Robert P. Merges

Economics of IP Law

Author(s): Robert P. Merges
Year: 2014

Abstract: This Chapter highlights two major differences between early or “first wave” scholarship in the field of intellectual property (IP) law, and the work of more contemporary “second wave” researchers: (1) increased attention to IP rights in a broader economic context (contextualization); and (2) greater methodological diversity. This Chapter is organized around these two themes. I first discuss the many ways that second wave scholarship seeks to show how IP rights are embedded in broader economic contexts, and thus diverges from first wave research which tended to focus exclusively on IP rights as the central determinants of economic activity. Next I consider the many different methodologies now being deployed to study issues in the economics of IP rights – from large-scale empirical work to surveys to interviews to experimental research.

By contextualization, I mean this: second wave IP scholarship sees formal IP rules as being embedded in a larger economic context. This scholarship argues that only by understanding this larger context can we understand the true impact of formal legal rules on “the rate and direction” of cultural change and technological growth. To illustrate, I describe three areas of contemporary research. The first concerns fields where formal IP is absent, but researchers nevertheless find evidence of significant creative activity. These are sometimes called “IP’s negative spaces.” I describe some of these studies, pointing out both strengths (such as interesting ethnographic detail) and weaknesses (primarily theoretical overclaiming). Next I explore the relationship between IP rights and technological platforms. The goal here is to show how economic actors deploy IP rights in one particular setting: where maximizing profits involves a mixture of open access to some features of a system, and proprietary control over others. Third, I review recent theorizing on IP rights and the boundaries of the firm. The idea here is that the strength and scope of IP rights play a role in important determinants of industry structure, particularly overall transaction costs and the division of labor. For example, stronger IP enables small teams to organize themselves as independent firms, because IP makes possible arm’s length transactions involving IP-intensive components and pure ideas. 

I next turn to the second major trend in recent IP studies, methodological diversity. I describe contributions in the areas of empirical IP studies, models and analytics, and the emerging field of experimental IP research. The richness and diversity of contemporary studies makes for a stark contrast with older first-wave research. I argue in this section that, from the point of view of IP policy, this diversity of research methodologies points to a very promising prospect. When results from multiple, disparate methodologies converge, we can be more certain that we are seeing evidence of a policy that makes solid sense. Out of the welter of contemporary approaches to IP research, then, consensus might emerge. And when it does, we will see the payoff of the many new and exciting approaches to this most dynamic of legal fields.

Keywords: intellectual property, second wave, economics

Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2412251