The Competitiveness of Nations in a Global Knowledge-Based Economy

Paul A. David *

The Evolution of Intellectual Property Institutions and the Panda’s Thumb

This paper has been prepared for presentation at the

Meetings of the International Economic Association in Moscow

24-28 August 1992. 


1. The Contemporary Re-Emergence of Intellectual Property Issues History

2. The Historical Evolution of Property Law and the Limitations of Economic Analysis

3.  Intellectual Property Law and Some Legacies of History

3.1 Patents

3.2 Copyrights

4. Concluding Observations


*William Robertson Coe Professor of American Economic History

 Department of Economics, Stanford University


“That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature, when she made them, like fire, expansible over all space, without lessening their density in any point, and like the air in which we breathe, move, and have our physical being, incapable of confinement or exclusive appropriation.  Inventions then cannot, in nature, be a subject of property.  Society may give an exclusive right to the profits arising from them, as an encouragement to men to pursue ideas which may produce utility, but this may or may not be done, according to the will and convenience of the society, without claim or complaint from anybody...”

Thomas Jefferson, 1813

1. The Contemporary Re-Emergence of Intellectual Property Issues History

The array of modern laws and administrative procedures concerned with intellectual property (sometimes referred to herein as IP) once again have emerged as the topic of widespread and intense discussions in the United States and internationally, throughout both the industrially developed and the developing worlds.  Many forces have converged to thrust the subject into its present position of salience (see, e.g., OTA 1986, Benko 1987, WIPO 1988, Rushing and Brown 1990).  Investment in research and development has accelerated and become prominently identified as a central aspect of corporate and national strategies of global competition.  The shortening of product life-cycles, and the advance of techniques that make  “reverse engineering “ and outright copying of novel products easier, has made it more difficult for firms to appropriate the benefits generated by innovations simply by guarding new technologies as trade secrets while quickly moving down their production learning curves to seize a cost advantage over potential imitators.  Many awkward ambiguities, and consequent widening areas of legal dispute have been created by the application to new technological developments of the existing laws pertaining to patents, and copyrights, and trade secrets.  This has been so particularly in the fields of biotechnology and computer and information technologies.

In addition to the forces being generated within the sphere of scientific and engineering research itself, the amplifying effects of national economic policy has been a contributory factor.  The 1960s and 1970s had seen the developing countries successfully resist conforming to a regime of strong international protection for intellectual property (see, e.g. Mody 1990, Siebeck 1990).  But, during the 1980’s the United States’ government responded vigorously to the concerns of American producers - especially in the chemicals, pharmaceuticals, electronics, and information technology industries - by undertaking to reverse the trend of the two preceding decades.  Acting with some encouragement from other industrially advanced countries, the U.S. pursued a direct, unilateral course of action.  It put no major effort into a renegotiation of agreements within the existing framework of the Paris Convention for the Protection of Industrial Property (patents and trademarks), the Berne Convention for the Protection of Literary and Artistic Works (copyrights), and other international conventions.  Nor did it offer some quid pro quo to developing nations who would adopt its position as signatories to these conventions.  Instead, by threatening within the context of bilateral trade negotiations to impose sanctions on developing and new industrialized nations whose retaliatory leverage was quite limited, it achieved considerable successes in securing the official subscriptions of foreign governments to U.S. positions on the treatment of various forms of intellectual property.

Thus, a profound reconsideration of the merits and drawbacks for the diverse parties involved of achieving global  “harmonization “ of protections for intellectual property has been brought about as a result of the widening international markets for R&D-intensive goods and services, the pressures generated by the official U.S. campaign, and also by attempts to link the availability of private direct foreign investment to the willingness of receipient countries to accord patents, copyrights and trade secrets much the same measure of protection that they presently receive in the investors’ “home” territories.  The debate over the merits of global harmonization is, in large measure about the desirability of achieving such uniformity at a strong, rather than a weak standard of property rights enforcement.


2. The Historical Evolution of Property Law and the Limitations of Economic Analysis

Unlike the debates over intellectual property institutions in earlier eras, which had captured the attentions of great political and social philosophers such as Thomas Jefferson - from whose correspondence with a Baltimore inventor (see Koch and Peden, eds. 1972, p.630) has been drawn the epigraph of this paper - our present day discussions evince relatively slight interest in philosophical questions.  We are less occupied with questions regarding the  “natural rights” of inventors and authors to the fruits of their creative efforts, or  the justice of claims advanced on behalf of all humanity to benefit from the collective, social processes through which new scientific and technological ideas arise (for exceptions see, e.g., Dworkin 1981, Davis 1989, Berg 1991).  Rather, in keeping with the more pervasively utilitarian spirit of the times, the statutes, legal rulings, administrative regulations and other institutional arrangements affecting patents, copyrights, and trade secrets are widely regarded as public policy instruments that, properly, should be designed to enhance economic welfare by stimulating technological progress.

Accordingly, even if the rhetoric of argument may on occasion appeal to notions of justice and equity, it is modern economic analysis and the latter’s characteristic preoccupation with questions of efficiency that now sets the terms of policy discussions about the protection of intellectual property.  On the one hand, it has come to provide the most widely accepted over-arching interpretation and supporting rationale for public interventions aimed at channelling economic resources into invention and innovation; but, on the other hand, in continuation of a long tradition, economic analysis yields some fundamental criticisms of the systems that have been erected to achieve that purpose by securing rights in intellectual property.  Therefore, as proves to be the case in many other instances, it is inescapable as well as instructive to take the economist’s approach in discussing domestic intellectual property legislation, and national policies to enforce rights in such property internationally.  At very least this provides a framework that identifies the major problems of allocative efficiency, and the distributional issues that are at stake - from the viewpoint of society as a whole rather than the perspective of the various private and narrowly national interests involved (see, e.g., Machlup 1958, Wright 1983, Kaufer 1989, Siebeck 1990, Besen and Raskin 1991, David 1992a).

Having said that much, it is also necessary to acknowledge that economists as a body have been notably unable to agree in formulating much in the way of straightforward, practical advice for the guidance of lawyers, jurists and public policy makers in these matters (see Priest 1986).  The fundamental source of this inconclusiveness is not so much the inordinate, and oft-disparaged tendency of economists to engage in theoretical speculations, as it is the persisting absence of established consensus on  the answers to two classes of difficult empirical questions.  First, will a faster pace of growth in the stock of scientific technological knowledge always be an unambiguously “good thing” for a particular industrial sector or national economy, and, therefore, warrant the sacrifice other, lesser societal goals?  Second, how responsive is the supply of socially useful discoveries and inventions to the creation of bigger private economic incentives?  One must concede that for policy analysts not to know the policy goal with any precision must be a considerable handicap, just as it is for them to remain unsure about the incentives and constraints that would be required to achieve any particular goal, were one to be agreed upon.  Unfortunately, however, these two questions are not ones that can be answered any better by lawyers on the basis of their having delved more deeply into the details of existing or proposed intellectual property regimes.

A further caveat on this score is warranted, in view of the unfortunate tendency on the part of both economic theorists and legal theorists to slip into modes of analysis that are essentially ahistorical.  Those of us who, from practise, are most at ease with the logic of microeconomic reasoning applied to intellectual property rights issues need to take our cue from the skepticism voiced by legal practitioners in this field.  We should take more pains not to allow familiar, simplifying abstractions to obscure a central fact about the nature of the world for which we would prescribe institutional reforms: the complex body of law, judicial interpretation, and administrative practice that one has to grapple with in the area of intellectual property rights has not been created by any rational, consistent, social welfare-maximizing public agency.  What we are faced with, instead, is a mixture of the intended and unintended consequences of an undirected historical process, upon which the varied interests of many parties, acting at different points, some widely separated in time and space, have left an enduring impress.  So, it would be really quite remarkable were the historical evolution of legal institutions concerning patents, copyrights and trade secrets, somehow, to have bequeathed to us a set of instruments optimally designed to serve either the public policy purposes, or the private economic interests of individuals and firms who currently seek such protections.

To agree with this one does not really have to take a firm stand against the general notion of an evolutionary drift towards social optimality in the effects of the law on resource allocation.  Clever, modern Panglossians have come up with the proposition that the likelihood that laws resulting in inefficient resource use will be exposed more frequently to economically motivated litigation creates “selective pressure” which must operate exorably and continuously to remold intellectual property law so as to render it moreefficient; that this can work even if the outcome of the litigation is random; that some beneficent  “invisible hand “, thus, guides the evolution of legal institutions affecting economic performance.  These ingenious but nonetheless dubious arguments are confined, even by their most ardent proponents, to the supposed workings of the common law system of judge-made law (see, e.g., Rubin 1977, Priest 1977, Goodman 1978; and also Cooter and Kornhauser 1980, Cooter and Ulen 1988, and David (1992b) on deficiencies in the selective litigation thesis).  When we speak of the modern  “law “ of intellectual property, however, we must be considering statutory and administrative laws pertaining to patents and copyrights, even though a complicating exception may be recognized concerning the law of trade secrets’ roots in the common law.

Thus, in the case of the legal protections afforded to intellectual property it is difficult to find even a speculative, theoretical justification for conceptualizing the pertinent statutes, and the administrative procedures they authorize, as institutional tools that have been passed along to us in shapes forged perfectly to “promote the Progress of Science and useful Arts “.  The latter, of course, is the specific purpose identified by the framers of the U.S. Constitution (Article I, sect. 8, cl. 8) when they granted the Congress the power of “securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”  Nor should the prevailing statutes enacted under that authority be read as policy instruments contrived to attain a social optimum defined more broadly in terms of economic welfare.

Indeed, the first step towards an understanding of many of the policy dilemmas that arise today in regard to the introduction or alteration of intellectual property institutions would seem to be an acknowledgement of just this elementary point.  If these arrangements are to be viewed as utilitarian appendages of the body politic, it would be far more illuminating to recognize their essential nature as most closely akin to the “thumb “ of the Giant Panda - to which  a  metaphorical allusion appears in the title of this paper.  The Panda’s thumb has been justly celebrated by Stephen Jay Gould (1980: Ch.1) as a striking example of evolutionary improvisation yielding an appendage that is inelegant yet serviceable.  Although its owner is enabled to grasp and strip the leaves from the stalks of  the bamboo plant, on which she feeds exclusively, this thumb is not anatomically a finger at all, much less an opposable, manipulating digit.  In actuality, it is a complex structure formed by the marked enlargement of a bone that otherwise would be a component of the animal’s wrist - but for the effect of some genetic mutation - and the related extensive rearrangement of supporting musculature.  It is, as Gould says, “a contraption, not a lovely contrivance”, and one whose obvious mechanical limitations stem from its remote accidental origins.

Evolutionary processes in biology work largely with the materials that are close to hand.  So does institutional evolution, and especially the processes of incremental change and adaptation in legal and other rule-systems that accord great weight to precedent (see, e.g., North 1991).  Accordingly, even though the array of legal provision and administrative rules that we refer to today as comprising the “patent system” and “copyright system” have undergone considerable adaptations in specific form and function over the course of their long history, they appear remarkably resistant to rapid and radical reform.

As the nature of new technologies changes, however, it has become evident that the familiar legal contraptions of  “patents” and “copyrights” are rather ill-suited to the realities of some of the situations in which they are being put to work (see, e.g., OTA 1986, WIPO 1989).  They continue to be looked to as stimuli for the generation of useful innovations, but, while enabling the private appropriation of economic benefits from new scientific and engineering knowledge, the familiar devices for protection intellectual property are known to have a variety of untoward side-effects that may be distorting and even impeding the progress of technology.  Moreover, the problems are not confined to those which might be solved by readjusting old and still serviceable legal tools, or forging novel statutes to fit special (sui generis) technical circumstances.  The process of more finely articulating and more vigorously enforcing private rights in intellectual property is certainly worth pursuing in some of these situations, but, just as clearly, it cannot be looked to for optimal solutions to all of society’s problems of institutional mechanism design affecting the production, distribution and utilization of knowledge.

When one has conducted an extended review of the economic analysis of the provisions for protecting intellectual property, as economists have done on repeated occasions over the course of the past half century (including the present author, in David 1992a), there is an understandable desire to arrive at some overall evaluation of whether it is, from a resource allocation viewpoint, “a good thing”.  But, in this case, the greater part of wisdom has been found to lie in resisting this temptation.  Because, as is all too evident from the adumbration of the incentive effects of allowing the private capture of otherwise unappropriable positive externalities from the quest for knowledge, on the one hand, and the myriade untoward allocative distortions and inefficiences due to the creation of monopolies that restrict access to knowledge, on the other, there is a great array of economic benefits and costs to which actual magnitudes cannot readily be attached.  It is difficult to do better in such circumstances than to assert the appropriateness of “the inconclusive conclusion”.  Indeed, as Fritz Machlup (1958) observed long ago, in summing up his review of the economics of the patent system:

If one does not know whether a system ‘as a whole’ (in contrast to certain features of it) is good or bad, the safest ‘policy conclusion’ is to ‘muddle through’ - either with it, if one has long lived with it, or without it, if one has lived without it.  If we did not have a patent system, it would be irresponsible, on the basis of our present knowledge of its economic consequences, to recommend instituting one.  But since we have had a patent system for a long time, it would be irresponsible, on the basis of our present knowledge, to recommend abolishing it.

In short, with regard to the major structural features of the institutions of intellectual property protection, one might as well accept that modern economic analysis offers little basis for resisting the conclusion that the industrial societies of the West remain “prisoners” of our particular history.  It is all too easy to miss that main message by allowing oneself to be carried away with the style of intricate economic analysis characteristic of the modern literature devoted to the problem of the optimum length and scope of patent protection, or the optimum degree to which copyright should be enforced; and especially with the efforts to be more conclusive, and construct  “positive” theories exposing the economic rationales of this or that particular aspect of present-day legal institutions.  By focussing selectively upon specific and arresting features of the structure of protections afforded to intellectual property, and pointing to their putatively favorable consequences for social efficiency in resource allocation, a misleading impression can be conveyed that the law in this area is susceptible to easy and rapid reshaping for the purposes of enhancing economic welfare.

One cannot doubt that to inquire whether any cogent rationale based on efficiency grounds can be found certainly is illuminating, and quite germane to normative discussions of existing institutional arrangements.  Nor can it be seriously disputed that the evolution of the law in the societies of the West over time has manifested a great adaptive capacity.  One should notice, however, that whereas the considerations of economic efficiency - so much at the center of concern throughout the foregoing survey - would seem to call for great subtlety and differentiation in the nature and degree of IP protection provided, according to differences among industries in technological and market circumstances, this evidently is not a direction in which adaptation of the law has proceeded very far.  One might well wonder, in view of such analytical findings, why it is that patent and copyright terms are almost invariably made uniform across industrial sectors and product markets (some special exceptions being allowed under U.S. patent law to accomodate the regulatory requirements imposed upon the introduction of new ethical drugs).

Even more obtrusive is the fact that today much uncertainty and controversy surrounds the persistent difficulties of adapting intellectual property law to new technologies.  Central to these difficulties of adaptation are problems involving the consistency with which legal principles are to be applied, and the concerns for preserving the force of precedent, circumscribing ambiguities and uncertainties in the enforcement of rights, and reducing the costs of legal transactions and litigation.  Unfortunately, the economist’s conventional approach of evaluating specific institutional arrangements and policies in isolation does not naturally accommodate that legitimate and important class of systemic concerns, with which traditional legal scholars so often are occupied.  As a consequence, the literature on the economics of patents, copyrights, and trade secrets rarely notices the problems that arise at the interfaces, or in the interstices between those regions of the law.  Neither has it paid much concern to the interrelationships and connections between intellectual property and the larger matrix of the law of property, tort, and contract (however, see Cheung 1982, as an exception).

Nevertheless, it is in large measure for reasons precisely of the sort that conventional economic analysis has tended to overlook that legal institutions typically evolve incrementally in politically and culturally stable societies; that they preserve many aspects of outward continuity even when it becomes apparent that there has been a change in the circumstances of many of the economic actors affected by the institution, and that a radical transformation has occurred in the inner rationale and motivation for its maintenance.  Explicit recognition of some of the ways in which historical legacies of surprising antiquity continue to shape the nature of the legal protections afforded intellectual property, and thereby affect the allocation of innovative activities, is perhaps the most expedient and effective route to increasing the relevance and realism of the policy recommendations that economics can offer in this area. 


3. Intellectual Property Law and Some Legacies of History

Although the history of intellectual property rights in the West is replete with instances of redefinition and reinterpretation in response to pressures to better accommodate or advance the economic interests of members of the society upon whom those laws most directly impinged, many of the structure’s gross features continue to reflect the remote historical circumstances in which they originated.  The existence of these legacies from the past ought not be ignored, nor should the problematic aspects of such continuities with contexts very far removed from those of the present day be minimized.  In persisting, they necessarily impinge upon and influence both the search for new technologies and the organization of economic activities based on the exploitation of the resulting additions to the stock of knowledge.


3.1 Patents

Patents began as instruments used by noble or republican governments in later medieval and early Renaissance Europe primarily to induce the transfer and disclosure of foreign technologies.  Even the most cursory attention to this bit of history should give pause to one casual supposition which the basic economic analysis of the patent system has fostered - viz., that the protection of intellectual property has been instituted where governments recognized there was more to be gained by stimulating indigenous inventive activity, than by applying knowledge of techniques and products that could be “borrowed” freely from the rest of the world.

Patent, the English adjective, means “open”, and the noun form abbreviates the term “letters patent” (a literal translation of the Latin litterae patentes) - which refers simply to open letters.  These were the official documents by which certain privileges, rights, ranks or titles were conferred and publicly announced; hence they carried the seal of the sovereign grantor on the inside, rather than being closed by a seal on the exterior (see Hill 1924: p. 406).  The “openness” involved, thus, was in no sense connected with any disclosure of an invention - notwithstanding which, misapprehensions about this bit of etymology persist to the present day (see, e.g., Bugos and Kevles 1991).  Only much later did the granting of letters patent evolve into social contrivances for the encouragement of original invention.

In the fourteenth century, such grants were employed to encourage the introduction of foreign technologies through the emigration of skilled artisans from abroad, as in the case of the letters patent given to the Flemish weaver, John Kempe, by Edward II in 1331, or the protection granted to two Brabant weavers to settle at York in 1336, or the similar grant conferred in 1368 upon three clock-makers from Delft (see Federico 1929: p.p 293-95).  England at his time was technologically laggard in comparison to many regions on the continent of Europe, and, understandably, was endeavouring to “borrow” the more advanced industrial practices.  It was hoped that the foreign master craftsmen would introduce English apprentices to the “mysterie” of their respective arts; but, because they were not likely to remain in control of the newly skilled workers once these had passed into journeyman’s status, a cohort of potential domestic competitors would thereby be created from whom the foreign master obviously wished to be protected.

Many of the basic features of the patent are better suited to its initial purposes and historical contexts than to the subsequent use to which the contrivance has been put.  The disclosure provisions of modern patent systems, for example, were an essential and natural aspect of the effort to induce foreign artisans to reveal a “mystery”, and train domestic craftsmen in its pursuit.  Making the conduct of the trade or craft - and the consequent training of apprentices and journeymen - a condition for the privilege conveyed by the patent was quite straightforward, since that was the whole object of the exercise.  Protecting the instructors from the competition of their students, by giving them a monopoly of the trade directly addressed the spillover problem - since there was no way those they trained were likely to benefit except by setting up in competition as soon as they learned the “mysterie”.  Even the duration of these early English patents -- 14 years, with 7 year extensions possible - was not fixed arbitrarily: 7 years was the term of service of an apprentice, and so the protection afforded was to last at least for two generations of trainees.  Inasmuch as this was the conventional term of apprenticeship irrespective of the trade or craft, there was some considerable logic to fixing the term of the patent award uniformly across all branches of industry - even though, as has been pointed out, modern economic analysis finds this aspect of the contemporary patent system difficult to rationalize.

Granting monopolies also made sense fiscally for sovereigns whose powers of taxation and borrowing were very circumscribed.  It shifted the market risks to the foreign artisan, and transferred to him also the bother of collecting the excise tax in the form of the markup over his production costs.  Finally, there was no need to ascertain that the grantee had originated anything, only that at the time of the grant the practice was not being carried on - and hence could be presumed to be unknown - within the sovereign’s domains.  The criteria of “originality, novelty, and non-obviousness” that have emerged as definitions of what does and doesn’t qualify as an invention at the U.S. Patent Office, and elsewhere, might well be seen as the make-shift results of a two hundred year long struggle to utilize the grant of patent privileges to accomplish a restricted purpose for which, originally, it had not been designed (see Lubar 1990).

Most historical accounts place the origins of systematic state protection for intellectual property firmly in Renaissance Italy, whence it spread elsewhere, first on the continent of Europe, eventually reaching England.  But, in the fourteenth and early fifteenth centuries the property rights in question typically took the form of grants for the exclusive exploitation of locally unfamiliar processes or devices that had been originated elsewhere, and more likely than not by individuals other than the one seeking the privilege.  Venice took the lead in these developments: as early as 1332 its Grand Council established a privilege fund, providing loans and other rewards for a foreign constructor of windmills who offered to bring knowledge of this art to the city (see Prager 1944: p. 713); in 1416 the Council awarded one Franciscus Petri, from the island of Rhodes, a patent for a superior device for the fulling of fabrics - giving Petri and his heirs exclusive rights for fifty years to build, alter, and reconstruct the apparatus he would erect for that purpose (see Prager 1960: p. 379; Mandlich 1958: pp.115-16, 149-50; and Long  1991: p. 877).

In this era the practice of granting such privileggi, which was hardly confined to Venice, sought the revelation and application of “secrets” - whether of foreign provenance or the products of native genius.  When, in 1421, the Florentine commune awarded a patent to Brunelleschi for a new design of ship which, he claimed, could haul loads more cheaply on the Arno River to the benefit of merchants and others, the nature of the bargain for disclosure was spelled out candidly by Brunelleschi’s petition (Prager 1946: pp. 109-110):

he refuses to make such machine available to the public in order that the fruit of his genius and skill many not be reaped by another without his will and consent, and that, if he enjoyed some prerogative concerning this, he would open up what he is hiding and would disclose it to all.

From about this time forward, the issue of patent privileges for various devices became increasingly frequent, and, by 1460, the Venetian Senate in its administrative practice was differentiating between grants of exclusive monopoly to sell products incorporating an “invention”, and awards that forebade use of the device without permission while obligating the holder to grant licenses to others when “reasonable royalties” were offered (see Kaufer 1989: p. 4).  Technology importation continued to figure as a primary objective: in 1469 a German, one Johann von Speyer, received an exclusive monopoly of the trade of printing in the Venetian domain in exchange for introducing the craft.

It has become conventional in modern historical accounts of the development of intellectual property protection in the West to assign great significance to the Venetian Senate’s passage, on March 19, 1474 of the first general patent law.  This seems quite understandable in view of the resonance between present-day preoccupations with stimulating invention and innovation and the language of the famous preamble (transl. by Gilfillan (1964: p. 11):

We have among us men of great genius, apt to invent and discover ingenious devices... Now, if provisions were made for the works and devices discovered by such persons, so that others who may see them could not build them and take the inventor’s honor [sic] away, more men would then apply their genius, would discover, and would build devices of great utility to our commonwealth.

Yet, most authorities view this statute merely as having codified prior practice, rather than enunciating any “novel” principle (see Frumkin 1945, Prager 1948, Phillips 1982, Long 1991).  The law required the registration of any “new and ingenious” device not having been made hitherto within the Venetian domain, and prohibited all private parties save the inventor from making it for a period of ten years, on pain of penalties for violation of the code.  Furthermore, it appears that between 1474 and 1490 very few patents actually were issued under the Venetian code; this despite the fact that the period right through to the middle of the sixteenth century saw the continued granting of many patent privileggi conferring exclusive production rights for terms varying between 5 and 80 years, as well as monopolistic trade privileges (see Kaufer 1989: p. 6).

Despite the rising interest in invention, and the spread on the continent of Europe of the use of patent grants to encourage the development of new industrial practices as an instrument of mercantilist policy in France during the mid-sixteenth century, in England the first clear provision for “patents of invention” - as distinct from the technology transfer franchises sometimes referred to as “import patents” - did not emerge before the seventeenth century.  It did so then rather as an afterthought, in the course of a movement to free the economy and polity from the abuses of royal grants of monopoly privileges.

With the advent of the Tudor dynasty (1485), the former use of open letters as a means of encouraging national industry had given way to the negotiation by the Crown of secret agreements designed to attract skilled foreign artisans into its own service.  German armorers, Italian shipwrights and glass-makers, French ironworkers were enticed to cross the Channel in this fashion.  With Elizabeth I’s accession to the throne (1558), however, the previous policy of general encouragement for technology transfers was reconstructed: in 1561-1571 many patents were issued by the Crown under this policy, starting with a grant to two foreigners to introduce the manufacture of hard white Spanish soap, and another for the manufacture of saltpetre - an item previously imported from Antwerp (see Federico 1929: 293-97).  So extensively was the royal perogative of awarding monopolies of all sorts exercised on behalf of Court favorites and the Crown’s fiscal needs, that by 1601 Elizabeth was compelled to promise reforms in order to deflect a Parliamentary challenge to her authority in this regard.  Nevertheless, this only deferred the conflict; the abuses and retaliatory efforts to curtail the royal perogative escalated under James I, until in 1623 Parliament passed the Statute of Monopolies, declaring all crown monopolies, charters and patents thereafter contrary to law.  An exception was allowed, however, in the case of royal patents conferring a monopoly for 14 years or less “to the first and true inventor” of a new manufacture (see Federico 1929: p.299).

It is upon this exemption that the British patent system and its derivatives elsewhere have been erected.  Even so, the modern reading of the Statute of Monopolies as “the Magna Carta of the rights of inventors” (Machlup 1958: pp. 2-3), is somewhat anachronistic.  The verb “to invent” carried far more extensive connotations at that time than it does today.  For example, in a famous patent for a pump, granted by James I to Robert Crumpe in 1618, the sense of “invent” included “bringing into use, find, establish or institute manufacture” (Hill 1924: p. 416).  In short, only originality in England might be sufficient, since technology transfer, commercialization, and industrial development objectives also were seen as worthy public purposes that could be served through the award of patent monopolies.

The United States’ patent institutions were derivative from those of Britain’s North American colonies, dating back to early 17th century grants of an ad hoc character, resembling import franchise contracts.  The first such of these, granted in 1620 by a general court of the Virginia Company’s stockholders sitting in England, was awarded to a Mr. Somerscalls for a tobacco curing process patent that was not clearly an original invention (see Bugbee 1967: p. 58).  In 1641 the General Court of Massachusetts Bay adopted a number of provisions, including one patterned on the Statute of Monopolies and its exemption, thereby creating a statutory basis on which to grant future patents individually for “such new inventions that are profitable for the Countrie…” (Bugbee 1967: p. 61).  Importation of inventions from the ‘Old World’ was a natural enough proposition for the ‘New World’ settlers, so it is not surprising that even while British courts during the eighteenth century increasingly construed the purpose of patents to be the encouragement of indigenous invention, American’s continued to consider the potential utility of providing incentives for technology transfers.  Moreover, even at a later stage, in respect to the conditions of economic “openness” and competition for mobile resources, the situation of the American colonies and their successor States under the Articles of Confederation, bore a distinct resemblance to those of the city-states and principalities of the Renaissance and early modern Europe.  In an address to a joint meeting of Congress on January  8, 1790, President George Washington, who on previous occasions had concerned himself with the subject of intellectual property, called attention to various matters requiring legislative attention, such as  “the advancement of agriculture, commerce, and manufactures, by all proper means”, including

giving effectual encouragement, as well to the introduction of new and useful inventions from abroad, as to the exertions of skill and genius in producing them at home,...

The Constitutional era ushered in a decisive shift towards preoccupation with protecting national inventive and literary activities, swept away the disparities of treatment that had arisen among the former colonies, and cemented into the structure of federal law the distinctions between patent and copyright protection that today are taken to be fundamental.  Despite the considerable attention to patent policy issues in the American colonies during the latter seventeenth and the eighteenth centuries, up to the hiatus created during the period of the Revolution itself, the first systematized patent provision in America emerged only in 1784, and then as a footnote to the copyright provisions in the South Carolina “Act for the Encouragement of Arts and Sciences.”  This statute’s purpose was to establish literary property protection for a renewable fourteen year term.  However, the following interesting rider was included (Bugbee 1967: p. 93):

The Inventors of useful machines shall have a like exclusive privilege of making or vending their machines for the like term of 14 years, under the same privileges and restrictions hereby granted to, and imposed on, the authors of books.

What renders this provision rather intriguing today is that it so closely coupled patent protection with copyright protection, assigning the former as most appropriate to “machines “, and the latter to “books “, but otherwise barely distinguishing the treatment of the one from the other.  The language adopted by the Constitutional Convention in 1787 was influenced strongly by the previous state laws, and so spoke also of securing exclusive rights for “Authors and Inventors” in order to “promote the Progress of Science and useful Arts”.  Copyright and patents for invention were not mentioned explicitly - nor were import franchise explicitly rejected - as the means whereby this purpose might be accomplished.

The formal creation of a patent system during the early days of the U.S.’s nationhood was thus shaped most strongly by the experience of the former British colonies, and  hence (except in rhetoric) was little influenced by  actions of their revolutionary French contemporaries.  The law of 1791, which formally established a patent system in France, continued the practices of the ancien regime under which inventors received royal privileges freeing them to exploit their inventions outside the confines of existing guild controls.  What was rejected was the legal justification of the practise based upon assertion of the royal prerogative.  The new, revolutionary dispensation provided, instead, for the issuance of “brevets d’inventions” grounded in the “natural rights” of citizens to the fruits of their creative genius (see, e.g.,  Hilaire-Perez 1991; MacLeod 1991: pp. 889-91).  Americans were not so ready to accept this rationale in place of the rather different English legal theory with which they had grown up, however sympathetic in other respects they might be to the French children of the Enlightenment.  We have seen (above, in section 2.1) how disparaging even Thomas Jefferson was of the argument for “natural rights” in intellectual property on behalf of authors and inventors.

The U.S. Senate complied with Washington’s recommendation in his address of January 8, 1790, by appointing a Committee whose charge invited the consideration of provisions for the granting of technology importation franchises, as well as patents for invention and copyright protection, all within a single Act.  Only the latter two provisions, however, were to emerge from the congressional deliberations of 1790-91 (see Bugbee 1967: pp. 125-148).  Indeed, the response of the legislators to mounting pressure for grants of copyright led to the rapid passage of the Copyright Act (1790) first, which then made it necessary to pass a separate Patent Act in the following year, thereby creating the two distinct statutory bases for intellectual property protection in the federal law.  Of course, it is the perpetuation of this legal separation - one body of law having developed to protect inventors of  “machines” and the other to protect the authors of “texts” - that is the source of contemporary difficulties when new technologies are found not to fit neatly into either mold.  Computer software, for instance, has posed awkward problems inasmuch as this class of technologies is well described as “machines which are implemented in the form of text” (see, e.g., Samuelson 1984, and Samuelson 1992, for further discussion).  Of course, it is not suggested here that the separation between patent rights and copyrights which developed in U.S. law sprang simply from the accidents of the legislative history of the first Federalist administration.  Quite the contrary, because the readiness of the members of Congress to deal separately with petitions for grants of copyright, as the State legislatures before them had done, reflected the long antecedent evolution of the law of copyright.


3.2 Copyrights

In its late medieval origins, the copyright privilege had nothing to do with the encouragement of intellectual creativity or originality of expression.  Indeed, the very notion of claiming originality of authorship was a Renaissance departure from the scholastic tradition of seeking to cloak one’s own ideas with the authority of Aristotle and the other “ancients” (see e.g. Long (1991).  Rights of literary property involving published works remained legally unprotected in Europe until the fifteenth century, when the introduction of the printing press made the rewards of publishing - or plagiarism - far greater than ever before.  The new technology of printing also transformed the economics of the copying business, by substantially increasing the disparity between the cost of the first (printed) copy and the unit costs of subsequent copies.  Copyright law, from its origins, has been shaped more by the economics of “publication” than by the economics of “authorship” (see Patterson 1968; Plant 1974: Ch. 4).

Like the earliest patents of invention, the first known copyrights appeared in Renaissance Italy.  By the end of the 1460s the craft of printing had been introduced in Rome and Venice, and, with the issuance of a series of privileges relating to books and printing by the Venetian Cabinet, Senate, and other governmental bodies, during 1469-1517, that city quickly assumed the lead in Italian printing.  These privilegii included importation franchises the first  of which, in 1469, awarded the German printer Johan of Speyer the exclusive privilege to conduct all printing in the city for five years in return for establishing the craft (see Prager 1944: p.715).  There soon followed monopolies in the form of exclusive licenses to print or sell an entire class of books for a stipulated term; prohibitions of the importation of books printed abroad; patents for the improvement of printing and typography (see Bugbee 1967: pp.43-44.)  The question of rights of authorship was largely disregarded, since much of the demand was for extant works (like the Bible) that were in the public domain, and whose authors - even when identified - were long since dead.

However, towards the end of the century some privileges were awarded for the protection of authors which did have the character of modern copyright: in 1486 the historiographer of the Republic was granted exclusive control over the publication of his work; and in 1493 the Cabinet made an exclusive ten-year grant of proprietary rights, to one Daniele Barbaro, in the publication of a book authored by his deceased brother (Bugbee 1967:p.45).  More typical were the copyrights issued to editors and publishers for individual works written by others; these were petty monopolies, prohibiting publication of the work without permission of the grantee.  Publishers were soon flocking to the government to reserve well-known titles for themselves, in the hope of either publishing themselves or selling the right to another printer at some future date; in 1517 the resulting shortage of available titles caused the Senate to revoke all such copyright privileggii henceforth to “new and previously unprinted works”.

What was probably the first general copyright law in the world came in the form of a decree issued by the Council of Ten in Venice in 1544-45, prohibiting the printing of any work unless written permission from the author or his immediate heirs had been submitted to the Commissioners of the University of Padua, but no provision was made to maintain a register of protected works (Bugbee 1967: p.46).  This step was prompted by the continued unauthorized printing of works for which copyrights had been granted.  A further measure directed toward more complete regulation of the printing business came in 1548-49, with a Council decree establishing a gild into which all Venice’s printers and booksellers were to be organized.  An added motivation was to assist the Church in the suppression of heretical literature.  The same concern with censorship of a potentially dangerous new medium of communication, rather than securing the rights of authorship, animated the royal officials of sixteenth century France to issue licenses or privileges for the publication of acceptable books.  The French Crown proved better able than the Italian city states to resist the Church’s efforts to share control of the printing business.

In the Netherlands privileges resembling those of Venice - but without censorship provisions - were issued to publishers by both the state and central governments, but the main means of regulating destructive competition involving the pirating of texts was a system of informal non-interference agreements among the Dutch printers.  Similar arrangements had developed among leading German publishers, and were exercised through a gild and through the book fairs of Frankfurt and Leipzig (see Bugbee 1967: p. 48).  When the German book trade was deranged during the Thirty Years’ War, the Dutch quickly assumed the leadership of the publishing industry in Europe.  Although the flourishing printing business of the Netherlands benefited from the attraction of scholars to the comparatively free intellectual atmosphere of the Dutch towns in this era, protection of local authors’ rights was not a concern; nor were the rights of foreign authors and publishers.  Of course, at this time throughout Europe imported books, pamphlets, and pictorial material were subject to reprinting and sale without compensation for their originators.  But, the highly successful Elzevier family of Leyden and Amsterdam were especially notorious in this regard.  According to Henry Haven Putnam (Books in the Middle Ages, II, p. 332, quoted by Bugbee (1976):p. 178 n. 150):

As far as the foreign authors were concerned, the Elzevirs appear to have followed simply the dictates of their own convenience and advantage. They took what material they thought they could use, without troubling themselves to make either requests or acknowledgments.  They were, in fact, the most extensive piratical publishers that the world had as yet seen, and may be said to have reduced piracy to a business system.

The Venetian printers’ guild was closely resembled by the Stationers’ Company which was chartered in England by Mary Tudor a few years later, in 1557.  The object was to provide the Catholic sovereign with the instrumentality to effectively control what could be printed for widespread circulation.  Masters of the Company could search the premises of any printer or bookseller for works not printed in accordance with the licensing laws, and, whether or not censorship was obnoxious or desirable in their opinion, they had a strong economic motive to enforce their monopoly by suppressing publications not licensed by the Crown.  Indeed, it has been suggested that censorship in England, particularly in the mid-seventeenth century, was more a product than a cause of the Stationers’ monopoly (see Patterson 1968: p. 101; Plant 1974 on the Stationers’ petition of 1643).

Thus, in England, copyright was to begin with simply a monopoly franchise granted for the purpose of regulating the business of printing and publishing.  It had naught to do with the encouragement of “freedom of expression”, nor was it intended to promote authorship per se.  Nevertheless, while copyright was monopolized by the printers of the Stationers’ Company, authors in England had personal property rights in their unpublished manuscripts, as well as contractual protections under the common law.  These extended to a recognized interest in the integrity of the form and content of the work for which publication permission had been given, thereby restraining printers from making arbitrary alterations in texts once they were published and thereafter dispensing with the need to recompense the author.  In short, under these arrangements it was necessary for a stationer, i.e., a printer-copyist, to obtain the author’s permission to publish his manuscript, even though the author did not hold the copyright (see Patterson 1968: pp. 65-69).

The modern statutory protection of authors’ copyrights in the U.S. and Britain arose in  the early eighteenth century almost as an historical accident.  In England  during the closing decades of the seventeenth century, the passing of the era of political and religious censorship made it increasingly difficult for the Stationers’ Company to interest the Government in the control of the new printing presses that were springing up throughout the country; when the Licensing Act that had given teeth to its monopoly was allowed to lapse in 1694, the competition intensified as country booksellers openly flouted the doctrine of perpetual copyright which the Company had sought to establish on the evidence of assignments registered in its record books.  After 15 years of increasingly chaotic conditions of unregulated competition, the London booksellers at last managed to secure new legislation, in the form of the 1709-10 Act of Queen Anne.  This, the first Copyright Statute, did not give the booksellers the perpetual rights they had sought, but, instead, limited the exclusive right to printing new books registered with the Stationers’ Company to a term of 14 years (following the precedent established in the case of patents under the Statute of Monopolies of 1623), and it gave the proprietors of the copyright on existing books the sole right to print for 21 years.  Moreover, to open up the trade, the Act of Anne eliminated the guild monopoly on the holding of copyright: anybody now could hold the copyright for a new work - printers, bakers, cobblers, and even authors.

From the foregoing brief account of the origins of copyright it is evident that the signal distinction between the protection of ideas under patent law and the protection of expression under the law of copyright owes a great deal to the fact that copyright arose in response to both internal and external interests in regulating the nature of competition in the printing and publication business, an industry in which decreasing costs were at an early date felt to be a source of instability.  Copyrights, therefore, were inherently concerned with the security of property rights in the expression of ideas - whether old ideas or new ones.  Only much later have they come to be enlisted in the cause of stimulating the production of new knowledge.  Is it so surprising, then, that in this new role they sometimes are found to perform rather awkwardly?  Consider, as a simple case in point, the recent assignment of copyright law to the task of protecting intellectual property rights in computer software.  There it has been observed that the protection afforded to unique expression offers no security for originators of novel algorithms and concepts for applications programs (such as spreadsheets, and relational databases).  Yet, at the same time the opportunities that the law creates to protect original expression has had the effect of encouraging an excessive degree of variety in the “look-and-feel” of software, whereas some greater degree of standardization of the machine-user interface is widely felt to be desirable from the standpoint of economic efficiency (see, e.g., Farrell  1989;  David and Greenstein 1990).


4. Concluding Observations

Historical studies reveal that although patents, copyrights and legal protection of trade secrets are recognizable institutions familiar in western societies for centuries, policies bearing upon the protection accorded to intellectual property, and the juridical-institutional arrangements used to implement them, have been a mutable thing, adapting over time and across societies to the perceived needs and advantages of interested parties.  The adaptations that may be seen in each form of protection, moreover, have occurred within the historical context of other, related institutional arrangements affecting the costs and benefits of maintaining specific IP rights.

An implication of this observation is that the effort to institute a uniform international regime of IPR protection is almost bound to occasion conflict and controversy.  Even where it is possible to argue that a new IP regime could be found that would be Pareto-improving, the need to align domestic and international laws adds additional constraints that tend to render such solutions impractical.  As a result, discussions of the “correct” international system of protection for IP are more likely than not to degenerate into rhetorical efforts to impose institutional arrangements that may be well adapted to the national purposes and the domestic legal contexts of one country (or several similar countries), upon societies that are quite different in those respects.

The supposed trade-off between promoting technological progress and technology diffusion, or transfer, has led to the view that strong protection of IP rights must serve the former goal, at the expense of the latter.  This has served as a rationale for the conflicts between the technologically advanced and the developing nations over IP issues: an interest in weak or minimal protection for IP is imputed to the developing countries’ limited capacity to innovate technologically, and their comparative advantage in imitating the products and processes originated elsewhere.  But, this is not necessarily the case.  Indeed, just the opposite point may be made both on modern theoretical grounds, and by reference to historical experience: legal protection of intellectual property rights in the form of state-sanctioned monopoly franchises can have seriously detrimental consequences for the processes of discovery and invention, and may be instrumental in bringing about the successful transfer and commercial application of new scientific and technological knowledge.  The arguments supporting this can be summarized as follows:

(1) Because invention often is a cumulative process, as scientific inquiry more generally is recognized to be, the enforcement of patent rights can interfere with further discovery.  It deflects resources into “racing” for the priority prize, and into inventing around the basic patent.  It discourages complementary inventions, because the returns may be extracted by the first patentee, whose work has been built upon.  Note the distinction made here between inhibiting progress, rather than discouraging investment in R&D.

(2) Weak and narrow patents, as in the modern Japanese system, encourage firms to cross-license and thus disseminate findings rapidly, encouraging the collective invention process - in the direction of elaboration and adaptation to particular markets, although it may discourage efforts to achieve radical, fundamental inventions (see Ordover 1991, and references therein).  This is consistent with one aspect of Kitch’s (1980) “prospect” argument for broad, strong patents, as encouraging fundamental innovations and their orderly development.  But, it contests the premise in the latter that a monopolist can identify and efficiently contract for the performance of the cumulative, elaborative research.

(3) While it is arguable that weak patent protection regimes encourage exchanges of patent licences among firms that are symmetrical in regard to their technological capabilities, the opposite is more likely to be the case in regard to transfers of technical know-how from more to less capable organizations.  Much of a firm’s capability for absorbing and implementing patented innovations depends upon its access to tacit knowledge that is complementary to the patent.  If it does not possess such knowledge already, because it has no experience base in the area and cannot readily hire skilled personnel from firms that do, it must contract for the required information.  But, tacit information is notoriously difficult to contract for, due to the problems of informational asymmetry and monitoring costs.  This problem bedevils North-South technology transfers that do not involve the intermediation of multinational organizations.  Nevertheless, a regime of strong intellectual property protection of codified knowledge in the receiving country provides a basis - as Arora (1991) recently has demonstrated - for structuring contracts that would accomplish the transfer of the uncodified, tacit knowledge which is necessary for the profitable operation of industrial processes, but which has not been publicly disclosed by the patent- or copyright-licensor.  Further, contractual arrangements to transfer tacit knowledge as part of the terms for the licensing of the use of codified and published information (e.g., in a patent), generally will require enforcement of legal protection for trade secrets - in the interests of both the licensor and the licensee. 

(4) Finally, intellectual property rights in the form of exclusive franchise guarantees can fix the problem of failure to exploit a patent through modifications to local market conditions due to the problem that learning of this kind will not be appropriable, and hence there is less interest in generating learning-by-doing gains, as David and Olsen (1991) have shown.  The foregoing historical survey reinforces the implications of this line of theoretical analysis, as it reminds up of the extensive original use - in both the kingdoms and principalities of late medieval and early Renaissance Europe, and subsequently, in the societies of the New World - of the granting of patent and copyright privileges to encourage the importation and local adaptation of technologies that already had been mastered elsewhere.



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