Economics of IP protection of software

(IPRinfo 3/2009)

Liguo Zhang
Researcher, INNOCENT Graduate School, IPR University Center

The reviewed book: Elad Harison: Intellectual Property Rights, Innovation and Software Technologies – The Economics of Monopoly Rights and Knowledge Disclosure. Edward Elgar Publishing, 2008, 240 pp. ISBN978 1 84720 582 7

In recent years, the legal protection of software technologies has gained much attention. Elad Harison’s book seeks to analyze the rationale for the optimal protection of software technology by assessing the dynamic interaction between markets, technologies and legislation in various models. It also explores the success of the Open Source movement as an alternative regime for IPRs.

The book is divided into 8 chapters. The first chapter analyses the economic rationale of IPRs by reviewing the economic objectives of IPRs and their impact on the market.

The author sees the patent system as a three-dimensional structure: length (duration), breadth (scope) and height (a measure of disclosure or a minimal inventive step over the state of the art of scientific and technical knowledge). Marginal changes in one dimension of the regime may have an impact on the market and innovation.

He also points out that stronger IPR regimes and granting innovators increasing levels of monopoly rights may increase their rewards from successfully commercialized inventions, but in the long run this may hamper the pace of innovation by restricting the use of progressive techniques in research and the development of new products.

The following chapter discovers the IPR regimes’ impact on the pace and the patterns of innovation and development of information technologies, by observing IPR regimes as an element in a dynamic system, thereby analyzing the role and functionality of IPRs in market competition and innovation.

Not only does Harison look at the interaction between those elements, but he also considers the evolution of software intellectual property regimes over times, and then demonstrates if present software IPRs are overprotected. Interestingly, he finds that “the open source development mode not only seems to be a paragon for software production, but also dramatically weakens the argument that strong property rights are necessary to create incentives for inventors in software technologies to innovate.” (Chapter 4)

Then the author assesses how the different degrees of source code disclosure influence the quality of software products and technologies and the profitability of producers. By using a simulation model, he shows that the firms operating under less protective regimes are more innovative and produce higher quality products.

However, if patents protection is extremely strong, rival firms would be preempted from introducing advanced product versions and from furthering the technology.

The author also finds that providing patent protection for software during the 1980s has slowed down the pace of development in information technologies, and the open source mode of development is superior to the present regime, although it would be less efficient than under short-term patents. Based on those findings, Harison introduces his proposal for a desirable design of the IPR regime.

In Chapter 7, by exploring how firms adapt to the changes in the legal environment, the author finds that the changes of the US patenting policy have affected the structure of the ownership of patent rights in software technologies. The book also answers if the computer programs should be treated like physical machines that perform similar tasks (Chapter 8).

Harison’s book is an economic thesis, in which the author always considers IPR as a specific element in a dynamic model and observes how the change of each element will affect others, thereby finding an optimal balance for them. While the operation in the real world is much more complex than in those models, the book still can provide an economic rationale behind the IPR regimes for software technology protection. The book is, therefore, suitable for IP law students, researchers as well as for policy makers.