economic and social merits of intellectual property

7/29/2019 Economic and Social Merits of Intellectual Property

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Economic and Social Merits of Intellectual Property

Abstract: Intellectual property rights (IPR) are subjects of debate worldwide. Infringers

lobby for less protection and more radical free market economics, wherein the state has

virtually no control over trade conditions. Mainstream economists generally recognize that

IPRs provide incentive for innovation, which leads to growth and development. Various

statutes and treaties on intellectual property validate its legal legitimacy, although its

detractors are not silent. In this article, opposing viewpoints on the merits of IP are examined.

A sect of libertarians provides negative arguments which are analyzed for their contradictory

and fallacious elements. Proponents of IP are backed by Ayn Rands libertarianism,

international agreements, economic theory and business interests. IP is positioned as an

economic right and thus a human right. Market harmony is found possible through more

acceptance of and respect for IPRs.

Introduction

Intellectual property (IP) law exists largely because of compelling economic argument

in favor of IP being a form of property, and for protection of those intellectual property

rights (IPR). The bridge is axiomatic which connects economics with physical sciences

involved in the creation of patents, and other disciplines used in generation of trademarks,

copyrights and related rights. Validation of theories may elicit subjectivity but the case for

IPRs is generally more associated with the objective absolutism of physical sciences than

what we see in other fields of civil and criminal law. As such, IPRs have gained some

unanimous recognition, and consensus has formed in trade law that IP is essential to motivate

and reward innovation and development.

Interdisciplinary efforts are integral to supporting and reinforcing IPR theory at

academic and professional levels. Theoretically, the idea of IP itself is one that transcends

various institutions and philosophies, requiring public and private partnerships dependent

upon parallel thinking between lawyers, economists, engineers, doctors, scientists, artists,

musicians, and a wide array of workers in other disciplines. At the macro level, if IP theory is

to ultimately succeed internationally, harmonization policies and outlooks is necessary.


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Today, we see constrained success of IP law in the global market. Alongside that is

widespread approval of the argument opposing IPRs.

This article first presents cultural and historical aspects of IPRs, followed by the

influence of IP on world trade. Opposing viewpoints on the merits of IP are then examined. A

sect of libertarians such as Stephen Kinsella and scholars at the Mises Institute provide the

negative arguments which are analyzed for their contradictory and fallacious elements. Ayn

Rands libertarianism, by contrast, supports broad protection of IPRs. Proponents of IP are

backed by international agreements, economic theory and business interests. IP is positioned

as an economic right and thus a human right. A legal positivist approach justifies statutes and

treaties, which retain authority in spite of counterpoints. Conclusions indicate that strong

IPRs can be mutually beneficial to consumers and innovators.

World Cultures and Intellectual Property

IP law, like many aspects of international trade law and modern economics, may seem

as compound functions of predominantly Western interests rather than of a more

heterogeneous, comprehensive and inclusive nature. Social philosophies reminiscent of the

Scottish Enlightenment and classical period of economics are still present in capitalist

ideology although neither Smiths time are vividly unimaginable to most people living in this

age. Despite the flak that ber-traditionalists encounter, their ways persist through time.

Nobel Laureate Joseph Stiglitz (2007) said about his research regarding how market

economies deal with information and knowledge, what was clear is that the standard

paradigms of well-functioning markets solving the problemsAdam Smiths invisible

handjust didnt work Stiglitz showed in one of his papers on the topic, the reason that

the invisible hand often seemed invisiblewas that it wasnt there

Stiglitz used these statements to oppose specific intellectual property agreements, but

what stands out most about his complaint of the classical economic view is that he


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acknowledged our change in economic paradigm from those times of overt racism, when man

raped, pillaged and plundered his way to riches. Regardless of shortcomings and abuses

through that part of history, some characteristics were carried forward, providing latter

footholds for growth and solid foundations of institutions.

Theories not of the laboratory sciences are almost always doomed to fail over time, and

those buttressing the current model are not likely exceptions, but their influence and effects

are not as easily mutable as their popularity. Friedman (1953) argued that assumptions

underlying economic theories are never realistic in practice. The fact that our present system

contains inherent flaws does not indicate it is somehow obsolete or doomed to soon be.

Likely, though, is that we will experience economic ebb and flow, boom and bust markets

and business cycles through to a new era in the dismal science , perhaps culminating with

the much-awaited next paradigm shift. Nonetheless, some pieces of historical systems will

proceed forward following the purge, and IPRs are most probably in that less perishable heap.

History of IP

Historically, a host of schisms and schools of thought made up the epistemological

framework for IPRs. Origins of IP law may be 13th

century Europe, though these first grants

of rights would have been of a primitive form even compared to those in the early American

Constitutional period. The 1883 Paris Convention and 1886 Berne Convention ushered in a

new era of public commitment among nations toward upholding principles that previously

existed domestically for hundreds of years. Names like Locke, Paine, Fichte, and Kant are oft

cited when discussing theories of IP, as are isms like utilitarianism, consequentialism,

capitalism, socialism, and communism (Caslon Analytics, 2002; Waldron, 2004).

Broader Support of Modern IPRs

Once established as property rights like those related to fixed, tangible, immovable and

moveable physical matter, IPRs are supported by religious doctrines. Both Catholic and


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Protestant sects of Christianity support the Jedeo-Christian Seventh Commandment, which

protect rights to private property (Holy Bible, NKJV; The Holy See, n.d.). The Vatican

recognizes and respects intellectual property rights as a member of WIPO (Foley, 2002).

Sharia law recognizes private property rights, and Muslim states are compelled through the

Quran to protect those rights, though the Muslim abstract concept of ownership may be

slightly different from English common law definitions (Jamar, 1992). The five moral

precepts of Buddhism include proscription of stealing, or a protection of private property

rights. Asteya is one of ten disciplines in Hinduism which teaches against stealing, and thus

protects private property rights.

Culture and Information Ethics

Until the advent of internet technology, deontological ethical argument developed

rather slowly, with the official majority view being that property rights both over physical

tangible and immaterial intellectual propertieswere embedded in any functional social,

economic, or governing system. Currently, in general, nations are not so out of tune with

others that harmonization cannot be said to exist. However, any consensus or unanimity is

present only in legislative branches, whereas executives and judiciaries worldwide have not

exhibited as uniform a commitment to enforcing and adjudicating the harmonized laws.

Since 1990s there has been rapid growth in the number of people and research articles

discussing information ethics. Increasing publication on the subject is also evidence of

increasing interest. Growth in world trade, the inauguration of the World Trade Organization,

increased access to education, general market growth and other related factors have together

made information technology (IT) ethical issues part of the daily life of billions of people.

Being such an integral part of our daily work, home, and social lives, people view IT ethical

issues as important (Peslak, 2007).


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Perceptions regarding IP and ethical use of technology vary worldwide (Phukan &

Dhillon, 2001). Culture has been an important factor in perceptions of IPRs, and of the

appropriateness of enforcement and of compliance with a given set of laws. Hofstedes

cultural dimensions have been used to explain a variety of business and trade-related

differences among different nationalities of people, IPRs included. For example, so-called

individualist and collectivist cultures have been shown to value IPRs differently (Lee &

Workman, 2011). Critics of Hofstedes 1970s study, which included analysis of over 116,000

questionnaires from over 60,000 IBM employees in over 50 countries, argue that it may not

be relevant in the new millennium, and may have never been a reliable source of information

regarding entire nations of people, which are not as homogenous as the research suggested.

Further methodological complaints include the sample selection since IBMers are not the

average Joe in any society.

Besides, due to differences between cognition and behavior, self-reporting surveys

alone are not always accurate and reliable among a group (Jones, 2007; McSweeney, 2002).

Hofstedes model may help support reasons for why people think as they do, but we must

also conclude that if some behavior is prohibited in written law then such a behavior is also

culturally undesirable. In other words, if a democratic nation has promulgated a law then that

law is supported by the culture. If a culture or a subculture is decidedly opposed to a law,

then the law takes precedent in official matters until such a time that the law is repealed.

Cultural rationalization for legal violation is not an adequate defense. The culture motive

for IP infringement does not establish any external validity, nor does such justification

invalidate the law or its jurisdiction.

Development Issues

Anti-IPR ideology has long existed in the individualist American world, yet the USA

provides some of the harshest penalties in the world for IPR infringement. In the 19th

century,


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the United States was notorious for copyright piracy, which was considered a development

issue(Khan, 2002). The USA did eventually undertake to engage in international

conventions and protect foreign works along with domestic ones. Thomas Jeffersons famous

1813 quote that inventions then cannot, in nature, be a subject of property has long since

been considered incorrect.

Copyright piracy is still considered a development issue by some people, though the

enormous scale of infringing activity online and via optical discs is hardly similar to the

miniscule volumes of print offenses in the 1800s. Legitimate literature consistently concludes

that to usurp the economic and or moral rights of another is simply unethical and in many

cases illegal, which nullifies most dissenting opinions. Business ethics infrastructure is not

a debate team which crafts arguments against IPR enforcement, licensing, definitions of fair-

use, and payment of royalties, but is instead a compliance office which attempts to direct the

organization toward legal and ethical operations, which in turn theoretically reduces risks,

costs, and liabilities (US Department of Commerce International Trade Commission, 2004).

Like Jeffersons unruly two-centuries old quote, the popular hackers motto, information

wants to be free has simply been quashed by the law and interests of IPR proprietors

(Wagner, 2003).

Internationally we see a growing debate against IPRs in whole or in part made by

entities and persons from private sectors, but those arguments do not abrogate domestic laws

or international treaties on IPRs. Developing nations orcollectivist theories that inventions

are public goods where cultural esteem rather than material gain serves as the incentive for

creativity (Steidlmeier, 1993) do not preclude the rights of IPR owners or holders to file suit

against infringers under the law as we saw clearly in Cisco v. Huawei (2003).

IP and World Trade


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The World Economic Forum (WEF, 2010-2011) concluded that IPR protection is a

fundamental concern in investment decisions leading to R&D spending and innovation.

Nations with strong IPRs see comparative and competitive advantages in high-tech and

cutting edge products and processes, in academic and research institutions, in technical

literature, and in creative arts. In its World Competitiveness Report, WEF listed IP protection

in the 1st

pillar (institutions) and 12th

pillar (innovation). Competitiveness rankings of nations

in the report closely followed the level of IPR protection in the nation. For example,

Singapore was the highest ranked global competitor nation in Asia, and third worldwide, due

in large part to its focus on innovation and thus IPR protection.

Economic measures like GDP per capita and growth are associated with IP indicators

like patent and trademark applications. Between 2006 and 2009, the top 8 nations or unions

in patent filings in order were USA, Japan, China, Korea, EU, Germany, Russia, and India,

where China had the highest growth in the period (WIPO, 2010). The combine share of the

top five offices was 76.2% in 2008, adding to the fact that high-income economies hold a

greater share of total patent applications than of world GDP.

All of the top 50 Patent Cooperation Treaty (PCT, 1970) applicant companies in 2009

were from Europe, the USA, China, Korea, and Japan. US universities held the top spot with

the most 2009 PCT applications in the university sector, while Japanese, Korean, Israeli, UK,

Swiss, Canadian, Singaporean, and Australian universities also filed 29 or more in the year.

Trends in trademark applications and registrations similarly follow GDP growth and volume.

China, USA, India, Japan, EU, Brazil, Korea, Germany, and Australia made up the top batch

in total trademarks or growth. All of the top 50 Madrid System applicant brands were from

China, USA, Europe, Japan, and Russia (Madrid Agreement, 1891; WIPO, 2010).

Licensing is big money worldwide and OECD nations do have a large interest in

protecting IPRs because of the value of licenses to their economies. Between 2003 and 2008,


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the value of royalties and licenses in service exports from G7 nations rose 13.7% while the

value of royalties and licenses in service imports rose only 9.3%. In 2008, royalties and

licensing fees made up 7.3% of OECD exports and 6.9% of imports, helping the group post a

positive current account in services (OECD, 2010).

Developing and third world nations can and do benefit from IPR protection, including

that of foreign IP. For example, between 1995 and 2004, ASEAN nations received nearly 220

billion USD in foreign direct investment (FDI), with nearly half going to Singapore which

has the highest IPR protection standards in the region (ASEAN, 2004). The same trend

continued between 2004 and 2008 when ASEAN inflows totaled nearly 260 billion USD,

with Singapore, Thailand, Vietnam, Indonesia, and Malaysia collecting about 95%. Top 20

sources of FDI between 2006 and 2008 included EU, Japan, USA, Korea, Hong Kong,

Taiwan, China and Australia suggesting inflows of high-tech and capital products and

services not native to most of the region (ASEAN, 2009).

Piracy & Counterfeiting

There are, of course, counterpoints to the argument in favor of protecting IPRs. The

retail sector can increase profitability without paying licensing fees, and infringement can

leave a positive financial impact at the point of sale. The ICC estimates that counterfeiting

and piracy accounts for 5-7% of international trade (ICC Commercial Crime Services, 2011).

Those sales provide real money to real people. However, there are significant data and

theories suggesting that the economic costs of infringement, especially for SMEs, surpass the

financial gains of the criminals involved in the trade (BASCAP, n.d.; UNODC, 2011).

While more industrialized nations have preferred greater application of existing

treaties and expansion of the IP treaty set, developing countries and consumer groups have

forestalled some progress, calling for a moratorium on making new treaties, considering

certain types of infringement (i.e. counterfeiting and piracy, compulsory licensing) and


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government ignorance thereof part of a development agenda (Helfer, 2009). Both sides

have valid arguments within their mutually exclusive models and worldviews, but the non-

enforcement development agenda appears to support legal positivism far less than the

position of the wealthier IP proprietors and licensees.

Concern for consumers rights and the health of those in deep poverty is clearly

rational and humanitarian in nature, and the issue of compulsory licenses has been addressed

by the WTO. There is also social and economic argument on the far-less gray subject of

sales in safe counterfeit and pirated products (i.e. DVDs, clothing, etc.). In an economic

paradigm where profit alone most often justifies risk of undertaking R&D and investment

projects, companies expect their IP to be protected to the fullest extent of the law, which is

generally the right explicitly granted to them in statutes. Notwithstanding the clear provisions

of written laws which criminalize commercial infringement and offer civil remedies to

injured parties, very often the case is that pursuit of legal victories against commercial

infringers result in financial loss. The prospects of unrecoverable sunk costs in legal actions

are unappealing to both private and public attorneys and thus, certain infringements in

physical markets and online continue and proliferate.

Piracy and counterfeiting are topics of research in themselves that require far greater

inquiry than what can be presented within the scope of this article. For now we can conclude

that the majority of economists favor IPRs, and while it is not impossible that the majority is

wrong, it is improbable that the experts would be so erred. Even in the event of total

miscalculation by the academics, theorists, advisors and other professionals on this issue, the

legal framework is valid and generally prohibits infringement. Lawyers with some scruples

shall then most often favor obedience to the law and promotion of lawful behavior.

Against Intellectual Property: Postmodern Libertarian Conjecture


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Arguments against intellectual property in general, those relating to enforcement or of

abolition of only certain IPRs, can be persuasive as they have been crafted using powerful

knowledge and theory. Such arguments are also highly accessible. People around the world

can attend an on-demand online streaming video seminar from the Mises Institute and learn

about a libertarian thesis which is not in support of the current American and growing global

regime. Libertarians are said to favor property rights, including ownership of tangible

immovables and movables whether homesteadable or created, and rights over the body.

However, IP is considered intangible, and like their objections to laws protecting reputation

and against blackmail, a prominent number of libertarians do not support IPRs (Kinsella,

2001).

Followers and admirers of Ludwig von Mises and of Austrian economics may assume

economics to be one branch of praxeology, which according to Rothbard is the formal

implications of the fact that men use means to attain various chosen ends (Kinsella, 2011).

Libertarian scholars of praxeology contend that any economic system presupposes a legal

order which protects private property rights plus related rights such as contract, negotiable

instruments, promissory notes and debt, etc. Contractual rights, and any financial or post-gold

standard fiscal rights should be ipso facto inclusive of protection of intangibles, yet authors

like Kinsella continue to speak against IP, calling its origins a conservative propaganda

campaign. Such ad hoc argument rejects the legitimacy of intangible property as a form of

real property, capable of having ownership. Non-recognition of IPRs contravenes a number

of standing economic and legal rules. Adoption of the abolitionist opinion would require

several changes to generally accepted accounting principles on depreciation and amortization,

making such arguments at very least impractical.

Scholarly Support for Fallacious Commentary


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Notwithstanding academic and professional origins of certain libertarians anti-IP

philosophy, its logic appears self-contradictory. Considering that American university

professors are more financially privileged than not, their condescension on this issue is

somewhat of a mutiny against their own class, a self-defeating strategy. A message

communicated suggests opponents of IP are denying that the economic order which they have

significantly benefitted from presupposes the associated pro-IP legal order, or that the legal

and economic orders are inseparable as was previously claimed. Kinsella, a patent attorney

who argues against IP, is not only ironic in his delivery, but takes a leadership position that is

impossible to follow without losing objectivity.

Origins of fallacious arguments emanating from esteemed academic institutions in the

first world are not limited to the Mises Institute. Instead, a great deal of American academia

has been muddling around with its IP ethics ideology much in the same fashion as it has been

forestalling legal positivist action intended to eliminate performance-enhancing drug use in

NCAA programs, among other compliance and transparency initiatives.

In 2011, the Authors Guild and other rights organizations filed suit against the

University of Michigan, HathiTrust, and four other universities over storage and use of

millions of copyright-protected books (Authors Guild, 2011). In 2008, the Recording Industry

Association of America (RIAA) sent pre-litigation settlement letters to 18 American

universities regarding copyright infringement on campus networks (RIAA, 2008). Montana

State University estimated more than 20,000 copyright infringement cases since the early

2000s involved college and university students, many of which retrieved infringing content

via university networks in housing or computer labs under lax campus enforcement policies

(MSU, 2011). Universities publicly display policies against infringement and in support of

laws, but behavior and cognition again have distinctly separate qualities. A multitude of

academic articles have been published since the turn of the century in favor of online


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infringement and against enforcement, many with faculty and university support. Perhaps

academicfreedom now includes rights to commit and endorse crimes.

Daniel DAmico (2011) of Loyola University in New Orleans, a purported expert on

IPRs, opened a 2011 Cato Institute lecture by admitting to online copyright crimes. He

prefaced his confession of thievery with a comment about how he thought people over the

age of 45 should have their rights to speak about IPRs revoked because such old people do

not download and infringe online enough to understand IPRs. These uses ofnon sequiturin

the speech did not appear as much of mere opening jokes as they did seem parts of his

genuine intellectual arguments. DAmico thereafter presented an eloquent academic

libertarian argument against IPRs consisting primarily ofignoratio elenchi and youth-

oriented argumentum ad populum fallacies which are particularly persuasive in political

discourse. Like most criminals, DAmicos ignorance of the counterpoint invalidated the bulk

of his arguments and exposed crucial flaws of these so-called libertarian doctrines.

Despite contrarian university faculty and student support for abolition of IP laws, or

non-enforcement of laws and therefore de facto abolition, and for rights to infringe online, the

laws and supporting reasons for protection stand. As the world saw with the mortgage fraud

and Ponzi scheme epidemic that led to financial crises in the early 21st

century, an economic

system which is considered to exist in isolation, and is not considered bound to a strict legal

order is not a safe system for a society. Without IPRs, we would not likely have such

luxurious innovation, diversity in publishing and arts.

Anarchy?

Libertarian conjecture regarding morality and ethics in a state system and the need for

complete change is not constrained to objection to IPRs. Some libertarians are famous for

promoting the complete abolition of government. Libertarian anarchism, according to some

academics, is the perfect system for protection of all rights, although clearly such a system is


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rife with confound. The idea that in the absence of government, the citizens would naturally

correct the judicial order among themselves until a balance were reached closely resembles

Smiths market theory on the invisible hand which has been said to not exist at all .

Libertarian ethicist Roderick Long (2010) favored anarchy, saying I think that anarchy

shouldnt be seen as an absence of checks and balancesI think it should be seen as sort of

taking checks and balances to its own conclusionthat it would sort of start a new check and

balance. This vision assumes a cessation of abuse, corruption, and of cyclical wrongs upon a

first conclusion of a prior system, which is denying the antecedent. Long presumes that

simply because a new system is not the present one, that it will be unlike the present one.

Long continued, another thing is people often assume that there is going to be less

legal uniformity under anarchy than under governmentbut I think there is actually reason to

expect that there might be more legal uniformity under anarchy, which again fails to

recognize the very definition of anarchy, or a state of lawlessness and disorder (Princeton,

2011).

Longs vexed thinking is clearly emotionally provocative, causing many readers and

listeners to not thoroughly examine its intellectual constituents and in the process of such

inspection expose its myriad logical contradictions, confounds, and flaws. Like those who

yearn for a removal of government or some free period in the future, others strive to

resurrect systems of the past, believing the good old days better. Unfortunately, such theorists

who earn their salaries in whole or in part by rejecting the current system under the

presumption that any historical systems were superior are failing to acknowledge and

understand the fundamental motivating factors which led to historical changes, and thus

cannot fully comprehend the present tense.

For Intellectual Property: Rands Libertarianism


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Libertarians are attacking IP rights in the name of a so-called defense of property

rights, said George Mason University law professor Adam Mossoff(2010) in a speech

hosted by the Ayn Rand Institute. Nonetheless, libertarian opinion on intellectual property

rights is not restricted to mere opposition, abolitionist, and anti-IPRs ideology. There is some

diversity within the party. Much of the pro-IPR libertarian rhetoric draws on Ayn Rands

radical idealism. Mossoff continued, explaining that Rand was the first philosopher use the

connection between a mans mind and his life to support IP when she described the anti-IPR

position of her time as an assault on mans mind and on the values he produces, and thus, an

assault on mans life.

In Atlas Shrugged and in Capitalism: The Unknown Ideal, Rand examined the

relationship in capitalism between the mans mind and the mans survival. In the latter

pamphlet, she asserted that Mans essential characteristic is his rational faculty. Mans mind

is his basic means of survivalhis only means of gaining knowledge (Rand, 1966). Rand

argued in favor of IPRs as a fundamental right in capitalism in a turbulent ethos which likely

had her as an enemy of entire states on the geopolitical front. While the Rand articles are

dated, the breakthroughs made are still significant and, regardless of continuing argument

against, help form foundations of our formal IP laws. Kinsella, Long and their cohorts could

hardly hold a candle to Ayn Rand.

Intellectual Property as a Human Right

Some authors and commentators have been so bold as to consider a globalized IP

regime an aspect of neocolonialism(Rahmatian, 2009), but such theorists neglect that such

an informal empire is not an empire at all, nor is a system of voluntary treaty adoption and

reciprocal rights protection arrangements similar to models of the colonial era when equality

and reciprocity were explicitly avoided. As we look back from a future time we may see that

nations which benefitted most near the time of inception of the post-colonial IPR system


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surely were the wealthiest and primarily Western nations, but that over time other nations

closed the gap. The system is designed to provide rights for all people, built upon respect for

sovereign equality under the 1945 UN Charter, which is a clear and obvious movement away

from historical norms rather than hidden obedience thereto. Our global IPR protection regime

provides a framework in which developing and third world nations can achieve their goals,

and at some time be economic equals with presently wealthier nations, whose initially

disproportionate benefits from the unified system may one day be considered mere

coincidence.

Authors from the Institute for Policy Innovation Center for Technology Freedom

considered IPRs as furthering the progress of other human rights such as political speech,

health care and education, arguing that copyright took publishing out of the hands of

governments and monarchs and enabled the free published expression of individual authors

and publishers, that expansive publication improves education, and that it was

implementation of intellectual property protection that has resulted in widespread creation

and distribution of new pharmaceuticals(Giovanetti & Matthews, 2005).

Intellectual property rights are established as human rights in the Universal Declaration

of Human Rights (1946) and in the International Covenant on Economic, Social and Cultural

Rights (1966).With rare exceptions like compulsory licenses on pharmaceuticals, the agenda

at the UN has been to fully support IPRs. As such, the UN High Commissioner for Human

Rights called on governments to protect IPRs (UNHCHR, 2000, 2001), and the UN

Economic and Social Council called on governments to implement the 1966 Covenant with

the view of enhancing IPRs (Chapman, 2000). IPRs are economic rights, and economic rights

are human rights. Hence, support for IPRs is support for human rights.

Intellectual Property: A Core Business Asset


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The going theory is that protecting and enforcing IPRs provides incentive for

innovation, investment, and progress. In the field of patents, incentives are for disclosure so

people in the larger group can build on inventions and there may be a more collective benefit.

For the purposes of this article, we shall consider the copyright systems as fundamentally

similar to the patent systems and infer that disclosure of ideas to the public has a similar

effect in literary and artistic fields, where protected works may be used to inspire and support

future works. We will therefore rely on economic theory that copyright simultaneously

achieves socially optimal production and consumption of protected material (Watt, 2009).

IP Markets

Marketing departments, rather than engineering or research or other departments, are

most often charged with the task of deciding whether or not to launch new products or

services (Mullins & Walker, 2010). Complex matrices of consumer preferences and

probabilities are studied in the process of making such decisions regarding innovation.

Intellectual Ventures vice president Greg Kisor (2006)found that economics plays heavily

into innovation and bringing things to market.

Big businesses clearly have a competitive advantage over SMEs in bringing products

and services to markets due to their comparatively larger budgets and more expansive access

to human and other resources. But universities, research labs, inventors, and small companies

produce 60% of patents while only getting 1% of the revenue (ibid) as those patents are

bought up and utilized by much larger companies. Likewise with copyright and related rights,

oligopolies are the norm.

Strategic Importance of IP

At S&P 500 companies in the mid-1980s, tangible assetsproperty, plants,

equipment, etc.represented about 70% of total assets. By 2005, intangible assets accounted

for about 70% of total assets, meaning IP became the biggest asset category at large


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companies in about 20 yearsthe life of a patent (Razgaitis, 2006). Between 1990 and 2008

in the UK, investment in intangibles/IP outpaced that in tangibles, with the gap growing

widest after 1999, leading to intangibles investment making up nearly 60% of the total in

2008 (UKIPO, 2011).

IP can be sold, licensed, or used as leverage against competitors, providing market

advantages for businesses. IP provides sustainable competitive and comparative economic

advantages for businesses and nations. Innovation is associated with a higher standard of

living, sustained higher wages, and increased sophistication in society (WEF, 2010-2011).

Innovative economies suffer fewer and shorter term shocks, and drive growth and recovery in

global financial markets (World Bank, 2010).

[Americas] single greatest asset is the innovation and the ingenuity and creativity of

the American people, said US President Obama (2010), considering that IP-intensive

industries accounted for 18.8% of all employment and 34.8% of the GDP in the USA in the

same year (USESA & USPTO, 2012). The evolution of the US workforce closely followed

the growing importance of IP in the 20th

century, when the creative class grew from 10% to

30.1%, the working class declined from 35.8% to 26.1%, the service class grew from

16.7% to 43.4%, and the agriculture class fell from 37.5% to 0.4% of the workforce

(Matthews & Giovanetti, 2002).

Licensing and IP royalties help give western economies like the US, UK, and France

consistent trade surpluses in services whereas those countries consistently post current

account deficits (OECD, 2010).

While, for the time being, the USA and western Europe have distinctly different goals

and ambitions from the majority of the worlds countries and people, as development and

growth continue over time, it is doubtful that rising powers like BRICS and ASEAN nations

will not formulate IP strategies similar to the US and EU. Yu (2009) found that:


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As more countries migrate from the traditional agrarian and industrial economies to

ones that are based on post-industrial, knowledge-based innovation, intellectual

property assets will only become more important.

Market Symbiosis

A well-functioning market indeed presupposes or at least requires a similarly

functioning legal order. Protection of IPRs can enable entrepreneurs, SMEs, independent

researchers, university labs, and MNCs to engage in R&D efforts which yield profit. Without

profit available, without a market for IP, the cycle of research and development may cease

and markets could easily become dominated by foreign firms which enjoy IPR protection in

their home countries. The nature of the strong market imbued with a strong IP legal system is

such that research and development may lead to consistent new product offerings, which can

be associated with increased market activity and sales for individual companies, the proceeds

of which may be reinvested into further research and development in a cyclical order where

growth may be established as a norm.

Mutual benefits to consumers and producers are provided by the innovation economy

whereby customers have access to high technology and other new materials, and businesses

have sufficient capital and equity resources to expand and develop internally and externally.

SMEs and independent inventors have a stake in MNC successes given that MNCs may have

greater potential to acquire IPRs via licensing or assignment agreements. Smaller ventures

which do not have the necessary finances to bring products to market may concentrate on

innovation and the market may become more efficient through division of labor.

With broad IP portfolios, MNCs may be able to leverage their IP over competitors and

take advantage of economies of scale, thus further reducing the costs of production and end-

line prices of products offered to individual and organizational consumers. Reduced costs and

increased profit margins lead to increased shareholder equity, dividends, and opportunities


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for businesses to tend to their fiduciary responsibilities. Theoretically, the economic merits of

IPR protection and enforcement are virtually infallible.

The profit motive may then also benefit society in general as MNCs and other private

foundations will have more free cash and human resources to donate. Donations of time and

money further increase buyer awareness of certain brands, improve the reputation of

individual companies, and help make corporate social responsibility the expected norm.

Enhanced public cooperation and community participation in the supply chain and larger-

order economic structure tend to imply broader transparency and inclusion in the

marketplace. More profitable publishing, including online, available under systems featuring

better protection of copyright, may lead toward better education and improved institutions,

the benefits of which will be felt in all realms of societies.

Conclusions

Overall benefits to economies in the form of higher wages and standards of living

increase satisfaction and quality of life. In higher-quality societies, respect for the rights of

others down to the deepest levels of existence, such as those pondered by Rand in the 60s,

has a greater chance of becoming normalized. Hence, human rights and living conditions may

improve with simple changes like greater respect for intellectual property. The merits and

value of creativity and innovation are validated by recognition and enforcement of IPRs.

Presently, strife and argument run afoul due in no small part to greed and misuse of

capital and intellectual resources. Party splits and rebellious factions within groups magnify

disagreements between groups. Such in-fighting is counterproductive, alienating newcomers

to the discussion. If agreement is to be had, then it must be for mutual benefit. Surely, the

idea that a persons life and mind are inextricably linked may inspire cooperation.

Any creation of humankind comes from the bodywhether forged by hand, foot or

mouth. All such creative processes require exchanges of chemicals in the body, which are


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entirely tangible regardless of the composition of the final output. Lifeblood is translated into

the material world when ideas and visions are fixed into media, sculpted into matter, or

formed into prototypes, but those objects originate in the mindin the brainwhere they

continue to reside long after liberation. Energies expended in the design and production of

works should not go unrewarded, regardless of what some commentators refuse to consider

tangible. All creative works are real. In any case, the origins should be accurately marked

and economic benefits at least shared by the true originator. Anything less would, in fact, be

uncivilized.

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economic and social merits of intellectual property

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