THE MACROECONOMICS OF INTELLECTUAL PROPERTY.

• Author: Johnson, Eric E.

ABSTRACT

Intellectual properly is understood to have an economic rationale: supplying incentives for innovation and for the creation and dissemination of knowledge and information. In the modern era, questions of how best to accomplish this have been explored with reference to economic efficiency and other concepts from microeconomics. But why not macroeconomics?

In the microeconomic view, the intangibles of innovation, knowledge, and information are ordinary economic goods, albeit ones whose easy reproducibility leads to special problems. In the macroeconomic view, however, innovation, knowledge, and information are extraordinary goods with special virtues. Indeed, modern macroeconomics puts these intangibles at the center of the field because they are understood to be the key to achieving sustained economic growth in an advanced economy. And growth is macroeconomics 'principal contemporary concern.

This Article makes a general case for putting macroeconomics front and center in discussions about intellectual property law, and it suggests a number of insights that come from doing so. The macroeconomic view can offer policy prescriptions that are distinct from and contrary to those springing from a microeconomic view. In particular, and perhaps counterintuitively, a macroeconomic focus cautions against expanding existing intellectual property rights or introducing new ones.

TABLE OF CONTENTS INTRODUCTION I. FROM MICRO TO MACRO, FROM EFFICIENCY TO GROWTH A. Evolution of Economic Thought in Law and IP B. The Microeconomic Focus on Efficiency C. The Dominance of Microeconomics in IP 1. A Quick Primer on IP Economics 2. IP's Microeconomics-Centered Perspective D. The Macroeconomic Focus on Growth 1. Growth as the Desideratum in Macroeconomics 2. The Solow Model and the Importance of Innovation II. EXPANDED ECONOMIC FRAMINGS IN IP A. Innovation Dynamics, Longer Timeframes, Macroeconomic Subjects B. Overtaking/Fertility/Separation Theory 1. The Growth- Welfare Link 2. The Innovation-Growth Link 3. An IP Prescription for Accelerated Growth C. Problems with Overtaking/Fertility/Separation Theory 1. The Implausibility of Implementation 2. The Unjustified Assumption of Compound Growth 3. The Argument's Internal Contradictions III. PRIORITIZING A MACROECONOMIC PERSPECTIVE FOR IP A. The Macroeconomic Perspective Captures Unique, Important Concepts for IP Policy 1. Thoughtful Matchmaking 2. Imperishability and Progress B. Getting the Macroeconomics Right Is Important Because the Stakes Are High at the Macro Level C. Macroeconomic Views Can Be Difference-Making for IP Policy D. The Policy Default Should Be Against IP Entitlements CONCLUSION INTRODUCTION

Intellectual property has long been understood to revolve around an economic rationale--the need to incentivize innovation and the production and dissemination of knowledge and information. (1) Correspondingly, both intellectual property's critics and its defenders have used the tools of microeconomic analysis--supply curves, demand curves, price signals, and deadweight loss--in arguments over the law's expansion, retrenchment, and reform. The primacy of the microeconomic goal of efficiency for intellectual property has been regarded as a settled matter. (2) This Article, however, makes the argument that our economic approach to intellectual property should not, at its heart, be primarily concerned with a microeconomic perspective. Instead, intellectual property law and policy should have as its chief concern a macroeconomic perspective.

Microeconomics and macroeconomics are the two long-standing divisions within the field of economics. (3) Microeconomics concerns the interactions between individual economic units--consumers, retailers, workers, manufacturers, investors, banks, and so on. (4) In other words, microeconomics focuses on the production, trading, and consumption of particular goods and services--"widgets," as economics aficionados are fond of saying. (5) Macroeconomics, by contrast, concerns the economic functioning of a society--including economic growth and stagnation. (6) In other words, macroeconomics concerns "the economy as a whole." (7) The field of macroeconomics confronts questions such as, "Why are some countries rich and others poor?" and "Why do countries grow?" (8)

As things stand today, when the field of intellectual property law uses concepts or insights from economics, those concepts and insights are almost always microeconomic. And what is true for intellectual property law is true as well for law generally. When judges, lawyers, and legal scholars engage with economics, it is almost always with microeconomics. Indeed, the movement or school of thought that is called "law and economics" is accurately categorized as "law and microeconomics." (9) But a change is coming--from two directions.

In the broad conversation about the relationship between economics and law, there is increasing attention to "law and macroeconomics." (10) Anna Gelpem and Adam J. Levitin describe a "current 'macro moment'" for "a broad-based engagement between law and macroeconomics." (11) Yet the new law-and-macroeconomics scholarship has yet to focus attention on intellectual property law--despite the ripeness of the challenge. As Yair Listokin recently wrote, intellectual property is an area of law that "is (or should be) impossible to analyze ... without considering macroeconomics." (12)

Within the intellectual property literature, there has been increasing interest in moving beyond narrow microeconomic models of static efficiency. Yet attention to macroeconomic teachings, as such, has been limited. (13) The prominent exception is an emerging line of scholarship that upholds economic growth as more important than anything else--including the microeconomic concept of efficiency that has long been the central concern of law and economics. (14) This effort has been led by Robert Cooter and advanced by Benjamin Chen, Aaron Edlin, Uri Hacohen, and HansBemd Schafer. (15)

Cooter is a renowned law-and-economics scholar whose work has been regarded as pioneering and highly influential. (16) Indeed, he is recognized as a "founding father" of the law-and-economics movement. (17) That Cooter would spearhead an essentially anti-microeconomic approach is striking. (18) Cooter and other scholars pursuing this approach do not adopt the word "macroeconomic" in their explanations, nor do they draw deeply on contemporary macroeconomic teachings for their arguments. (19) But they do put the:r focus on the macroeconomic object of economic growth.

With their growth-centered perspective, these scholars have put forward a case for greatly strengthening available intellectual property protections. In so doing, they have set out a major challenge to conventional intellectual property theory. What is more, these scholars have made the eye-catching claim that ethics- and justice-based arguments about inequality and poverty may be properly subordinated as policy considerations in the pursuit of rapid economic growth. (20) This stance is a noteworthy break from traditional law and economics. That movement sidelined normative values of justice and fairness, but it did so largely because it regarded them as foreign to the economic paradigm, leaving nothing much to say about them. (21) By contrast, the new growth-oriented approach of Cooter, Chen, Edlin, Hacohen, and Schafer directly engages fairness-type values, arguing for their inferior status on economic grounds. Given sufficiently rapid growth, in their view, inequality and distributive justice are rendered unimportant.

Cooter and colleagues' work on innovation and economic growth has gained attention from leading scholars. (22) Indeed, Cooter's reasoning has been called "hard to argue with." (23) In this Article, however, I offer a number of arguments against their approach and their resulting policy prescriptions. To do so, I employ macroeconomics--both in name and in substance.

The primary project of this Article is to fill voids in both the intellectual property literature and the law-and-economics literature by providing a broad vision of what can be called the macroeconomics of intellectual property. I explain how the macroeconomic lens is able to capture unique, important considerations for the design of intellectual property law. I describe the high stakes for intellectual property law that are revealed at the macroeconomic level. And I show how the macroeconomic perspective can be difference-making for questions of intellectual property policy.

With reflection, it seems surprising that judges, lawyers, and legal scholars have taken for granted the aim of microeconomic efficiency for intellectual property, as a macroeconomic mission is arguably written into the U.S. Constitution. Article I authorizes Congress to create a system of exclusive rights for inventors and authors, and it does so by specifying a society-wide, growth-oriented goal: "To promote the Progress of Science and useful Arts." (24) That raises a question: How could it be possible to uphold the constitutional charge of progress-seeking with a focus on the microeconomic mission of efficiency-seeking? The answer is that intellectual property jurisprudence has long treated progress-promoting innovation as just another good that society needs to produce--like tractors, wheat, or paper clips. In other words, in the microeconomic view, innovation is a "widget"--albeit with a difference.

The difference is that from a microeconomic perspective, innovation is a widget with a problem--the "public goods problem." (25) By saying innovation is a public good, scholars mean that its use and enjoyment naturally inures to the public at large. (26) Considered in isolation, that would seem to be a good thing. The problem, however, arises with who will pay for it. If I produce a barrel of oil or a bushel of oranges (private goods), I can expect compensation for my labor and my...