In law, particularly in common law jurisdictions, intellectual property or IP refers to a legal entitlement which sometimes attaches to the expressed form of an idea or of other intangible subject matter. In general terms this legal entitlement sometimes enables its holder to exercise exclusive control over the use of the IP. The term intellectual property reflects the idea that the subject matter of IP is the product of the mind or the intellect, and that once established, such entitlements are treated, as far as possible, as equivalent to tangible property, and may be enforced as such by the courts. The most well known forms of intellectual property include copyrights, patents, trademarks, and trade secrets. Patents and trademarks fall into a particular subset of intellectual property known as industrial property.
The purposes of laws dealing with exclusive rights have varied, but they all share in common the appearance of granting the "owner" of the exclusive rights a monopoly on copying or distribution of a protected form of "property". This was originally done to grant a boon to a king's favourite (with some positive advantages to the public, since often these grants were prerequisites before a merchant would undertake production). The United States Constitution accords Congress the power to promote the progress of science and the useful arts by granting exclusive rights to authors and inventors for limited times.
The use of the term "intellectual property" is often predicated on considerations such as the "free rider problem" or rationalized by problematizing the fact that owners of computers have the ability to produce and distribute perfect copies of digital works. Proponents of the term tend to address exclusive rights policy by valorizing the incentives afforded to authors and inventors in granting them a right to exact a fee from those who wish to manufacture their inventions or publish their expressive works. The analyses associated with the term tend to overlook or even to attempt to defeat the fact, noted by Thomas Jefferson when he took part in wording the exclusive rights clause, that published information is intrinsically free and that in fact this is the whole point of exclusive rights -- to publish, to provide information to the public.
By an economic analysis, the incentives granted for patent rights have sometimes served the public benefit purpose (and promoted innovation) by ensuring that someone who devoted, say, ten years of penury while struggling to develop vulcanized rubber or a workable steamship, could recoup her or his investment of time and energy. Using monopoly power, the inventor could exact a fee from those who wanted to make copies of his or her invention. Set it too high, and others would simply try to make a competing invention, but set it low enough and one could make a good living from the fees.
In latter years, the public benefit idea has been downplayed in favor of the idea that the primary purpose of exclusive rights is to benefit the rightsholder, even to the detriment of society at large; and this development has attracted some opponents.
In some fields, patent law has had an unintended, indeed, a perverse consequence: treating abstract rules and mental products like concrete ones has stifled innovation in those fields, rather than aiding it.
The four main types of non-physical things considered by this point of view are copyrights, patents, trademarks and trade secrets. Common types of intellectual property rights include conflicting areas of law:
Copyrights, which give the holder some exclusive rights to control some reproduction of works of authorship, such as books and music, for a certain period of time.
Patents give the holder an exclusive right to prevent third parties from commercially exploiting an invention for a certain period, typically 20 years from the filing date of a patent application.
Trademarks are distinctive names, phrases or marks used to identify products to consumers.
Trade secrets, where a company keeps information secret, perhaps by enforcing a contract under which those given access to information are not permitted to disclose it to others.
These rights, conferred by law, can be given, sold, rented (called "licensing") and, in some countries, even mortgaged, in much the same way as physical property (especially real property). However, the rights have limitations, including term limits and other considerations (such as intersections with fundamental rights and the codified provisions for fair use for copyrighted works). Some analogize these considerations to public easements, since they grant the public certain rights which are considered essential.
It is important to understand that authors and inventors exercise specific rights, and the "property" referred to in "intellectual property" is the rights, not the intellectual work. A patent can be bought and sold, but the invention that it covers is not owned at all. This is one of many reasons that some believe the term intellectual property to be misleading. Some use the term "intellectual monopoly" instead, because such so-called "intellectual property" is actually a government-granted monopoly on certain types of action. Others object to this usage, because this still encourages a natural rights notion rather than a recognition that the rights are purely statutory, and it only characterizes the "property" rather than eliminates the property presupposition. Others object to the negative connotation of the term "monopoly" and cite the wide availability of substitute goods. Still others prefer not to use a generic term, because of differences in the nature of copyright, patent and trademark law, and try to be specific about which they are talking about, or the term "exclusive rights", which reflects the U.S. Constitutional language
Exclusive rights are generally divided into two categories: those that grant exclusive rights only on copying/reproduction of the item or act protected (e.g. copyright) and those that grant a right to prevent others from doing something. The difference between these is that a copyright would prevent someone from copying the design of something, but could not stop them from making that design if they had no knowledge of the original held by the copyright holder. Patents and trade marks on the other hand, can be used to prevent that second person from making the same design even if they had never heard of or seen the claimed "property". Those rights must be applied for or registered and are more expensive to enforce.
There are also more specialized varieties of so-called sui generis exclusive rights, such as circuit design rights (called mask work rights in USA law, protected under the Integrated Circuit Topography Act in Canadian law, and in European Community Law by Directive 87/54/EEC of 16 December 1986 on the legal protection of topographies of semiconductor products), plant breeders' rights, plant variety rights, industrial design rights, supplementary protection certificates for pharmaceutical products and database rights (in European law).
Types and scope of intellectual property
Exclusive rights may be analyzed in terms of their subject matter, the actions they regulate in respect of the subject matter, the duration of particular rights, and the limitations on these rights. Exclusive rights policies are conventionally categorized according to subject matter: inventions, artistic expression, secrets, semiconductor designs, and so on.
Generally, the action regulated by exclusive rights is unauthorized reproduction. However, as indicated above, some rights go beyond this to grant a full suite of exclusive rights on a particular idea or product. Generally, it is true to say that exclusive rights grant the holder the ability to stop others doing something (I.e., a negative right.), but not necessarily a right to do it themselves (I.e., a positive right.). For example, the holder of a patent on a pharmaceutical product may be able to prevent others selling it, but (in most countries) cannot sell it themselves without a separate license from a regulatory authority.
Most exclusive rights are nothing more than the right to sue an infringer, which has the effect that people will approach the rightsholder for permission to perform the acts to which the rightsholder has exclusive right. The granting of this permission is termed licensing, and exclusive rights licenses stipulate the extent of the licensee's ability to perform the acts the rightsholder may control. Other kinds of licenses attempt to establish additional conditions beyond the acts the rightsholder may control, and these licenses are governed by general contract principles. In many jurisdictions the law places limits on what restrictions the licensor (the person granting the licence) can impose. In the European Union, for example, competition law has a strong influence on how licences are granted by large companies.
Copyright licenses grant permission to do something. They are not contracts, since contracts require mutual consent. A patent license is a declaration not to do some things, under certain conditions. Exclusive rights policies in certain countries provide for certain activities which do not require any license, such as reproduction of small amounts of texts, sometimes termed fair use. Many countries' legal systems afford compulsory licenses for particular activities, especially in the area of patent law.
Most exclusive rights are awarded by a government for a limited period of time. Economic theory typically suggests that a free market with no exclusive rights will lead to too little production of intellectual works relative to an efficient outcome. Thus by increasing rewards for authors, inventors and other producers of intellectual works, overall efficiency might be improved. On the other hand, "intellectual property" law could in some circumstances lead to increased transaction costs that outweigh these gains (see Coase's Penguin). Another consideration is that restricting the free reuse of information and ideas will also have costs, where the use of the best available technique for a given task or the creation of a new derived work is prevented.
History of the individual rights
The early history of patents dates from the 15th century in England and Venice.
Copyright was not invented until after the advent of the printing press and wider public literacy. In England the King was concerned by the unfair copying of books and used the royal prerogative to pass the Licensing Act 1662 which established a register of licensed books and required a copy to be deposited with the Stationers Company. The Statute of Anne was the first real act of copyright, and gave the author rights for a fixed period. Internationally, the Berne Convention in the late 1800s set out the scope of copyright protection and is still in force to this day.
Design rights started in England in 1787 with the Designing & Printing of Linen Act and have expanded from there.
History of the term
The term intellectual property appears to have originated in Europe during the 19th century. French author A. Nion mentions "propriété intellectuelle" in his Droits civils des auteurs, artistes et inventeurs, published in 1846, and there may well have been earlier uses of the term.
In 1847, a U.S. circuit court defined intellectual property as "the labors of the mind, productions and interests as much a man's own...as the wheat he cultivates." Woodbury & Minot, Rep. Cases Circuit Court of U.S., I. 56.
Worldwide, however, use of the term was uncommon until its use in the Geneva-based World Intellectual Property Organization (WIPO), which was established in 1967.
With the French Revolution, which followed the American Revolution, there was controversy over the nature of copyright and patent protections in Europe; those who supported unlimited copyrights frequently used the term property to advance that agenda, while others who supported a more limited system sometimes used the term intellectual rights (droits intellectuels).
The system currently used by much of the Western world is more in line with the second view, with limited copyrights that eventually expire. However, the French Civil Code notion of "moral rights" has connotations similar to natural rights that are inconsistent with the American tradition.
Controversy over term
In civil law jurisdictions, intellectual property has often been referred to as intellectual rights, traditionally a somewhat broader concept that has included moral rights and other personal protections that cannot be bought or sold. Use of the term intellectual rights has declined since the early 1980's, as use of the term intellectual property has increased.
An alternate term monopolies on information has emerged among those who argue against the "property" or "intellect" or "rights" assumptions, notably Richard Stallman - see below.
Another issue is that if intellectual property exists there must be a parallel concept of intellectual capital - capital (economics) being the property that permits more property to be created. This is a controversial notion that economists have no clear agreement on, so one refers to the "intellectual capital debate" rather than thinking of it as an actual capital asset. See more in the economic view section below, and the term instructional capital that avoids the controversy but applies only to patents and non-fiction copyright, so is not a full substitute.
Trademarks, trade secrets, regional declaration do not have a time limit while copyrights and patents are of limited time (patents: 20 years)
Arguments against the term
The term intellectual property is often explained as being problematic by some because the rights conferred by exclusive rights laws are in some ways more limited than the legal rights associated with property interests in physical goods (chattel) or land (real property). The presence of the word property in the term can be seen as favoring the position of proponents of the expansion of exclusive rights in intellectual products, who may thereby more readily draw on the rhetoric of property itself to remove the many natural and legal restrictions on exclusive rights which would be inappropriate if applied to physical goods. For instance, most nations grant copyrights for only limited terms. Additionally, the term is sometimes misunderstood to imply ownership of the copies themselves, or even the information contained in those copies. This would severely differ from physical property laws, which rarely restrict the sale or modification of physical copies of a work (something which many copyright laws do restrict).
A common argument against the term intellectual property is that information is fundamentally different from physical property in that a "stolen" idea or copy does not affect the original possession (see the tragedy of the commons). Another, more specific objection to the term, held by Richard Stallman, is that the term is confusing. Stallman argues that the term implies a non-existent similarity between copyrights, patents, trademarks, and other forms of exclusive rights which makes clear thinking and discussion about various forms difficult. Furthermore, most legal systems, including that of the United States, hold that exclusive rights are a government grant, rather than a fundamental right held by citizens.
Though it is convenient for direct incentive beneficiaries to regard exclusive rights as akin to "property", items covered by exclusive rights are, by definition, not physical objects "ownable" in the traditional sense.
Stephan Kinsella, in his Journal of Libertarian Studies article "Against Intellectual Property" details his objection to Intellectual Property on the grounds that the term "property" implies scarcity, which may not be applicable to ideas.
Others point out that the law itself treats these rights differently than those involving physical property. To give three examples from US law, copyright infringement is not punishable by laws against theft or trespass, but rather by an entirely different set of laws with different penalties. Patent infringement is not a criminal offense although it may subject the infringer to civil liability. Willfully possessing stolen physical goods is a criminal offense while mere possessing of goods which infringe on copyright is not. Furthermore, in the United States physical property laws are generally part of state law, while copyright law is in the main measure federal.
Some proponents of the term argue that the law is simply recognising the reality of a situation. In some jurisdictions a lease of land (e.g. a flat or apartment) is regarded as intangible property in the same way that copyright is. In these cases too the law accepts that the property cannot be stolen - if someone moves into the flat and prevents you from living there they are not regarded as 'thieves of the lease' but as 'squatters' and the law provides different remedies. Identity theft is another example of the adaptation of physical property laws to intangible items, though that term itself is seen as problematic by some.
Recently the general trend in exclusive rights law has been expansion: to cover new types of subject matter such as databases, to regulate new categories of activity in respect of the subject matter already protected, to increase the duration of individual rights, and to remove restrictions and limitations on these rights.
Another effect of this trend is an increase in the term of the government-granted rights, and an expansion of the definition of "author" to include corporations as the legitimate creators and owners of works. The concept of work for hire has had the effect of treating a corporation or business owner as the legal author of works created by people while employed.
Another trend is to increase the number and type of what is claimed as "intellectual property". This has resulted in increasingly broad patents and trademarks: for instance, Microsoft attempting to trademark the phrase, "Where do you want to go today?". Trademarks in EU and US law can now encompass smells (e.g. of cut grass for tennis balls), shapes (e.g. of a soft drinks bottle), colors (e.g. red for fizzy drinks), words (e.g. COCA-COLA) and sounds (Intel has registered a five-note melody with the USPTO). The granting of patents for life forms, software algorithms and business models stretches the initial concept of giving the inventor limited rights to exclude the use of his invention.
Some argue that these expansions harm an essential "bargain" driven between public and copyright holders: as most "new" ideas borrow from other ideas, it is thought that too many "intellectual property" laws will lead to a reduction of the overall creative output of a society. The expansion of exclusive rights is also alleged to have led to the emergence of organizations whose business model is to frivolously sue other companies.
The electronic age has seen an increase in the attempt to use software-based digital rights management tools to restrict the copying and use of digitally based works. This can have the effect of limiting fair use provisions of copyright law and even make the first-sale doctrine (known in EU law as 'exhaustion of rights') moot. This would allow, in essence, the creation of a book which would disintegrate after one reading. As individuals have proven adept at circumventing such measures in the past, many copyright holders have also successfully lobbied for laws such as the Digital Millennium Copyright Act, which uses criminal law to prevent any circumvention of software used to enforce digital "rights management" systems. Equivalent provisions, to prevent circumvention of copyright protection have existed in EU for some time, and are being expanded in, for example, Article 6 and 7 the Copyright Directive. Other examples are Article 7 of the Software Directive of 1991 (91/250/EEC), and the Conditional Access Directive of 1998 (98/84/EEC).
At the same time, the growth of the Internet, and particularly distributed search engines like Kazaa and Gnutella, represents a challenge for exclusive rights policy. The Recording Industry Association of America, in particular, has been on the front lines of the fight against what it terms "piracy". The industry has had victories against some services, including a highly publicized case against the file-sharing company Napster, and some people have been prosecuted for sharing files in violation of copyright. However, the increasingly decentralized nature of such networks makes legal action against distributed search engines more problematic.
Non-government systems to protect intellectual products
The notion of protecting intellectual works is much older than copyright or patent law. There have long existed socially-enforced systems for protecting intellectual works. These include the ancient scholarly taboo against plagiarism, along with other informal systems such as the code of non-infringement, used by clowns to recognise each clown's exclusive rights to their unique style of makeup, costume and persona. In the case of 'The Code' of the clowns, the universality of the custom lends credence to the clown's belief that this protection is 'stronger' than that provided by trademark and copyright law. Regardless of this, some clowns do trademark, copyright or patent "clown material", perhaps as protection from infringement by those outside the clown community.
On a more modern topic, "intellectual property" law has been brought to bear on domain names where trademark holders (in particular) have objected to third parties registering domain names which they believe should be theirs. The domain name registries, many of whom are not governmental organisations, have had to find a solution to this and therefore have dispute resolution systems which operate in parallel with national laws. The majority of the generic top level domain names (.com, .net etc.) use the ICANN model known as the Uniform Dispute Resolution Policy (UDRP). Other registries, such as the .uk registry Nominet UK have their own different systems. For example, Nominet's sytem is called the Dispute Resolution Service.
Exclusive rights such as copyrights and patents give the holder an exclusive right to sell, or license rights. As such, the holder is the only seller in the market for that particular item, and the holder is often described as having a monopoly for this reason.
However, it may be the case that there are other items of "intellectual property" that are close substitutes. For example, the holder of publishing rights for a book may be competing with various other authors to get a book published. In such cases, economists may find that another market form, such as oligopoly or monopolistic competition better describes the workings of the markets for expressive works and inventions. This is one reason to prefer the term exclusive rights rather than monopoly rights.
The case for "intellectual property" in economic theory notes certain substantial differences from the case for tangible property. Consumption of tangible property is rivalrous. For example, if one person eats an apple, no other person can eat it; if one person uses a plot of land to build a home, that plot is unavailable for use by others. Without the right to exclude others from tangible resources, a tragedy of the commons can result. The subjects of exclusive rights do not share this feature. For example, an indefinite number of copies can be made of a copyrighted book without interfering with the use of the book by owners of other copies. A rationale for "intellectual property" therefore rests on incentive effects. This case asserts that without a subsidy that is afforded by exclusive rights, there is no direct financial incentive to create new inventions or works of authorship. However, as Wikipedia and Free software demonstrate, works of authorship are written without direct financial incentives. Moreover, many important works were created before copyright was invented. One might argue that much more invention occurred after patents came into existence; however, one could also argue that patents were brought into law as the power and influence of industrial interests grew.
Some hold that the three most common instruments provide "exclusive rights to use" different things: copyright covers original expressive works, patent covers solutions or ideas, and trademark covers means to uniquely identify a producer or other source of reputation. This view asserts that the three instruments have different histories, different intent, and allow three different kinds of incentives. Yet, the WIPO, the interest body which introduced the term treats this like a dogma:
"Intellectual property refers to creations of the mind: inventions, literary and artistic works, and symbols, names, images, and designs used in commerce." (Source: WIPO)
Some critics of the term say that this assertion is propaganda for a property view of these laws, and suggest terms such as individual capital, instructional capital and social capital over the term "intellectual capital," which has an ambiguous status, even among believers in neoclassical economics.
The status of "IP" is disputed in India, China and other developing nations. The United States and the United Kingdom are the only two nations who consistently receive net balance of payments benefits from "IP". These nations are the chief promulgators of "intellectual property" systems.
A more recent notion, proposing to extend exclusive rights to databases, has been introduced by the EU in 1996. This is the idea of protecting the information contained in a database against re-utilisation and extraction of substantial parts. This would be an additional right predicated on a substantial investment, that would exist alongside the copyright in the database structure. This notion was opposed by the United States Supreme Court in 1991 in the Feist Publication finding, which said that exclusive rights cannot cover the factual elements of any copyrighted work, that copyright does not derive from the effort expended in the production of the work, and that in the case of a collection of information, only the originality that may be found in the selection and arrangement of the information is governed by copyright. This case holds that the purpose of exclusive rights policy is to provide information to the public, and this consideration takes priority over concerns such as investment. A study has found that the introduction of exclusive rights to databases in the EU did not do any good to the economy.
The direct incentive beneficiaries of exclusive rights have an interest in expanding their rights and benefits. Many pool their resources to form organizations that attempt this such as the Business Software Alliance (BSA), which purports to represent the interests of the commercial software industry while the Recording Industry Association of America (RIAA) represents the interests of the commercial music publishing industry. As policy expands in accordance with the notion of "intellectual property", in the interests of those who benefit directly from its economic incentives, it tends to reduce the rights of its primary beneficiaries, the general public.
Under the notion of "intellectual property" the public is increasingly prevented by law from benefiting from the use of published information without complying with the conditions of the rightsholder. The cost for this to the public is not easy to quantify. The cost is distributed widely and unequally based on the need for the product. Ironically the direct incentive beneficiary organizations are a good source for these data. The BSA reports a study that claims "while $80 billion in software was installed on computers worldwide last year, only $51 billion was legally purchased" (Source:BSA) The BSA says "software pirates" avoided a cost of $29 billion while the rest that obey the policy and do not purchase or make use of the work bear a real and substantial opportunity cost that is yet uncounted. However, it's questionable if Microsoft would lower their price if it would earn $10 billion more on licensing from countries like Russia, Thailand, India and China where most of this "piracy" happens.
But Microsoft is dumping its selling price on competition from GNU/Linux, for example with government clients. Because of this competition, Microsoft will also be forced to release an update to Internet Explorer to the public for its current product which it originally planned to release with its next operating system.
Valuation of intellectual property
Little argument over intellectual property (IP) would occur if it did not have a value for the owner. The principle of valuing IP is to determine the future income associated with its ownership (Smith&Parr: Valuation of Intellectual Property and Intangible Assets, 3rd Edition, Wiley 2000). Note that the value of IP is independent of its cost. The creation of a musical composition, invention, valuable software may have cost little, and can generate a very high income. Profit margins from IP are typically much higher than profit margins from manufacturing of tangible goods.
Determination of future income requires estimating the income due to the IP in each of all future years over its life; i.e., the amount sold and the net income per unit after routine sales costs are deducted. If the IP is used internally, then the savings due to owning it can be similarly estimated. The risk that intellectual property becomes obsolete is high, and reduces the current value. Without risk, future income is discounted by using a stable discount rate, in the U.S. by using the Federal Treasury Note rate for the period. Risks include unexpected competition, unauthorized copying, patent breaches or invalidation, and loss of trade secrets. With such risks, discount rates increase, based on the expected Beta coefficient. With high discount rates, sales that occur far in the future have little effect, simplifying the determination of the net current value of the included IP.
When the items being valued contain multiple IP components then the proportion and life of each component must be determined. That case exists in the small, as for software that receives updates throughout the future, and in the large, for companies that vend many products. Shareholders of public companies in effect estimate the aggregate IP of a company, providing a market capitalization through the price they are willing to pay for shares, which is in effect the sum of the book value and the IP owned by the company.
U.S. generally accepted accounting principles (GAAP) do not allow the listing on corporate books of IP, making it hard for investors to be rational about share prices. IP is generated mainly through research, development, and advertising (IP generating expenses or IGE), making it hard to assess the effectiveness of IGE. Companies participating in the knowledge economy typically have a market capitalization which is a large factor greater than their book value, the sum of their tangible assets and cash. Only when a company has been purchased will the purchased IP briefly appear on the books as goodwill.
Types of intellectual property
- Arthur Raphael Miller, Michael H. Davis, Intellectual Property: Patents, Trademarks, and Copyright, West Wadsworth; 3rd edition, 2000, ISBN 0314235191 (textbook particularly covering copyright and patent law)
Stephan Kinsella, "Against Intellectual Property", Journal of Libertarian Studies, Vol. 15, No. 1, pp. 1-53, 2001. Available in .PDF here (Note: though the author concludes that "[Intellectual property], at least in the form of patent and copyright, cannot be justified," the paper itself is copyrighted by its publisher.)
- Michael Perelman, Steal This Idea: Intellectual Property Rights and the Corporate Confiscation of Creativity, Palgrave Macmillan, 2002, ISBN 0312294085, (a critical discussion of some of the social, scientific and cultural impacts of recent intellectual property developments)
- Roger E. Schechter, John R. Thomas, Intellectual Property: The Law of Copyrights, Patents and Trademarks, West Wadsworth, 2003, ISBN 0314065997 (textbook)
- Lobbying organisations (in favour)
- Lobbying organisations (critical of some rights which IP is used to refer to)
Last updated: 08-01-2005 14:14:17