Do patents promote innovation? And copyright creativity?

A workshop organized by the the Urrutia Elejalde Foundation at the Universidad Nacional de Educación a Distancia In collaboration with Fundación Española para la Ciencia y la Tecnología ~ Madrid, 21-22 May 2007. Director: Michele Boldrin (WUStL). Coordinators: Jesús Zamora & David Teira (UNED)

Is copyright a good idea? How about patents? From an economic perspective, it is copies of works that matter, and not abstract ideas. Copies of works are property in the ordinary sense, and are protected by ordinary laws against theft. Patents and copyright, then, do not grant property rights, but rather a monopoly over all copies of the original work.

On the one hand, it is important to recognize that creating a new commodity or production process, a new book or a new medicine, requires producing a large indivisible unit, and because of this indivisibility, the ordinary functioning of the market may not provide adequate incentives. There is a large fixed cost, and a small marginal cost of making copies: if copies are sold at the marginal cost, the fixed cost will never be recouped. On the other hand, it is important to recognize that the creator has a “first mover” advantage in profiting from his creation, that capacity is limited and imitation is never costlessly. The creator is the only owner of the first copy: he/she has opportunities to profit before imitation takes place.

There is a conflict here, due to a profoundly different conceptualization of property, and of how the economic system works or should work with respect to innovation and creativity. But there is also a different assessment of the available data: do we obtain more useful medicines with a patent regime than without? How about books and software when copyright is available? What’s the historical evidence? What’s the cross-country and cross-regimes evidence? A consensus is far from being reached; in the meanwhile laws are passed, cases are brought to court, judges rule, international treaties are written, and the intellectual debate rages on.

Is this conflict resolvable by rational discourse and empirical evidence? Are there only mutually incompatible models, or is there a middle ground both sides can accept? Are we facing theft, when someone rejects patents or copyright, or is it instead just economic competition at work?

Philosophical, legal and economic traditions conflict with each other, asserting on the one extreme that “intellectual property” is a well defined concept and right, and on the other that “intellectual property” is a nonsense. By the same token, some see patents and copyright as an exercise in rent-seeking and monopoly power, while other deem either of them, or both, a necessary tool for economic progress. In the quadrangle so delimited new arguments are being advanced to face the challenges of a digital and globalized world. We are sailing new waters, and we need a new map.

The goal of the conference is to provide a forum for furthering our understanding of some of these issues.

  • 1. Patents, how they work in theory and in practice
  • 2. Copyright, how it works in theory and in practice
  • 3. Intellectual Property: is this a useful concept, from a legal, philosophical and economic point of view?

Poster [PDF] | Final schedule [PDF]


  • M. Boldrin
  • E.Bustos & R. Feltrero
  • D.K. Levine
  • S. Liebowitz
  • R. Marimon
  • R. Stallman
  • E. Valauskas

Contributed papers

  • Francisco Alcalá & Miguel González-Maestre
  • Soma Dey
  • Erika Färnstrand Damsgaard
  • G. Llanes & S. Trento
  • Giovanni B. Ramello
  • Susan A. Russell


M. Boldrin & D.K. Levine, Is Property Theft? The Case of Intellectual Property

E. Bustos & R. Feltrero, Do we need epistemological reasons to justify copyrighted scientific on-line journals?

The economical organization of scientific publishing has been historically justified by epistemological reasons. Scientific journals contributed to the activities of production, communication and distribution of information and knowledge. To compensate for the investment to organize peer review activities and to publish and distribute the magazines, editors used, and still use nowdays for e-journals, copyright and other benefits from Intellectual Property laws. The widespread use of computational tools for scientific writing and publishing implies an important increase in the variety of possibilities for the collective production of information and scientific knowledge. New on-line magazines provide new possibilities and, also, change the economical requirements of scientific publishing. Therefore, the traditional arguments applied to justify commercial copyrighted editions have to be revisited. New ways of scientific publishing mediated by computers and Internet have become a topic of ethical, practical and economical concern that, we propose, should be primarily regarded as epistemological. For that purpose we deploy the notion of epistemic site as a tool for assessing the epistemological consequences of the use of computers and Information Technologies on the activities of production, communication and distribution of scientific information and knowledge. This concept includes a variety of evaluative parameters and principles that are useful to articulate epistemic, and also economic and moral, concerns about computational resources for scientific publishing. The controversy between open access e-journals and commercial e-journals will be the chosen case study to be evaluated within these epistemological principles.

S. Liebowitz, How much monopoly in the copyright “monopoly” [PDF]

Copyright is thought to provide an incentive for authors to create new works. This benefit, however, is also thought to come at the expense of a monopoly deadweight loss since copyright appears to provide a monopoly to the copyright owner. Copyright, by definition, balances in some manner the value of the new works against monopoly deadweight losses although it is unclear whether the balance is anywhere near optimal. This paper empirically examines the book publishing industry to determine the impact of copyright on the prices of books to determine whether and to what extent the price under copyright contains a monopoly component. The empirical work is not complete but the price differential does not appear to be that much higher than the royalties that are likely paid to the authors of these books. This implies that the majority of any monopoly profits from copyright tends to go to the authors, not the publishers. Thus the deadweight loss, if any, beyond that going to the monopoly talent of authors, seems very small. This information is crucial to the current debate over the efficient form of intellectual property protection.

R. Marimón, Competition, Innovation and Growth with Limited Commitment [PDF]

We study how barriers to competition—such as, restrictions to business start-up and strict enforcement of covenants or IPR—affect the investment in knowledge capital when contracts are not enforceable. These barriers lower the competition for knowledge capital and reduce the incentive to accumulate knowledge. We show in a dynamic general equilibrium model that this mechanism has the potential to account for significant cross-country income inequality.

R. Stallman, “Intellectual property” = confusion. Whatever you say “about it” is wrong [HTML]

E. Valauskas, Notions of Copyright in an Open Access Journal: First Monday’s Perspectives [PDF]

F. Alcalá & M. González, Artistic Creation and Intellectual Property [PDF]

We analyze artistic markets considering three key distinctive features that have been overlooked by the standard analysis on IP and that make the production of artistic ideas different from the production of technological ideas. These features are the dynamic link between the current number of young artists and future high-quality artistic creation, Rosen’s superstars phenomenon, and the role played by promotion costs. Introducing them into an overlapping-generations model brings about a new perspective on the consequences for artistic creation of changes in the copyright term, progress in communication technologies favoring market concentration by stars, and the enlargement of markets. The conventional result that longer copyrights stimulate artistic creation only holds as a particular case; namely, when the talent for artistic creation is not specialized.

E. F. Damsgaard, Patent Scope and Technology Choice

The purpose of this paper is to analyze the effect of an increase in patent scope on investments in R&D and on the rate of innovation. Patent scope affects incentives for innovation via the research strategies firms choose; a broad patent scope on the state-of-the-art technology can induce entrant firms to choose to do research on alternative technologies to avoid patent infringement. If the alternative technologies have a lower probability of success, this reduces incentives for investment in R&D by entrant firms and the probability that they innovate. On the other hand, the allocation of total R&D across projects is improved, since there is less wasteful duplication of R&D investments. This paper presents a model where the trade-off induced by patent scope can be analyzed. The model predicts that an increase in patent scope can increase the probability of innovation, and consequently the negative effects of R&D duplication can be large enough to warrant a broad patent scope. This holds if the incumbent’s increase in profits from innovating is large, or if the patented technology has a small advantage relative to alternative technologies. Otherwise, the probability of innovation decreases. However, when the model is extended to allow for Stackelberg competition or license agreements, the benefit of a broad patent scope to a large extent disappears. Hence, the effects of an increase in patent scope depend on industry characteristics and unless several conditions are met, an increase in patent scope reduces innovation.

S. Dey, Are Patents Discouraging Innovation? [PDF]

The strengthening of the U.S. patent regime in the early eighties was followed by a sharp increase in patenting but did not change the R&D expenditure significantly in some industries in the U.S. This “patent paradox” is prominently observed in complex industries, like the semiconductor industry. In this paper I develop a model of invention and product development to examine the effects of a patent regime change on the patenting and R&D decisions of firms in complex industries. Firms in these industries have a greater need to access a large number of ideas to successfully develop an end product. I consider two different environment — one without licensing and one with licensing. While a stronger patent regime leads to higher patenting and R&D activities in both environments, the strategic complementarity between patenting and R&D is relatively weaker in the presence of licensing. A stronger patent regime change that creates incentives for firms to increase patenting activity, therefore, may not lead to a similar increase in R&D activity

G. Llanes & S. Trento, Anticommons and patent pools in sequential innovation

We develop a model of sequential innovation in which an innovator uses n inputs in research to perform an innovation. We show
that the effect of an increase in the complexity of the innovation on the probability that the innovation is performed depends on whether the research inputs are complements or substitutes. The probability of innovation is suboptimal even when there is a large number of inputs. Patent Pools enhance welfare when the inputs are complements and decrease it when the inputs are substitutes. Finally, we show that for the likely case of perfectly complementary inputs, the strength of patent policy should decrease as technologies become more complex.

G. B. Ramello, Access to vs. Exclusion from Knowledge: Intellectual Property, Efficiency and Social Justice

The main rationale for intellectual property relies on the thesis of the incentive to create. Creators and inventors are economic agents attracted by the returns they expect from their effort. This depiction is practical, but does not give due weight to the complexity of knowledge production. This work does not contest the potential benefit of the opportunity for creators and inventors to reap some profit from their work. Rather, it considers the idiosyncratic nature of knowledge, which is simultaneously input, output and productive technology, and is closely linked to the social dimension. This provides further insight into the production process and suggests a significantly different framework for policy. More specifically, because of the increasing returns governing creative technology, the efficiency criterion used to guide the economic choice calls for weak intellectual property rights, thus preserving wide access to knowledge. A stronger appropriation regime would significantly impair the total outcome of the creative processes. Interestingly, this appears to apply equally from a social justice perspective, perhaps in an effortless solution to the age-old trade-off between economic efficiency and social justice.

S. A. Russell, The Superstar Phenomenon: A Legal and Economic Analysis of Copyright Law in the Role of Incentives

This paper will examine the economic rationale at the base of the superstar phenomenon. An application of copyright law will be analyzed in the role of incentives in order to determine the effects on the superstar phenomenon. Exceptions, limits and alternatives in copyright law will be considered with regard to the superstar phenomenon in order to determine whether the limits, exceptions and alternatives balance the superstar phenomenon. It is hoped that the research and analysis conducted in this paper will shed some light on the direction the law should reasonably move.

Winter Workshop Venue

Some basic travel information follows, in case it were of any use. There are all possible sorts of lodgings in Madrid. Our recommendation would be to look for a room in the areas of Moncloa or Gran Via. Moncloa is quite close to the conference venue: either a 10 minutes walk by the Parque del Oeste or a quick bus ride (A line, stopping by the Puente de los franceses). We enclose a map with three red stars: the one on your right signals Moncloa metro station and the A line bus stop, which is right in front of it. The closest stop to UNED is signalled by the little red star, whereas the big one on your left signals the building which hosts the conference. In case you wanted to walk, cross the Parque del Oeste and follow the Avenida

If you opt for Gran via (which may be convenient if you want to enjoy Madrid nightlife), there are lots of hotels and pensions. You might come to UNED using the bus line #46, which goes along the Gran Via and has a stop at UNED (Senda del rey street). It has three stops in Gran Vía and one in the Plaza de España and Paseo de la Florida which have a nearby metro station: respectively, Gran Vía or Callao, Plaza de España or Principe Pío. The stops are announced in the bus on an electronic screen.

If you want to look for a hostel in another area, you might find more about Madrid public transport system at: You may buy a 10 trip metro ticket (6,40 euros), which is also valid for buses. There is a metro line from Barajas airport to the center of Madrid. Taxis are usually reliable, but some drivers may not know the conference venue: if they don’t recognize the street, let them know that it is right beside the Consejo Superior de Deportes. A ride from Gran Via to UNED will cost about 6 euros.

Click here for a picture of the conference venue building together with another map.

Leave a Reply

Your email address will not be published. Required fields are marked *