Abstract
This article aims to provide some elements of an evolutionary theory of property rights. It applies a systems-based capital-theoretic perspective to explain the formation and transformation of property rights structures. The approach emphasizes how entrepreneurs create capital combinations by connecting capital goods—defined widely to include property rights, such as patents—in their production plans. Their actions change complementarity relations between property rights as used in production. We treat the property rights structure as a complex adaptive system that exhibits increasing structural complexity as it evolves. Entrepreneurs discover gaps in the property rights system. As they organize production to exploit profit opportunities, entrepreneurs regroup existing intellectual property rights (IPR) into new modules, such as patent pools, that encapsulate more complex combinations of basic building blocks of intellectual property. A patent pool constitutes an interpolation of a new meso level within the macro IPR structure. We apply our framework to the first of the patent pools for digital video compression technology used in digital television and DVDs.
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Notes
- 1.
This chapter is a longer, unabridged version of Harper (2014) and contains more extensive details and citations on the connections between evolutionary economics and the law and economics approach to property.
- 2.
Demsetz (1967: 347) also describes property rights as an “instrument” that helps people form expectations in their interactions with others. His approach focuses upon how changes in property rights can internalize potentially relevant externalities (e.g. spillover effects). Although they differ in emphasis and the problems they address, both the capital-theoretic perspective developed in this paper and Demsetz’s approach examine how property rights can coalesce into new bundles as economic circumstances change and new opportunities emerge.
- 3.
- 4.
This article focuses upon market entrepreneurship rather than legal or political entrepreneurship. An example of the latter is copyright owners’ lobbying Congress to implement legislation (the Digital Millennium Copyright Act of 1998) that increases penalties for copyright infringement on the Internet and criminalizes the circumvention of technological protection measures to control access to copyrighted works. See Litman (2001: 122–149).
- 5.
Willful patent infringers who rely upon high detection and enforcement costs to shelter themselves from patent assertion are capturing value through uncompensated transfer and challenging the rights of the patent owner from the perspective of the legal status quo.
- 6.
The relative stability of the menu of property forms is a result of the numerus clausus principle, which limits intellectual and other property rights to a small closed class of well-defined types. (Numerus clausus means “the number is closed”.) This legal principle discourages judges from recognizing new or customized forms of legal property rights. The principle is explicit in civil law systems and implicit in Anglo-American common-law systems (Merrill and Smith 2000: 9–11). For a critique of Merrill and Smith’s assertion of the existence of a numerus clausus principle in the context of intellectual property law, see Mulligan (2013).
- 7.
“Patent pool” is not actually a legal technical term, so its meaning is not defined by law (United States v. Line Materials, 333 US 287, 313, n. 24 (1948) in Klein 1997: 3). A patent pool is different from cross-licensing, in which firms agree bilaterally to license their intellectual property to each other and retain control over it.
- 8.
The classification of rules in this paragraph draws upon Ostrom et~al.’s (1994) study of rules and common-pool resources. For a discussion of how Ostrom’s proposed set of institutional design principles for managing common-pool resources derives from foundational evolutionary principles, see Wilson et~al. (2013).
- 9.
Widespread use of the portfolio license agreement across firms at the meso level increases its value because reusable contract terms are an important source of economies of scope and network effects. “Legal advice, opinion letters and related documentation will be more readily available, more timely, less costly, and more certain” (Klausner 2010: 761). This is especially so in the case of the MPEG-2 licensing administrator, which manages several other patent pools, including three separate pools for high-definition digital video coding standards (i.e. MPEG-4 AVC, VC-1 and MVC) used by Blu-ray Disc products and other formats. Legal knowledge developed and embodied in the MPEG-2 license has been carried over to these other portfolio licenses.
- 10.
Individual patents only give patent owners rights of exclusion, not affirmative rights to use their intellectual property. “Ownership of a patent does not entitle one to do anything, including making the invention. Patent ownership only allows the owner to stop others from doing certain acts without the owner’s permission” (Hays 2008: 502). The uses to which patent holders can put their intellectual property are determined by other areas of law, such as criminal laws and public safety laws (Kieff and Paredes 2004: 188).
- 11.
The claiming system of patent law requires patent holders to articulate the boundaries of their invention by the time of patent issuance, usually by listing the necessary and sufficient characteristics of the invention (Fromer 2009). The claims comprise technical descriptions of the process, machine, method, or matter contained in the original patent application. The scope of the exclusion right of an individual patent depends upon legal rules of “patent claim construction” (i.e. the methodology for interpreting the patent’s meaning).
- 12.
The “economics jury” is still out when it comes to determining the empirical effects of patent pools on innovation (Lampe and Moser 2010; Joshi and Nerkar 2011; Flamm 2013). But it seems clear that a simple analysis of patent statistics is not sufficient. Rather, it is important to examine the specific content and structure of the rules of organization that form patent pools, to trace changes over time in how pools are organized, and to employ direct measures of innovation in product markets rather than indirect correlates of innovation, such as patenting metrics. As Flamm (2013: 45) concludes: “The clear implication is that organizational details matter: no single conclusion is likely to fit all cases. As theory seems to predict, the empirical effects of patent pools on innovation are likely to be ambiguous, dependent on the historical and institutional particulars of the pool and the industry it affects”.
- 13.
According to Cheung (1982: 49), a key element of the patent system is an “observability conversion”. In order to protect an idea with a patent, it is necessary to convert the idea into an observable product or process and to draft a patent claim that sets boundaries for the idea.
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Acknowledgments
The author is indebted to two anonymous referees for constructive suggestions for improvement. I would also like to thank participants at the following seminars and conferences where the paper was presented: the Colloquium on Market Institutions and Economic Processes, Department of Economics, New York University, April 2012; the Annual General Meeting and study day of the Law and Economics Association of New Zealand (LEANZ), Wellington, June 2012; session 5A on Complex Systems of the 14th International Schumpeter Society Conference, Brisbane, Australia, July 2012; and the annual conference of the Society for the Development of Austrian Economics, New Orleans, November 2012. I would particularly like to thank Karen Bradshaw Schulz, Tony Endres, Lew Evans, Roel Kramer, William Lenihan, Stuart McDonald and Thomas Pontani for informative discussions and comments. Any remaining errors are the author’s.
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Harper, D.A. (2015). Intellectual Property as a Complex Adaptive System. In: Pyka, A., Foster, J. (eds) The Evolution of Economic and Innovation Systems. Economic Complexity and Evolution. Springer, Cham. https://doi.org/10.1007/978-3-319-13299-0_14
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