Over the past two decades, a largely overlooked revolution in intellectual property law has taken place.
In both patent and copyright law, policymakers have taken almost every available opportunity to weaken protections for the originators and owners of IP-protected assets. In a new book, The Big Steal: Ideology, Interest, and the Undoing of Intellectual Property, I document this unraveling of property rights in the digital economy and identify the ideological and economic forces behind these developments. In that book and a recent contribution to Competition Policy International, I assess whether this weak-IP trajectory promotes innovation and competition policy objectives. Contrary to the standard assumption that antitrust and IP policy inherently stand in tension, I conclude that the erosion of IP rights across content and tech markets risks harm to both innovation and competition.
In the patent system, judicial and legislative actions have eroded the property-like character of a patent. Starting with the Supreme Court’s 2006 decision in eBay Inc. v. MercExchange LLC, the federal judiciary has precluded significant categories of patent owners from seeking injunctive relief and, in cases involving software and medical diagnostics, constrained the scope of patentable subject matter. Enacted in 2011, the America Invents Act created the Patent Trial and Appeals Board (PTAB), which enables any party at any time to challenge the validity of an issued patent. In 2018, the Court held in Oil States Energy Services v. Greene’s Energy Group that, for certain purposes, an issued patent is not a property right but a “public franchise” revocable by administrative action.
In the copyright system, the federal judiciary has adopted interpretations of the copyright statute that systematically favor infringers over copyright owners. Starting with a landmark 2010 decision in a case brought against YouTube by Viacom and other content owners, the federal courts have adopted an unusually expansive understanding of a “safe harbor” in the Digital Millennium Copyright Act. Under that interpretation, platforms are largely immunized from liability for infringing content uploaded by users so long as they maintain a notice-and-takedown mechanism. Starting with decisions involving Google Images in 2007 and Google Books in 2014, the courts have adopted expansive understandings of the fair use exemption to protect mass digitization and similar actions for search engine purposes.
These policy actions reflect an intellectual climate, which prevails in the academy and the advocacy community, that strong IP rights inherently favor “corporate interests” over the public interest by inflating prices and blocking entry. Yet an inconvenient fact challenges this simple “good guy/bad guy” narrative.
Since the inception of the digital economy, tech platforms have consistently advocated for legal changes to weaken IP rights across content and tech markets. This can be observed through hundreds of amicus briefs filed by large tech platforms or affiliated trade associations in IP-related litigation at the Supreme Court and prominent appellate courts, tens of millions of dollars in reported lobbying expenditures, and funding of advocacy organizations. Research institutions, venture capital firms, the biopharmaceutical industry, and the media industry usually take the opposite position.
Large tech platforms use arguments and rhetoric that coincide with an appealing “information wants to be free” narrative cultivated in the academy and by advocacy organizations. Academics and advocates both tend to view IP rights as legal monopolies, and hence they argue that the public interest demands confining those rights to the absolute minimum necessary to enable the recovery of innovation costs. This anti-IP presumption translates into policy actions that systematically favor imitators over originators.
It is important to appreciate why tech platforms favor weakening IP rights. For a platform, content and tech inputs typically “feed” a larger product and services ecosystem, from which revenue is sourced elsewhere. Two examples can illustrate. In the content market, original high-value video is a necessary input for a site such as YouTube, which then uses that content to attract users and consequently ad revenues. In the smartphone market, the wireless communications technology developed by firms such as Ericsson, Nokia, and Qualcomm are necessary inputs for a device producer such as Apple or Samsung, which embeds that technology in a branded product that it sells to consumers. Like any business, digital platforms and smartphone producers want to reduce their input acquisition costs, and therefore they favor legal changes that weaken IP protections for content and tech suppliers.
The business imperative to reduce input costs drives platforms to favor legal changes that weaken IP rights. Consider the eBay decision, which limits the availability of injunctions against patent infringers, or the expansive fair use decisions, which exonerate copyright infringers in qualifying circumstances. If a tech or content supplier can no longer credibly threaten to seek an injunction or even a monetary remedy against an infringing user, then the price it can demand in licensing negotiations falls accordingly. As the prices paid to tech and content suppliers fall, profit margins for IP users rise. Effectively, tech platforms have renegotiated the price of required content and tech inputs by weakening the IP infrastructure of the digital economy.
In the short term, users likely welcome this valuation reset. Users on social media platforms like watching copyright-protected videos for free, and consumers like paying less for patented drugs. The natural attraction of “free (or cheaper) stuff” is in part why the campaign for weaker IP rights has been so successful. However, degrading IP rights is likely to result in a policy “lose-lose” that makes tech and content markets both less competitive and less innovative over the longer term. As I showed in a previous book and explore further in my most recent contributions, the “organizational history” of U.S. tech markets suggests that weak IP rights are likely to discourage innovation or to confine innovation to platforms that maintain “walled garden” ecosystems or vertically integrated firms that maintain end-to-end innovation and commercialization pipelines.
This overlooked relationship between IP rights, organizational structure, and competition policy can be illustrated by the evolution of the semiconductor market.
Historically, the market was populated mostly by vertically integrated firms that undertook all steps of the product development and production process. In the late 1990s and early 2000s, patenting intensified significantly in the industry, departing from historical norms. Conventional wisdom would predict that this development would lead to a “patent thicket” that stifles innovation and blocks entry. Yet precisely the opposite occurred. IP rights, in combination with contractual agreements, facilitated the rise of the “fabless” model in which chip-design firms contract with “foundries” that specialize in wafer production. These relationships rely on IP rights to protect each party from the appropriation of its technology. In doing so, IP rights promoted entry by chip-design firms, which did not have to incur the billions of dollars required to construct a “fab” (production facility), and could detour around the natural entry barrier that had protected integrated incumbents.
The transformation of the semiconductor industry through intensified use of IP rights yielded an outcome that is good for both innovation and competition. In place of a small number of vertically integrated firms, a reinvigorated property-rights infrastructure enabled a broader range of business models, which in turn facilitated entry by chip-design firms that fuel the tech supply chain.
A similarly counterintuitive relationship between innovation and competition policy objectives can be observed in the biotech market. Starting in the 1980s, intensified use of the patent system by research institutions—thanks to the Bayh-Dole Act and other policy actions—coincided with the entry of scientist-founded startups, which entered into cooperative relationships with venture-capital investors and larger pharmaceutical firms to achieve commercialization. Again, commentators predicted that intensified patenting would unleash an “anticommons” that would stifle research and innovation. As in the semiconductor industry, the market defied predictions. Rather, IP rights elicited a virtuous domino effect in which reduced transaction costs elicited entry, challenged incumbents, and promoted an efficient division of labor among innovators, investors, producers, and other firms.
These outcomes run counter to the standard IP-as-monopoly assumption, and the underlying dichotomy between IP and antitrust policy, that drives the current consensus favoring a weak-IP trajectory. At least in certain economically significant markets, robust IP rights promote both innovation and competition. By negative implication, weakening IP rights in those markets endangers those policy objectives. Outside pharmaceuticals, innovation may persist under a weak-IP regime but is likely to take place principally within the product-and-service ecosystems maintained by vertically integrated or systems-integrated firms. Not coincidentally, it is precisely those firms that have advocated against robust IP protections, which not only increase input costs for platforms and other aggregators but facilitate entry by “stand alone” entrepreneurs that may out-innovate incumbents.
The “information wants to be free” school of thought has captured IP policy, running from academia through advocacy organizations to policymaking institutions throughout the government. Yet this consensus has ignored evidence that the wholesale erosion of IP rights in content and tech markets has yielded a skewed ecosystem that favors platform-based models for monetizing content and tech assets, while disfavoring the independent innovators and creators that sustain the most robust knowledge ecosystems over time. That outcome harms both innovation and competition.
Note from the Editor: The Federalist Society takes no positions on particular legal and public policy matters. Any expressions of opinion are those of the author. We welcome responses to the views presented here. To join the debate, please email us at [email protected].