Is Intellectual Property Trivial?

Abstract

We typically assume that intellectual property makes a substantial difference in regulating access to intellectual goods and thereby provides incentives for the production of intellectual goods. But the existence of alternative instruments by which to appropriate innovation returns suggests that even substantial changes in intellectual property may often make little difference in regulating access, which in turn means that those changes may often make little difference in regulating innovation incentives. This raises a conundrum: in markets where 'more or less IP' exerts no substantial effect on access costs and innovation gains, why do firms expend resources on influencing changes in intellectual property? The answer lies in the distribution across firms of the costs of substitution toward alternative appropriation instruments. Changes in intellectual property still exert nontrivial incentive/access effects so long as the relative costs of using alternative instruments are not equally distributed across firms. Where that is the case, changes in intellectual property can be decisive - but not, as is conventionally assumed, with respect to the total gains available as a result of the appropriation capacities provided by legal instruments, but with respect to the distribution of those gains among firms that exploit the appropriation capacities provided by a portfolio of legal and extralegal instruments. If alternative instruments are not available to all firms at comparable cost, then relaxations of intellectual property will shift gains to firms that have the lowest-cost access to alternative instruments and away from firms that have the highest-cost access to alternative instruments. The typical abundance of alternative instruments among incumbents and the typical paucity of such instruments among entrants in turn implies (contrary to conventional intuitions) that the distributive effects of relaxing intellectual property may often be 'regressive' and the distributive effects of strengthening intellectual property may often be 'progressive.' The conventional incentive thesis for intellectual property may therefore retain a significant scope of application, but for an unconventional reason: it induces innovation by firms that would otherwise be disadvantaged by incumbents’ cost advantage in capturing innovation returns through instruments other than intellectual property.