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Global Dimensions of Intellectual Property Rights in Science and Technology 2 Intellectual Property Institutions and the Panda's Thumb: Patents, Copyrights, and Trade Secrets in Economic Theory and History PAUL A. DAVID INTELLECTUAL PROPERTY ISSUES, ECONOMICS, AND HISTORY The laws and administrative procedures concerned with intellectual property have once again emerged as a topic of widespread and intense discussion in this country and abroad. Many forces have converged to thrust the subject into the spotlight (see, e.g., Office of Technology Assessment, 1986; Benko, 1987; World Intellectual Property Organization, 1988; Rushing and Brown, 1990). Investment in R&D, for example, has become a central aspect of corporate and national strategies of global competition. The shortening of product life cycles, and the advance of techniques that make ''reverse engineering" and outright copying of novel products easier, have made it more difficult for firms to reap the benefits of innovation simply by guarding new technologies as trade secrets while quickly moving along their production learning curves to seize a cost advantage over potential imitators. Also, many awkward ambiguities and widening areas of legal dispute have been created by the application to new technological developments of laws pertaining to patents, copyrights, and trade secrets, particularly in regard to biotechnology and to computer and information technologies. In addition to the forces being generated within the sphere of scientific and engineering research itself, national economic policy has contributed to the renewed interest in intellectual property. During the 1960s and 1970s, developing countries successfully resisted conforming to a regime of strong
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Global Dimensions of Intellectual Property Rights in Science and Technology international protection of intellectual property (see, e.g., Mody, 1990; Siebeck, 1990). However, during the 1980s, the U.S. government responded to the concerns of American producers—especially chemical, pharmaceutical, electronic, and information technology industries—by working vigorously to reverse the trend of the preceding two decades. Acting with some encouragement from other industrially advanced countries, the United States pursued a direct, unilateral course of action. It did not make any major effort to renegotiate agreements within the framework of the Paris Convention for the Protection of Industrial Property (patents and trademarks), the Berne Convention for the Protection of Literary and Artistic Works (copyrights), or other international conventions, nor did it offer some quid pro quo to developing nations that would agree to sign such conventions. Instead, by threatening within the context of bilateral trade negotiations to impose sanctions on developing and newly industrialized nations whose retaliatory leverage was quite limited, the United States achieved considerable success in convincing foreign governments to acquiesce to its position on the treatment of various forms of intellectual property. The pressures generated by the U.S. campaign, however, and the widening international markets for R&D-intensive goods and services have stirred a profound reconsideration of the merits and drawbacks of global "harmonization" of protections for intellectual property and of the desirability of achieving such uniformity at a strong, rather than weak, standard of enforcement. Unlike the debates over intellectual property institutions in earlier eras, which had captured the attention of such great political and social philosophers as Thomas Jefferson, the current discussions reflect relatively slight interest in philosophical questions. Little attention is being paid to such issues as the "natural rights" of inventors and authors to the fruits of their creative efforts or the justice of claims advanced on behalf of all humanity to benefit from the collective, social processes through which new scientific and technological ideas arise (for exceptions see, e.g., Dworkin, 1981; Davis, 1989; Berg, 1991). Rather, in keeping with the more pervasively utilitarian spirit of the times, the statutes, legal rulings, administrative regulations, and other institutional arrangements affecting patents, copyrights, and trade secrets are widely regarded as public policy instruments that should be designed to enhance economic welfare by stimulating technological progress. Even if the rhetoric of argument occasionally appeals to notions of justice and equity, modern economic analysis, and its characteristic preoccupation with questions of efficiency, now set the terms for policy discussions about the protection of intellectual property. On the one hand, economic analysis provides the most widely accepted, overarching interpretation and supporting rationale for public interventions aimed at channeling economic resources into invention and innovation. On the other hand, in continuation of a long tradition, economic analysis yields fundamental criti-
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Global Dimensions of Intellectual Property Rights in Science and Technology cisms of the systems that have been established to achieve that purpose by securing rights in intellectual property. Thus, it is instructive to begin by taking the economist's approach in discussing U.S. intellectual property legislation and national policies to enforce rights in such property internationally. At the very least, this approach provides a framework for identifying the major problems of allocative efficiency and the distributional issues that are at stake—from the viewpoint of society as a whole rather than from the perspective of the various private (and national) interests involved. Economists as a body, however, have been unable to formulate much in the way of straightforward, practical advice to guide lawyers, jurists, and policymakers in these matters (see Priest, 1986). The fundamental cause of their inconclusiveness is not so much the tendency of economists to engage in theoretical speculations as it is their inability to achieve consensus on the answer to two difficult empirical questions. First, will faster growth in the stock of scientific and technological knowledge always be an unambiguously "good thing" for a particular industrial sector or national economy and, therefore, warrant the sacrifice of other, lesser societal goals? Second, how responsive is the supply of socially useful discoveries and inventions to the creation of greater private economic incentives? For policy analysts not to know the policy goal with any precision is a considerable handicap, just as it is for them to remain unsure about the incentives and constraints that would be required to achieve any particular goal, were one to be agreed on. Unfortunately, however, the two questions cannot be answered any better by lawyers on the basis of their having delved more deeply into the details of existing or proposed intellectual property regimes. Nonetheless, those who from practice are most at ease applying the logic of microeconomic reasoning to intellectual property rights issues, must pay heed to the skepticism voiced by legal experts. They should take more pains not to allow familiar, simplifying abstractions to obscure a central fact about the nature of the world for which they would prescribe institutional reforms, namely, that the complex body of law, judicial interpretation, and administrative practice that one has to grapple with in this field was not created by some rational, consistent, social welfare-maximizing public agency. What one is faced with, instead, is a mixture of the intended and unintended consequences of an undirected historical process on which the varied interests of many parties, acting at different points (some widely separated in time and space), have left an enduring mark. So, it would be really quite remarkable if the evolution of legal institutions concerning patents, copyrights, and trade secrets had somehow resulted in a set of instruments optimally designed to serve either public policy purposes or the private economic interests of individuals and firms seeking such protections. Agreement with the above does not deny the general notion of an evo-
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Global Dimensions of Intellectual Property Rights in Science and Technology lutionary drift toward social optimality in the effects of the law on resource allocation. Clever, modern Panglossians have come up with the proposition that the increasing likelihood that laws resulting in inefficient resource use will be exposed to economically motivated litigation, thereby creating "selective pressure" to remold property law in ways that tend to render it more efficient; that this pressure can work even if the outcome of the litigation is random; and that some beneficent "invisible hand" thus guides the evolution of legal institutions affecting economic performance. These ingenious but nonetheless dubious arguments are confined, even by their most ardent proponents, to the supposed workings of the common law system of judge-made law (see, e.g., Priest, 1977; Rubin, 1977; Goodman, 1978; Cooter and Kornhauser, 1980; and Cooter and Ulen, 1988, for discussions of deficiencies in the selective litigation thesis). The modern "law" of intellectual property, however, consists of statutory and administrative laws pertaining to patents and copyrights, even though the common law roots of the law of trade secrets create a complicating exception. Thus, it is difficult to find even a speculative, theoretical justification for conceptualizing intellectual property statutes, and the administrative procedures they authorize, as institutional tools that were forged perfectly to "Promote the Progress of Science and Useful Arts." The latter is the specific purpose identified by the framers of the Constitution (Article 1, Section 8, Clause 8) when they granted to Congress the power of "securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries." Nor should the prevailing statutes enacted under that authority be regarded as policy instruments designed to attain a social optimum defined more broadly in terms of economic welfare. Indeed, the first step toward understanding many of the policy dilemmas that arise today in regard to intellectual property would seem to be to acknowledge just this elementary point. If intellectual property arrangements are to be viewed as utilitarian appendages of the body politic, it would be far more illuminating to recognize their essential nature as most closely akin to the "thumb" of the giant panda. The panda's thumb has been justly celebrated by Stephen Jay Gould (1980:Ch. ) as a striking example of evolutionary improvisation yielding an appendage that is inelegant yet serviceable. Although the panda can grasp and strip the leaves from the stalks of the bamboo plant, its thumb is not anatomically a finger at all, much less an opposable, manipulating digit. In actuality, it is a complex structure formed by the marked enlargement of a bone that otherwise would be a component of the animal's wrist—but for the effect of some genetic mutation—and the related extensive rearrangement of supporting musculature. It is, as Gould says, "a contraption, not a lovely contrivance," and one whose obvious mechanical limitations stem from its remote accidental origins.
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Global Dimensions of Intellectual Property Rights in Science and Technology Evolutionary processes in biology work largely with the materials that are readily available. So does institutional evolution, especially the processes of incremental change and adaptation in legal and other rule systems that give great weight to precedent (see, e.g., North, 1991). Accordingly, even though the legal provisions and administrative rules that make up the "patent system" and "copyright system" have changed considerably in form and function over their long history, they appear remarkably resistant to rapid and radical reform. As the nature of technologies changes, however, it is increasingly evident that the familiar legal "contraptions" of patents and copyrights are rather ill-suited to some of the situations to which they are being applied (see, e.g., Office of Technology Assessment, 1986; World International Property Organization, 1989). They continue to be looked to as stimuli for the generation of useful innovations, but while enabling the private appropriation of economic benefits from new scientific and engineering knowledge, they have a variety of untoward side effects that may be distorting and even impeding the progress of technology. Moreover, the problems are not confined to those that might be solved by readjusting old and still serviceable legal tools or forging novel statutes to fit special technical circumstances. The process of more finely articulating and more vigorously enforcing private rights in intellectual property is certainly worth pursuing in some situations, but it cannot be looked to for optimal solutions to all of society's problems in designing institutional mechanisms affecting the production, distribution, and utilization of knowledge. Identifying the limitations as well as the strengths of the private property approach is a central part of my task in introducing the subject of the global dimensions of intellectual property in science and technology. Setting out the basics of modern economic theory of intellectual property and reviewing the historical development of specific legal institutions that define and protect private rights in such property are also major aspects of my task. This assignment is a daunting one, for any of several reasons. First, as noted, there is no settled body of economic theory on the subject that can be stated briefly without doing serious injustice to the sophisticated insights that have emerged over many decades of debate. Instead, the relevant economic literature is extensive, convoluted, and characterized by subtle points of inconclusive controversy concerning the appropriate course for public policy. Second, intellectual property law is an intricate, highly specialized area of legal scholarship and one to which I make no pretensions of expertise. Third, the historical development in Western societies of the patent system, the statutory protection of copyright, and the body of law governing trade secrets is a subject area that, unfortunately, has remained all too separated from economic and legal analyses of contemporary intellectual property issues. To link them satisfactorily would be no small undertaking.
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Global Dimensions of Intellectual Property Rights in Science and Technology Recognition of these difficulties should have been sufficient to dissuade me from accepting the assignment. In the event, as one can see, they were unavailing. Some considerable indulgence and forbearance on the part of the reader will therefore be required if my discussion oversimplifies complex matters of economic reasoning concerning intellectual property and the production and distribution of knowledge, points out only the most salient and early developments in the long history of these western European institutional arrangements, glosses over crucial distinctions and subtle points of modern law, and indulges in some provocative concluding comments on the current U.S.-led campaign for an international regime of uniformly strong intellectual property protection, as that appears from this economic historian's perspective. KNOWLEDGE, PUBLIC POLICY ECONOMICS, AND INTELLECTUAL PROPERTY The economist approaches the subject of protection of intellectual property rights, like many other issues, by trying to fit it into the generic formula for public policy decisions (see, e.g., Besen and Raskind, 1991:5). Somewhat loosely stated, the policy objective is to maximize the surplus of social benefits of the new information assets over the social costs of their production, that is, to maximize the "net social benefits." A further objective is to push the allocation of public and private resources in the direction of equalizing the social net rate of return on investments in knowledge and in other kinds of productive assets. This formulation gives rise to the following three classes of questions. First, will the right amount of new information be created, and at the right times? The concern here is whether, in the absence of public intervention, private incentives would be sufficient to generate the optimal flow of additions to the stock of scientific and technological knowledge. Modern economic analysis recognizes that the peculiar, "public good" nature of information as a commodity creates serious resource allocation problems for competitive market systems. Further, it identifies the institution of private rights in intellectual property as one among a number of countervailing measures that the state may take to rectify the deficiencies of market competition. Second, will the new information that is created be used productively, that is, in a way that yields the maximum flow of social benefits for the producers and consumers of goods and services? Unless intellectual creations are disseminated for others to enjoy as items of consumption or are used directly and indirectly in producing other goods and services, they cannot be expected to yield improvements in productivity and economic welfare. Consequently, a central set of issues for discussion among econo-
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Global Dimensions of Intellectual Property Rights in Science and Technology mists has been the likely effects that public policy measures meant to stimulate additions to knowledge would have on the diffusion of knowledge into commercial uses. Third, will the conditions under which new knowledge is created be such that the social costs entailed in its production are minimized? There are opportunity costs to devoting resources to the advancement of knowledge through scientific discovery, inventive activity, and the novel expression of ideas. The goal of public policy cannot be simply that of causing private agents or governmental agencies to conduct these pursuits on an ever-grander scale, without regard to whether they are conducted efficiently. Intellectual property institutions must be evaluated in terms of their implications for the social costs of producing new knowledge, as well as for the utilization of the existing stock of knowledge. Information, Public Goods, and Competitive Market Failures The argument most generally offered in support of public policy interventions to enforce patents, copyrights, and trade secrecy is that there is a "market failure." In the absence of governmental protection of private property rights, the argument goes, competitive markets would not give individuals and organizations sufficient incentives to induce the socially optimal amount of investment in public goods in the form of new scientific and technological knowledge. It does not necessarily follow, however, that the best remedy for market failure is to create valuable private rights in intellectual property. In fact, the problem is more complicated than even that of arranging for the right amount of some classic public good, such as national defense or lighthouses. Knowledge may be viewed as a commodity, but it is not a commonplace commodity. It is highly differentiated and has no obvious natural units of measurement. It can have utility as a pure consumption good or as a capital good, and often as both. Knowledge is unusual in that as a pure capital good yielding a stream of material benefits when combined with other kinds of assets, it possesses an intrinsic value. Such is the case, for example, with information about the operation of a cost-saving manufacturing process or the design of a product with better quality attributes. Still more remarkable is information's extreme indivisibility and durability. Once a bit of knowledge has been obtained, there is no value to acquiring it a second time, or a third. There is no societal need to repeat the same discovery or invention because a piece of information can be used again and again without exhausting it. Karl Marx (1867-1894; 1970: Vol. 1, Ch. XXV:386), among others, was struck by the fact that scientific knowledge could be freely appropriated to productive processes, as are the physical forces found in nature:
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Global Dimensions of Intellectual Property Rights in Science and Technology Once discovered, the law of the deviation 0f the magnetic needle in the field of an electric current, or the law of the magnetization of iron, around which an electric current circulates, costs never a penny. Related to this, and of even greater importance, knowledge differs from ordinary "private" commodities in being what economists refer to as a nonrival good; that is, it can be possessed and enjoyed jointly by as many as care to make use of it. This observation forms the point of departure for the classic analysis of the economics of R&D by Arrow (1962), but it is not a modern insight. Consider the following passage in a letter written in 1813 to Isaac McPherson, a Baltimore inventor, by Thomas Jefferson (reprinted in Koch and Peden, 1972:629-630): If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea, which an individual may exclusively possess as long as he keeps it to himself; but the moment it is divulged, it forces itself into the possession of every one, and the receiver cannot dispossess himself of it. Its peculiar character, too, is that no one possesses the less, because every other possesses the whole of it ... That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature, when she made them, like fire, expansible over all space, without lessening their density in any point, and like the air in which we breathe, move, and have our physical being, incapable of confinement or exclusive appropriation. Jefferson grasped the essential point that the cost of transmitting useful knowledge in codified form is negligible compared with the cost of creating it, and that, but for society's need to encourage the pursuit of ideas, such information should be distributed freely. Indeed, on these grounds Jefferson proceeded immediately to reject the argument of the French philosophers that inventors and authors had a natural rights claim to property in their creations (reprinted in Koch and Peden, 1972:630): Inventions then cannot, in nature, be a subject of property. Society may give an exclusive right to the profits arising from them, as an encouragement to men to pursue ideas which may produce utility, but this may or may not be done, according to the will and convenience of the society, without claim or complaint from anybody.... This does not mean that all types of knowledge can be transmitted at negligibly low marginal costs or that the private and social costs of filtering, interpreting, and utilizing information are insignificant. Recent discussions of the economics of R&D and technology transfers (see, e.g., Pavitt, 1987; Rosenberg, 1990; Arora, 1991) have recognized the importance of tacit components of technological knowledge and emphasized that the in-
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Global Dimensions of Intellectual Property Rights in Science and Technology formation contained in scientific papers, patents, blueprints, and other forms of codified knowledge often will not be sufficient to implement the technology in question; complementary know-how is required, and its acquisition is often costly. Nelson (1990) makes the same point and goes on to associate codified knowledge with the "generic" parts of technological information—those that can be transferred readily and tend, thus, to move quickly into the public domain—and tacit knowledge with the "specific" bits of information that lend themselves better to being held privately. These particular identifications, however, do not seem either necessary or especially helpful. What is held secret and what becomes publicly disclosed are determined not so much by the inherent nature of the information as by the expected costs and rewards associated with each course of action for the agents involved (see Dasgupta and David, 1990). This much is obvious from considering the factors that enter into a firm's decision whether to file for a patent on a new process of manufacture or to protect it as a trade secret. Nonrival possession, low marginal cost of reproduction and distribution (which makes it difficult to exclude others from access), and substantial fixed costs of original production—these are the three properties familiarly associated with the definition of a public good. When these characteristics are present, competitive markets—in which price tends to be driven down to the cost of supplying the marginal unit of the commodity—generally perform quite badly; competitive producers' revenues will not even cover their full costs of production, much less anything approaching the use-value of the goods to the public. Indeed, the attempt to make the beneficiaries pay for value received would so reduce demand as to result in an inefficiently low level of its consumption. In the literature of public finance economics, therefore, alternative allocative mechanisms are proposed as solutions to "the public goods problem." There are three principal alternatives. One is that society should give independent producers publicly financed subsidies and require that the goods be made available to the public freely or at a nominal charge. A second mechanism would have the state levy general taxes to finance its direct participation in production and distribution of the good, furnish and manage the requisite facilities, and contract when necessary with private agents to carry out the work. Here, again, the objective is to supply the good without having to charge prices for it. The third solution is to create a publicly regulated private monopoly authorized to charge consumers prices that will secure a "normal" rate of profit. This does not guarantee, however, that consumers will line up to purchase the goods and services in question. The legal right to exclude other producers from the market for a product does not, of itself, create a profitable monopoly of that line of business. Although the nonexcludable and nonrivalrous nature of information quali-
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Global Dimensions of Intellectual Property Rights in Science and Technology fies it as a public good, information differs in two respects from the mass of conventional public goods, such as traffic lights, flood control systems, and airport beacons or radar landing beams. The first difference is that the attributes of the commodity—typically, the complete contents of the information itself—will not be known beforehand. Indeed, they are not automatically known to all the interested parties even when the new knowledge becomes available. This asymmetry in the distribution of information greatly complicates the process of arranging contracts for the production and use of new knowledge. The second differentiating feature of knowledge is its cumulative and interactive nature. The stock of scientific and technological knowledge grows by increments, with each advance building on and sometimes altering the significance of previous findings in complicated and often unpredictable ways. As Thomas Jefferson remarked (reprinted in Koch and Peden, 1972:686), The fact is, that one new idea leads to another, that to a third, and so on through a course of time until someone, with whom no one of these ideas was original, combines all together, and produces what is justly called an new invention. On these same grounds, Michael Polanyi (1944:70-71), a British sociologist of science, maintained that patent law was essentially deficient because it sought to "parcel up a stream of creative thought" into a series of distinct claims each of which could constitute the basis of a separately owned monopoly, whereas "incremental progress interacts at every stage with the whole network of human knowledge and draws at every moment on the most varied and dispersed stimuli." The same kind of creative recombinant process does not operate when one stockpiles weapons for defense or erects another set of airport landing lights. The light signal from an airport or lighthouse is a form of information, but it is the emission of the signal—rather than the bricks or metal or glass—that imparts the public goods character to those structures. This form of information, however, has no capacity for internal growth and elaboration. Unlike scientific and technological knowledge, light signals just do not evolve and acquire new utility through cumulation and interaction. As discussed below, legal and other institutional arrangements may be imposing high costs on research-intensive firms, and society more generally, by restricting access to some elements in those streams of creative thought and thereby making it less likely that the elements will be rapidly rearranged and recombined in new and fruitful ways.
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Global Dimensions of Intellectual Property Rights in Science and Technology Imperfect Institutional Solutions and Trade-offs The importance of the foregoing differentiating features of knowledge notwithstanding, there is a striking correspondence between the three solutions for the standard public goods problem—subsidies, direct governmental production, and regulated monopoly—and the three main institutional arrangements that have been devised to deal with allocational problems in the production of knowledge and pure information goods (see Dasgupta and David, 1988). I refer to the latter arrangements as ''the three P's," because they can be described in highly idealized forms as patronage, procurement, and property, respectively. Patronage stands for the system of awarding publicly financed prizes, research grants based on the submission of competitive proposals, and other subsidies to private individuals and organizations engaged in intellectual discovery and invention, in exchange for full public disclosure of their creative achievements. In Western democratic societies, patronage characterizes the pursuit of "open" scientific inquiry and the dominant institutional and social mode of organization associated with the conduct of academic science (see David, 1991). Procurement is associated with government's contracting for intellectual work, the products of which it will control and devote to public purposes. Whether the information produced will be made available for public use is a secondary issue, although an important matter for public policy. "Sensitive" defense-related research is usually conducted under governmental auspices in secure, closed laboratories, but much publicly contracted R&D and the scientific work of governmentally managed laboratories and agricultural experiment stations are undertaken with the intention of disseminating the findings widely. Property refers to society's granting private producers of new knowledge exclusive rights to the use of their creations, thereby forming conditions for the existence of markets in intellectual property and enabling the originators to collect fees for the use of their work by others. The specific legal contrivances of the patent, copyright, and somewhat more problematically, the trade secret fall within the property rubric. The Intellectual Property System Patents convey the most potent rights in the intellectual property system, for the patentee may exclude everyone else from making, selling, or using the subject matter of a valid patent throughout its term. Under the current U.S. Patent Act (35 U.S.C., Sec. 1-376), the usual term is 17 years, extendable by 5 years for pharmaceutical and medical device patents and by 14 years for design patents. The conditions that must be satisfied to secure
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Global Dimensions of Intellectual Property Rights in Science and Technology to another printer. By 1517 the resulting shortage of available titles caused the Senate to restrict all such copyright privilegi henceforth to "new and previously unprinted works." What was probably the first general copyright law in the world came in the form of a decree issued by the Council of Ten in Venice (1544-1545) that prohibited the printing of any work unless written permission from the author or his immediate heirs had been submitted to the Commissioners of the University of Padua. No provision was made, however, for maintaining a register of protected works (Bugbee, 1967:46). This decree was prompted by the continued unauthorized printing of works for which copyrights had been granted. A further measure directed toward more complete regulation of the printing business came in 1548-1549 with a Council decree establishing a guild into which all Venice's printers and booksellers were to be organized. An added motivation was to assist the Church in suppressing heretical literature. The same concern with censorship of a potentially dangerous new medium of communication, rather than securing the rights of authorship, prompted the royal officials of sixteenth century France to issue licenses, or privileges, for the publication of acceptable books. The French Crown, however, proved better able than the Italian city-states to resist the Church's efforts to share control of the printing business. In the Netherlands, privileges resembling those of Venice, but without censorship provisions, were issued to publishers by state and central governments, but the primary means of regulating destructive competition involving the pirating of texts was a system of informal noninterference agreements among Dutch printers. Similar arrangements had developed among leading German publishers and were exercised through a guild and the book fairs of Frankfurt and Leipzig (see Bugbee, 1967:48). When the German book trade was interrupted during the Thirty Years' War, the Dutch quickly assumed leadership of the publishing industry in Europe. Although the flourishing printing business of the Netherlands benefited from the attraction of scholars to the comparatively free intellectual atmosphere of the Dutch towns in this era, protection of local authors' rights was not a concern, nor were the rights of foreign authors and publishers. At this time, throughout Europe, imported books, pamphlets, and pictorial material were subject to reprinting and sale without compensation for their originators. The highly successful Elzevir family of Leyden and Amsterdam was especially notorious in this regard. According to Henry Haven Putnam (quoted by Bugbee, 1967:178, n.150): As far as the foreign authors were concerned, the Elzevirs appear to have followed simply the dictates of their own convenience and advantage. They took what material they thought they could use, without troubling themselves to make either requests or acknowledgements. They were, in fact, the most extensive piratical publishers that the world had as yet seen, and may be said to have reduced piracy to a business system.
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Global Dimensions of Intellectual Property Rights in Science and Technology The Venetian printers' guild was the model for England's Stationers' Company, which was chartered by Mary Tudor in 1557. The object was to provide the Catholic sovereign with the instrumentality to control what could be printed for widespread circulation. Masters of the Company were empowered to search the premises of any printer or bookseller for works not printed in accordance with the licensing laws, and whether censorship was obnoxious or desirable in their opinion, they had a strong economic motive to enforce their monopoly by suppressing publications not licensed by the Crown. Indeed, it has been suggested that censorship in England, particularly in the mid-seventeenth century, was more a product than a cause of the Stationers' monopoly (see Patterson, 1968:101; Plant, 1974, on the Stationers' petition of 1643). Thus, in England, copyrights began with a monopoly franchise granted for the purpose of regulating the business of printing and publishing. They had nothing to do with the encouragement of "freedom of expression," nor were they intended to promote authorship per se. Nevertheless, authors in England had personal property rights in their unpublished manuscripts, as well as contractual protections under the common law. These protections extended to a recognized interest in the integrity of the form and content of the work for which publication permission had been given, which restrained printers from making arbitrary alterations in texts once they were published and from dispensing with the need to recompense the author. In short, under these arrangements a stationer (i.e., a printer-copyist) had to obtain the author's permission to publish his manuscript even though the author did not hold the copyright (see Patterson, 1968:65-69). The modern statutory protection of authors' copyrights in the United States and Britain arose in the early eighteenth century, almost as an accident. In England during the closing decades of the seventeenth century, the passing of the era of political and religious censorship made it increasingly difficult for the Stationers' Company to interest the government in the control of the new printing presses that were springing up throughout the country. When the Licensing Act that had given teeth to the Stationers' monopoly was allowed to lapse in 1694, the competition intensified as country booksellers openly flouted the doctrine of perpetual copyright that the Stationers' Company had sought to establish on the evidence of assignments registered in its record books. After 15 years of increasingly chaotic conditions of unregulated competition, the London printer-booksellers at last managed to secure new legislation, in the form of the 1709-1710 act of Queen Anne. This, the first copyright statute, did not give the publishers the perpetual rights they had sought; instead, it limited the exclusive right to printing new books registered with the Stationers' Company to a term of 14 years (following the precedent established in the case of patents under the Statute of Monopolies of 1623); and it gave the holders of copyrights on existing books the sole right to print for 21 years. Moreover, to open up the trade,
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Global Dimensions of Intellectual Property Rights in Science and Technology the Act of Anne eliminated the guild monopoly on the holding of copyrights. Anyone could now hold the copyright for a new work—printers, bakers, cobblers, and even authors. From the foregoing brief account of the origins of copyrights, it is evident that the signal distinction between the protection of ideas under patent law and the protection of expression under the law of copyright owes a great deal to the fact that copyrights arose in response to internal and external interests in regulating the nature of competition in the printing and publication business, an industry in which, at an early date, decreasing costs were thought to be a source of instability. Copyrights, therefore, were inherently concerned with the security of property rights in the expression of ideas—whether old ideas or new ones. Only much later did they come to be enlisted in the cause of stimulating the production of new knowledge. Is it so surprising, then, that in this new role they sometimes are found to perform rather awkwardly? Consider, as a simple case in point, the recent assignment of copyright law to the task of protecting intellectual property rights in computer software. Observers have noted that the protection afforded to original expression in copyright law offers no security for originators of novel algorithms and concepts for applications programs (such as spreadsheets and relational data bases). Yet at the same time, the opportunities that the law creates to protect original expression have had the effect of encouraging an excessive degree of variety in the "look-and-feel" of software, whereas some greater degree of standardization of the machine-user interface is widely thought to be desirable from the standpoint of economic efficiency (see, for example, Farrell, 1989; David and Greenstein, 1990). CONCLUDING OBSERVATIONS Historical studies reveal that although patents, copyrights, and legal protection of trade secrets have been recognizable institutions in Western societies for centuries, policies bearing on the protection accorded to intellectual property, and the juridical-institutional arrangements used to implement them, have been a mutable thing, adapted over time and across societies to the perceived needs and advantages of interested parties. The adaptations in each form of protection, moreover, have occurred within the historical context of other, related institutional arrangements affecting the costs and benefits of maintaining specific intellectual property rights. Thus, the effort to institute a uniform international regime for the protection of intellectual property rights is almost certain to cause conflict and controversy. Even though a new intellectual property regime could be Pareto improving in some situations, the need to align domestic and international laws adds further constraints that tend to render such solutions impractical. As a
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Global Dimensions of Intellectual Property Rights in Science and Technology result, discussions of the "correct" international system for protecting intellectual property are more likely than not to degenerate into rhetorical efforts to impose institutional arrangements that may be well adapted to the national purposes and legal contexts of one country (or several similar countries) on societies that are quite different in those respects. The supposed trade-off between promoting technological progress and technology diffusion has led to the view that strong protection of intellectual property rights must serve the former goal, at the expense of the latter. This has been a rationale for the conflicts between the technologically advanced and the developing nations over intellectual property issues: An interest in weak or minimal protection of intellectual property is imputed to the developing countries' limited capacity to innovate technologically and their comparative advantage in imitating the products and processes originated elsewhere. Yet that is not necessarily the case. Indeed, just the opposite point may be made on modern theoretical grounds and by reference to historical experience: legal protection of intellectual property rights in the form of state-sanctioned monopoly franchises can have seriously detrimental consequences for the processes of discovery and invention, whereas it may be instrumental in bringing about the successful transfer and commercial application of new scientific and technological knowledge. The arguments supporting this unorthodox contention are summarized below. First, because invention is often a cumulative process, as scientific inquiry more generally is recognized to be, the enforcement of patent rights can interfere with further discovery. It deflects resources into "racing" for the priority prize and into inventing around the basic patent. It discourages complementary inventions, because the returns may be extracted by the patentee whose work has been built upon. Note the distinction made here between inhibiting progress rather than discouraging investment in R&D. Second, weak and narrow patents, as in the modern Japanese system, encourage firms to cross-license and thus disseminate findings rapidly. They encourage the collective invention process—in the direction of elaboration and adaptation to particular markets, although they may discourage efforts to achieve radical, fundamental inventions (see Ordover, 1991, and references therein). This is consistent with one aspect of Kitch's (1980) "prospect" argument that broad, strong patents encourage fundamental innovations and their orderly development, but it contests the premise in the latter that a monopolist can identify and efficiently contract for the performance of cumulative, elaborative research. Third, although it is arguable that weak patent protection regimes encourage exchanges of patent licenses among firms that are symmetrical in their technological capabilities, the opposite is more likely to be the case in regard to transfers of technical know-how from more to less capable organizations. Much of a firm's capability for absorbing and implementing pat-
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Global Dimensions of Intellectual Property Rights in Science and Technology ented innovations depends on its access to tacit knowledge that is complementary to the patent. If it does not possess such knowledge already because it has no experience base in the area and cannot readily hire skilled personnel from firms that do, it must contract for the required information. However, tacit information is extremely difficult to contract for, due to the problems of informational asymmetry and monitoring costs. This problem bedevils North-South technology transfers that do not involve the mediation of multinational organizations. Nevertheless, a regime of strong intellectual property protection of codified knowledge in the receiving country provides a basis—as Arora (1991) has recently demonstrated—for structuring contracts that would accomplish the transfer of uncodified and tacit knowledge that is necessary for the profitable operation of industrial processes yet remains undisclosed to the public by the patent or copyright licenser. Further, contractual arrangements to transfer tacit knowledge as part of the terms for the licensing of the use of codified and published information (e.g., in a patent) generally will require enforcement of legal protection for trade secrets, in the interests of both the licenser and the licensee. Fourth, intellectual property rights in the form of exclusive franchise guarantees can overcome failure to exploit a patent through modifications to local market conditions due to the problem that learning of this kind will not be appropriable and, hence, there is less interest in generating learning-by-doing gains, as David and Olsen (1991) have shown. History reinforces the implications of this line of theoretical analysis by revealing extensive early use of patent privileges to encourage technology importation, both in medieval and early Renaissance Europe and in late nineteenth century Latin American countries. A reading of the historical chronicle of the evolution of intellectual property institutions underscores several further propositions. First, the protections accorded intellectual property by nation-states have not manifested any great consistency in adhering to pure principle. Rather, they have been pragmatically altered over time in response to changing perceptions of the way the creation and dissemination of information and information products affect "national interests." They also have been tinkered with periodically to remedy unanticipated problems in the workings of institutional arrangements due to changes in the technologies employed to produce and distribute information products. Much of the late nineteenth century "reform" in national and international copyright law, for example, was provoked by developments in the technology of printing that underlay the cutthroat competition for mass markets (by the standards of the day) in cheap editions of popular novels. Second, to be effective, statutory protections and judicial interpretations of laws defining intellectual property rights must fit within—and be compatible with—the principles of the larger framework of a society's legal
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Global Dimensions of Intellectual Property Rights in Science and Technology institutions. Formal legal precedents and informal conventions impose historical constraints on a country's ability to fine-tune its intellectual property institutions to suit currently perceived needs. These constraints would remain even if there were widespread agreement as to the needs of the moment. The two foregoing observations imply, in my view, a third conclusion: Proposals now being advanced to establish a uniform international regime of intellectual property protection are not practical, even though careful economic analysis would indicate that there may be considerably more points of agreement between the interests of the technologically advanced and the economically developing countries than often has been supposed. Finally, U.S. assertion of the justice of striving to protect the "natural" ownership rights of creators of intellectual property, and its unwillingness to grant other nations any quid pro quo for accepting a uniformly strong international regime for protecting international property production, reflects confusions of French and British legal doctrines that are part of the American heritage concerning the subject of intellectual property. It is also quite inconsistent with some aspects of the past conduct of the United States and that of other economically advanced countries—in the enforcement of intellectual property claims in the international arena. ACKNOWLEDGMENTS In preparing this paper I have benefitted from the able research assistance of Weston Headley and Phillip Lim. Editorial suggestions by the National Research Council staff contributed significantly to improving the exposition. I can claim full rights only to any errors and omissions that remain. REFERENCES Arora, Ashish. 1991. The transfer of technological know-how to developing countries: Technology licensing, tacit knowledge, and the acquisition of technological capability. Unpublished Ph.D. dissertation, Stanford University. Arrow, Kenneth J. 1962. Economic welfare and the allocation of resources for invention. Pp. 609-625 in The Rate and Direction of Inventive Activity: Economic and Social Factors. Princeton, N.J.: National Bureau of Economic Research. Beck, Roger L. 1981. Competition for patent monopolies. Research in Law and Economics 3:91-110. Beck, Roger L. 1983. The prospect theory of the patent system and unproductive competition. Research in Law and Economics 5:193-209. Bender, David. 1986. Protection of computer programs: The copyright/trade secret interface. University of Pittsburgh Law Review 47:906. Benko, Robert P. 1987. Protecting Intellectual Property Rights: Issues and Controversies. Washington, D.C.: American Enterprise Institute for Public Policy Research.
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Representative terms from entire chapter: