PTC FORUM: Online Journal of the Patent, Trademark and Copyright Research Foundation

Editorial

The Economics of Intellectual Property

In a recent article, of which there is a digest in this online journal [20084], the author concludes his observations on the creation of a new law on the protection of databases by saying that he would wish to detail the optimal term of protection and the level of investment required; but that "doing so would make heroic assumptions about the ability of legal academics to draw accurate economic conclusions". It may fairly be added that even economists will probably shy away from some of the problems of assessing the economic value of intellectual property rights or, more accurately, the economic and social costs of protecting them.

Some of these problems relate to the objectives of the analysis; some to the methodology. When the objective is fairly limited, the task may be relatively easy; but, by the same token, it may be of only limited value. Some years ago, what is now the Intellectual Property Institute of London commissioned some research into the economics of copyright. The results of the research showed that goods and services protected by copyright accounted for a significant percentage of the United Kingdom's Gross Domestic Product. From the point of view of those anxious to give legislators a greater incentive to show some interest in the importance of this field, the study provided useful ammunition; but, from the point of view of those anxious to determine the economic justification for existing or different levels of copyright protection, there was little material on which a case might be made either way. (That is no criticism of the learned author of the study, who worked within his terms of reference.)

More recently, there has been a great deal of interest in the valuation of intellectual property rights. In particular, the question has arisen, what value should be placed on the value of a company's intellectual property rights when that company is the target of a takeover bid. A digest of a recent article [20077] explains some of the principles of valuation; another digest [20065] suggests how the value of intellectual property rights may be more adequately protected by means of a new system of registration of security interests in intellectual property, reflecting the need for proper recognition of what the author calls "information age assets". Yet, from a broader economic point of view, these are mere matters of accounting technique. They may play an important part in commercial negotiations; and they may well be a factor in an economic study. But they fall short of providing answers to questions about the overall economic value of intellectual property as a legal and social concept.

Owners of intellectual property rights may say that this is an unnecessary exercise. But, until the exercise is undertaken, it is impossible to be sure. Intellectual property may reflect "the best of all possible worlds"; but this not self-evident, at least in the absence of comparative studies. Legislators may cheerfully approve new laws in this field, rightly confident that intellectual property is clearly important, both socially and economically; but they are, relatively speaking, still in the dark about other legislative options. When the European Community adopted a Directive, one of whose effects was to extend the period of copyright protection from fifty to seventy years pma, it is unlikely that the economic data were available enabling the legislators to judge the social costs of the change: the additional costs, for example, to the consumer. European Community legislation has to be accompanied by statements on the estimated costs of implementation; but these are like the accountants' statements, since they do not go to the larger question of the cost to society, either as a whole or in terms of sections of society affected by the changes.

To formulate the answers to questions raised about the general economic value of intellectual property rights, an economist needs to be given clear guidelines: first, as to the scope and rationale of legal protection, based on current concepts of proprietary rights; second, as to the options for specific protection within the range of existing categories of intellectual property (whether, for example, there are economic advantages in copyright or patent protection for computer software); third, as to the possibilities of protection sui generis or even under some other branch of the law; and, fourth, as to the choice, in any given economic sector covered by intellectual property and related rights, between no legal protection at all and legal protection ranging from the light to the draconian. The economist's study must, in fact, be comparative and not simply analytical. It must consider the interests of the various persons, groups and sections of society affected by intellectual property law - the right owner, the licensee, the manufacturer, the author, composer, performer and inventor, the distributor, the consumer and the taxpayer - and must subject the interests of all these parties to rigorous economic scrutiny. Only then will it begin to be possible to have a full appreciation of the merits and drawbacks of our present systems of incentive and protection and to legislate accordingly. [10013]