and reward successful inventions that
result from creative recombination of
prior art. When ideas are combined
with other ideas, opportunity costs
can grow exponentially.
7 For example,
carbon nanotubes can be used not
just for computing devices but also
stronger-than-steel sporting goods,
flame retardants, body armor, low-
friction paints, electronic transistors,
heat sinks, solar cells, hydrogen stor-
An exponential increase in patent ap-
plications, for example, indicates the
growing interest in seeking competi-
tive advantage. Likewise, the rise of
code repositories on GitHub, founded
in 2008, shows the opportunity provid-
ed by code sharing and recombination
(see the accompanying figure). Global
networks, digital, systems, and interop-
erable architectures that accumulate
innovations just intensify policy debate
about the rational balance between ap-
propriate protection and fair use.
As the economics of innovation go
exponential, IP protections can prevent more innovation than they protect. Stronger protection increases
incentives to invent now but increases costs to invent later.
growth then means marginal gains
today have magnified costs tomorrow.
When policy is more about protectionism than protection, it is inefficient
and unwise. We need IP 2.0 policies
that respect innovation realities.
Unfortunately, current legislation
offers little coherent rationale for how
long IP should be protected, whether
for mobile apps, life-saving pharmaceuticals, novel materials, or Twinki-fied bananas. The lengths of IP protections appear divorced from basic
economic principles of efficiency and
effectiveness. Does policy respect how
technological innovation really occurs?
Not when there is too much regulatory
fiat instead of market mediation. We
learned this lesson when we stopped
selling airwaves at fixed prices and
made them more responsive to markets through spectrum auctions that
promoted leaps in innovation. Such
market mechanisms can make life—
and innovation—better for both buyers and sellers. Innovation increasingly
emerges both from “recombination”
and “network effects.” Rigid, static,
and unresponsive IP regimes that grant
maximum protections for fixed lengths
of time hurt innovators and customers alike. To paraphrase Clemenceau’s
comment about war and generals, IP
protections are too important to just
leave to the lawyers. A networked world
needs markets in IP protection.
What Is to Be Done?
Economists typically remark that
optimal IP policies balance comple-
mentary tensions: protections must
be adequate to stimulate investment
without conferring too much mo-
5 Balanced protection
ensures future competition but not so
much that an innovator can’t recover
costs and still profit from their innova-
tion investments. But what about op-
portunity costs associated with poten-
tial follow-on innovations in this era
of APIs and greater interoperability?
Balanced IP policies would recognize
Patent applications* 1880–2013 and new software repositories** on GitHub show
* Source: USPTO http://www.uspto.gov/web/offices/ac/ido/oeip/taf/reports.htm#by_hist.
** Source: GitHub https://github.com/blog/1724-10-million-repositories;
Design Patent Apps Utility Patent Apps Both
2008 2009 2010
Growth of Github Repositories (2008–2015)
2011 2012 2013 2014 2015