On Designing Liberty

This post got me to thinking about one of the major economic challenges of the past couple of decades: intellectual property. What is a patent really? It is a government-granted monopoly. Most people recognize that there is some utility in protecting an inventor and allowing them to recoup their investment, but the trend lines for patents in the last 30 years ought to be concerning:

“Finally, the number of patents has exploded in the last three decades, as patent protection has become both easier to obtain and stronger. Patent monopolies allow firms to charge far more than the competitive market price for their products. This price advantage can be seen most clearly in the case of prescription drugs. In 2010, spending on prescription drugs amounted to almost 2 percent of GDP, compared to less than half a percent in 1980. The higher expenditures are almost entirely a function of patent protection. Then, as now, drugs are cheap to produce, and it is only patent monopolies that make them expensive to buy. The main beneficiaries of patent protection are invariably more highly educated workers.”

So what we have here is a well-meaning government program that intends to encourage certain economic outcomes but ends up distorting the market. The results of this are increasingly absurd: Google has purchased Motorola, apparently largely to own its patents. What if that $12.5 billion was spent adding real value to the economy through research and development instead of getting ahold of a tool that may be useful in patent litigation? That the phrase “patent troll” has entered our lexicon says a great deal about the prevalence of rent-seeking from intellectual property.

Now lots of businesses will say that they need patents or else they simply won’t bother to innovate. It’s important to note here that business lobbies are pro-business, not pro-free market – lots of businesses also say they need protectionism or tax credits or subsidies. I’m curious as to whether our libertarian readers would regard such argument when made for patents in a different light. The argument goes here that patents protect intellectual property, but what a strange category of property! This is not land or buildings or even chattel we are talking about, no, intellectual property is spun out of thin air by patent lawyers. Is it a bridge too far to say that intellectual property is property by fiat?

Not every idea or every innovation is protected, only those where the engineers or whoever take the time to do the paperwork and call in the lawyers. A backyard tinkerer might come up with something brilliant and new when working on, oh I don’t know, her motorcycle, but lack the awareness of patent law to realize that such an idea might be able to enjoy legal protections. Those businesses that have the size and scope to keep a large number of IP lawyers on the payroll are the ones that get awarded the most patents, just like the big businesses that keep a large number of lobbyists on the payroll enjoy other sorts of government protection.

I should like to make it clear that I am not saying we do away with patents, I’m not an expert in the area of IP law, but this is a crucial question. Patents are not the operation of the free market, they are a suspension of its operation – though arguably a useful one.