I. Introduction
Intellectual property systems are a challenging field of study, as perspectives and opinions on the level of protection for creative works deemed optimal will vary based on the individual. For the private business owner, intellectual property systems provide the opportunity to establish a monopoly, guaranteeing vast profits for the life of the patent or copyright. Economic utility is maximized when knowledge is shared, and innovators can stand on the shoulders of those who came before them. This phenomenon is known as the innovation dilemma. The challenge for copyright legislators and judges is finding a balance between information production and information dissemination. Most innovation is incremental and cumulative. One of the critical implications of that axiom is that new works require access to pre-existing information and works. To protect cumulative innovation, we need a low threshold of originality; however there is a debate of whether intellectual property rights holders will be adequately incentivized if free-riders are allowed to siphon off profits from their work. This paper will explore how different intellectual property systems affect motivation for creators to innovate from an economic perspective. Furthermore, it will consider alternative IP systems that will maximize utility throughout society. Understandably, not everyone accepts that society should pursue the strategy which maximizes efficiency for the community. Individual utility and motivation are also factors that will be explored. This paper will argue that reducing the protections for creative works would eventually lead to a more significant knowledge base, inspiring future innovation.
II. Incentives to Create
First and foremost, it is necessary to understand what inspires one to create. The mainstream view comes from the work of Joseph Schumpeter. He argued that monopolistic profits constitute the economic incentive to invent. Technological monopolies would create temporary monopolies, allowing for a period where the first mover would have control over their industry, often leading to immense profits which would ultimately subside as other competitors enter the market. He identified innovation as the primary driver for economic change. Monopolistic profits are assumed to be the only reward for undertaking costly and risky innovative endeavours, because competitive pricing would not cover the original costs of research and development. However, this is a product of behaviour, not a law of economics. Schumpeter was correct, at least statistically. A system of reward that grants big prizes to a small minority of winners motivates individuals more efficiently than an equal distribution. The larger in absolute value of the prize, the more enthusiastic individuals’ participation appears to be. This can be seen in two of the most popular forms of gambling: lotteries and horse racing. Sweepstake lotteries have an actuarial value of payoffs well below the sum of players’ bets, yet people flock to play them. Horse racing is another environment with a multitude of risky choices available to analyse. There is evidence that the actuarial returns on bets from “long shot” horses tend to be lower than the returns from betting on better-rated horses. The implication here is that bettors have a positive preference for long shots. To an extent, artistic creations and technological investments are motivated by the long shot hope of a substantial reward. The most obvious takeaway from this research is that patents or copyrights should not be weakened simply because their innovator has made “too much money.” The prospect of large rewards is an important aspect of the incentive system for creating original works. However, it is also necessary to consider the other motivators for engaging in creative activities. Abraham Maslow, one of the most respected psychologists of the 20th century, argues that self-actualization motivates creativity. The motivation is found intrinsically, rather than by external factors such as a financial reward. People create innovative objects because of an innate desire they have to express themselves and communicate their ideas. Extrinsic rewards on their own are narrow, which can restrict the creative process by focussing and concentrating the mind. But creativity requires a broad vision and is often best harnessed without external pressures. This can be exemplified by a study done by Dan Ariely at MIT. The study involved a number of students playing various games that involved creativity, motor skills, and concentration. The students were offered three levels of rewards: a small reward, a medium reward, and a large reward. The implications of this research were to be used across a variety of fields, as payment-based performance is common among many jobs. The study hypothesized that increasing the rewards available to participants of the study would lead to greater motivation and effort, ultimately leading to improved performance. The results came as a surprise. For tasks that involved mechanical skills, the bonus’ worked as expected: higher pay lead to improved performance. However, in tasks that involved creativity, a larger reward led to poorer performance. This is not a new phenomenon. Poets of the past have always had poor hopes for economic success, but the writing of poetry continues. They often had to bear the costs of publishing their work. Modern creators have similar odds of economic reward, even with the added protection of copyright. Their continued work is a tribute to their dedication to producing creative works rather than their response to the promise of money, which they are unlikely to receive in any substantial amount. Copyright is one way to serve the need authors have for economic security, but it is not the only one. Other forms of compensation arguably provide better environments to spur creativity, such as grants, stipends, or regular salaries. Nobel laureate and economist Joseph Stiglitz has made the case that the majority of important research is conducted in university and government laboratories, where researchers earn paycheques and are given grants up-front. Important information is much less likely to arise from commercial entities that are dependant on patent based rewards. He argues academic researchers want the freedom to explore problems, share knowledge, and shape the intellectual debate rather than earn whatever income is derived from the fact their work might be patentable. Paying researchers a salary spares them from financial risks and uncertainty and does not skew incentives by pushing them to achieve certain results.
III. Alternative Systems of Intellectual Property
It follows that innovation may occur even without the promise of an external reward. It cannot be assumed that introducing or raising incentives always improves performance. What could then be an alternative incentive to invent? In industries where innovation is routine, it is required to stay in business. There is no debate about whether or not to innovate, but rather in which direction and how fast. Competitors often dictate the rate at which a business invests in research and development. The profit-maximizing firm will spend on R&D to the point at which marginal profit is expected to be zero. If free riding occurs, then innovating businesses are punished. The worst case scenario is that innovating firms are bankrupted, as their expensively developed innovations can be copied by free riders at little or no cost. Free riders take advantage of the efforts’ of others without sharing the costs. When information can be copied at high speed and with negligible costs, producers of innovation are disincentivized from creating. But the free market contains remedies against free-riding, as the first mover advantage grants them temporary monopolies. The first mover advantage may be enough of an incentive on its own for innovators and artists to create. The principal economic function of patents and other intellectual property systems is to encourage innovation by discouraging free riders. But patents need to be reformed in a way that understands that most change is cumulative, and the information of the past should be freely available for researchers to use when it is in pursuit of a public good. The statutory definition of patents should reflect the benefits of follow-on innovation. This will allow innovators to pursue research that is in the interests of everyone. Medical, pharmaceutical, political, economic research could all be freed from the grips of intellectual property if they were in the pursuit of public good. Private firms could still be subject to the usual rules of patents, and pay the cost of licensing fees wherever possible. Public research, in the form of think tanks, or medical research should be free from intellectual property restraints. However, this amount of publicly funded research has not yet been made available, so the role of patents should remain as is, with a long-term goal of allowing future research to use past achievements in their work.
IV. Maximizing Future Innovation
Under protection of works is an issue, as it can reduce the incentives for future innovation. However, overprotection is currently a more severe problem. Stringent licensing guidelines and narrowly defined exemptions in the law hinder both cumulative and breakthrough innovation. This only makes sense in a market-based, free economy. The assumption is that all actors, including competitors and follow-on innovators, are free to use information that falls short of required standards. Patents and copyright systems need to be designed in a manner that recognizes cumulative creation as a driving force of ingenuity, yet still allowing for intellectual property rights holders to secure a reasonable return on their investment. The problem this approach is that copyright and patent law tend to block non-rights holders from accessing essential pieces of information. These bits of information often are critical ingredients in developing new ways forward. The issue becomes more pronounced when well-established firms that own patents and copyright enter into costly legal battles with smaller ventures. National laws often fall short of a proper balance between these two opposing forces. An alternative proposal would be to reform intellectual property law using reforms to the limitations of protection given to creative works. Innovation can do one of two things: It can either make an entirely new product or process, or it can modify existing products or processes until it becomes a new version of what existed before. In either instance, information will be added to the existing body of knowledge. For scientific and cultural purposes, innovation should be shared as widely as possible. Another argument for limiting protections of intellectual property is one made by Schumpeter. Change does not happen in a vacuum. It occurs based on experiences of the creator. Various sources of information are then assembled to create new works, or enhance technologies of the past. Bill Gates invented Microsoft, but he did not invent the internet. An individual cannot take sole credit for any of their achievements, as the infrastructure paid for by others always paves the way for their success. Most innovations are not groundbreaking or dramatically life-changing. The majority of innovation has become routine, with gradual improvements that enhance product features or user-friendliness. There are those who interpret innovation broadly and would consider these incremental gains as innovative. However, turning to a more restrictive definition of innovation could be a way to reform the protection of intellectual property rights. For an invention to be patentable, it would have to be entirely new and groundbreaking, not an improvement to something that already exists. That is one possible way to alter the intellectual property law in line with societal needs. There are many possible ways the law could be written, but the goal of any legislation should be to scale back protections offered by various intellectual property systems to incentivize innovation.
V. The Needs of Developing Countries
Any attempt to make a “one size fits all” standard of IP protection for all countries is misguided. In 1995, all members of the World Trade Organization signed the “Agreement on Trade-Related Aspects of Intellectual Property Rights” (TRIPS). The TRIPS agreement sets down minimum standards for national governments regarding intellectual property laws. While they were only minimum obligations, developed countries continue to advocate for stronger IP provisions. This was the first time that intellectual property laws were introduced internationally. Research from throughout history suggests that developing countries should be skeptical of importing the intellectual property systems of developed countries. Strong IP protection is concerned with expanding the scope of private rights, as well as their enforcement. The proliferation of digital content has made the use of knowledge and cultural products cheap, easy, and effective. This freedom provides the opportunity for developing countries to enhance education, healthcare, and economic opportunities for their people. Developing countries need more content to be accessible for their people, restricting it would be counterproductive to human development. Minimal IP standards could spur innovation in less developed countries. This has been the case in many countries, for example in Switzerland where the country has become known for innovation despite waiting until 1954 to introduce patent law (although chemical and pharmaceuticals remained unpatentable until 1978). The Swiss became world leaders in textiles, chocolate, and steam engines, to name a few. The absence of patent law in Switzerland allowed them to attract foreign investment, especially for companies that wanted to produce patented food, as it was much more viable in Switzerland than other countries with stronger protection. Weak IP protections also played a role in the growth of industries in Japan and South Korea. Having a robust catalogue of information available in a countries public domain is essential to the technological and industrial growth of these countries. Their main focus should be the largest possible flow of knowledge and free information within the country, with minimal IP protections as the starting point. Sharing information and knowledge will do more for incentivizing those who wish to innovate more than the potential of a temporary monopoly. Artificially limiting the knowledge society is allowed to use freely creates a socially inefficient market. Healthy competition is a more stable, and sustainable way to promote innovation when compared to the slight chance that someone can “get rich quick” with a groundbreaking new invention. Competition is what is supposed to lead to creativity and innovation. If such competition is restricted by granting exclusive IP rights to use essential information, this would almost certainly lead to less prosperity and social welfare. More regulation surrounding intellectual property will not increase innovation. The goal of any proposed legislation should be to promote innovation, creativity, and personal development. Prioritizing an open intellectual property system does not mean IP rights should be eliminated. It means that there should be an open institutional and legal framework that allows knowledge to be shared in a way that maximizes social development, especially in developing countries. Developed countries have different needs. Protecting the works of musicians, artists, and authors is very much a first world problem. Developing countries lack music labels, platforms for artists to showcase their work, and often lag behind developed countries concerning industrial development and GDP per capita. They are not ready for stringent intellectual property laws.
VI. Conclusion
The innovation dilemma is genuine, and there are no simple solutions to the question of how much intellectual property is optimal. It is clear that developing countries should adopt IP standards that are more correlated to their needs. A one size fits all policy does not consider the individual needs of underdeveloped nations, and instead seems to be pushed onto them by wealthier countries. Developing countries should be critical of the legislation recommended to them, and avoid passive acceptance of the narrative that stronger IP rights will lead to increased innovation and economic growth. Their needs to be impartial and empirical evidence to justify strong IP protection. Due consideration must be given to the incentives and disincentives that any such policy change could have on innovators and artists. There is research that backs up the argument that having the carrot of a massive financial reward and monopoly arising from a strong patent can significantly increase one’s motivation. However, this is a symptom of human behaviour, not economics. A more sustainable and long-term oriented approach would include limiting the protections on information that is considered essential for innovation. Most innovation is incremental and cumulative. IP law should reflect the needs of creators to have access to pre-existing data and works. IP law in Britain and the United States is suffering from an identity crisis. They have millions of young people trying to innovate as entrepreneurs, in music, engineering, business, artistry, and yet they are held back. Firms in these countries have gotten so large that they can afford to face long protracted legal battles. A barrier to entry is generated for underfunded projects. It also means that there is an untapped market of potential that could be providing society with new technological advances, pharmaceutical drugs, or art that would not have otherwise been created. Intellectual property should not be a mechanism to hold back development. It should be a mechanism to allow people to profit from their hard work. I contend that the well-being of a community should be prioritized over the well-being of an individual.
Written by Karim Eshqoor, Head Lawyer at Barbarian Law
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