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Intellectual property, complex externalities, and the knowledge commons

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Abstract

Intellectual property (IP) can internalize positive externalities associated with the creation and discovery of ideas, thereby increasing investment in efforts to create and discover ideas. However, IP law also causes negative externalities. Strict IP rights raise the transaction costs associated with consuming and building on existing ideas. This causes a tragedy of the anticommons, in which valuable resources are underused and underdeveloped. By disincentivizing creative projects that build on existing ideas, IP protection, even if it increases original innovation, can inadvertently reduce the rate of iterative innovation. The net effect of IP law on innovation and welfare depends on the relative magnitude of these positive and negative externalities. We argue that the current regime probably suffers from excessive, and excessively rigid, IP protection. This motivates the search for institutional alternatives and complements. We suggest that a monocentric IP rights regime may not be the only, or the most efficient, way to internalize the positive externalities of innovation. The knowledge economy supports the emergence of diverse, polycentric forms of bottom-up self-governance, both market and community led, that entail the citizen coproduction of the norms and practices of intellectual creation and discovery.

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  1. The early British understanding of intellectual property rights, as discussed by Blackstone (2016, p. 276), viewed them as “royal patents of privilege” which grant producers “monopolies … by virtue of which a temporary property becomes vested” in the owner of the patent or copyright. The modern recognition of IP, in the form of “the right, which an author may be supposed to have in his own original literary compositions” (Blackstone 2016, p. 274), although it can appeal to support in some aspects of Roman and Common Law, thus came to full maturity in the top-down legislative context of “the statute of monopolies (…) which allows a royal patent of privilege to be granted for fourteen years to any inventor of a new manufacture, for the sole working or making of the same; by virtue whereof a temporary property becomes vested in the patentee” (Blackstone 2016, p. 276).

  2. In addition to this purely consequentialist normative framework, some scholars have argued for and against intellectual property rights on the basis of their impact on justice, fairness, autonomy, dignity, creator rights, and other moral considerations. The ultimate normative and public justification for the legitimate scope of IP rights regime must, of course, ultimately tackle the non-consequentialist dimensions of the IP regime, including the authors’ and creators’ rights perspectives. However, we have purposefully bracketed this dimension out of our analysis in order to better focus on unsettled questions in the IP externalities and innovation debate.

  3. Interestingly, Mossoff (2007, p. 1012) sees a historically salient development, or progress, from “English royal monopoly privileges” to the more property-like “American patent law.” He contrasts the latter favorably to the former.

  4. A “contribution good” resembles a club good (Buchanan 1965) in that it is non-rival but excludable. Kealey and Ricketts (2014, pp. 1015-1016) discuss the relation between these concepts.

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  1. F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center, George Mason University, Fairfax, VA, 22030, USA

    Nathan Goodman

  2. Classical Liberal Institute, NYU School of Law, New York University, 110 West 3rd Street, New York, NY, 10012, USA

    Otto Lehto

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Goodman, N., Lehto, O. Intellectual property, complex externalities, and the knowledge commons. Public Choice (2023). https://doi.org/10.1007/s11127-023-01110-8

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