Destructive Creation

In my post Leveraging IP, I noted how various technology, markets, and products are made needlessly complex in order to take advantage of various IP law–copyright, patent, trademark–so that the seller can use state law to quash competition. For example, Omega puts a copyright-protected logo on the back of a watch to prevent arbitrage (when it’s bought by Costco for a lower price in Paraguay and then imported into the US to be sold at a lower price than the much higher US retail price, it’s copyright infringement since a quirk in the law says that due to the import from another country the standard copyright “first sale doctrine” doesn’t apply); clothes and purses and luggage have trademarked symbols made part of the design itself to prevent what would otherwise be legal “knockoffs” (i.e. competition); and laser printer manufacturers build in complicated mating but patentable circuits into the printer cartridges to prevent generics from making laser printer cartridges that can be used with a name-brand laser printer. This reduces the natural standardization and interoperability tendencies that would normally prevail on the market, and increases cost and complexity unnecessarily. A more recent example is found in How Intellectual Property Destroyed Men’s Shaving.

So, one thing IP does is to push companies to engage in needless innovation and product complexity just so they can take advantage of anti-competitive IP monopolies. In a sense, in a reverse of the idea of Marxist notion of “creative destruction,” what IP leads to is destructive creation.

The problem is that if you point out that IP is leading to unnecessary “innovation” many people will think you are admitting that IP does give rise to more innovation and that you are crazy for opposing improved products. But what is happening is that IP imposes huge net costs on the economy, and reducing overall innovation. IP distorts and skews innovation; it gives rise to trivial innovations or monopolies on innovations that would have arisen even without IP; it causes companies to needlessly complicate and add cost to products just so they can impose an even higher monopoly price on them.¹

1. Software Industry Needs 2 Million Patent Attorneys and $2.7 trillion per year to avoid infringing software patents; Costs of the Patent System Revisited. [↩]