Wednesday, June 10, 2015

Intellectual Property Rights, Innovation, and Regulatory Capture

There's quite a bit out there right now about the Trans-Pacific Partnership (TPP) and its supposed provisions on Intellectual Property Rights (IPR). The nature of the current dispute is that US negotiators (in some cases rightly) claims that IPR laws in many countries are too lax, whereas negotiators in other countries claim that US property rights laws (which the US seeks to embed in a proposed agreement) are too strict.
Who's right? Answer: Both of them, but not necessarily for the reasons we might think.
The claim for the US is pretty straightforward: Without IP laws, innovators cannot profit from their ideas because copycats will steal those ideas with disastrous consequences for the incentive to innovate. This is a true enough claim, and one might think that if some protection is good then a lot of protection is even better, and so the US IPR system should be transplanted - even strengthened and made more strict - worldwide.
The flip side of the argument is that IPR law grants big firms (Pharma, for example) monopolies that increase prices, make technologies (and other innovations) unaffordable in poor countries, and hence make development unachievable. While this is true, it partly misses the point: After all, stricter property rights enforcement would presumably give all countries the opportunity to benefit from the innovations of its work forces.
Instead, the real problem with very strict IPR laws is that it may actually stifle innovation on some margins. In the US, any patent that would improve existing technologies requires the patent applicant to attain permission from each and every patentholder on the technology she wishes to improve. Many technological improvements in the Industrial Revolution were in fact this type of marginal innovation by nameless, faceless workers looking to make their own jobs easier. These innovations are somewhat restricted under current IP law.
Another problem with strict IPR laws is that it changes the nature of innovation. Take pharma for example. A number of the biggest problems facing medicine today are "public health" issues. These issues may disproportionately affect poorer citizens or countries, or they may be relatively randomly distributed. However, the most profitable innovations are the ones that provide private benefits. Thus, the industry is more apt (under current laws) to "innovate" new cholesterol pills and boner pills - medicines that solve private health issues, or problems that may disproportionately affect richer people. How's a firm to profit from creating a vaccine for ebola or HIV?
So, in many ways, the optimal strictness is probably somewhere between the US patent troll system and a Hong Kong free-for-all. In other words, and stealing (but innovating on!) an idea by Alex Tabarrok:

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