User:Gingekerr/Intellectual Property Essay

An Economic Analysis of Intellectual Property Concepts and a Selection of Proposed Alternatives

Concepts which are usually covered by intellectual property rights, such as copyrighted artwork or patented inventions, often have a large fixed cost (the work done in creating them) and a very small or zero marginal cost (for example the cost of producing a CD containing the artwork). There is also no free market way in which people or companies can be excluded from 'consuming' intellectual property (e.g. reading a book, watching a film, using a patented technique for one of their products) when they have not paid for it – this exclusion is done by legal action or the threat thereof. These facts give a very strong case for classifying intellectual property as a public good.

The cost of producing artwork or patentable inventions is currently reimbursed by allowing the artist or inventor monopoly rights on the use of the copyrighted material or patented techniques for a period of several years. It is almost universally accepted that monopoly power inevitably causes economic inefficiency – a less than optimal utilisation of resources. Obviously, this is an undesirable situation and alternative methods of reimbursing people and organisations for their work should be considered.

It should be noted that many people are willing to release intellectual property for free, either out of altruism or a desire for acclaim, and that in some cases, users are willing to make voluntary payments to reimburse such people when they have put considerable amounts of effort into such projects. However, a system based entirely on voluntary contributions will cause a below optimal distribution of resources towards the creation of intellectual capital, especially in high cost projects such as blockbuster films or pharmaceutical research, as people and organisations will be unwilling or unable to bear multi-million dollar production costs on their own.

Some other method of remuneration is therefore needed. I propose that, in a similar way to other public goods, this remuneration is made on behalf of the people by national or international bodies. This remuneration should be equal to the external social benefit (i.e. the benefit to everyone apart from the creator) caused by the creation of the intellectual capital, so as to equalise the marginal private benefit of intellectual capital creation with its marginal social benefit and allow the optimal distribution of resources.

With this suggestion comes the question of how the social benefit is to be calculated. Most methods would involve the creator of a piece of intellectual capital registering it as his creation at some government bureau similar to the patent offices of today. If the process of calculating the benefit of the intellectual capital is costly, there should be a registration fee to discourage the registration of trivial items. This registration fee could be made tax-deductible from the income tax on the financial reimbursement so as to minimise the distortion to the market.

One possible method of calculating the amount of remuneration is to have a committee or adjudication board which will investigate an item, estimate how useful it is likely to be and estimate a value for it, potentially reviewing this decision after a few years in the light of subsequent events. However, this is likely to create a cumbersome bureaucracy, and it may prove difficult to effectively estimate the value of some items, particularly artwork.

A similar method would be to have a system of royalties, but paid by the government rather than by the users of the intellectual capital. The amount of royalty paid would presumably still have to be determined by an adjudication board. This would have two main disadvantages – firstly that, if the royalty was greater than the price of the good, the creator would have an incentive to buy as much of the good as he could obtain as he would earn money by doing this, and secondly that, especially with peer-to-peer Internet file sharing, it would be very difficult to obtain accurate information about the extent to which intellectual capital is used without a substantial invasion of privacy.

A more feasible possibility is that we use a compromise between the current system and my more radical propositions, and maintain the concept of intellectual property but allow compulsory purchasing of intellectual property at market rates by the government for cases where the efficiency benefit is likely to make this worthwhile. Alternatively, we could subsidise the payment of royalties to the intellectual property owner in certain cases. This would combine the effectiveness of the current system in dealing with small scale intellectual capital in cases such as freelance journalism, while avoiding the major monopolistic inefficiency and copyright theft problems currently affecting the music, software and pharmaceutical industries.

In conclusion then, a system of compulsory purchase orders for intellectual property should not be very hard to enact or put into practice, and may well be an effective way to deal with many of the current objections to the concept of intellectual property.