span><\/p>\n

a fee covering administrative and maintenance costs, to all<\/span><\/p>\n

that request them. This would not prevent drug companies<\/span><\/p>\n

from deciding that, for whatever reason, they carry out their<\/span><\/p>\n

clinical trials privately and pay for them; that is their<\/span><\/p>\n

choice. Nevertheless, allowing the public financing of<\/span><\/p>\n

stages II and III of clinical trials \u2013 by far the largest<\/span><\/p>\n

component of the private fixed cost associated with the<\/span><\/p>\n

development of new drugs \u2013 would remove the biggest<\/span><\/p>\n

(nay, the only) rationale for allowing drugs\u2019 patents longer<\/span><\/p>\n

than a handful of years.<\/span><\/p>\n

 <\/p>\n

\u2022 Begin reducing the term of pharmaceutical patents<\/span><\/p>\n

proportionally. Should we take pharmaceuticals\u2019 claims at<\/span><\/p>\n

their face value, our reform eliminates between 70% and<\/span><\/p>\n

80% of the private fixed cost. Hence, patent length should<\/span><\/p>\n

be lowered to 4 years, instead of the current 20, without<\/span><\/p>\n

extension. Recall that, again according to the industry,<\/span><\/p>\n

effective patent terms are currently around 12 years from<\/span><\/p>\n

the first day the drug is commercialized, hence we are<\/span><\/p>\n

proposing to cut them down by 2\/3, which is less than the<\/span><\/p>\n

proportional cost reduction. To compensate for the fact that<\/span><\/p>\n

NIH-related inefficiencies may slow down the clinical trial<\/span><\/p>\n

process, start patent terms from the first day in which<\/span><\/p>\n

commercialization of the drug is authorized. A ten year<\/span><\/p>\n

transition period would allow enough time to prepare for<\/span><\/p>\n

the new regulatory environment.<\/span><\/p>\n

 <\/p>\n

\u2022 Sizably reduce the number of drugs that cannot be sold<\/span><\/p>\n

without medical prescription. For many drugs this is less a<\/span><\/p>\n

protection of otherwise well informed consumers than a<\/span><\/p>\n

way of enforcing monopolistic control over doctors\u2019<\/span><\/p>\n

prescription patterns, and to artificially increase distribution<\/span><\/p>\n

costs, with rents accruing partly to pharmaceutical<\/span><\/p>\n

companies and partly to the inefficient local monopolies<\/span><\/p>\n

called pharmacies.<\/span><\/p>\n

 <\/p>\n

\u2022 Allow for simultaneous or independent discovery, along the<\/span><\/p>\n

lines of Gallini and Scotchmer.29 Further, because patent<\/span><\/p>\n

terms should be running from the start of<\/span><\/p>\n

commercialization, applications should be filed (but not<\/span><\/p>\n

disclosed) earlier, and mandatory licensing of \u201cidle\u201d or<\/span><\/p>\n

unused active chemical component and drugs should be<\/span><\/p>\n

introduced. In other words, make certain the following<\/span><\/p>\n

monopolistic tactic becomes unfeasible: file a patent<\/span><\/p>\n

application for entire families of compounds, and then<\/span><\/p>\n

develop them sequentially over a long period of time,<\/span><\/p>\n

postponing clinical trials and production of some<\/span><\/p>\n

compounds until patents on earlier members of the same<\/span><\/p>\n

family have been fully exploited.<\/span><\/p>\n

–<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Against intellectual Monopoly In general, this is an interesting book about patents. It is at times combatant in its language use, other times more neutral. I think it wud have been wiser to use less loaded terms, but it didnt bother me too much. The criticism of IPR is generally sensible, and their case persuasive […]<\/p>\n","protected":false},"author":17,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1451,1898],"tags":[1924],"class_list":["post-3193","post","type-post","status-publish","format-standard","hentry","category-copyright-and-filesharing","category-economics","tag-patents","entry"],"_links":{"self":[{"href":"https:\/\/emilkirkegaard.dk\/en\/wp-json\/wp\/v2\/posts\/3193","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/emilkirkegaard.dk\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/emilkirkegaard.dk\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/emilkirkegaard.dk\/en\/wp-json\/wp\/v2\/users\/17"}],"replies":[{"embeddable":true,"href":"https:\/\/emilkirkegaard.dk\/en\/wp-json\/wp\/v2\/comments?post=3193"}],"version-history":[{"count":3,"href":"https:\/\/emilkirkegaard.dk\/en\/wp-json\/wp\/v2\/posts\/3193\/revisions"}],"predecessor-version":[{"id":3280,"href":"https:\/\/emilkirkegaard.dk\/en\/wp-json\/wp\/v2\/posts\/3193\/revisions\/3280"}],"wp:attachment":[{"href":"https:\/\/emilkirkegaard.dk\/en\/wp-json\/wp\/v2\/media?parent=3193"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/emilkirkegaard.dk\/en\/wp-json\/wp\/v2\/categories?post=3193"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/emilkirkegaard.dk\/en\/wp-json\/wp\/v2\/tags?post=3193"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}