Policies Toward Policies Toward Intellectual PropertyIntellectual Property

Cost And Public GoodCost And Public Good

Aspects of Information Aspects of Information

ImplicationsImplications

Costly informationCostly information ConsumersConsumers

May not have all information about goodsMay not have all information about goods May suffer “harm” in consuming goodsMay suffer “harm” in consuming goods Producers provision of information limits harmProducers provision of information limits harm

ProducersProducers Provide costly information only if excludableProvide costly information only if excludable

Information as a Public GoodInformation as a Public Good Not generally excludableNot generally excludable

Use of information by one does not exclude others Use of information by one does not exclude others from using itfrom using it

Markets may provide too little InfoMarkets may provide too little Info

No incentive for producersNo incentive for producers Lack of excludability means suppliers cannot Lack of excludability means suppliers cannot

capture value of information they createcapture value of information they create Non-creators can use information created by Non-creators can use information created by

others without bearing the costothers without bearing the cost Consumers Consumers

may suffer “harm” in consuming products in may suffer “harm” in consuming products in order to gather information about themorder to gather information about them

Or make less satisfying consumption Or make less satisfying consumption decisionsdecisions

Solution: Make Information Solution: Make Information ExcludableExcludable

PatentsPatents Creates property rights for inventorsCreates property rights for inventors 20 year monopoly on use of patented item20 year monopoly on use of patented item Pharmaceutical patents extended by FDA review Pharmaceutical patents extended by FDA review

plus half of the clinical testing time, up to 5 years plus half of the clinical testing time, up to 5 years totaltotal

CopyrightCopyright Creates property right to creative worksCreates property right to creative works Covers written materials, images, and recordingsCovers written materials, images, and recordings For at least the life of the creator plus 70 yearsFor at least the life of the creator plus 70 years

TrademarksTrademarks Exclusive use of registered marksExclusive use of registered marks Encourages building of reputations for brandsEncourages building of reputations for brands Creates an incentive for a firm to provide Creates an incentive for a firm to provide

information about its brandinformation about its brand

Current ProblemCurrent Problem Conflict between private use and Conflict between private use and

commercial use commercial use Rights of consumers versus rights of producersRights of consumers versus rights of producers Need to preserve markets for informationNeed to preserve markets for information

Consumers must be able to purchase use of Consumers must be able to purchase use of information or it has no value to theminformation or it has no value to them

Producers must be able to limit use of information in Producers must be able to limit use of information in order to get paid for producing itorder to get paid for producing it

Ease of information exchange due to Ease of information exchange due to technological change continues to pose technological change continues to pose challenges to pre-electronic policieschallenges to pre-electronic policies

Examples: electronic tapes/CDs, music Examples: electronic tapes/CDs, music downloads, film/music pirating, file sharingdownloads, film/music pirating, file sharing

Cost Structure Contributes to Cost Structure Contributes to ProblemProblem

High up-front or sunk costsHigh up-front or sunk costs Pharmaceuticals, movies for examplePharmaceuticals, movies for example

Cost of use or distribution relatively lowCost of use or distribution relatively low DVDs, CDs, are cheap to produceDVDs, CDs, are cheap to produce Internet exchange even cheaperInternet exchange even cheaper Cost of producing new drugs in quantity small relative to Cost of producing new drugs in quantity small relative to

R&D, testing costsR&D, testing costs Information easy to “steal” after it is producedInformation easy to “steal” after it is produced Rights enforced through litigation, courts, which Rights enforced through litigation, courts, which

adds cost and uncertaintyadds cost and uncertainty These may undermine incentives to produce These may undermine incentives to produce

informationinformation Unless cost of producing information also falls Unless cost of producing information also falls