This week’s Law and Economics Workshop featured Professor Jonathan Barnett and his paper, entitled, “Intellectual Property as a Law of Organization,” available at http://www.law.uchicago.edu/files/files/barnettdraftfeb1.pdf.
What It’s About
If innovation happens even in industries with weak IP rights, what is the point of having IP rights? In the prior literature, some academics had raised concerns that having a costly system of patent rights could be redundant and unnecessary when private measures, such as contracts, barriers to reverse-engineering, and limiting the amount of outsourcing, could protect a firm’s intellectual capital just as well. Professor Barnett’s paper counters this viewpoint by arguing that patent rights can incentivize innovation indirectly in other ways, by changing the way firms bring innovations to market (e.g., patent rights can give businesses more flexibility in deciding how to roll out their products, from testing to structuring the supply chain).
No matter how innovative an idea is, there’s got to be some way to bring the idea to market in order for the public to capture some benefit. According to Professor Barnett, the problem with a world without patent rights is not so much the lack of innovation, but rather the way that firms will react to the possibility of expropriation. In this world, firms will still come up with new ideas, but they will be more reluctant to partner too closely with other firms because it will be harder to prevent their partners from stealing their ideas without IP rights. For example, if an idea-generating firm wanted to make a contract with an idea-buying firm, it would have to disclose the idea before the firms can come to an agreement. Once the seller discloses the idea, though, the buyer already has the idea; the buyer has no reason to agree to give something back to the seller, if the seller didn’t hold something back (Arrow’s Paradox).