Economics and IP: the good, the bad and the ugly (and a request for reader feedback)?

Former PermaKat, Nicola Searle, shares her thoughts on the current state of the impact of economics on IP. As a bonus, she asks for feedback from Kat readers.

In the long run, we are all economists?

                                                                  "The invisble hand: still invisible"?

With apologies to John Maynard Keynes, before we all reach the inevitable end point of "the long run", consider the proposition that "in the long run, we are all economists".

Years of pounding the economics drum in the IP world has led to some self-reflection. What does it all mean? Why am I here? How do Supplementary Protection Certificates (SPC) work? As a naïve, probably arrogant, freshly minted economist in the aughties, I wondered, “why would you lengthen copyright/prevent private copying/change policy instead of business/be obsessed with patent counts/double reward patent investment/etc., when the economic research says otherwise?”

Dazzled by the growth of economic teams in government IP offices, the heady promise of the UK Hargreaves review and cultural changes such as Creative Commons, I thought that economics would triumphantly prevail.

Of course, I was wrong

IP rights have expanded, despite the findings of economic analysis. Trade agreements have slowly but surely extended the footprint of IP rights. Countries that primarily import, rather than export, IP may not benefit from IP regimes, which strengthen rights and increase enforcement domestically.

Dubious but successful copyright claims increase the cost of creating new content. Rightholders’ questionable efforts to protect their interests in the wonderful new cyberworld have had a chilling effect on research communities (e.g. Volkswagen versus Garcia.) Expanding IP tends to benefit the fortunate few, whereas economics – in theory - supports changes that benefit the many.

Similarly, some copyright policy recommendations have not come to fruition, despite the economic arguments. Unable to empirically prove a lack of harm – something that is nigh impossible to do – the UK government was forced to quash a Hargreaves-recommended policy that permitted private copying. Thankfully, though, my hope was not completely misplaced, as economically justifiable policy changes have been implemented, including the UK orphan works and parody, character and pastiche copyright exceptions. The sky has not since fallen, as the economic evidence predicted.

The last decade has seen continued hostility from parts of the IP community towards economics, with various criticisms that economics is anti-IP, or cannot and should not attempt, to analyse the legal complexities of IP. A keynote speaker at a legal seminar proposed economics should be relegated to Room 101 (the Ministry of Love’s torture chamber in Goerge Orwell's novel "1984".) Salacious suggestions aside, a general theme has been incredulity and scepticism of economic findings.

The IP rightsholder community is, unsurprisingly, not a fan of economics as most of the economics research argues that IP rights are too strong. One of my personal claims to fame is that a prominent copyright stakeholder said, “what the f@@k was that?”, following my presentation on business models.

Economists predicted 9 of the last 5 falling skies

But the end is not nigh. Economic analysis has a lot to offer IP. It can tell you what an increase in copyright term will cost consumers. It can predict how increased fees will decrease the demand for patents (spoiler alert: not much - demand for patents is inelastic), or how an increase in damages for trade mark infringement might decrease the supply of counterfeits.

Economics provides a structured approach for interrogating the incentive-to-innovate underpinnings of IP. In the developed world, you cannot separate IP rights and capitalism. IPR are a legal instrument with an economic goal. For better or worse, we’re in this together.

The roots of the economic scepticism stem from a combination of misunderstandings and divergent disciplinary approaches. Economics has done a poor job of communicating the nuances and limitations of economic analysis, and we are not known for our humility. The distributional effects of IP, rather than the overall (utilitarian) impact, should be given more emphasis.

Economics must accept, and is begrudgingly doing so, that it is not solely economics that should inform evidence-based IP policy. There are also, from all sides, unrealistic expectations of the economic analysis of IP. Significant data challenges thwart empirical analysis; economics necessarily reduces legal tools to an analytically manageable core - much to the chagrin of the legal experts focused on the details. Economics has its limits.

Economists in their natural habitat

Yet not all economics should be painted with the same brush. Economists in academia operate with academic freedom and impartiality, but we are not immune to bias or the unspoken influences of funding. Government economists must navigate complex policymaking culture and woe betide the economic consultant who never finds in their client's favour. These environments shape economic analysis.

15 years into my career as an IP economist and I like to think I’m developing a lingua franca for economics and law by translating economics – hopefully agnostically and with the requisite grain of salt – for legal audiences. (Katpat to the very patient lawyers over the years who have helped me get my head around the law.)

Economics seems to be taking a more nuanced approach to IP. The number of economists in IP government offices continues to grow. I hope that IPKat coverage of economics (examples here and here) has helped foster a more sympathetic reception to economics in the legal practitioner community.

Now a request: I would appreciate input from you, dear readers of the IP community. I’m interested in doing some more writing on the impact of the economics in IP and would like a practitioner perspective. How have your views on economic of IP changed over the years? Do you think differently when working with clients? Does economic analysis play into your views on IP policy? (Comment below or e-mail n.searle (

Top photo by Vitagraph Company of America and is in the public domain

Bottom photo is screenshot of Google image search for “economist stock photo”
Economics and IP: the good, the bad and the ugly (and a request for reader feedback)? Economics and IP: the good, the bad and the ugly (and a request for reader feedback)? Reviewed by Neil Wilkof on Tuesday, November 19, 2019 Rating: 5


  1. I can give you my perspective (Argentinean lawyer).

    1. Unfortunately, IP Economics is a branch of economics. And economics does not have such a great reputation right now. Economic advice, justly or unjustly, have led to the road that we are now traversing and the rise of Trump, Brexit or the protests in Chile can be partially explained as a reaction to this advise (if Chile, which is sort of a success, is currently protesting against their economic policies imagine how do the people of Argentina, which is sort of a failure, feel).

    2. I have some experience with lobbyist groups in Argentina. While I happen to agree with IP Economics it has been my experience that people who advocate for policies that apply IP Economics are the same that usually advocate for the total destruction of the IP System. Therefore, you won't find it strange, that Right Owners view with suspicion and reject, their advice.

    3. I believe IP Economics is a valuable tool for Policy Makers and, in certain few cases, for litigators. But economics are for the long rung and have very practical uses for the IP practitioners, who has to work daily within a legal framework.

  2. I inwardly groan at the mention of "evidence-based policy". Government has long used evidence-based policy, but practice has been to put the cart before the horse by deciding policy first and then getting civil servants to produce evidence to support the policy, ignoring evidence to the contrary. A module of a senior management course at the Civil Service College used to use genuine official data to illustrate the point.

    1. There is a book you might enjoy:

  3. I'm stunned to see these ill-conceived ideas, which are completely supported by nothing but a prejudice that IPRs are inherently BAD, being presented as the economic truth.

    Just to make a couple of examples.

    Dr Searle writes: "Dubious but successful copyright claims": either a claim is founded and so is not dubious or a claim is not founded and then who's wrong is the court that agreed with the right-holder.

    Then she goes on and claims that right-holders have made "questionable efforts" to protect their IP: clearly, she's not one of those people whose very livelihood relies on their creativity.

    Finally, she reassures us that not everything (thank goodness!) is lost, as there have been important changes being made to the rotten IP system, e.g. parody and orphan works. I would just like to point out the obvious: the parody defence has not even been tested in court yet (so, was it a problem not to have it in the law? I think not); and the orphan works scheme has been used in total fewer times than those we've heard *questionable* ideas being presented as the truth of an economist.

    1. Perhaps I've not conveyed this, but I really, really like IP. As do my colleagues. We are - generalising - big fans of the incentive-to-innovate argument, and we want it to work. It's a very important part of the economy, and it needs to be regularly interrogated.

      As to your other points, I rely on legal expertise to inform by understanding of cases/claims etc and I'm aware that lawyers also criticise these cases/efforts.

      It will be interesting to see how the parody defence plays out. And yes, you're right in that orphan works has not been used as much as expected - but it has not become the disaster predicted by some copyright holders.

      And finally, thank you. This is exactly the kind of debate we should be having and I look forward to hearing your views.

  4. Thanks, Francisco.

    Yes, economics is not doing so well on the PR front these days.

    With the exception of the Boldrin and Levine 2008 book, which does take a more radical approach to the IP system (e.g. examines the case for the cancellation of the IP system), most economists are arguing for refinements and reforms to the system. These typically are arguments for a reduction in the 'footprint' of IP. I would be interested to know what economics/economists are arguing for the total destruction - could you point me to some?

    On your third point - it's something I've been reflecting on. IP Economics has largely focused on policy in recent years, and perhaps we should be looking more towards practice.

    1. I meant that many anti IP advocates usually use include IP Economics in their argumentation. But as these are the same people that publicly call for the total destruction of IP, Right Owners tend to view and oppose any argument they make (even the reasonable ones)

    2. Thanks for the reply. I have not engaged much with the 'anti-IP' advocates, but I do wonder if my definition of 'anti-IP' is different from yours. It's hard for me to really comment as I don't know how economics is being used in these arguments. However, my experience with IP expansionists is that there is often a cherry-picking of economics, which is unfortunate.

  5. Nicola, I believe to really delve into the topic of IP and economics one must confront things which are going to really upset a lot of the IP community, especially in patents. If you tried to objectively ask how the 'commons' needs to be protected from IP rights you would get a stream of unprintable emotive comments from many in the IP and R&D community. Look at the response to the US Supreme Court decisions Alice, Mayo and Myriad where no one has really tried to understand how the Supreme Court was trying to prevent monopolisation of the building blocks of innovation. Government certainly has no interest in thinking about protecting the commons.

    1. "stream of unprintable emotive comments from many in the IP and R&D community"

      Someone discovers that software developers deserve freedom of programming?

    2. While I suspect what you say is true, I've never quite got my head around the causes of the often strident response.

      My non-lawyer understanding of Alice, Mayo and Myriad is that it significantly increased the uncertainty around validity of patents. Are you saying that it's not clear if or why the Supreme Court was addressing innovation? And I presume you're arguing that there is a difference in thinking between the Court and the Government.

      As a matter of interesting, in my (ongoing) review of 200 trade secrets cases, I've so far seen only one (!) reference to innovation - from any actor.

    3. Thanks Nicola. Alice, Mayo and Myriad attempted for policy reasons to limit what was patentable in the computer-related and biotech field. Part of the reasoning was to make sure the 'building blocks of innovation' were not monopolised, i.e. stayed part of the commons. The IP community reacted by simply seeing the increased uncertainty, as you say, but there are much broader ramifications. Unfortunately economists have not jumped in and given us the numbers for how much the economy would benefit or lose. They only do the easy analyses, and don't tackle the really complex things. And if economists don't do this, then government has no way of seeing the real impact of what the Supreme Court was doing. So government sees no point in trying to protect the commons, because in trying to do so it will only see the criticism of the IP and R&D community, without any means to look at the gain.

    4. I think the response might be in your avatar 'immenselydifficult.' In addition to the comments here, I'm having some really interesting e-mail conversations. There are, unfortunately, a lot of reasons why economists aren't working on some of these topics (which I hope to find time to blog about.) Equally, there seems to be problems in getting both the IP community and the government to have faith in the economic analysis.

  6. The patent system is based on a lie, there is no science to back it up.

  7. IP law is so complex that no government department or any one economist is going to be able to set out policy based on its analysis. The economists I have met use very basic and simple metrics to box IP into their mode of thinking. They really don't understand the dynamics of how it plays out in specific business situations, and their summaries of it are woefully inadequate. Giving someone an IP right affects the entire ecosystem, incentivising, disincentivising, causing collaborative communities to form or leading to increased competitiveness, and even forms of aggression. To change things (to consider policy matters) would need the identifying of all the effects of IP, and then all possible changes you could make, e.g. length of term, ease/certainty of obtaining, ways/strength of enforcing, extent of penalties/punishments, effects on core industries/research platforms. I don't know of any economist that has appreciated IP to this extent, and so they are ill-equipped to advise on the issues.

    1. Thank you, Stan. I've had some excellent offline conversations discussing some of these issues. One point was made that IP has suffers from a ratchet problem - it is easy to expand but extremely difficult (politically and otherwise) to 'reduce.' The point was also made that this is not the same case with other types of policies - including innovation policies such as R&D taxation, subsidies, competition.

      I think it is fair to expect economists and policymakers to have a good understanding of how IP works. But the bar that is argued seems much higher than in other policy areas, and it strikes me as special pleading.

      What makes IP special?

  8. Has anyone read the Research Handbook on the Economics of Intellectual Property Law by Depoorter & Menell (Eds) and can they recommend it? Would it help in informing IP scholars (without an Economics background) as the advantages of using economics to inform evidence-based policy making?

    1. I recommend Ruth Towse's short but conceptually helpful book "Advanced Introduction to Cultural Economics". Also Suzanne Scotchmer on Innovation and Incentives.

    2. I part one on my desk right now for me to review! (Part two is at home, so that I my peruse it leisurely with a whiskey.) First take on part one is that it is from the law & economics school of thought - which is heavy on the law.

      I second Kristofer's recommendation on Towse. Scotchmer's Innovation and Incentive is one of my favourite books. And I have to plug my own book - Searle and Brassell, "Economic Approaches to IP," the first have of which focuses on policy.

  9. A detailed discussion of the impact of IP on innovation in the electric lamp industry can be found in the book "The Electric Light Industry ", Arthur A Bright, Jr, Macmillan, 1949, which is the first in a planned "Studies of Innovation" series of books written for M.I.T. Many examples of the different way companies had used their IP: the disputes between Swan and Edison, how Swan used the monopoly afforded by Edison's patent in the UK to maintain quality, contrasted with the free for all in Europe (where Edison's patents were not upheld), leading to cheap lamps of poor quality and no-one being able to make a profit, resulting in the Electric Lamp cartel, details of the GE's licencing arrangements in the USA, etc., etc. Comprehensively referenced.

    I don't have any details of what other books on the topic of innovation MIT may have commissioned.


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