Intellectual property and the flexibility of property rights: $100 bleg

I’m doing some research on IP and particularly on patents.  As in other areas of economics we tend to debate IP according to well arranged protocols.  There’s a ‘pro’ and an ‘anti’ or a ‘more’ and a ‘less’ party with each accusing the other of  not getting it.  There’s lots legitimate to debate in there.  But something else is important, and that is that IP is often defined in an antediluvian way.  

The best way to make the point is by analogy. When airplanes first got themselves invented, the law of airspace was an expression of the Roman maxim “Cuius est solum, eius est usque ad caelum et ad inferos.  Since you ask, this means “To whoever owns the land, shall belong the earth to its center and up to the heavens.” Of course in a world of zero transactions costs, there is no problem as all the transactions will be done to clear a plane’s flight from New York to Chicago over all the farms along the way.  Of course that’s not very realistic. And so, as this a dumb way to build the law of airspace, as it was essentially unworkable, it got changed pretty quickly.  

In patent law, the fundamental value of a patent arises from the exclusive right it gives you to sell into a market. But just for good measure you get a bundle of other exclusive rights – the right to manufacture, import, offer for sale, use and so it goes.  Does this matter?  Often not much.  But big pharma have got themselves into such a bad place, such a low trust equilibrium in the way in which they interact with the world, that they cling to all these rights in their various campaigns to fight those who want more sensible outcomes – on the beaches and on the landing grounds, in the fields and in the streets.  They will never willingly surrender any right they have.

Thus when drug patents are still running in Australia it should be possible for Australian generics firms to manufacture drugs that are still under patent in Australia where their patents have expired overseas.  (In keeping with our sometime status as a ‘back office economy’ big pharma often apply for marketing approval in Australia later than in major markets and – though a chain of causation involving patent extensions I won’t bore you with here – this means drugs often come out of patent here a year or so after some markets have gone ‘generic’.) 

But because patents are defined so broadly, Australian generics cannot manufacture for export until the patent runs out, and by that stage, they’ve already decamped to India or Canada where they don’t extend patents and so are better set up for their generics to hop into the market immediately. 

I’m looking for some sources that discuss this issue – not necessarily regaring intellectual property rights, but property rights more generally.  There’s some stuff on ‘patent thickets’ which often uses the example fo the panoply of poorly understood, and poorly fitting together property rights in post Soviet Russia – which created a property ‘thicket’ which prevented people using retail property properly – and saw stands and various makeshift tents and buildings being errected in front of old department stores, because noone could buy the department stores and develop them with any confidence in their property rights – or in their ability to be protected from others’ claims and probibitions on what they could do with their property.

Easements in real property and ‘fair use’ exceptions of interllectual property are similar examples of small changes to the definition fo property rights that can make a huge difference to the efficiency of a property regime.  So I’m looking for some serious discussion of this topic in a generalised sense – but I can’t find much.  I’ve Googled ‘the economics of easements’ and that didn’t do it for me.      

I know that some people argue that one reason why English colonies were much more successful than others was that their legal system was more adaptive suited more to trying to enforce the changing mores of the society rather than just enforce strict rules. There is also an argument that in the South American colonies, there were absentee owners of land whose rights were upheld, which prevented systems of legal tenure from adapting to get the land utilised. By contrast in Australia we had squatters who the state did not prevent using the land whereas they did in the South American countries.  So its an issue about the flexibility of property.  

So, troppodillians, that’s my bleg, can you point me to any reading on this general issue, preferably with nice simple examples. And since this is part of a commercial research project, $100 to any commenter that is 1) the most useful and 2) is useful enough for me to feel like parting with the cash. If 2) is not met, the $100 goes to a charity of the commenters’ choice. 

This entry was posted in Blegs, Economics and public policy. Bookmark the permalink.
Notify of
Newest Most Voted
Inline Feedbacks
View all comments
12 years ago

Just an opinion that I wrote a number of years ago:
Bridges, Software, Copyright, Patents and Open Source
Bridges come in all shapes and sizes, from the 4,200 ft span of the Golden Gate to the pipes under the road at the top end of Sandy Creek. If anything software is even more diverse, from programs with tens of millions of lines of code down to simple routines of a line or two to automate some mundane task.
Constructing a bridge costs, as does developing software. The vast majority of bridges are public property. They have been funded and built by such a large pool of people governments of one form or another for the common good, for use by anyone at anytime. However there is a substantial pool of private bridges. Most of these are bridges built for specific non standard vehicles such as trains. Others are built for the conveyance of standard vehicles but tolls are charged for a variety of reasons.
Starting from the precept We are human, we can do anything and get to anywhere we want, a toll bridge must provide a cheaper and/or quicker alternative to other ways of getting from A to B. To invest in the toll bridge its constructor determines that he can charge a particular toll, at that toll he will get a particular amount of traffic and that this income will repay the cost of building the bridge. The constructor needs to satisfy themselves about the surety of the factors that affect the bridge usage. They minimize their risk by identifying as many factors that will adversely affect bridge traffic as possible and blocking these adverse factors where possible.
Where huge bridges are required, the Golden Gate, Sydney Harbour and the like, tolls can be seen to be fair without imposing monopoly conditions on the general populace. No conditions need imposing on ferry services, no conditions need imposing blocking alternate routes, the bridge operates in a standard competitive environment because it is so obviously a beneficial object.
On less obviously beneficial bridges the actions of people are substantial factors that affect the financial viability of the bridge. Controlling these actions is a form of monopoly rights granted by the relevant government(s). These rights include: restricting other river crossings; guarantees of road construction to ensure their bridge is the prime route over the river; concessions that the investors have the sole rights to offer peripheral services, service centres offering fuel and food etc. These rights are generally granted for a limited time and the bridge often reverts to public ownership at the expiration of this time.
This model is open to abuse. The rights granted may be disproportionate to the benefits. A bridge may be built over a small creek for little cost and the constructor granted a perpetual ban on any other bridges being built 20 miles in either direction. Or the government may agree that other routes will be closed or allowed to degrade, or they may put restrictions on other services, or they may allow the operator to insist that users of the bridge utilize other services before they can use the bridge etc. etc.
Transferring this view of bridges to intellectual property one would have to conclude that there are no Golden Gates or Sydney Harbours. Every method developed has alternatives that can be simply developed and deployed. Intellectual property monopoly rights can only be related to the pipes under the headwaters of Sandy Creek with a guaranteed monopolies 20 miles in either direction. They are completely out of proportion with the benefits these pipes offer.
In fact the situation is worse than this. A better metaphor is monopoly rights to a pipe under a train line. The pipe owners charge not only a toll for using the bridge but force you to load your car onto their railway carriage and force you to utilize their passenger service for the 200 yard journey over the Sandy Creek floodplain. The alternative is to drive an extra 50 miles through the mountains because they have monopoly veto rights over any road bridges over Sandy Creek.
Another alternative, that can be likened to open source, is a group of people deciding to found a new town where they build a free public bridge. They need the bridge for themselves in any case, but supplement their living by providing services to travellers and by opening up industry in the general vicinity. They build a causeway over the floodplain slowly, by simply carrying a rock and dropping it every time they use the bridge. Rather than using a stick to force people to use the bridge they use a carrot of good amenities and fair service in peripheral goods and services. From their initial investment and foresight they and their subsequent generations become the town founders and respected citizens. On you Linus.

Glenn Thorpe

12 years ago

Ronald Coase’s 1974 paper, “The Lighthouse in Economics” has some interesting discussion of public vs private ownership of property. It’s in his book, The Firm, the Market and the Law, available from Amazon and sure to be in local university libraries.

David Friedman, Milton’s son, has a very University of Chicago view of the relationship between law, economics and property rights in his book, Law’s Order, draft available online here.

Neither has anything whatever to say about drug patents but they may inspire some lateral thinking about property rights.

Try this Google search.

The third item out of 1.3 million that it finds is a December 2006 editorial in the British Medical Journal by Joseph Stiglitz.

12 years ago

My old boss has been spending his “retirement” helping set up property title systems in places like Cambodia, so I imagine there are papers about it, but being a hopeless researcher I cannot help you more. From memory the World Bank might have been involved.

12 years ago

Here’s my potted summary of the Libertarian perspective on intellectual property (probably worth a fraction less than $100).

Property rights exist for the purpose of avoiding a Tragedy of the Commons. As the Kitchen Cup Fairy discovered a few pages back, common property does not get maintained by individuals because the marginal incentive is always to let someone else do the work (even though the overall perspective is that the work really does need doing). When each individual owns just their own cup (and has a price to pay if the cup goes away) then they each look after their own cup and the property maintenance gets done (although cases also exist where real-world property owners have been slack about maintenance too).

Thus, in order to validly justify any property rights, there are two hurdles to jump:
[1] enforcement (you can’t fence the air) — a practical system of allocation, demarcation and policing must exist.
[2] the observable existence of a Tragedy of the Commons situation.

If property rights are too strong, too complex, or too strictly administered you get a Tragedy of the Anticommons which is when you know it’s time to go back a step or two. As with everything else, Libertarians believe in minimal coercion so property rights should only be the minimal rights that keep the Cup Fairy happy (within the practical bounds of complexity).

Here’s a vaguely relevant reading list (best to worst) from google and wherever else: “The Libertarian Case Against Intellectual Property Rights” by Roderick T. Long “In Defense of Public Space” by Roderick T. Long “The Tragedy of Economics: Market Theory vs Human Nature” by Jonathan Rowe “The 21ist Century Medieval City” by Robert Neuwirth, about modern-day shanty towns and squatters. Robert Neuwirth’s blog, related to above. “The Tragedy of the Anticommons” by David Bollier “Generic Drugs, an Endangered Commons” by David Bollier Health policy of the soon-to-be-huge Liberal Democratic Party of Australia, briefly touches on generic drugs and free market. Index of various articles YMMV. “Creative Destruction and Copyright” by Tim Lee.

Paul Frijters
Paul Frijters(@paul-frijters)
12 years ago

:-) this 100 dollar reward is funny. Very Kafkaesk. Let me respond in kind.

Since our internal motivation to help an economist in need is being crowded out by these miniscule monetary incentives, let me follow Bruno Frey’s prescription by saying that I wont lift a finger to help in this case until at least 20,000 AUS is on the table. Then, I would tell my RA to go and find it and when she does I will check it and put my name on it and invoice you 20,000 plus GST and insurance. She can then send the articles to your RA who will summarise them, put your name on it after you’ve checked it, and charge your eventual client 100,000 AUS. Plus GST of course. You’d still be getting a bargain.

12 years ago

Paul: I’m not doing it for the money, I’m doing it to blatantly influence the outcome.