Arnold Kling  

Intellectual Property Absolutism vs. Pragmatism

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Greg Perkins writes,

The crucial distinction between discovery and invention lies in their object: facts of nature are what they are and exist waiting to be discovered, while inventions are objects which would not exist without a creator. So intellectual property rights are a recognition of a crucial precondition of the life-serving creation of wealth -- and they are not, contrary to this complaint, a general reward for mental effort that is arbitrarily denied for some classes of thought.

...It would be unjust and contrary to the requirements of man's life to protect discoveries as intellectual property...In contrast, there is no injustice when inventors or artists peacefully withhold the use of their recipes for manufacturing things...

I am not sure that this distinction solves the problem. Suppose that a drug company tests hundreds of compounds at great expense and finds one that cures a common disease. The fact that the compound cures the disease sounds to me like a scientific discovery, in which case Perkins would put it in the public domain.

On the other hand, a business process, such as "one-click ordering" for which infamously claimed a patent, sounds like an invention. In that case, Perkins would treat it as intellectual property.

My personal view is that intellectual property law has to be pragmatic. If you take an absolute view that is always in favor of intellectual property, then I think you end up defending too much--business process patents, for instance. If you take an absolute view that is always against intellectual property, then I think you have destroyed the incentive to undertake some valuable activities--pharmaceutical research, for instance.

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COMMENTS (12 to date)
A.West writes:

Not to speak for Greg, but I think you misinterpret him, and your selective quotation and examples distorts his argument. I suggest you read the entire article more carefully and read some of his further elaborations in his comments on the article.

In my view, the fact of a medical discovery might be public domain, but a company's particular formulation and delivery method for a drug that cures a particular disease could be patented. Two different things.

Regarding the Amazon "1click," I believe this may be an example of the implementation mistakes that only clear principles of good IP law can clear up. It may well be that unprincipled "pragmatism" has more to do with the patenting of obvious processes than the upholding of clear principles.

As I understand him, Greg advocates neither rationalistic "absolutism" (whatever that's supposed to mean) nor "pragmatism", but rather an objective, principled implementation of IP which keeps in mind the foundation of all of man's rights.

paul writes:

In this case, pragmatic is another word for arbitrary. I'm surprised Arnold can't think of any voluntary solutions to internalize these assumed externalities (destroying incentives). IP is a dangerous metaphor. I’m think the reason so many objectivists fall for it is because Rand was a writer.

I agree, and would add that another way to think about "pragmatic" is with transaction costs. The transaction costs associated with intellectual property and invention can be nontrivial. For example, after an inventor has an idea they need to check if it is already owned by someone else. There is an incentive for inventing when you get ownership, but the rewards to the inventor could be less than the sum of the transaction costs for other inventors figuring out if the idea is owned by someone at all.

From a transaction cost point of view, the drug example should be protected. The cost of looking up chemical compounds is relatively small compared to the cost of developing and testing new drugs. On the other hand, the one-click example should not be protected. Web designers are consantly adding features to web pages; it is a significant burden to decide which features are new and which are already patented by someone else.

Glen Raphael writes:
If you take an absolute view that is always against intellectual property, then I think you have destroyed the incentive to undertake some valuable activities--pharmaceutical research, for instance.
I'd rather say you have reduced the incentive. Not destroyed. There will still be some incentive to do pharmaceutical research. There's still the prospect of first-mover advantage, the technique of keeping formulae or processes a trade secret, and the use of branding.

Moreover, in an atmosphere of open competition to produce recently-discovered drugs, drugs will tend to be produced much more cheaply. If there are ways to lower the price of a drug or make it more effective, a large community of competitive suppliers are more likely to figure out how to do this than a single monopoly supplier. We should expect rapid development in the drug production process. The benefits of increased progress in drug production should to some degree offset the costs of reduced investment in drug research.

Matthew Cromer writes:

The killer for drug development is the FDA trials costs, not IP issues.

Dezakin writes:

All IP encourages rent-seeking, and the problem with legislated rents is that it encourages political activism to ensure that the lobby owning the rents is expanded.

Notice that no IP has _ever_ been rolled back in the US, just a continual expansion. Hardly a good sign for liberty, let alone pragmatism if you understand competitive markets.

Bill Stepp writes:

The proprietary drug industry is always cited as Exhibit A in the case for patents. There is a large indivisibility in the invention and marketing of a new drug. The 2001 study by Tufts determined the average cost of a new drug to be about $802 million. Therefore, the argument goes, drug invention must be protected to enable developers to recover their cost of capital.

According to a forthcoming book by Michele Boldrin and David K. Levine, _Against Intellectual Monopoly_ (chap. 9), about 77% of drugs approved by the FDA are medically redundant, which implies the actual "fixed cost" of drug development is less than the folks at Tufts think. (Their study has been the subject of at least two critiques.) Many new pharmacueticals are "me-too" drugs repackaged and remarketed. This is facilitated and encouraged by rent-seeking caused by the patent system.

A NBER study by James W. Hughes, Michael J. Moore, and Edward A. Snyder, " 'Napsterizing' Pharmaceuticals: Access, Innovation, and Consumer Welfare" (Oct. 2002) showed that the present value of the cost of patents is greater than their benefits if they are discounted at an interest rate just below 5% or higher. They used 2%, which would get a rookie Wall Street analyst fired, but these guys get tenure or something like that, maybe more grant money.

Boldrin and Levine have several other devastating critcisms of this paper, and calculate that without patents, drug firms would make about 80% of what they make under the patent regime.

I have a forthcoming article on IP in "The Freeman" in which I cite this work (and elaborate a bit more), as well as the case of the polio vaccine (not mentioned by Boldrin and Levine) and its open source development model, which was done without patents.

Patents are not necessary for drug development.

Thomas writes:

I basically agree.

The B-P blog is the only thing I point to that might elevate this discussion, they discussed pharma patents back in December 2004.

Anonymous22 writes:

If you take an absolute view that is always against intellectual property, then I think you have destroyed the incentive to undertake some valuable activities--pharmaceutical research, for instance.

I don't care. People don't have to use their own justly acquired property in certain ways just because you want them to. If people feel a disincentive to do pharmaceutical research, well that's tough for them. Their economic difficulties don't justify restricting the rights of others to peacefully manufacture and sell whatever they like, whenever they like. If you want to punish people that do that, campaign for boycotts.

Lex Spoon writes:

There are a lot of weird things being posted in the comments to what I thought was a straightforward claim! Amidst the clamor, let me just toss in a "here here!" in support of pragmatics instead of philosophy. Drug patents work while software patents do not, and the difference must be in pragmatics.

Find something that works. The philosophers can then explain what it is exactly.

Dezakin writes:

"Drug patents work while software patents do not"

Except they don't. How many proton pump inhibitors do we actually need?

Paul wrote: "I'm surprised Arnold can't think of any voluntary solutions to internalize these assumed externalities (destroying incentives)."

So am I. And I'm also suprised that not more take the position of Anonymous22.

I'm sceptical of the value of the patent system in pharmaceuticals. It doesn't give us things that would be very useful (new antibiotics), and it vastly prefers "lifestyle" drugs. Now that may be what the market demands, but why should it be what the government demands? In other words, why should they enforce pharma patents?

No, I'm sure any of you here can find alternative ways of funding pharmaceutical research, which is what we basically want.

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