WHY GEORGIA SHOULD NOT BE A FRIEND OF PATENTS

Daniil Gorbatenko argues that strengthening intellectual property rights hurts an economy.

In this essay I will try to make a brief case against the increase of intellectual property protection in Georgia based on two arguments. For the sake of brevity, the article will be limited to the industrial intellectual property, more specifically, to patent protection of inventions which matter the most for economic development. First, I will try to convince Georgian readers that intellectual property is by its nature contrary to economic freedom. Second, I will endeavor to demonstrate that there are good reasons to believe that intellectual property rights of inventions are not indispensable, and may even be harmful to, innovation and long-term economic growth.

Before proceeding to the thrust of the argument, let us look at the current situation with industrial IP protection in Georgia. Currently industrial IP protection is governed mainly by the Patent Law of 1999. The Patent Law provides protection to inventions, utility models and industrial designs through issuance of patents to their authors. In regards to inventions, which are the focus of this article, the term of validity of patents is set by the Patent Law at 20 years from the day the application for the patent is filled with the relevant government authority, the Sakpatenti.

This is hardly a situation where one may say that inventions are unprotected in Georgia. In fact, the state of protection is in line with the international practice (for example the term of patent validity under the European Patent Convention is also 20 years). But is this protection justified? Or does it need strengthening?

I believe the answer to both questions should be no.

First of all, intellectual property (including inventions) is, by its nature, inconsistent with economic freedom which Georgia has recently made its top priority in its development. As the President of Georgia Mikheil Saakashvili said in his speech introducing the Act on Economic Freedom, the Georgian people’s “ambition should be to turn Georgia into a real flagship of the world’s liberal economic ideology, to create a comparable advantage referring to other countries.” In the years following the Rose Revolution, Georgia has literally stunned the world by its development from one of the world’s most corrupt and backward countries to one of the world leaders in pursuit of economic freedom and speed of economic growth and institutional improvement.

Intellectual property is a restriction on economic freedom. To see why, one must understand how IP differs from normal property. The difference lies in the nature of the object that is up for discussion. In case of IP, it is not a material thing but an ideal object.

Normal property rights are rights to exclude others from using a particular object without the owner’s consent, and are part and parcel of economic freedom. Without an agent being secure in his ownership of material objects, no economic autonomy is feasible. Property rights extend only to the relevant material objects.

In contrast, as Dr. Tom Palmer clearly demonstrates in his 1990 article on moral justification of patents and copyrights, intellectual property rights work differently. Since they relate to objects that have no temporal or spatial boundaries, they are in essence rights to interfere with others’ exercise of their property rights. In other words, whereas normal property rights are passive protections against unwelcome intrusion of others, IP rights are means for active intrusion into the autonomy of others. But the free society that Georgia is trying to build should be built on the premise of equal rights, not conflicting rights.

More proof that the alien nature of IP rights to a free society is evident in their origin: they never emerge spontaneously. Historically, they have always been creatures of governments, i.e. arbitrary government granted monopoly privileges. The arbitrariness of IP rights is nowhere more vivid than in its term of validity. There is no way to rationally explain why it should be, say twenty years for inventions, and not two hundred or two thousand.

Now, one may argue that although IP rights may indeed restrict economic freedom, they are necessary for economic growth because they make innovation possible. And indeed if it were so, we would have to agree to the restriction of liberty in light of its indispensability. But are patents for inventions really indispensable?

The standard case of defenders of patents for inventions is based on the idea that without a monopoly privilege prospect for inventors, there will be an undersupply of inventions. The underlying argument is that inventions are non-rivalrous goods and normal economic logic does not apply to them. The argument goes as follows:  A person invents something useful having potentially invested significant effort into the process. But since invention is nothing but an idea, it can easily be acquired and utilized by other people who will reap the bulk of the gains from the invention and leave the inventor without a sufficient reward, without in any way diminishing the invention. Thus, without legally mandated reward for inventors, they would not have sufficient incentive to do their job.

The problem with this argument, as illustrated in the research of David Levine and Michele Bouldrin  (see e.g. Levine, Bouldrin, 2004), is that in fact the acquisition of knowledge of an invention is not as costless as the standard model assumes. And since acquiring such knowledge is actually costly, the inventor almost always has an advantage over others that he can exploit at a profit which may well serve as an incentive to invent. It may also be argued that this is the profit of an inventor that is economically justified.

What a patent for an invention does is give an inventor a monopoly right to extract revenue from all uses of his invention, which is equivalent to a tax on its use. This tax necessarily distorts normal economic interaction and destroys wealth.

Moreover, giving an inventor monopoly profits from his inventions may in theory discourage him from making more inventions, which is analogous to a monopoly in theory undersupplying the market with goods that it produces and being slow in innovation.

Thus, not only are patents not indispensable for people making inventions, but they may also be counter-productive for economic development.

In summary, the above analysis does not incontrovertibly prove that patents for inventions have a universally detrimental effect, for an ironclad proof is probably impossible. But at a minimum, it suggests that the use of patents in economic regulation should be approached with great caution and that it would be premature for Georgia to make a step in the direction of further strengthening them.

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