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INTRODUCTION: the Kauffman Foundation Conference On INTRODUCTION : The Kauffman Foundation Conference on Intellectual Property and Innovation GERRIT DE GEEST Washington University in St. Louis School of Law THE KAUFFMAN FOUNDATION CONFERENCE ON INTELLECTUAL PROPERTY AND INNOVATION 1. GERRIT DE GEEST …Introduction 2. MICHELE BOLDRIN AND DAVID K. LEVINE …Does Intellectual Monopoly Help Innovation? 3. MARK A. LEMLEY …A Cautious Defense of Intellectual Oligopoly with Fringe Competition 4. JAMES BESSEN …Evaluating the Economic Performance of Property Systems 5. BEN DEPOORTER , ADAM HOLLAND , AND ELIZABETH SOMERSTEIN …Copyright Abolition and Attribution 6. CHARLES MCMANIS …A Rhetorical Response to Boldrin & Levine: Against Intellectual (Property) Extremism 7. GEORGE SELGIN AND JOHN L. TURNER …Watt, Again? Boldrin and Levine Still Exaggerate the Adverse Effect of Patents on the Progress of Steam Power 8. LIZA S. VERTINSKY …Responding to the Challenges of “Against Intellectual Monopoly” 9. DOUGLASS C. NORTH …A Recommendation on How to Intelligently Approach Emerging Problems in Intellectual Property Systems This special issue offers a selection of papers, all presented at the Kauffman Foundation Conference on Intellectual Property and Innovation, held in St. Louis (USA) on April 2-3, 2009. This conference was organized by the Center on Law, Innovation and Economic Growth of the Washington University School of Law, and sponsored by the Ewing Marion Kauffman Foundation and the Skandalaris Center for Entrepreneurial Studies. The conference endeavored in particular to debate a recent book authored by two Washington University economists, Michele Boldrin and David K. Levine, entitled Against Intellectual Monopoly (Cambridge University Press, 2008) . In this book, Boldrin and Levine argue that patents and copyrights are not essential to stimulate innovation because innovators are usually able to recoup their costs in other ways, for instance through first-mover advantages. Because intellectual 988 / REVIEW OF LAW AND ECONOMICS 5:3, 2009 monopoly (which they believe to be a more accurate term than intellectual property) often hinders innovation, the authors propose to simply abolish patents and copyrights. In their paper “Does Intellectual Monopoly Help Innovation?” Boldrin and Levine clarify their position and respond to criticism. They also point out an interesting analogy between the economic case against protectionism and the economic case against intellectual monopoly. Protectionism can make economic sense in some exceptional cases, but economists generally plead against it because allowing protectionism is a slippery political slope. By analogy, intellectual monopoly can make economic sense under some narrow conditions, but because it tends to expand under the pressure of rent-seeking forces, it may be better to simply abolish it. Mark A. Lemley responds in “A Cautious Defense of Intellectual Oligopoly With Fringe Competition.” He argues that IP rights are rarely if ever “intellectual monopolies.” They cause deviation from perfect competition, but they do not cause the social harms associated with monopoly pricing. This does not mean that the existing IP regime always gets the balance right, but that some markets do require some form of IP to encourage innovation. In “Evaluating the Economic Performance of Property Systems,” James Bessen develops a framework for evaluating the performance of property systems. He finds evidence that the U.S. patent system fails in several ways, though his framework does not allow us to determine whether society would be better off without patents. In “Copyright Abolition and Attribution,” Ben Depoorter, Adam Holland, and Elizabeth Somerstein contemplate what a world without copyright protection would look like. They argue that such a world would in any case need a limited form of copyright protection—a mandatory right of attribution—to make it easier for creators to recoup some of their costs in competitive markets. The issue ends with four comments. Charles McManis offers a rhetorical perspective in “A Rhetorical Response to Boldrin & Levine: Against Intellectual (Property) Extremism.” Economists tend to believe that they use no rhetoric but only pure logic. McManis (inspired by McCloskey) believes that this view is incorrect and analyzes the rhetorical strategies Boldrin and Levine use in their book. George Selgin and John L. Turner argue in “Watt, Again? Boldrin and Levine Still Exaggerate the Adverse Effect of Patents on the Progress of Steam Power” that James Watt’s patent did not retard the further development of steam technology. In “Responding to the Challenges of 'Against Intellectual Monopoly,'” Liza Vertinsky makes the point that mainstream law and economics theories do not capture empirical reality Review of Law & Economics, © 2009 by bepress Introduction: Intellectual Property and Innovation / 989 sufficiently well to make the type of policy conclusions that Boldrin and Levine make. More research is needed that is based on the paradigm of New Institutional Economics. The issue ends with “A Recommendation on How to Intelligently Approach Emerging Problems in Intellectual Property Systems” by Douglass C. North, the Nobel Laureate who developed the point that the great acceleration in innovation and productivity we associate with the Industrial Revolution was caused by a better legal protection of inventors. North argues that our current understanding of IP is still incomplete, as we still need to better understand its cognitive, political, and dynamic aspects. http://www.bepress.com/rle/vol5/iss3/art1 DOI: 10.2202/1555-5879.1441 Does Intellectual Monopoly Help Innovation?* MICHELE BOLDRIN AND DAVID K. LEVINE Washington University in St. Louis In this paper, we begin our analysis of copyrights and patents by asking: why should creators have the right to control how purchasers make use of an idea or new good? This gives creators a monopoly over the idea. We refer to this right as “intellectual monopoly,” to emphasize that it is this monopoly over all copies of an idea that is controversial, not the right to buy and sell copies. The government does not ordinarily enforce monopolies for producers of other goods. This is because it is widely recognized that monopoly creates many social costs. Intellectual monopoly is no different in this respect. The question we address is whether it also creates social benefits commensurate with these social costs. 1. INTRODUCTION We are witnesses to both an intense debate over copyrights and patents and a general agreement that some special kind of legal protection is needed to secure for inventors and creators the fruits of their labor. For all the emotion, it seems both those in favor of strengthening and those in favor of weakening existing protection agree that intellectual property laws need to strike a balance between providing sufficient incentive for creation and the freedom to make use of existing ideas. Put differently, both sides agree that intellectual property rights are a “necessary evil” that fosters innovation, and the disagreement is over where the line should be drawn. For the supporters of intellectual property, current monopoly profits are barely enough; for its enemies currently monopoly profits are too high. In fact, one is tempted to say, for many “enemies” of intellectual property, profits are always too high as long as they are positive. In our recent book Against Intellectual Monopoly we reach conclusions that are at variance with both sides. We are not of the view that innovators should work * Based on our book Against Intellectual Monopoly, and on the papers presented and the discussions at the Kauffman Foundation Conference on Intellectual Property and Innovation, Washington University St. Louis Law School, April 2009. 992 / REVIEW OF LAW AND ECONOMICS 5:3, 2009 out of benevolence. Certainly few people do something in exchange for nothing. Creators of new goods are not different from producers of old ones: they want to be compensated for their effort. However, it is a long and dangerous jump from the assertion that innovators deserve compensation for their efforts to the conclusion that patents and copyrights, that is monopoly, are a good way of providing that reward. Since innovators may be rewarded even without patents and copyright, we should ask: is it true that intellectual property achieves the intended purpose of creating incentives for innovation and creation that offset its considerable harm? There are three broad types of intellectual property recognized in most legal systems: patents, copyrights and trademarks. Trademarks are different in nature than are patents and copyrights: they serve to identify the providers of goods, services or ideas. Copying or imitating – which would be violations of either copyright or patents – are quite different from lying – which would be a violation of trademark. We do not know of a good reason for allowing market participants to steal identities or masquerade as people they are not. Conversely, there are strong economic advantages to allowing market participants to voluntarily identify themselves. While we may wonder if it is necessary to allow the Intel Corporation a monopoly over the use of the word “inside,” in general there is little economic dispute over the merits of trademarks. We focus, therefore, on patents and copyrights and we refer to these two sets of legally protected rights when we use the terms “Intellectual Property” and “Intellectual Monopoly.” Some critics, both at this conference and elsewhere, have argued that
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