Why IP Rights Expire and Why They Must Be Strong While They Last
“Without sufficient – and sufficiently enforceable – property rights in intellectual assets, the knowledge economy becomes the modern equivalent of the feudal societies of ages past, as a few dominant players control the drivers of productivity.”
Imagine building a house and by law, 20 years from completion, all ownership rights to the asset expired permanently whether retained by the original owner or obtained through purchase. Notwithstanding rising real estate values, the ability to reap the benefit of that asset’s appreciation would decrease rapidly for every year the property was owned. After 20 years, as the house passed into the public domain, you might continue to live there, but its investment or resale value would effectively become zero.
This is the reality for intellectual property rights, which are time-limited by law, a condition established by the U.S. Constitution. These limitations are why it is so critically important that, during their effective ownership term, “IP” rights applying to inventions, brands, and artistic expressions, among other things, are otherwise vested with the same characteristics as property rights to physical assets, especially the ability to prevent trespass.
In some important ways, rights to intellectual property are necessarily different than rights to physical property. In other important ways, they are not. It’s crucial to draw the proper distinctions.
Property Rights in the Knowledge Economy
In today’s knowledge economy, the productivity of physical assets is increasingly driven by intellectual capital, such as know-how, information, and data. Control of those intellectual assets determines how physical plant and equipment are used and wealth is created and distributed throughout the economy. Private property rights to intellectual assets take on the same importance as ownership of land and other physical goods.
Just as with physical goods, individuals, corporations, and other entities can only afford to invest in the creation of intellectual assets to the degree they are able to protect them. That protection comes either through law or power. A large corporation may have the power to create internal processes and firewalls sufficient to protect a trade secret, for instance. Without access to the legal protections of enforceable property rights, the smaller business or individual generally does not have that same technical capacity or power.
In other words, without sufficient – and sufficiently enforceable – property rights in intellectual assets, the knowledge economy becomes the modern equivalent of the feudal societies of ages past, as a few dominant players control the drivers of productivity.
Law of the Sword
There is an alternative to private property rights, and for most of human history it predominated: that is, the law of the sword, or “might makes right.”
In the absence of government based on the consent of the governed and the universal rights that such governments provide and secure, individuals and households must rely for their livelihood and safety either on their own ability to “make, take, and hold,” or alternatively on the willingness of others to provide them with security. The result, naturally, is that the strongest or most advantaged individuals or political coalitions amass land, resources and arms, fight each other for dominance, and take what they need from weaker individuals and groups to sustain their positions of power. The rest of society becomes subservient to these warlords in history’s long-running version of the classic protection racket.
Representative government “of the people, by the people, and for the people” signaled a means to an end to this historic state of affairs. Universally available private property rights, established and secured by law, meant that individuals were free to enjoy and amass the benefits of their own labor without paying unwilling tribute to a dominant master. The result is individual agency, or what America’s Founders called “life, liberty and the pursuit of happiness,” to a degree never before experienced in human history.
IP in the U.S. Constitution
Intellectual property was one of the many topics on which the Founders were amazingly prescient. Article One, Section Eight, of the U.S. Constitution authorizes 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 (emphasis added).”
The Founders understood that the egalitiarian nation they envisioned, the realization of which continues today, depended on widespread access to private property and the right to the fruits of one’s own labors. They foresaw that American competitiveness in what was even then a globalizing economy would require industrial innovation and intellectual prowess.
The intellectual property rights provided for in the Constitution fostered those outcomes by ensuring that individuals of average wealth not just wealthy aristocrats, the scientific hobbyists of earlier centuries, would be able to contribute their inventive and creative talents to the American economy. Breaking from earlier highly discretionary models, the U.S. system over time standardized the process of recognizing rights to remove political bias. The result was the democratization of scientific research, invention, and artistry and the empowerment of innovation and creativity on an economy-wide scale.
Writing in the Federalist Papers, James Madison, the originator with Charles Pinckney of the Constitution’s IP Clause, deemed both copyrights and patents “a right of common law.” Madison and the other Founders were committed to the principle of an individual’s natural right to the product of their own work. Thus, from a constitutional perspective, intellectual property is indistinguishable from ownership in tangible property – at least, for limited times.
For Limited Times
Unlike property rights in goods, intellectual property is afforded a time-limited term of ownership. The wonky explanation for this unique restriction is that intellectual properties are what economists call “non-rival” goods. In other words, more than one person at a time can use such goods without reducing their usefulness to others.
Returning to that house you built, if others were allowed to move in without your permission, its usefulness to you, the owner, would clearly be reduced each time this happened. Only one household at a time can fully enjoy a house; it is a “rival” good.
By contrast, if you spent the same time and resources that would have gone into the house instead recording a music album, billions of other people could listen to the resulting album at the very same time you did without anyone’s enjoyment of that music being reduced. That is the essence of a non-rival good.
Enjoyment or usefulness aside, however, the economic value of a non-rival good does very much depend on who has a right to its use and on what terms. Billions may be able to enjoy a piece of music without reducing anyone’s enjoyment of it; however, if billions have unfettered access to it, its economic value to the artist or anyone else becomes effectively zero.
As with every line of employment, creators and innovators must have a mechanism that enables them to set and receive a price for their work or such work becomes unsustainable to any but the independently wealthy. Whether your work product is tangible or intangible, as with intellectual property, that mechanism is the private property right.
Imagine you bought a car and there were no laws or other effective means to prevent anyone else from taking it. The price you would be willing to pay for that car would be no more than the value of a single use, since as soon as you left it you would fully expect someone else to get in and drive away. The market for cars would be eviscerated. Consumers would have no reason to purchase cars at anything approaching the cost of production, and manufacturers would correspondingly cease to produce them.
The same is true of “non-rival” intellectual property assets. Innovators and creators can invest no more of their time, money, and skill than the law and its effective enforcement allows them to re-coup through exclusive ownership rights. The ability to control when, how, and by whom their inventions or creative works are used is indispensable to the ability to earn a return on investment in even non-rival goods.
Promoting Progress
When a group of resourceful cavemen – or more likely their spouses – harnessed fire for the first time to warm their cave and their meal, the group squatting in the cold across the valley would have been crazy not to copy them. Private property rights, whether in goods or ideas, are not a natural phenomenon, they are societal tools that help us to overcome the state of nature in which we are all in a ruthless competition for survival and dominance.
In a society, some ideas are just too good to keep to yourself, a fact the Founders recognized well. Their goal in protecting intellectual property rights in the Constitution was not solely to enshrine the individual rights that were so close to their hearts, but also to set their united states on a path to industrial development and global competitiveness. Creating a robust property right to “writings and discoveries” and combining it with a limited term of exclusivity advanced both these goals.
By design, IP rights facilitate – and as with patents on inventions even require – disclosure and sharing. In a free society and free market, IP rights are at the heart of the creative and innovative ecosystems in which artistry and invention thrive. Where IP rights are well-protected they promote knowledge diffusion through apprenticeship, training and education; they sustain knowledge advancement through investment in scientific research and artistic development; and they promote organic technology transfer by facilitating secure partnerships, joint ventures, and commercial transactions based in the exchange of know-how, information, and data.
Because intellectual property can be shared infinitely without reducing its utility, economists have considered it a non-rival good; however, because its economic value to the originator diminishes when it is shared, IP has characteristics of a rival good as well. The true “quasi-non-rival” nature of IP is why the Founders’ choice of uniting a real, enforceable right in private property with a limited term of ownership remains so compelling all these many years later, and why it is so important that we honor and preserve that legacy today.
Image Source: Deposit Photos
Image ID: 32718195
Author: lightsource
