Tuesday, January 28, 2014

Lunch Talk: The Economic Foundations of Intellectual Property (@duke)

Nobel Laureate Professor Joseph Stiglitz of Columbia University presents the Sixth Annual Frey Lecture in Intellectual Property.

Update: The Stiglitz' approach to Intellectual Property is fundamentally flawed because he doesn't understand the difference between invention and innovation. He uses the terms interchangeably, without giving much thought to the critical distinction between a) coming up with an idea (invention), and b) making it work on a large scale (innovation). For example, he says that when granting a patent to Basmati rice, "the US patent office thought it was a great innovation." This is untrue, because the patent office only considers the novelty of idea, not its impact on the world. The vast majority of patents are totally useless because they cover novel ideas that fail miserably in the marketplace.

Stiglitz doesn't understand the difference between "knowing what" and "knowing how." Creating an invention that becomes a large-scale innovation is like winning a lottery: lots of futile tries by many people. Nevertheless, we don't force the winner to give up his reward because the winning numbers become public knowledge after the draw.

Stiglitz' example of Microsoft's monopoly power as an abuse of Intellectual Property is also wrong. Microsoft neither invented, nor patented DOS OS, Windows OS, Office, Browser, etc. On the contrary, they used other peoples' ideas (inventions) to implement the technology and gain monopoly market power.
Moreover, Microsoft's monopoly fell apart when new markets were created - Web search, smartphone, etc. Google and Apple prevailed over the Microsoft's monopoly because they found a way to create and protect their own IP. If Google made all aspects of its search algorithm public from the very beginning, Microsoft would be able to move into web search with ease. Luckily, that scenario didn't materialize because Google, as well as Apple, protected their know how.

lunchtalk, intellectual, property

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