SBE Council’s IP and the Economists #4: IP and International Trade Talks

Free trade negotiations have taken a back seat (to say the least) during the first two years of the Obama administration. The White House is far more interested in playing currency and trade balance manipulation games, as opposed to working to expand economic opportunity by reducing trade barriers.

Make no mistake, strong and uniform intellectual property rights and protections are critical to expanding opportunity and trade in the global marketplace.

In a February 2004 speech on intellectual property, then-Federal Reserve Chairman Alan Greenspan noted: “Rationalizing the differences between intellectual property rights as defined and enforced in the United States and those of our trading partners has emerged as a seminal issue in our trade negotiations.”

And it should be. Unfortunately, under President Obama, serious trade negotiations have been nonexistent – as illustrated most recently by the White House’s failure regarding the South Korea trade agreement.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

SBE Council’s IP and the Economists #3: Do IP Protections Matter? Just Ask Uncle Miltie

When I teach my graduate students about economics, I usually mention that the late Milton Friedman was one of the leading economists of the twentieth century – a Nobel Prize winner – and that many free-market economists affectionately refer to him as “Uncle Miltie.”

So, what did Uncle Miltie have to say about protecting intellectual property? As usual, it was clear, direct and absolutely correct. Friedman made the case for rewarding creators in his 1962 book Capitalism and Freedom:

“In both patents and copyrights, there is clearly a strong prima facie case for establishing property rights. Unless this is done, the inventor will find it difficult or impossible to collect a payment for the contribution his invention makes to output. He will, that is, confer benefits on others for which he cannot be compensated. Hence he will have no incentive to devote the time and effort required to produce the invention.”

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

SBE Council’s IP and the Economists #2: Monopoly?

In the policy world and in academia, a fundamental error persists when it comes to a patent or copyright being viewed as a government grant of monopoly. Nothing could be further from the truth.

While patents and copyright protect IP, nothing stops competitors, innovators, creators and inventors from working to create a product or work that competes with the patented or copyrighted product. For example, if one pharmaceutical firms comes up with a drug that treats disease A, that in no way stops another manufacturer from coming up with another, perhaps better, treatment for disease A as well.

In his book The Fire of Invention: Civil Society and the Future of the Corporation, philosopher-economist Michael Novak observed:

“Monopoly belongs to the language of domination over competition, but copyright belongs to the language of private property and establishes a right to enter into markets. The point of a monopoly is to extinguish competition, but the point of protecting the copyright of authors is to ignite competition. The recognition of copyright increases the number of competitors; its aim is the opposite of monopoly… [C]ritics further forget that existing patents and copyrights often inspire new rounds of competition to ‘go around’ the existing claims, with the hope of launching more successful creations. This is especially true in medical and pharmaceutical research. Patents and copyrights do not end competition; often, their success inspires it in surrounding areas.”

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

SBE Council’s IP and the Economists #1: IP and History

The challenges of protecting intellectual property perhaps have never been more difficult than they are right now in the early twenty-first century. However, the negatives of failing to protect IP, and the benefits of strong IP rights are – or at least, should be – well known in economics and history.

Consider the following from Douglass North, the 1993 winner of the Nobel Prize in Economics, from his book titled Structure and Change in Economic History:

“And, in fact, throughout man’s past he has continually developed new techniques but the pace was slow and intermittent. The primary reason has been that incentives for developing new techniques have occurred only sporadically. Typically, innovations could be copied at no cost by others and without any reward to the inventor. The failure to develop systematic property rights in innovations until fairly modern times was a major source of the slow pace of technological change.”

Raymond J. Keating
Chief Economist
SBE Council