Singleton: Intellectual Property Promotes Innovation, Not Market Monopoly
WASHINGTON D.C. - The definition of patent rights as a monopoly is a gross oversimplification, explains Solveig Singleton in "The Patent Prejudice: Intellectual Property as Monopoly," a Progress on Point released today by The Progress & Freedom Foundation. Singleton reviews the definitions of monopoly and concludes that intellectual property fits only a definition of monopoly so broad that almost any other legal right fits as well. And Singleton explains that intellectual property rights do not fit a narrower economic definition of monopoly, either. Following recent legal and economic scholarship, she explains that the exclusive rights secured by intellectual property promote competition and further innovation.
In her paper, Singleton, PFF Senior Adjunct Fellow, looks at the history of patents to show that patents and copyright law developed almost two centuries ago "into something benefiting an advanced civil society and justified by the labor theory of value." She explains that property rights function as ground rules in the economy and are "the foundations of markets, trade and conflict resolution, and attempts to abolish property rights altogether have gone sadly awry for want of better arrangements."
Singleton also identifies the definitions of a monopoly and compares how well the definitions fit with intellectual property. She concludes that while patents and copyright may loosely fit the legal definition of a monopoly, they are so limited in scope that they do not allow meaningful restraint on competition. This is because "enough 'good enough' substitutes are available over the long run that these 'monopolies' are not very interesting from a policy standpoint." Under an economic definition of monopoly, related to the concepts that form the basis of antitrust law, where concern surrounds output and prices, "interesting monopolies are those for which so few substitutes are available that the monopolist can be charged supra-market prices," Singleton explains. First noting some problems with this definition of monopoly, she notes that here, too, a lack of substitutes is very rare. In the isolated case that patent rights have played some role in building market power, there other dominant factors, such as possession of physical assets, contract terms, or a network, contribute to the result.
Finally, Singleton explains that patents and copyrights actually encourage innovation and competition because it allows producers to recover development and production costs by excluding "free riders." Patent rights also give incentives to rival inventors and producers to develop alternatives to a patented product, which in the long run undermines the economic power of the original patentee.
The Progress & Freedom Foundation is a market-oriented think tank that studies the digital revolution and its implications for public policy. It is a 501(c)(3) research & educational organization.