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Wednesday 20 January 2010

Pulling Up The Intellectual Property Ladder

Tragedy of the Anti-Commons

Human ingenuity has been behind much of the economic boom that the world's undergone since the late eighteenth century. Sparked by the rise of reason in the form of deepening scientific knowledge and backed by increasingly large flows of capital there’s been an ever increasing range of ideas and inventions, some of which have even added to the sum of human happiness. I was particularly taken by the motorised ice-cream cone.

Behind this sparkling cascade of cleverness lies the ability of inventors to temporarily protect their inventions from competition by use of intellectual property rights – patents, copyrights and so on. Unfortunately, as we move forward, these monopoly rights may, in some cases, actually result in a slowing of progress as we increasingly face the Tragedy of the Anti-Commons.

From Monopolies to Patents

The development and evolution of patent laws stretches back hundreds, if not thousands, of years. We know that the Ancient Greeks granted temporally limited monopoly rights on particularly tasty recipes which seems to suggest that the modern cult of the celebrity chef isn’t so modern after all. By 1331 we find Henry VI of England granting John Kempe and his Company a patent in respect of the textiles industry. In fact this appears to have been an early attempt to attract skilled foreign workers to England rather than a reward for genuine innovation. Nearly seven hundred years on we're still bribing scarce overseas workers to come here rather than fixing our education system.

Something like the first proper patent was granted in 1422 in Florence to the architect, genius and key Renaissance figure Filippo Brunelleschi for a barge with hoisting gear. In 1449, in England, John of Utynam received a 20 year monopoly to make stained glass and in the following year the Republic of Venice created the modern patent, mainly to protect its native glassblowing industry, presumably to stop England pinching all of its skilled workers, another continuing trend.

Patents were systematically abused by money-grabbing monarchs, particularly in England where the rulers were always short of money, granting monopolies for even commonly used stuff like salt and coal. Eventually the English, as is their wont, revolted and forced the introduction of the Statute of Monopolies in 1601, which is really the start of the modern patent system, as it enshrined the novel concept that the idea had to be new, rather than simply purloined, in order to be awarded a patent.

Monopoly Rewards

That patents and other intellectual property rights have had a beneficial impact on economic growth is beyond dispute. By ensuring that an inventor has a limited time to exploit their idea the system rewards innovation, encourages exploitation and eventually gives the rest of the world free access to the accumulated wisdom of the ages. However, as we can see, patents are closely entwined with monopolies and anti-trust issues, which means that these rights need to be carefully managed if we’re all to benefit properly.

Underlying the awarding of patents is the idea that they’re a public good – the benefit of the temporary monopoly outweighs the downside of monopolist price gouging. This isn’t always an easy coupling – particularly as we’ve seen with large pharmaceutical companies demanding first world prices of third world countries for treatments for diseases like AIDS. On one hand, without the excess profits that come from patent exploitation these corporations have no reason to invest the billions of dollars that they do. On the other, denying millions of sick people drugs that could usefully extend their lives is morally objectionable.

There isn’t an easy solution to the problem and the resulting mess where governments have effectively forced the drugs companies to sell to them cheaply will almost certainly result in less investment in treatments for diseases targeted at those countries. It’s not a happy situation.

The Tragedy of the Anti-Commons

However, there’s another more insidious problem with patents and the ever-increasing pace of innovation. This was first pointed out by Michael Heller, who’d been puzzling over why there were so many empty stores in ex-communist countries despite the fact there was obviously huge demand for retail space. Drawing on Hardin’s idea of the Tragedy of the Commons, where property owned by no one is ruthlessly exploited to the detriment of all – think overfishing of deep sea stocks or pollution of the air we breathe – he postulated the idea of the Tragedy of the Anti-Commons.

The problem in Moscow and other Eastern European cities, it turned out, was that the ownership of the property rights for the stores was widely distributed between lots of different groups each with different agendas. The sheer difficulty of getting these disparate parties to agree on something that would have been beneficial to all of them meant that the stores stayed empty while open air booths sprung up in front of them.

Technology Patent Anti-Commons

Since Heller postulated this idea it’s been suggested that a similar problem exists for modern corporations attempting to develop new technologies. The issue comes because, increasingly, any new device requires the use of hundreds and possibly thousands of patented inventions: even the humble CD player requires at least a dozen licences, a microprocessor needs thousands. It only takes a single hold-out to prevent the possibility of a useful advance in technology.

As the pace of technological innovation has increased the sheer impossibility of avoiding patent infringement has increased. The dispute that nearly shut the Blackberry network down is caused by a single disputed patent in a device which uses thousands. Nokia is now suing Apple over ten patents on the iPhone – no doubt they’ve been trawling their patent library for months to find these and, doubtless, there are many more to be found around the world.

Biomedical Patent Anti-Commons

Another area where the spectre of anti-competitive problems arise due to anti-commons issues is in biomedical research, particularly where commercial organisations are patenting human gene fragments and other fundamental biological intellectual property. This is likely to prevent further useful exploitation of these discoveries because in order to test the effectiveness of any treatment it may be necessary to test the whole spectrum of the human genome. By splitting it up into ever greater groups of patents owned by differing parties it may become impossible to effectively conduct medical research.

While we might expect that the market would find a way of solving these issues – say as the music industry has by developing groups holding copyright for lots of artists – simple behavioural biases may restrict their development. Hewson and Eisenberg suggest that the problem we have estimating the likelihood of low probability events of high importance to us and the associated issue of tending to overvalue stuff we’re committed to – essentially facets of the availability heuristic and commitment bias – may prevent the effective resolution of anti-commons intellectual property disputes.

Basically the problem is that any patent which leads to a new treatment for something important – cancer or AIDS, say – will obviously be immensely valuable and the patent holder won’t want to give this up cheaply. Unfortunately no one can know in advance which patents will be valuable and which won’t so you end up with asymmetric valuations on the part of patent holders and potential licencees. The result being deadlock.

The Growth of Patents

The pace of patent creation is increasing – it took 18 years for the first 250,000 patents to be filed under the global Patent Co-operation Treaty, a further four years to double that and a further four years to double it again. Anti-commons issues are only going to grow and as patents and other intellectual property are central to the economic progress of the planet anything that can impede it is a cause for concern.

However, using patent disputes to disrupt parts of the global telecommunications network that people rely on, or to control access to parts of the human genome, may bring the system into disrepute if not handled carefully - a case of the owners pulling up the Intellectual Property Ladder behind them to the detriment of all. It's often suggested that we're in an age in which information is power and certainly the ownership of critical patents is going to be increasingly valuable to corporations and individuals. Learning to exploit that power wisely may be the biggest challenge of the Information Age.

Related Articles: The Tragedy of the Financial Commons, Black Swans, Tsunamis and Cardiac Arrests, Akerlof's Lemons: Risk Asymmetry Dangers for Investors

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