Why I don’t worry very much about Indian intellectual property ripoffs



The WSJ had a piece this past weekend arguing that India allows companies to rip off the intellectual property of others by harming those getting ripped off and by stifling the development of domestic IP.

It’s true that this is happening but it’s also something that we probably shouldn’t be very worried about. India is a very poor country still and the amount that could be earned on that IP at full price is pretty much trivial in the scheme of things. Gross human utility would almost certainly be increased by allowing the poor to rip off anything they can and only trying to impose strict protections for patents and copyrights at a reasonable level of average national income.

I know, a somewhat unfashionable view. Here’s the WSJ:

When a major trading partner snaps intellectual-property protections and allows local competitors to freely produce knockoffs, revenues get siphoned away from the original EU innovators, leaving less money to invest in new jobs and growth.

But India’s anti-intellectual property strategy doesn’t just hurt its trading partners; it also hurts India. Corrupting these protections stifles domestic innovation. Local entrepreneurs are going to shy away from taking new risks. When an Indian innovator’s efforts result in a successful product, the government can just swoop in, steal the idea and deprive him of any profit. Likewise, violating intellectual property scares off foreign investors, who will just relocate their money to legal environments more conducive to returns.

I don’t disagree with any of that. However, the next question is whether this is actually important or not. And IP protection in poor places probably isn’t.

It’s worth going back a stage and thinking about why we have intellectual property rights at all. Invention, innovation, whatever you want to call it, is to the economist a problem of the “public goods” type. That is, something that is non-rivalrous and non-excludable. Take Newton’s equations for example: Now that they’ve been published neither I nor anyone else can prevent you from using them to calculate an orbit. Furthermore, your use of them doesn’t change the ability of anyone else to use them. Our modern economy produces a lot of things like this: the formulations of new pharmaceuticals for example. We can stretch the case a bit to software as well. The ability to copy chemical formulations or software at near-zero cost makes them much more like public goods than private ones, which would be both excludable and rivalrous.

However, we also note that pharmaceuticals and software can cost very large sums of money to create. And, while there are some who will create just because that’s what they want to do, we do generally contend that humans respond to incentives.

When writing great software can make you hundreds of millions then we expect some greater number of people to attempt to write it than if the only reward is to see everyone copying what you’ve done. Thus we invent intellectual property rights in order to turn those public goods into private goods through the actions of the legal system. In this manner we think that we’re going to increase the amount of innovation and invention that goes on and hurrah! The human race becomes ever richer on that tide of new ways of doing things and new things to do. We can also end up with a system that protects too fiercely, stifling derivative innovation (Apple’s notorious design patent on rounded corners comes to mind here).

Do note that we’re not talking Rights of Man stuff here. It’s a purely utilitarian calculation about the fact that a free market solution for public goods doesn’t really work. And the goal of the system is to increase human utility over time. If we can get the balance of these rules correct then we can maximize invention and innovation and the future will be the richer for it.

At which point we’ve got to consider the effects of imposing strict IP laws on poor people in poor countries. Will that increase human utility over time?

The first and most obvious point here is that, whether or not some hundreds of millions of near destitute peasants rip off the latest Lady Gaga song, it just isn’t going to make any difference to Lady Gaga or her songwriters nor the incomes of anyone else. If anyone seriously tried to charge the normal price then the net income would be zero. This is why one should never believe any of the estimates of the amount of money lost to piracy and IP theft. They are always calculated at five million ripped-off copies times the full price in a rich country (just as drug busts are always calculated at the value of a street dose, not wholesale rates, or rates outside the jurisdiction it is being smuggled into). The true amount actually lost is much smaller, possibly zero.

The second is that this really is an entirely invented system, one aimed at increasing human utility. And, while Lady Gaga may not be every destitute peasant’s choice (nor mine), it’s clear and obvious that allowing the poor to rip off IP increases their utility.

Which leads us to the thought that if not much is lost as a result of the ripping off but quite a lot is gained then we should probably allow the ripping off to continue. That, in turn, leads to the idea that perhaps we shouldn’t be trying to insist upon strict IP enforcement in poor countries even while we demand it in the rich ones.

All of which leaves us with just the one puzzle. When should we start to demand the enforcement? My view is that this is really a job for the host government. There will come a time in economic development when there is some substantial amount of domestic innovation going on, for this is pretty much the definition of economic development. So there will be a natural point in the progression of an economy where stricter IP laws will be desirable just as they are currently in the rich countries, where the increase in innovation as a result of the greater protection outweighs the loss of utility from not being able to rip off the old IP.

Quite where, exactly, that number lies is again a utilitarian calculation. I would guess that it’s somewhere above India’s current GDP per capita but wouldn’t insist upon it. But it absolutely is a utilitarian calculation. The protection of intellectual property isn’t something that we should assume must be done with equal vigour everywhere.

[Illustration by Hallie Bateman]