IPR Info, No. 19

November 23, 1997

Economist Lester Thurow has written a pathbreaking critique of today’s intellectual property rights (IPR) system. As he puts it, "Fundamental shifts in technology and in the economic landscape are rapidly making the current system of intellectual property rights unworkable and ineffective. Designed more than 100 years ago to meet the simpler needs of an industrial era, it is an undifferentiated, one size-fits-all system."

Thurow opens his argument with the case of a physician who is suing to get a $9 fee from every laboratory that uses a particular test for Down’s Syndrome. Some years ago, he was awarded a patent for observing a relationship between an elevated level of a particular human hormone and a congenital birth defect. His test had too many false positives to be useful, but later developments showed that if his test were used along with two others, they would accurately forecast whether a baby would be born with Down’s Syndrome. If he wins this suit, the cost of testing will more than double.

Thurow comments, "Should the physician who first observed how the existing gene works get some intellectual property rights? Probably. But they should not be the same kind of rights as those granted to someone who invents a new gene to replace the defective one?" His conclusion: "Such distinctions are necessary, yet our patent system has no basis for making them."

In this Harvard Business Review article, Thurow explains four reasons why the old system for IPR doesn’t work:

1. The Centrality of Intellectual Property Rights.

According to Thurow, "Bill Gates is the perfect symbol of the new centrality of intellectual property. For more than a century, the world’s wealthiest human being has been associated with oil…today, for the first time in history, the world’s wealthiest person is a knowledge worker. In addition, the world’s major growth industries – such as microelectronics, biotechnology, designer made materials, and telecommunications – are brainpower industries." And "any retailer’s future success is apt to be buried in the software of its electronic information and logistics systems rather than in the art of its window displays." Thurow points out that, in the past, "companies were willing to share their technology because it did not seem to be the source of their success and could not be sold for much anyway. But those days are gone." Companies have huge legal departments, he writes, "to defend what they think is their property, but they are also accused of aggressively attacking what others think is theirs in order to create uncertainties, time delays, and higher start up costs for their competitors.

2. The Decline of Public Knowledge. After World War II, Thurow notes, knowledge flowed freely around the world: "The U.S. government paid for most of the basic research and, with the exception of military technologies, encouraged its worldwide dissemination." But things have changed. The United States has lost its economic dominance, and is cutting back on research and development in both real dollars and as a share of total spending. "As a consequence, less new knowledge will be freely available in the public domain." Without stronger systems of protection, trade secrets become a normal business practice. "Articles about research papers whose publication is deliberately delayed often pop up now in the scientific press," Thurow observes. "A recent study found that 73% of private patents were based on knowledge generated by public sources such as universities and nonprofit or government laboratories."

3. The Emergence of New Technologies. "New technologies have both created new potential forms of intellectual property rights (can pieces of a human be patented?) and made old rights unenforceable (when books can be downloaded from an electronic library, what does a copyright mean?)" And what about the all-pervasive software piracy? "We need to differentiate between fundamental advances in knowledge and logical extensions of existing knowledge," Thurow argues. "Inventing a new piece of biology that alters the natural characteristics of plants, animals, or humans is not equivalent to discovering how an existing piece of biology works. What a patent means has to be different in those two areas.

4. The Globalization of the Economy. Thurow does not blame the copiers. "Every country that has caught up has done it by copying," he notes. "Third World countries know they cannot afford to buy what they need even if those with the knowledge were willing to sell, and they are not. They have to copy." He also points out that different cultures look at these issues differently: "The idea that people should be paid to be creative is a point of view that stems from the Judeo-Christian and Muslim belief in God who created humankind in His image. It has no analogue in Hindu, Buddhist, or Confucian societies." There are valid "differences in beliefs about what should be freely available in the public domain and what should be for sale in the private marketplace…What different countries want, need, and should have in a system of intellectual property rights," Thurow states, "is very different, depending on their level of economic development. National systems, such as that of the United States, are not going to evolve into de facto world standards. The economic game of catch-up is not the game of keep ahead. Countries playing either game have the right to a world system that lets them succeed."

Thurow suggest that capitalism depends upon enforceable property rights. Just as the enclosure movement abolished common land in England at the time of the Industrial Revolution, he writes, "The world now needs a socially managed enclosure movement for intellectual property rights or it will witness a scramble among the powerful to grab valuable pieces of intellectual property." Thurow offers three principles towards a responsible new system.

1. A new system must strike the right balance between the production and the distribution of new ideas. As government subsides for R&D disappear, private incentives for the production of new products and processes become ever more necessary. And yet, Thurow notes the irony that "once any piece of knowledge exists, the social incentives are reversed 180 degrees…. Any system of intellectual property rights must make a trade-off between these two inherently conflicting objectives – more production versus faster distribution." In fact, it is a judgement call, he declares, but one "that should not be made by a judge. Judges do not think about what makes sense from the perspective of accelerating technological and economic progress…. The right approach would be to investigate the underlying economics of an industry in order to determine what incentives are necessary for its successful development. Those are socioeconomic decisions that should be made in legislatures, not in our courts."
2. Laws on intellectual property rights must be enforceable or they should not be laws. Given the way in which contemporary technology has rendered enforcement so difficult, IPR laws must be revised to find a "technological chokepoint" that makes them enforceable. A law that is widely violated, he comments, "leads to disrespect for the law and more violations. Put bluntly, if someone cannot think of how a legal right can be enforced, it should not be a legal right."
3. The systems must be able to determine rights and resolve disputes quickly and efficiently. According to Thurow, today’s patent system suffers from the "lack of consistent, predictable, rapid, low cost determinations about intellectual property rights and a means of quick, cheap dispute resolution." Noting that in the United States, applicants for a patent pay user fees that go into the general budget, he suggests an "easy change" by which the user fees "directly finance what they are supposed to finance…like an income tax, fees could be adjusted to reflect the income levels of the applicants and equalize the burdens on large corporations and on small, individual inventors." And in seeking an alternative approach to today’s slow and costly system of dispute resolution, Thurow recommends the U.S. system for settling water rights disputes in irrigated areas. "Federal water masters are given the authority to allocate water in dry years and to settle disputes quickly," he says, because "crops die quickly."

Thurow points out a least three reasons why today’s IPR system should be revised to reflect diverse interests.

1. Public Versus Private Knowledge. "To accomplish society’s interest in expanding knowledge as readily as possible, certain classes of knowledge out to be in the public domain and freely available to everyone. "One can argue" Thurow argues, "that basic scientific knowledge should be public, while those who develop products from, that knowledge should receive private monopoly rights." But here again, he notes, society must make a judgement call. Thurow proposes a mechanism "not in the patent system itself but in the establishment of some public agency – perhaps a branch of the National Science Foundation. Armed with funds and the power of eminent domain, the agency could decide to buy knowledge for the public’s use when it seemed warranted. If the seller would not agree to sell a reasonable price, adjudication principles very similar to those used in eminent domain landacquisition proceedings could be used."
2. Developed versus Developing Countries. Thurow observes somewhat wryly that the

Third World’s "need to get low-cost pharmaceuticals is not equivalent to its need for low-cost CDs." Today’s IPR system, which treats such needs equally, is neither a good nor a viable system" he asserts. Instead, "different predetermined levels of fees might be internationally imposed on those who want to use what others have invented," depending upon a country’s income level and the particular technology’s significance for meeting human needs.

3. Different Types of Industry, Knowledge, Inventors and Patents. In describing the

In conclusion, Thurow summarizes, "Trying to squeeze today’s developments into yesterdays system of intellectual property rights simply won’t work. One size does not fit all."

One in a series of info sheets on intellectual property rights available from the Institute for Agriculture and Trade Policy, 2105 First Avenue South, Minneapolis, MN 55404, 612-870-0453; fax 612-870-4846; email iatp@iatp.org