Posts tagged with: copyright

Blog author: kschmiesing
Tuesday, September 9, 2008
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As I’ve said before, some of the most interesting debates are those that break down along atypical lines: for example, by splitting dedicated limited government advocates rather than pitting them against statists. Back in 2001, the Journal of Markets & Morality conducted a controversy between two libertarian-leaning economists, Julio Cole and Paul Cleveland, concerning copyright and patent law.

Last year, we published a Christian Social Thought Series volume on intellectual property rights by David Carey that didn’t come down squarely on one side or the other, recognizing both the important role of incentives to innovation but also the obligation to limit property rights when the common good demands.

The issue hasn’t been settled yet, but now comes an important new data point from Princeton University Press: Patent Failure: How Judges, Bureaucrats, and Lawyers Put Innovators at Risk, by James Bessen and Michael J. Meurer. (HT: The aforementioned Julio Cole of Universidad Francisco Marroquín, Guatemala.)

This study shifts the terms of the debate by marshalling empirical evidence to show that one of the chief arguments in defense of patent restrictions—the innovation incentive—does not hold water. In an era of big business and big litigation, the ideal of the eccentric inventor making his living by patenting his creations appears to be antiquated. Specifically, what Bessen and Meurer demonstrate is that the costs for businesses to defend themselves againt patent infringement suits now far outweigh the benefits reaped by owning patents ($12 billion to $3 billion in 1999). In other words, patents are no longer an incentive to invention so much as a legal tool with which to damage one’s competitors.

[A caveat: This finding excludes chemical and pharmaceutical companies.]

There once was a time when it was, in practice at least, more difficult and costly to copy videocassette tapes than it was music tapes, compact discs, or computer programs. That, in part, is the justification for how the US Copyright code treats music and computer software differently than, say, movies.

It’s also why you see rental companies, like Blockbuster and Netflix, that specialize in delivering rental videos for limited home usage. Other companies, like Gamefly, specialize in the rental of video games for consoles like the PlayStation 3 and XBox 360. Gamefly can do this because games for consoles, whether cartridge-based or disc-based, don’t qualify as “computer software,” and are thus not under special protection.

And in some states, there are increasing restrictions on how you can sell your used music CDs, for instance.

But as is so often the case in the world of technology, things change rapidly. The advent of the PC and powerful CD and DVD burning technology has made copying DVD movies as easy as copying tracks from a music CD.

Moreover, the PS3 in particular describes itself as a “computer entertainment system,” and comes with a hard drive, to which files can be copied, theoretically easing game load times and storing player profiles and statistics. This raises the question of what truly differentiates a game for the PS3 “computer entertainment system” and a game for a PC. Because of the particularities of copyright law, the former can be rented commercially, while the latter cannot (at least not without direct permission from the copyright holders).

The reason that you can rent games for such console systems is that such a game system is understood to be “a limited purpose computer.” But many PC gaming systems aren’t actually used for anything besides gaming (even though they theoretically could be).

Some commentators are in agreement with the view of Apple’s Steve Jobs: “There’s no mainstream demand for music subscriptions. The music business isn’t built on long-term rentals; it’s built on one hit after another. It’s confectionary. Tunes are addictive for a while and then discarded. It’s like the drug business: Users are always looking for the next hit.”

To the extent that this is even true, it may simply be the result of the different copyright treatment of music, movies, computer software, and video games.

A couple weeks ago the NYT magazine ran a piece by contributing writer Tina Rosenberg, which attempts to outline some of the ways in which “everyone in a wealthy nation has become the beneficiary of the generous subsidies that poorer countries bestow upon rich ones.”

What does she mean? In “Reverse Foreign Aid,” Rosenberg asserts that there are five major forms of poor-to-rich international subsidy. The first is the tendency among poorer nations to build-up great reserves of hard currency, often in the form of T-bills. The problem here is that there is an opportunity cost in holding the low-return but ultra-secure US Treasury bills: “All the money spent on T-bills — a very substantial sum — could be earning far better returns invested elsewhere, or could be used to pay teachers and build highways at home, activities that bring returns of a different type.”

A second form of subsidy is in the WTO requirements that member nations abide by copyright and intellectual property protections. “There are good reasons for countries to respect intellectual property, but doing so is also an overwhelming burden on the poorest people in poorer countries,” writes Rosenberg.

So-called “tax holidays” form a third kind of subsidy, in which poorer nations offer tax incentives and various other breaks to multi-national corporations to entice them to bring their operations to their country. Rosenberg writes, “Since deals between corporations and governments are usually secret, it is hard to know how much investment incentives cost poorer countries — certainly tens of billions of dollars. Whatever the cost, it is growing, as country after country has passed laws enabling the offer of such incentives.”

Rosenberg also describes brain drain as a form of subsidy, in which skilled professionals who are trained in poorer nations emigrate to wealthier ones. She also points out the adverse effects that domestic subsidies of various industries, such as agriculture, can have on poorer nations. Somehow or other this direct subsidy becomes a “reverse subsidy” because “corn, rice or cotton exported by rich countries is so cheap that small farmers in poor countries cannot compete, so they stop farming.”

And finally, Rosenberg calls the disproportionate negative effects of climate change on poorer nations the “ultimate subsidy.” She writes, “American energy use is being subsidized by tropical coastal nations, who appear to be global warming’s first victims.”

The essay is really a bit uneven. It’s hard to fathom why, for example, cheaper imports of agriculture commodities from wealthier nations should be seen as “reverse” subsidies. Just because a certain practice or policy negatively affects a poorer country doesn’t mean that it is a “reverse” subsidy. And just because wealth is created in the first world doesn’t mean that it comes at the expense of someone in the third world, although there are good reasons to see that Rosenberg is right about the consequences on agricultural sectors in developing nations.

With respect to the second form of “reverse subsidy,” Rosenberg is really describing a kind of competition between developing nations, and the beneficiaries aren’t so much wealthier governments but large multi-national corporations. Of course, many critics of the developed world can’t or won’t distinguish between these two (all the better to fit into the picture of a growing neo-liberal “empire”).

Brain drain is a real problem for the developing world, but as is the case with so many of these instances of “reverse subsidy,” Rosenberg is pointing to a legitimate issue or concern but failing to ask the right kinds of questions, and thus providing some questionable solutions (a neo-Keynesian answer for T-bill stockpiling?). Why, for instance, are professionals leaving developing nations to work in places like the United States? In many, if not most, cases money surely is a motivation. But there certainly are other factors at work, and the potential for greater income isn’t a sufficient explanation as to why so many people leave their home, friends, and family to go live in a foreign country. Indeed, large-scale migration out of a nation is a pretty reliable indicator that something is wrong in the native country.

And maybe the fact that poorer nations don’t respect copyright and IP rights is as much a contributor as it is an effect of their lower economic status. How can you expect to be a country that fosters innovation if there are no legal protections for innovation and invention?

A recent NBER paper, “Globalization and Poverty,” examining some of these issues makes the case that globalization is a complex phenomenon and that in some cases segments of the poor can be made worse off. This is no doubt true, and the merit of Rosenberg’s piece is that it points out some of the real-world issues that a globalized economy faces. The question remains, however, whether at least some of these negative effects might be mitigated by a freer and more liberalized system of trade rather than one which relies on subsidies, tariffs, and protectionism.

This from the official Google blog: “We’ve always recognized the importance of copyright, because we believe that authors and publishers deserve to be rewarded for their creative endeavors. And we specifically designed Google Book Search to respect copyright law – never showing more than two or three snippets around a search term without the publisher’s prior permission, which they can give through our Partner Program.”