Tag: property rights

Categories
Innovation Patents

New White Paper Explores the Importance of Property Rights to National Wealth and Security

a hand reaching for a shining, hanging keyA new white paper, Property Rights: The Key to National Wealth and National Security, was published today by Dr. James Edwards, the Executive Director of Conservatives for Property Rights. In the white paper, Dr. Edwards explores how stable and effective property rights in both tangible and intangible property are critical to human flourishing and progress, and he notes that a renewed commitment to strengthening property rights will help to restore U.S. industrial competitiveness as a top national economic priority.

The white paper was launched at a briefing today on Capitol Hill that featured a speech by Congressman Thomas Massie, who noted the prescience of the Founders in formulating the Constitution’s IP Clause. Dr. Edwards discussed the new white paper and then joined a panel discussion that included Kimberly Chotkowski, CEO of Licensing Executives Society, Preston Noell, President of Tradition Family Property, and Robert Taylor, Founder and Owner of RPT Legal Strategies.

The prologue from the white paper is copied below:

PROLOGUE

Intellectual property is the basis of national economic development, wealth, power, and security. As our Founding Fathers recognized, the ideas represented in a patent form the basis for the advancement of science, technology, and industry. These advances are brought to fruition in the manufacturing process, which in turn provides useful products, including defense articles, as well as jobs, incomes, economic growth, and social stability. Manufacturing based on patents also creates opportunities for further research into and development of even better ideas and products — a continuous feedback loop that encourages more technological and thus societal advances. The loss of manufacturing in particular reduces opportunities for technological progress and economic growth.

Patents have developed historically, and the American system, embodied in the Constitution, is based on centuries of legal and philosophical developments. Perhaps the most central idea to emerge is the grounding of patents in property rights: The owner of the patent, whether the inventor or someone to whom he has sold or licensed the patent, has an exclusive right in the technology or processes or ideas contained in the patent. That right is in essence the ability for a limited time to employ the judicial system to stop others from using the patented matter and to enforce monetary damages for violation of the patent.

The ability to commercialize patents in a manufacturing enterprise requires investors who are willing to put up significant sums of money in the expectation of getting a decent return on their money. If the discovery contained in a patent is not recognized as a property right and protected for a sufficient period to allow the inventor and the investors to recoup their initial expenditures plus a reasonable profit, there will be fewer inventors and no investors, and much less progress.

The technological, economic, and social success of the United States has been built largely on the foundation of patents as property rights. Patent law and case law have evolved over the last two and a quarter centuries, but the concept of a patent as an exclusive right of an inventor for a limited period has remained at the center. However, in recent years, legislation and judicial decisions have moved away from the concept of an issued patent as securing a property right.

This paper analyzes the necessary foundation of private property rights for achieving citizens’ thriving, economic prosperity through both individual flourishing and industrial competitiveness, and national security that preserves independence. It considers property rights’ cornerstone role in attaining industrial competitiveness through the lens of President Reagan’s commission on U.S. industrial competitiveness. This approach provides the benefit of hindsight and several decades of perspective, giving a clearer view of what went right and what went wrong. This framework also gives a longer view for assessing our present challenges.

After an introduction comparing the Reagan era to the present time, the first section examines industrial competitiveness: What is this concept and what are its purposes? The second section delves into invention and patents, developing a case study from a pillar of a property rights-based, competitive in­dustrial backbone. The third section pulls back the lens from the case study to apply the lessons from the previous section to other aspects of property rights, forms of property, and industrial competitiveness more broadly. The final section makes concrete recommendations for reestablishing private property rights in pursuit of reinvigorated U.S. industrial competitiveness for the 21st century.

To read the white paper, please click here.

Categories
Copyright

Can Copyright Help Fight Censorship in China?

cameraFree expression in China has long been a fraught concern for the entertainment industry. Last year, Chinese regulators forbade local companies from working on foreign films that could “harm national dignity and interest of China, cause social instability, or hurt the national feeling,” striking at the rapidly expanding Chinese post-production industry for Hollywood films. A further proposed regulation, now winding through China’s political—and politicized—approval process, demands “excellence in both professional skills and moral integrity” from the Chinese film business. As Chinese investors continue to acquire stakes in Hollywood studios and cinema chains, these regulations threaten to undermine global film producers striving to gain market share in China’s enormous entertainment sector.

China’s local film industry also stands to suffer from the new draft film laws, which codify the view of China’s top political advisors that movies need to be “more centered on the people, guided by core socialist values.” The national media regulator in China has already warned local entertainment and media programs not to “express overt admiration for Western lifestyles,” not to be overly commercial, and not to forget to inject communist values in their products. The results with respect to local production have been underwhelming: films with overtly communist messages have done poorly at the box office, while films that cater to audiences’ fascination with Western tastes and values remain hugely popular and in demand.

Chinese policy makers’ zeal for regulating and curtailing free expression seems unlikely to abate. Yet at the same time, Chinese audiences’ hunger for a broad array of expressive content, including works that openly embrace Western values and preferences, seems equally strong and unlikely to subside. Can this conundrum be resolved, or at least improved, anytime soon?

A fascinating paper by CPIP Senior Scholar Eric Priest offers a market-based analysis that gives hope for a way forward to gradual—and meaningful—liberalization and reform of the formal rules that govern China’s entertainment industry. Priest argues that copyright laws and practices can strengthen commercialization in the Chinese film industry, creating “complex interlocking power relations between the audience, producers, and censoring authorities.” The strength of market-backed private producers in this regime is considerable and creates leverage that can effectively push back against the authority of government censors. The concentrated strength and influence of private producers in China, underpinned and driven by market forces and economic realities, can provide a counterbalance to state censorship that Priest argues “will erode censorship practices and increase expressive diversity in Chinese media.”

Central to Priest’s analysis is the importance of copyright law as a tool for creating private property rights in original expression and thereby enabling private producers to create and commercialize new works. While many scholars argue that copyright law creates legal barriers around expressive works and thus works in parallel with state censorship, Priest argues quite the opposite. He contends that copyright bolsters private production of creative works, making it easier for film producers to push back against censors while offering popular market-based (rather than merely state-approved) creative content.

Priest’s analysis of the development of the Chinese film industry, and his exploration of the gradual way in which its state-mandated boundaries are being tested and slowly moved, is rich and detailed. He is careful to note the limits of even gradual market-based reform, pointing to films that have not been approved, sometimes for unclear reasons. Further, he recognizes that attempts by the Chinese government to allow a more open media while simultaneously seeking to maintain ideological control may create an irreconcilable dilemma for Chinese policymakers.

Priest suggests that a hardline turn is a possible outcome, but he argues that it would lead to a downturn in the Chinese film industry that would be unacceptable to Chinese authorities. He argues that Chinese censorship officials would be better off taking a “more organic, permissive, and experimental approach to censorship practice, while leaving the more restrictive formal laws intact as a baseline standard until circumstances warrant a change in formal laws.” As noted earlier, this does not appear to be the direction in which the government is currently headed, suggesting that other priorities—such as upholding socialist norms, embracing didacticism, and promoting authoritarian tenets—may remain the order of the day in China. But Priest takes the long view, and so should we: the film market will speak in China, and it will speak loudest when it is supported by market realities and the choices of the people it serves.

Categories
Copyright Innovation International Law Uncategorized

The European Union Extends Copyright in Design—and Critics Balk (Yet Again)

dictionary entry for the word "innovate"The European Union recently decided to support the productive labors of designers by extending legal protections of their works in all areas of copyright, design, and patent law. Just as past legislation in the United States extending copyright terms was attacked with histrionic allegations that this was merely rent-seeking behavior by politically powerful corporations, the EU’s extension of protections for designs have come under similar attack. In the US, the specter of Disney trying to keep “the Mouse” alive has become a stale trope trotted out in opposition to any sensible copyright protections. Thus, it is not a surprise that the same trope is being used to attack the EU’s new law. In both cases, the attack misses its target because it is rooted in a false assumption about why property rights are secured to innovators and creators.

First, a word about the change in European Union law. This law is important both in making creators’ rights more effective throughout the EU and in bringing those rights closer in harmony with EU intellectual property (IP) law as a whole. As of July 28, 2016, the Copyright, Designs and Patents Act extends the copyright for a designer’s work from 25 years to 70 years. (A six-month grace period in the UK has been granted to allow retailers to clear their stock of works that might be in question under the new Act.)

According to David Woods, a British lawyer, the EU’s changes aligned its copyright laws with those governing literature and music, providing uniform legal protections for all products of creative labors. Further, as Mr. Woods properly points out, “[t]he intent of the change to the legislation is to stop ‘exact’ copies of existing industrially designed artistic works”—a measure that he predicts will result in the closure of websites producing bargain basement, mass-produced copies of furniture, “as after all, this was their business model.” In sum, the legislation is directly aimed at illegal internet operations whose deliberate “business model” is to steal the fruits of the labors of those working in the design industries.

This copyright legislation secures to creators their highly-valued furniture design and thwarts piracy. As in the protection of all property rights, this spurs creativity and sustains livelihoods of professional creators. This is an example of how securing property rights of all types is a key requirement in a growing innovation economy and flourishing society.

Who could object to this? Surprisingly, some ersatz advocates for property rights, such as some libertarian academics like Alex Tabarrok. Tabarrok recently attacked the new EU design law with the tread-worn criticism that one hears from ideologically committed IP skeptics: “The point” of the revamped EU regulations, he declares, is “not to spur creativity but to protect the rents of a handful of people whose past designs turned out to have lasting value.” (One can hear the echoes of the rhetorically appealing, but false, claim that Disney was solely responsible for capturing Congress in keeping Mickey Mouse under legal wraps.)

In the abstract and without regard to recognizing how property rights function in the free market, Tabarrok’s criticism might seem plausible. But there’s a key mistake in it. The fallacy over which Tabarrok stumbles is assuming that the sole purpose of copyright is only to spur the creation of new works—no more, no less. According to Tabarrok, copyright is merely a carrot dangled in front of creators, who like Pavlov’s dog are supposed to be sparked into creative activity. Certainly, this is a function of IP rights, as it is with all property rights—promising to secure the fruits of productive labors, whether in a farm, books, or inventions, spurs people to create more of these valued assets.

But, like all property rights, copyright is not merely an incentive to create. All property rights serve the central function of securing to their owners the free use and disposition of the property, which is what leads to contracts and other exchanges in the free market that enhance everyone’s lives. Thus, copyright is vital to sustaining creators’ rights in reaping the rewards of their creative and valuable labors—when the works are disseminated in the market and purchased by consumers for their enjoyment and use.

Ironically, Tabarrok hints at this when he says, in what is meant to derogate copyright extension, that “the actual argument for copyright runs—We have lots of popular designs and we need to keep selling them at a high price.” Indeed, the argument for copyright as such could be restated in the same way: “we have lots of popular designs and we should be allowed to sell them at the price they command in the market,” irrespective of whether that price seems “high.”

Tabarrok looks to support his argument with the example of mid-century design classics, such as Charles Eames chairs and Arco lamps. These works have become familiar to the public through the sale of replicas sold by furniture retailers, such as Design Within Reach in the US and Swivel in the UK. Another classic example is the Barcelona chair, an exquisite and iconic work designed by Ludwig Mies van der Rohe. While the officially licensed version of the Barcelona chair sells at the Conran Shop in the UK for around £5,755, a replica can be found on websites such as Swivel for around £455.

The stark difference in price illustrates vividly why high-level furniture and “lifestyle” designers such as Sir Terence Conran, and fashion designers such as Stella McCartney, support the new EU law: their professional livelihood—their ability to benefit from specialization and division of labor, which Adam Smith taught us is the key to a flourishing free market—rests on their ability to profit from the fruits of their creative labors in a commercial economy. Their right to sell their designs at the prices they seek in the marketplace does not preclude the design and dissemination of new, original articles of design that are inspired by the inimitable works of the mid-century moderns referenced by Tabarrok. But their property rights should preclude the sale of pirated knock-offs, which bring nothing to the table in terms of originality, inspiration, or hard work and are simply cheap copies.

It is not surprising that Tabarrok and others of his ilk continue to resort to ill-founded and unsubstantiated attacks upon IP rights on the dubious grounds that at some point these rights do not directly encourage innovation. This is highly misleading, because the same can be said about all property rights. This rhetorical move also makes it seem like Tabarrok is on the “pro” side of creation and innovation, which is dissembling rhetoric at its best.

Tabarrok’s critique, however, rests on a misconceived view of the function of property rights as solely incentivizing creation. Patents and copyrights are property rights, and like all property rights, they do not merely incentivize creation and innovation. They serve the important function of enabling creators to earn a livelihood from their productive labors by securing to them the same rights of all property owners to control the conditions in which their property is sold in the marketplace. This reflects the longstanding economic principle that a growing free market and flourishing society requires securing to property owners the fruits of their labors – surely a central tenet of libertarianism!

Categories
Economic Study Innovation Inventors Patent Law Patent Licensing Uncategorized

How Strong Patents Make Wealthy Nations

By Devlin Hartline & Kevin Madigan

dictionary entry for the word "innovate"How did the world’s wealthiest nations grow rich? The answer, according to Professor Stephen Haber of Stanford University, is that “they had well-developed systems of private property.” In Patents and the Wealth of Nations, recently published in the CPIP Conference issue of the George Mason Law Review, Haber explains the connection: Property rights beget trade, trade begets specialization, specialization begets productivity, and productivity begets wealth. Without a foundation of strong property rights, economic development suffers. But does the same hold true for intellectual property, particularly patents? Referencing economic history and econometric analysis, Haber shows that strong patents do indeed make wealthy nations.

Before diving into the history and analysis, Haber tackles the common misconception that patents are different than other types of property because they are monopolies: “It is not, as some IP critics maintain, a grant of monopoly. Rather, it is a temporary property right to something that did not exist before that can be sold, licensed, or traded.” The simple reason for this, Haber notes, is that a patent grants a monopoly only if there are truly no substitutes, but this is almost never the case. Usually, there are many substitutes and the patent owner has no market power. And the “fact that patents are property rights means that they can serve as the basis for the web of contracts that permits individuals and firms to specialize in what they do best.”

Turning back to his claim that strong patents make wealthy nations, Haber presents data showing the relationship between the strength of enforceable patent rights and the level of economic development across several different countries. The results are remarkably clear: “there are no wealthy countries with weak patent rights, and there are no poor countries with strong patent rights.” The following figure shows how GDP per capita increases as patent rights get stronger:

Haber - Figure 1: The Relationship Between Enforcable Patent Rights and GDP/c in 2010 (Excludes Oil-Based Economies, 2005 PPP$). X-axis: Strength of Enforceable Patent Rights in 2010 (from 0 to 45). Y-axis: GDP Per Capita in 2010, PPP$ from PWT 8.1 (from $0 to $60,000).

Of course, while it’s clear that patent strength and GDP per capita are related, it’s possible that the causality runs the other way. That is, how do we know that an increase in GDP per capita doesn’t foster an environment where patents tend to be stronger? This is where the evidence from economic historians and econometric analysts comes into play. Exploring what economic history has to tell us about the impact of patent laws on innovation, Haber asks whether the Industrial Revolution was bolstered by the British patent system and whether the United States emerged as a high-income industrial economy because of the U.S. patent system.

To the first question, Haber notes that the consensus among historians is that “from at least the latter half of the eighteenth century, the patent system promoted the inventive activity associated with the Industrial Revolution.” He then cites the recent book by Sean Bottomley that carefully shows how “many of the changes to Britain’s patent laws and their enforcement—the requirement for detailed specifications, patents conceived as property rights, the emergence of patent agents—all preceded, rather than followed, the onset of industrialization.” Haber also cites a research paper by Petra Moser, which finds that countries in the nineteenth century with weak patent systems trailed both Britain and the United States in technological development.

Moving to the United States, Haber notes that three generations of economic historians have agreed that just after it gained independence, the country’s strong patent system played a pivotal role in fomenting the remarkable industrial developments that soon followed. After pointing out that the United States was the first country to call for a patent system in its Constitution, Haber compares the GDP per capita for the United States, Britain, and Brazil from 1700 to 1913. The following figure shows just how quickly the agrarian American colonies caught up with, and ultimately surpassed, Britain in GDP per capita, while the GDP per capita of Brazil, a country that became independent at about the same time but had no patent system, stagnated:

Haber - Figure 2: GDP per capita, 1700-1913 (in Real 1990 Dollars). UK, USA, and Brazil. X-axis: 1700, 1820, 1930, 1840, 1850, 1860, 1870, 1880, 1890,1900, 1913. Y-axis: $0 to $5,500 by $500 increments.

As the figure shows, the GDP per capita in the United States and Brazil were less than half that of Britain in 1700, and by 1913, the United States had overtaken Britain as both countries left Brazil far behind. Noting that “there is uniformity of views among economic historians that the U.S. patent system played a large role” in this success, Haber provides specifics examples of improvements upon the British patent system that contributed to it, including broad access to property rights in technology through low fees and a routine and impersonal application process under the Patent Act of 1790. He goes on to highlight the importance of major reforms to the U.S. patent system introduced in the Patent Act of 1836, including the examination process that “reduced concerns third parties might have had about a patent’s novelty, thereby facilitating the evolution of a market for patented technologies.”

The second half of the nineteenth century saw the development of an active market for inventions in the United States, leading to the emergence of a class of specialized and independent inventors as well as patent brokers, patent agents, and patent attorneys, who would connect the inventors with manufacturers looking to buy or license new technologies. While some of these intermediaries were derided, much like the “patent trolls” of the twenty-first century, as “patent sharks,” Haber contends that this market for inventions played a critical role in the emergence of new industrial technologies and centers: “[O]ne would be hard pressed to make the case that patents in the nineteenth century, or the intermediaries who represented their inventors, did anything but facilitate the rapid development of American manufacturing.”

Haber then shifts his focus to econometric analysis, examining the different ways that economic scholars research the relationship between patent rights and economic progress in different countries over a period of time. He stresses that accurate econometric estimation of causal relationships is a relatively young area of inquiry requiring considerable care. He uses the example of a widely-cited study by Josh Lerner, which looks at “whether the strengthening of patents affects the rate of change of innovation in an economy within a two-year window after a patent reform.” Haber points out that many changes neither begin nor end so quickly. With laser technology, for example, “follow-on innovations” have developed “over decades, not two-year windows,” and Lerner’s study thus discounts much innovation.

Looking at studies that utilize a “very long time dimension,” Haber cites one finding that “there is a significant positive effect of patent laws on innovation rates” and another finding that “patent intensive industries in countries that improve the strength of patents experience faster growth in value added than less patent-intensive industries in those same countries.” Haber praises a recent study by Jihong Zhang, Ding Du, and Walter G. Park, who “not only find that there is a positive relationship between the strength of enforceable patent rights and innovation in developed economies, but that that relationship holds for underdeveloped economies as well.”

In sum, Haber states that “there is a critical mass of multi-country studies” that leads to two conclusions:

First, there is a causal relationship between the strength of patent rights and innovation. Second, this relationship is non-linear: there are threshold effects such that stronger patent rights positively impact innovation once a society has already reached some critical level of economic development. The reason for the non-linearity probably resides in the fact that innovation is not just a product of the strength of patent rights, but of other features of societies, which are necessary complements, that tend to be absent at low levels of economic development.

Finally, Haber looks at whether the innovation landscape of the twenty-first century is somehow so different that the lessons from economic history and econometric analysis no longer apply. In particular, he questions whether the emergence of patent licensing firms, sometimes called “patent assertion entities” or “PAEs,” and the alleged strategic behavior of “patent holdup” with standard-essential patents (SEPs) are really new features of the U.S. patent system that might hinder innovation. Haber concludes that the evidence shows that neither PAEs nor patent holdup is hindering innovation. In fact, there’s little reason to think that patent holdup even exists.

Haber takes on the recent study by James Bessen and Michael Meurer, which claims that PAEs are a new phenomenon that “constitute a direct tax on innovation” to the tune of “$29 billion per year.” This claim has been rebutted, Haber notes, by scholars such as B. Zorina Khan, whose recent study shows that many great inventors of the nineteenth century were themselves PAEs. Haber further cites the recent paper by David L. Schwartz and Jay P. Kesan that carefully demonstrates fundamental problems with Bessen and Meurer’s methodology, including selection bias, the conflation of “costs” with “transfers,” the lack of a benchmark for comparison, and the failure to even consider the benefits of PAE activity.

Turning to patent holdup, Haber points out that products have long been comprised of numerous patented innovations, and he cites a recent paper by Adam Mossoff showing that there’s nothing “new about firms whose sole source of revenue comes from the licensing of essential patents.” As to evidence that innovation is hindered by patent holdup, Haber notes that the “theoretical literature” says it’s possible, but the “evidence in support of this theory, however, is largely anecdotal.” Haber then cites his recent study with Alexander Galetovic and Ross Levine, which looks at the “extensive economics literature on the measurement of productivity growth” and shows that “SEP holders” are not able “to negotiate excessive royalty payments” as predicted by the patent holdup theory.

In conclusion, Haber acknowledges that while “no single piece of evidence” should “be viewed as dispositive,” it’s certainly quite “telling that the weight of evidence from two very different bodies of scholarship, employing very different approaches to evidence—one based on mastering the facts of history, the other based on statistical modeling—yield the same answer: there is a causal relationship between strong patents and innovation.” Haber then challenges the naysayers to make their case: “Evidence and reason therefore suggest that the burden of proof falls on those who claim that patents frustrate innovation.” Given the copious evidence showing that strong patents make wealthy nations, the IP critics have their work cut out for them.

For a PDF version of this post, please click here.