Origins of intellectual property

The economic interpretation of intellectual property rights is a direct de­scendant of the theory of labour mixing and property formulated by John Locke (1632-1704). This theory is in fact the cornerstone of the reasoning that establishes a causal link between creators and ideas, thereby legitimizing the individual appropriation of the latter through the ad hoc institution of property rights.

In his second book of the Two Treatises on Government (1690), Locke maintains that every man has a ‘natural right’ to appropriate the fruits of the labour of his own body. In other words, the English philosopher believed that individuals acquire property rights over assets originally contained in the state of nature, by virtue of the fact that in order to extract them they contribute their own labour, and hence a part of themselves (Drahos, 1996).

Locke did not espouse this position absolutely, however, but considered it subject to some clear-cut and essential derogation criteria. He defined specific limits for appropriation, in the form of two provisos that appear to foreshadow the Pareto optimality criterion: that is, that an individual can extract from the state of nature only that which leaves ‘enough and as good left for others’, and in any case that ‘the same law of nature, that does by this means give us property, does also bound that property too... Nothing was made by God for man to spoil or destroy’ (Locke, 1690, sect. 27).

Locke thus implicitly asserted for the first time that there exists a tradeoff between private appropriation and the public sphere, an idea taken up by all the subsequent literature on intellectual property, which has sought in various ways to preserve and enrich the shared resource in question - the ‘common’ and later the ‘creative common’ as defined in some of the literature (Hardin, 1968; Lessig, 2001) - while at the same time guaranteeing a sufficient private incentive through individual appropriation.

Nevertheless, economic analysis proper, as an independent discipline, only entered into the intellectual property rights debate later, with Adam Smith (1723-90),⁶ who questioned the natural right of individuals over created ideas, while upholding the importance of (limited) ex lege protection ‘as an encouragement to the labours of learned men’.

Smith’s position is only mildly in favour of intellectual property, probably reflecting a disinclination to uphold any type of monopoly - even a legal one - that interferes with competitive process. He thus admits lukewarm support for intellectual property rights ‘as they can do no harm and may do some good, are not to be altogether condemned’ (Smith 1762, Lectures on Juris­prudence, in Goldstein, 1994: 173), but ultimately, no clear theoretical or policy indications emerge.

The challenge of developing a more robust paradigm was picked up by Jeremy Bentham (1748-1832), who provided the theoretical groundwork for centuries to come by first formulating the utilitarian theory of an ‘incentive to create’, widely adopted by the ensuing literature up until the present day. In particular, the English economist notes that ‘he who has no hope that he shall reap, will not take trouble to sow’ (Bentham, 1839: 31). In fact Bentham (p.

[T]hat which one man has invented, all the world can imitate. Without the assist­ance of the laws, the inventor would almost always be driven out of the market by his rival, who finding himself, without any expense, in possession of a discovery which has cost the inventor much time and expense, would be able to deprive him of all his deserved advantages, by selling at a lower price

Intellectual property can therefore offer a practicable solution to this prob­lem.

Note that Bentham’s assertion in a sense prefigures the dilemma of the appropriability of public goods, and poses an implicit challenge to the Smith model of perfect competition: the invisible hand alone is not able to govern markets of ideas which, without specific intervention by the legislator, will therefore be doomed to failure.⁷ A strong awareness of the problem of free­riding and its negative effects on the remuneration of creators prompted Bentham to openly side with an institution that provides an incentive for creative activities. The creator, he asserts, must be protected against oppor­tunistic individuals who would otherwise ‘without any expense, in possession of a discovery which has cost the inventor much time and expense, be able to deprive him of all his deserved advantages, by selling at a lower price’ (ibid.).

Now, the above-cited theory has played a ‘totemic’ role in the law and economics literature on intellectual property, providing a universal reference framework for nearly all subsequent contributions, which have incrementally fine-tuned the analysis, systematized and updated it, occasionally levelled some criticisms, but always held the central paradigm intact.⁸ In other words, we can draw a direct line of continuity between the model proposed by Bentham and the literature of law and economics. In like manner we can argue that the contribution of twentieth-century economic theory has essen­tially been to extend and reinforce the Benthamian paradigm, by providing further arguments in support of the general incentive-creating role of intellec­tual property rights.

In effect, we have on one side an entire branch of literature grown out of Schumpeter’s (1943) contribution, which posits the centrality of innovative activities to economic systems and their growth, and implicitly attributes to intellectual property rights a determining role in this dynamic.⁹ And on the opposing side we have the theory of intellectual property rights as an efficient solution to the problem of public goods and externalities, which has provided the standard argument for the specific case of intellectual property, upholding the pro-efficiency role of intellectual property rights (Coase, I960).¹⁰