An Economic Problem
Intellectual Property is fundamentally different from other kinds of Property, because it concerns the ownership of that which is not scarce. Intangible creations of human intellect (I will refer to these as "ICHI" from here onwards) are not scarce, as there is no inherent cost in reproducing them. To the extent that scarcity is involved in the process of reproducing ICHI, it only applies when said creations are reproduced by means of utilizing scarce resources. For example: printing multiple physical copies of a literary text requires the use of paper (a scarce resource). Given that property norms already apply to resources (like paper) that are used to reproduce multiple copies of ICHI, there is no reason why - from the standpoint resource utilization efficiency alone - we should apply property norms to ICHI such that it becomes "Intellectual Property" (I will often refer to Intellectual Property as "IP" going forward).
The main argument put forth in favor of Intellectual Property is that of incentivizing the continued creation of ICHI. The argument is that without IP, there will be far less incentive to create ICHI and therefore we will see less of it overall. However, when we look at the research done about incentives and about the economic costs that Intellectual Property involves, it becomes clear that this argument does not hold up.
(A) On the matter of Incentives: The research shows that the strongest motivators for people to engage in economic value-producing activity/work (once their basic needs are relatively secure) are Autonomy, Mastery, and Purpose. It is not money. Furthermore, the evidence thus far shows that intellectual property actually discourages innovation substantially and that placing ICHI in the public domain greatly encourages innovation:
To summarize, although only tentative conclusions can be drawn given the small number of empirical studies, the body of available empirical evidence suggests that patents may substantively hinder both subsequent scientific research and subsequent product development. Across a relatively heterogeneous set of technologies within the life sciences, and examining various forms of intellectual property rights, the available empirical evidence suggests that property rights hinder cumulative innovation—with declines on the order of 30 percent. Clearly much more work is needed in order to examine the extent to which these patterns generalize to other technologies and other forms of intellectual property, but the best available evidence suggests that mechanisms that reward innovation in a way that places the technologies in the public domain—such as patent buyouts—may have substantial benefits in terms of encouraging cumulative innovation, at least in some contexts.
The idea of imposing a 20 percent tariff on imported shoes or steel would send any mainstream economist into a frenzy. They all know how tariffs distort the market, leading to waste and corruption. But when it comes to patents and copyrights, the difference we are talking about — between the protected price and the “free market price” — is ten or even a hundred times higher than it would be otherwise. If that sounds far-fetched, consider the Hepatitis C drug Sovaldi. It carries a list price in the US of $84,000 for a three-month course of treatment. High-quality generic versions are available in India for less than $300. Many of the new cancer drugs carry list prices in the hundreds of thousands of dollars. In almost all cases these drugs are cheap to produce; it is the patent monopoly that makes them expensive.
Additionally, IP has further created an economic cost burden by legally requiring intermediary service provides (such as websites that host material made by others) to enforce IP and the nuances that it entails within their domain of operation in order to avoid criminal prosecution themselves. Such requirements are codified into not just new laws aimed at bolstering IP but also into trade agreements between nations. The TPP is the most recent and expansive example of this.
Most importantly, when accounting for net economic impacts of IP...Intellectual Property propagates corruption of the State to achieve new rent-seeking privileges and expand on existing ones. This is especially apparent when assessing the overall economic impact of lobbying to extend IP protections into international trade agreements. It shows that IP lobbying produces such enormous rents, that it can turn the entirety of a trade agreement into a net negatives:
Lobbying has been thoroughly analyzed in the context of trade protection, but there is little literature on lobbying for intellectual property rights (IPR), yet IPR is increasingly becoming the focus of international agreements. I propose a model that analyzes the effect of firm lobbying for IPR protection in an international setting in innovation-driven economies. In particular, I compare the IPR protection level and global social welfare between the case when countries set their IPR policies non-cooperatively and when they enter an international treaty, such as the TRIPS, TPP and TTIP. I find that lobbying necessarily leads to inefficient international agreements resulting in too much IPR protection and may even be welfare-reducing relative to no cooperation. I also show that international lobbying and high concentration of capital can further exacerbate this outcome. The model generates predictions consistent with patterns I find in the data concerning firms’ lobbying expenditures and the value of their international patent portfolios.
A Political Problem
In addition to the point above about IP lobbying and international trade, it is not clear that there is any institutional or structural means of limiting or stopping the phenomenon of expanding rent-seeking privileges. For example, as Dean Baker points out:
While patent monopolies have promoted corruption, the copyright system has become increasingly dysfunctional in the digital age, even as the United States has pushed to expand the duration and strength of these monopolies. In the 1970s, the term of copyright was an already-steep fifty-five years. It is now ninety-five years. And Congress is likely to extend it yet again, to prevent Disney from losing its copyright on Mickey Mouse (seriously).