Volokh’s David Post: The High Cost of Copyright

David,

“There is no doubt that patent and copyright distort and skew the innovation and creativity that occurs–some types of creativity are suppressed, others are incentivized.”

That way of putting it assumes your conclusion–that without IP law the outcome would be in some sense optimal. You need that assumption to get from “changes” to “distorts.”

I don’t think I’m assuming the non-IP world is “optimal.” Just that it is the baseline. IP advocates say that in a non-IP world there is a suboptimal amount of innovation, or something like this, and that adding IP improves matters. I’m saying the burden is on them: they need to show that net innovation is indeed the result, and that the value of the net innovation is greater than the cost of the IP system itself. They have not shown this.

I am pointing out that what we know for sure is that the IP system does cause more of some types of innovation, and less of others. This observation does not assume that the non-IP state is optimal. It only points out that we know some innovation (probably) goes up, some goes down. This is a distortion or skewing. I am not even criticizing the skewing, but pointing out that a distortion is not necessarily a net increate in innovative value–it might be neutral, it might be negative. So the fact of skewing does not help their case. If anything, it hurts it.

For further discussion of how patents distort the innovative process see n. 44 and accompanying text of my Against Intellectual Property. In particular, see Arnold Plant, The Economic Theory Concerning Patents for Inventions, sections 16, 19, 20, 24:

The patent system may, on the one hand, be expected to affect the making of inventions in two ways. The first is to divert inventive activity into those fields in which the monopoly grant will be expected to prove most remunerative. It may, secondly, affect the total amount of inventive activity.

… the utilitarians assumed that the patent system was responsible for the greater part of inventing activity. The question which they one and all failed to ask themselves, however, is what these people would otherwise be doing if the patent system were not diverting their attention by the offer of monopolistic profits to the task of inventing. By what system of economic calculus were they enabled to conclude so definitely that the gain of any inventions that they might make would not be offset by the loss of other output? By no stretch of the imagination can the inventing class be assumed to be otherwise unemployable. Other product which is foregone when scarce factors are diverted in this way completely escaped their attention.

… at the beginning of this century Professor J. B. Clark was still writing: “If the patented article is something which society without a patent system would not have secured at all – the inventor’s monopoly hurts nobody… His gains consist in something which no one loses, even while he enjoys them. [] No inkling here that the patent inducement to invent diverts scarce human effort from other production, and that the subsequent exploitation of patents again interferes with the disposition of scarce factors which would obtain under competitive conditions.

… It seems unquestionable not only that a very considerable volume of inventive activity must definitely be induced by price conditions, but also that that activity is diverted by price movements from other types of endeavour as well as from other fields of invention. Entrepreneurs faced with new difficulties or with new opportunities will divert not only their own attention, but that of every technician who can be spared, from the business of routine production to that of urgent innovation. They will not rely exclusively upon those types of professional inventors whose autonomous output pours out in a stream of unvarying size, and some of whom may be prepared, in return for the inducements which the entrepreneurs can offer, to transfer their spontaneous activity to their service. It cannot be assumed that all who are capable of innovation spend their whole lives in inventing. Many of them are also able administrators and production controllers; some in the past have been clergymen and barbers, and in our own time there is a steady flow of technicians from the research laboratories of pure science into those of industrial invention and out again. … The patent system … enables those who “have the monopoly of the right to use a patented invention to raise the price of using it … and in that way to derive a larger profit from the invention than they could otherwise obtain. The effect must surely be to induce a considerable volume of activity to be diverted from other spheres to the attempt to make inventions of a patentable type. [emphasis added]

See also Rothbard, Man, Economy, and State, ch. 10, sec. 7:

It is by no means self-evident that patents encourage an increased absolute quantity of research expenditures. But certainly patents distort the type of research expenditure being conducted. . . . Research expenditures are therefore overstimulated in the early stages before anyone has a patent, and they are unduly restricted in the period after the patent is received. In addition, some inventions are considered patentable, while others are not. The patent system then has the further effect of artificially stimulating research expenditures in the patentable areas, while artificially restricting research in the nonpatentable areas

David, you also wrote:

The standard economic arguments for IP don’t tell us what the optimal level of protection is–it might be zero, it might be more than we have. But they do show why there is no a priori reason to think that zero is optimal.

David, would you agree that those advancing this type of argument for IP have a burden of making not only this type of hypothetical argument, but that they have the burden of demonstrating that IP law does, in fact, increase overall innovation and creativity, and that the value of this additional creativity (minus lost creativity) is greater than the costs imposed by the IP system? Ideally they should give us some numbers in dollar terms–what is the type and value of marginal creativity stimulated by copyright; what is the type and value of creativity that is lost; what is the cost of copyright law? But at the very least some evidence that the net value is positive, and that it is significantly greater than the costs of the system. Do you agree?

Do you also agree that this has not yet been done? And don’t you agree that unless and until IP advocates produce this evidence, there is no good case for copyright? That it should be abolished if and unless the case for it is actually made?

Can anyone really think the Founders knew this for sure when they provided for copyright in the Constitution? Has anyone since then established this?

Machlup got it almost right in An Economic Review of the Patent System (a 1958 study cited in note 10 of my There’s No Such Thing as a Free Patent), which does not, as far as I’m aware, determine any “optimal” patent term, nor does he conclude that the patent system encourages innovation that is worth more than the cost of the system. In fact, Machlup says:

No economist, on the basis of present knowledge, could possibly state with certainty that the patent system, as it now operates, confers a net benefit or a net loss upon society. The best he can do is to state assumptions and make guesses about the extent to which reality corresponds to these assumptions. … If one does not know whether a system “as a whole” (in contrast to certain features of it) is good or bad, the safest “policy conclusion” is to “muddle through”–either with it, if one has long lived with it, or without it, if one has lived without it. If we did not have a patent system, it would be irresponsible, on the basis of our present knowledge of its economic consequences, to recommend instituting one. But since we have had a patent system for a long time, it would be irresponsible, on the basis of our present knowledge, to recommend abolishing it.” (see pp. 79-80)

Where he is wrong, of course, is in assuming that even if we have no proof that the patent (or by extension copyright) system is “economically” justified, then we should not abolish it if we already have such a system. Of course, if we should not institute an IP system in an IP-free world, then if we have an IP system it should be abolished.