I am concerned that both patent and copyright protection, though particularly the former, may be excessive.
To evaluate optimal patent protection for an invention, one has to consider both the cost of inventing and the cost of copying; the higher the ratio of the former to the
latter, the greater the optimal patent protection for the inventor. The ratio
is very high for pharmaceutical drugs. The cost of inventing a new drug, a cost
that includes the extensive testing required for the drug to be approved for
sale, is in the hundreds of millions of dollars, yet for most drugs the cost of
copying—or producing an identical substitute—is very low. And so the ratio of
the first to the second cost is very high, making it hard for the inventor to
recover his costs without patent protection (and for the additional reasons
that the present value of the revenue from sale of the drug is depressed
because of the length of time it takes to get approval, and that the effective
patent term is truncated because the patent is granted, and the period patent
protection begins to run, when the patent is granted rather than, years later,
when the drug can begin to be sold).
Pharmaceutical drugs are the poster child for patent protection. Few other products have the characteristics that make patent protection indispensable to the pharmaceutical industry. Most inventions are inexpensive, and even without patent protection, or any other legal protection from competition, the first firm to invent a
product usually has significant protection from competition in the near term.
The first firm gets a headstart on moving down his cost curve as experience
demonstrates ways of cutting costs and improving the product. And the public is
likely to identify his brand with the product, and keep buying it even after
there is competition, and at a premium price. Moreover, many new products have
only a short expected life, so that having 20 years of patent protection would
confer no real benefit—except to enable the producer to extract license fees
from firms wanting to make a different product that incorporates his invention.
When patent protection provides an inventor with more insulation from competition than he needed to have an adequate incentive to make the invention, the result is to
increase market prices above efficient levels, causing distortions in the
allocation of resources; to engender wasteful patent races—wasteful because of
duplication of effort and because unnecessary to induce invention (though the
races do increase the pace of invention); to increase the cost of searching the
records of the Patent and Trademark Office in order to make sure one isn’t
going to be infinging someone’s patent with your invention; to encourage the
filing of defensive patents (because of anticipation that someone else will
patent a similar product and accuse you of infringement); and to encourage
patent “trolls,” who buy up large numbers of patents for the sole purpose of
extracting licensee fees by threat of suit, and if necessary sue, for
The problem of excessive patent protection is at present best illustrated by the software industry. This is a progressive, dynamic industry rife with invention. But the
conditions that make patent protection essential in the pharmaceutical industry
are absent. Nowadays most software innovation is incremental, created by teams
of software engineers at modest cost, and also ephemeral—most software
inventions are quickly superseded. Software innovation tends to be piecemeal—not
entire devices, but components, so that a software device (a cellphone, a
tablet, a laptop, etc.) may have tens of thousands, even hundreds of thousands,
of separate components (bits of software code or bits of hardware), each one
arguably patentable. The result is huge patent thickets, creating rich
opportunities for trying to hamstring competitors by suing for infringement—and
also for infringing, and then challenging the validity of the patent when the
patentee sues you.
Further impediments to effective patent policy in the software industry include a shortage of patent examiners with the requisite technical skills, the limited technical competence of judges and jurors, the difficulty of assessing damages for
infringement of a component rather than a complete product, and the instability
of the software industry because of its technological dynamism, which creates
incentives both to patent and to infringe patents and thus increases legal
The pharmaceutical and software industries are the extremes so far as the social benefits and costs of patent protection are concerned, and there are many industries in between. My general sense, however, bolstered by an extensive academic literature, is that patent protection is on the whole excessive and that major reforms are necessary.
Turning to copyright, I note first an interesting contrast with patent law. Although there are some industry-specific differences in patent law, for the most part patents
are “one size fits all,” so far as length of protection and criteria and
procedures for the grant of a patent are concerned. In contrast, copyright
protection tends to vary considerably across different media. For example, when
recorded music came into being, instead of providing it with the same copyright
regime as already governed books and other printed material, Congress devised a
separate regime tailored to what were considered the distinctive
characteristics of music as a form of intellectual property. Patent law could
learn from that approach.
The problem of copyright law is less acute than the problem of patent law, partly because copyright infringement is limited to deliberate copying; patent infringement does not require proof even that the infringer was aware of the patent that he was
infringing. Nevertheless, as in the case of patent law, copyright protection
seems on the whole too extensive. Granted, with modern action movies often
costing hundreds of millions of dollars to make, yet copiable almost
instantanteously and able to be both copied and distributed almost costlessly,
the need for copyright protection is comparable to that in the pharmaceutical
industry. At the other extreme is academic books and articles (apart from
textbooks), which are produced as a byproduct of academic research that the
author must conduct in order to preserve his professional reputation and that
would continue to be produced even if not copyrightable at all. It is doubtful
that there is any social benefit to the copyrighting of academic work other
than textbooks, which require a lot of work and generally do not enhance the
author’s academic reputation and may undermine it.
The most serious problem with copyright law is the length of copyright protection, which for most works is now from the creation of the work to 70 years after the author’s death. Apart from the fact that the present value of income received so far in the future is negligible, obtaining copyright licenses on very old works is
difficult because not only is the author in all likelihood dead, but his heirs
or other owners of the copyright may be difficult or even impossible to
identify or find. The copyright term should be shorter.
The next most serious problem is the courts’ narrow interpretation of “fair use.” The fair use defense to copyright infringement permits the copying of short excerpts
from a copyrighted work without a license, since the transaction costs of
negotiating a license for a short excerpt would tend to exceed the value of the
license. The problem is that the boundaries of fair use are ill defined, and copyright
owners try to narrow them as much as possible, insisting for example that even
minute excerpts from a film cannot be reproduced without a license.
Intellectual creativity in fact if not in legend is rarely a matter of creation
ex nihilo; it is much more often incremental improvement on existing, often copyrighted, work, so that a narrow interpretation of fair use can have very damaging effects on creativity. This is not widely recognized.
The need for reform is less acute in copyright than in patent law, but it is sufficiently acute to warrant serious attention from Congress and the courts.