Comment: Intellectual Property Isolationism and the Average Cost Thesis

Intellectual Property and Patents

Article Snapshot

Author(s)

John Duffy

Source

Texas Law Review, Vol. 83, pg. 1077, 2005

Summary

This paper compares copyright and patents to other kinds of property.

Policy Relevance

Comparing intellectual property rights to other kinds of property like land, welfare rights, and the broadcast spectrum can teach us a great deal.

Main Points

  • Mark Lemley argues that intellectual property rights should only be strong enough to let creators recover their average costs.

  • Lemley’s theory is wrong. With weak rights, there might be less creation; with strong rights, somewhat more, but whether profits exceed costs depend on competition, not the form of intellectual property rights.
    • How strong intellectual property affects levels of investment, not profits.

  • Property rights help ensure that actors can pay the cost or reap a reward from their own actions (internalizing externalities).
    • Lemley notes that consumers benefit from every transaction they complete in a market (consumer surplus); similarly, he argues that we should not worry about consumers’ free riding on creators of intellectual property. 
    • Lemley’s theory is wrong because the benefits that a consumer gets from trading in the market are not externalities.

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