Intellectual property, or  IP as the trendy call it, has been much  maligned recently by a broad spectrum of critics. Everybody from techno-socialists to your classic bleeding hearts to the senior citizens lobby claim that it stifles innovation and raises prices on everything from software to prescription drugs.  Yet, as even the founding fathers realized back in the days when medicine consisted of leeches, and amputations and electricity was a novel concept, the drawbacks of intellectual property are far outstripped by their benefits.  Thus, when the constitution was drafted a passage was included within Article I, Section 8 enabling congress “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries,” words without which the US economy, arguably the most technologically advanced in the world, would be nothing more than “amber waves of grain.”
The most common argument against intellectual property is that it creates a monopoly on a good. Indeed, intellectual property grants a monopoly and monopolies are in most cases economically inefficient and always result in the consumer paying a higher price for a good. However, classifying all monopolies as harmful simply because they raise prices is to ignore some of the side effects of the monopoly that are not directly linked to the price. For example, railroad monopolies standardized the gauge of tracks and even provided us with the standard time system; Microsoft, for better or worse, has provided a standard operating system for the majority of computers. Even the staunchest anti-corporatists seem to find that monopolies can benefit society as labor unions, which typically have monopolistic control of the supply of a certain type of labor.  Thus, just because it is a monopoly doesn’t mean it has a net negative effect on society.

Furthermore, there are varying scopes of monopoly.  For example, nobody finds anything wrong with the prices when Ford has a monopoly on Ford cars, but if Ford had a monopoly on all cars, the prices would be much higher.  Furthermore if Ford had a monopoly not only on cars, but also on all other forms of transportation, one could expect outrageous prices. When scope is considered, the threat of the IP monopoly is somewhat diluted. BASF may have a monopoly on Sythroid via a patent, but it does not necessarily control all thyroid medications; likewise Sir Mixalot may have a monopoly on “Baby Got Back” via a copyright, but he definitely does not have a monopoly on songs about large posteriors. Another mitigating factor is the fact that intellectual property rights eventually expire. After 17 years, any patented invention is free game.

Having shown that that IP protection is not as bad as some make it out to be, of course, still does not make it good. What makes intellectual property protection so vital is the fact that it provides the driving force for the very innovation that its critics accuse it of blocking. IP encourages innovation through three mechanisms.  First, IP encourages the creation of technical knowledge by changing its economic character from a completely public good to a partially private good. A public good is a good that people other than the primary consumer can benefit from without reducing its value to the producer, such as knowledge or an aesthetically pleasing building, whereas a private good is a good that only the primary consumer benefits from, such as a sandwich. As any microeconomics professor will fail you for not knowing, public goods are undersupplied in a free market. Thus, less technical knowledge would be produced in a market in which everybody benefits equally than in a market where the producing group benefits more. Patents create the former situation by giving temporary exclusivity to some of the benefits of the research to its producers, allowing for levels of research closer to the social optimum to occur.

Second, the IP process forces the disclosure of inventions to be patented, and thus assures that the knowledge gained from the research process is available to the general public. Without patents, disclosure is a negative for the inventor, since he only benefits from the knowledge as long as others do not have it. If the invention is simply protected without forcing disclosure, the inventor will still be reluctant to release the information he or she discovered since it could serve as the basis for research by his competitors to make even better invention. Although this would seem to make the knowledge a private good, industrial espionage, reverse engineering, and the mere fact that any knowledge that a substantial number of people are aware of will eventually be circulated further make these situations temporary, which is optimal for neither the inventor nor the public. Thus, by forcing disclosure of how an invention works while providing protection, patents make sure that the knowledge becomes available to the public.

Finally, IP encourages the development of improved versions by offering them separate protection. When one firm makes an improvement on a product, without intellectual property, its competitors would simply adopt the improvement in their own product and the market will equilibrate on the level of the new good. However, when the improvement is patented, competitors either must produce a better improvement or face being driven from the market because of the inferior quality of their goods.  Thus, the firm’s competitors throw their efforts into research and development, which produces the public good of technical knowledge, to regain dominance.  If they succeed in improving the product even further, the roles change and the firm with the first patent must scramble to make another innovation. This cycle is responsible for the constantly improving quality of many products, such as the amazing rate of growth of the speed of computer CPUs and the annual development of new models of automobiles.

Thus, next time some whinny pseudo-socialist complains that IP rules are making something cost too much, remind them that without IP, it probably would not have been invented in the first place