-----Original Message----- From: Doug Henwood <dhenwood at panix.com>
>As far as "pure IP" industries, you can't forget pharmaceuticals as well,
>but IP actually pervades all industries, with patents and trade secrets a
>key part of the economic portfolios of companies ranging from oil
>companies to the car industry to the whole retail sector.
-I deliberately left out pharmaceuticals - not to mention other -industries - because the issues are a lot more complex there. With -drugs, chemicals, machinery, etc., IP is embedded in complex -manufacturing processes. With software and movies, anyone with a -cheap machine can duplicate materials almost costlessly. New Economy -partisans make a big deal out of that as being assults on scarcity.
But ignoring other parts of the economy is exactly what makes so much discussion about the "New Economy" so thin and silly. Whether copying happens at the retail level through piracy or at the wholesale level of "stealing" trade secrets or infringing patents, the issue that I would emphasize is the role of the law in enforcing scarcity in information goods and therefore profits, where otherwise prices might well be driven down nearly to costs due to competition.
If you ignore patents, you ignore most of the business plans even of the Internet companies, and you certainly ignore companies like Intel and Cisco that have had stock prices and profits that look pretty "New Economy", but are based on IP fights as much as software companies. And a company like Priceline.com is basing much of its plan on its patent of the idea of people doing a reverse auction of offering a price and letting companies bid on that price. This latter point highlights the really startling change in recent years where business strategies have become patentable (under the STATE STREET decision). By this legal movement, if you create a new business, you by definition get a monopoly since you can patent the whole business plan and prevent any rivals from entering the business. (We'll see how much of this survives legally.) But there is little question that a lot of speculation and even a large chunk of profits are being derived from such IP law protections.
The issue is whether this legal creation of information monopolies is where all these profits are derived, or whether other factors are as important or more important. I don't know what the answer is, but my interest is what portion of profits are deriving from legal protection of such non-rivalous goods. You mention branding as a strategy, which is still a legal area of information control, namely trademarks. Trademark law in some ways is becoming the most imperialist of IP legal regimes, since companies have found that even in cases where they could not protect a good through patent or copyright, they were able to create control over a good through trademarking its design. A big problem with trademark law is that it has the weakest protection for public interest exceptions and has no time limit on government protections.
Most technology companies are using strategic combinations of copyright, patents and trademarks to prevent rivals from entering their businesses.
>Basic economics (in both capitalist and Marxist varieties) generally argue
>that profits should tend towards zero, and there is a lot of ink spilled
>explaining why companies create profits, especially profits above the cost
>of money.
-I have one word for you Nathan - exploitation!
A very important word, and it explains a large chunk of profits in non-IP basic commidities. Although it still only goes so far in analyzing a company like Nike, where one-half of its companies wages go to hyper-exploited third world workers and the other half go to Michael Jordan (or some percentage split of roughly the same obscene dimensions). The Michael Jordan part of the spending is tied decisively to IP through trademark law, since if anyone could create knockoff clothes with the "swoosh", such spending by Nike (like any IP investment) would be fruitless.
It is also complicated in understanding your favorite "pure IP" companies such as software production. Sure, you can analyze the exploitation of Microserfs - and I am cheered by CWA's initial inroads in organizing Microsoft temps - but I am as interested in understanding how the fight over control of ideas and skills is enriching a whole class of financiers and high-level knowledge workers, often at the expense of lower-level workers -- who are often outsourced into "service companies" largely to institutionally separate them from the IP-rich companies to whom IP rights adhere.
One thing I find fascinating about trade secrets is that unlike either copyrights or patents, trade secrets have no individual author or inventor- thereby cutting the tie of IP to individual creativity (however ficticious in the corporate setting this has become for copyright and patent.) But the fact that trade secrets have no author means that they adhere to the corporation as an entity - an entity that itself has interesting legal limits. That trade secrets exist largely outside contract law and have severe limits on how far they can be commidified (ie. licensed) means that trade secrets make firms that much more important in an age where "virtual corporations" were supposed to be the order of the day.
This highlights the problem with the romance with the pickup virtual corporation idea in the age of information rights. To the extent that workers are pieced together and disbanded so opportunistically, it becomes incredibly hard to keep all the IP rights involved straight and legally protected. Herding and managing a complex set of information property rights becomes a key reason for corporations to remain as discrete entities, much as the state remains as a critical element in protecting those IP rights.
The point of all this is a contrarian assertion that rather than both corporations and government interventionism "withering away" in favor of purely financial control and virtual employment, it is a capitalist imperative in the "New Economy" that both strengthen their hand, albeit in new configurations and forms.
>The problem today with many forms of computerized machinery is that rivals
>often have similar machines that can be easily reconfigured to match any
>innovation, so such quasi-rents are often impossible.
-you go from saying it's harder to earn
-quasi-rents (i.e., some kind of monopolist's profit above the
-"normal" rate) to saying the very notion of profit itself is under
-siege. We could speculate on how rents and profits could be under
-pressure in the near future, but it's hard to see from current
-profits reports. U.S. profitability levels are the best in decades,
-and even European profits are high enough that the BIS recently did a
-paper wondering why they were so high amidst stagnation.
My argument is not that profits are threatened, but that the abscense of strong IP rights would threaten those profits. It is in fact (in the strong hypothesis of my argument) the increasing strength of IP rights both in the United States and globally (through TRIPS and WTO/GATT negotiations) that are the source of those amazing US profit balance sheets. If European profits are strong amidst stagnation, the explanation may very well be a host of quasi-rents based on IP rights.
Much of research on the economy of the Internet was an argument that so-called "deregulation" was not the withdrawal of government power, but in many cases a strengthening of government power in new forms to the benefit of the elite. Banking and telecom "deregulation" are paradigmatic of this change. Similarly, my argument in the IP realm is that the last twenty years both in the United States and globally is an unprecedented expansion of government intervention in the economy - creating an amazing set of microregulations on commerce dealing with rights of production and competition - which is coated with a veneer of "laissez-faire" ideology but is really a set of government-granted monopolies to the elite. Adam Smith had deep suspicion of patents for the very reason that he saw it undermining truly free competition in favor of elite actors who could win favor with governments against small competitors.
Adam Smith (and Karl Marx) would hardly be surprised that in an era of such massive expansion of government-granted monopolies, there has been a corresponding rise in corporate profits as well. That such profits might exist amidst general global economic stagnation would only further fit their predictions.
-But this is pretty old territory for capital, isn't -it? Wasn't F.W. Taylor trying to get the workers to part with their -trade secrets a century ago?
No, since Taylorism was not about companies asserting IP rights for themselves but liquidating the claims of workers. Companies happily and clearly supported quite high threshholds of innovation to qualify for patents. The last thing they wanted was for individual inventors or incremental knowledge by workers to be granted status under the law as having claims on corporate profits.
What Taylor sought to do was overcome the social structure of worker innovation and skill protection in order to transfer the knowledge of those skills to management without paying for it. Those skills were not then generally protected in the form of trade secrets but rather in the form of dedicated machinery, making IP rights unnecessary for most corporations, especially in regards to such incremental innovation.
It is only in a period where such dedicated machinery can be copied by rivals at minimal cost did corporations have to turn to the law as a primary tool for protecting their theft of knowledge from their workers or from the public till.
The reality is that IP law was once the province of scientific geeks (patents) and slightly bizarre literary types (copyright). It is a revolution in the sociology of the IP legal bar that it has become dominated by hard-nosed corporate types who know see management of IP assets as a mission critical part of corporate strategy.
--- Nathan Newman