Against Monopoly

defending the right to innovate

Monopoly corrupts. Absolute monopoly corrupts absolutely.

Copyright Notice: We don't think much of copyright, so you can do what you want with the content on this blog. Of course we are hungry for publicity, so we would be pleased if you avoided plagiarism and gave us credit for what we have written. We encourage you not to impose copyright restrictions on your "derivative" works, but we won't try to stop you. For the legally or statist minded, you can consider yourself subject to a Creative Commons Attribution License.

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Another brick from the wall

Chief Executive Steve Jobs Tuesday issued a challenge to the music industry, saying Apple would support an open online music marketplace if the four-largest music companies would drop the use of digital-rights management software. That kind of software prevents the copying of music sold online. In an open letter posted on Apple's Website, Jobs said "DRMs haven't worked, and may never work, to halt music piracy," and said the music companies receive few benefits from selling 90% of their music on CDs, which don't have DRM software built in, and the remaining amount online with DRM technology. Apple's iTunes Music Store is currently listed as the world top-selling online music store with more than 2 billion songs sold. Details here.

One brick at a time, the wall that since 1999 has been obstructing technological progress from letting people enjoy more and better music at a lower price, is coming down. It had to come down: Tower Records is gone, and soon the music industry as a whole will realize that distributing music via CDs or similar devices is also gone for good. The movie industry is slowly learning the same lesson as Wal-Mart is entering a partnership with all of the six major Hollywood studios to sell digital movies and television shows on its Web site.

The bricks are being removed, one at a time, but the process is made slow and painful by the silly resistance of vested rent-seeking interests. Digital content can be sold efficiently and in very large quantities via the web. Copies of that same digital content can be made and distributed via the web withouth the obstruction that current "anti-piracy" regulations impose upon this economic activity. The cost reduction that digital-web distribution of music makes possible is so large, that a competitive market for music could leave plenty of room for charging the lawful purchaser of originals for the implicit value of the copies he/she will eventually donate or sell to other.

There is plenty of money - probably more money than there has ever been - in distributing and selling digital content via the web, without the obstacles created either by DRM or by any similar attempt to prevent people to do what they want with the files they lawfully purchased.

And the power of Novartis

This is not "news", but the news here is the rising tide, not the drops of water that make it up.

Novartis is, according to its own spokesman, "testing" the 2005 Indian pharmaceutical patents legislation in court, to check if it is working properly, or not. How? The details are here. Briefly, in traditional big pharma's style Novartis is seeking an extension of its expired patent for a leukemia drug. Novartis has slightly modified the drug (it can be "absorbed more easily by the body") and it claims this is a new drug, hence a brand new patent is justified. Lower Indian courts have rejected the claim, but Novartis is appealing. The drug in question is not widely used, as the form of leukemia it cures is rare. Novartis claims it donates the medicine to about 90% of the 6,800 Indian patients affected by the disease. Novartis' drug costs about $ 2,600 while its generic Indian version costs less than a tenth of it.

So, what's the big deal? That Novartis is "testing" the new Indian patent system, that's the big deal. After it wins this one, it can go after more important generic drugs produced in India. Not just drugs for rare forms of cancer, but also AIDS drugs and drugs for more widespread diseases, as Doctors Without Borders is pointing out. Apparently, about 80% of the generic AIDS drugs used by this and other NGOs around the world come from India. Should the Indian producers of generic drugs be shut down by the new legal challenges mounted by Novartis and other pharmaceutical companies, the consequences would be obvious, and not pleasant.

So, thanks to copyright, Bill Gates is a powerful man: he can spare a Russian fellow five years in jail. But, thanks to patents, Novartis is even more powerful: it can sentence thousands of sick fellows to death, or spare their lifes instad. No idea yet if Intellectual Monopoly increases income inequality, but it does allocate the power of life and death rather unequally around the world.

The power of Bill Gates

An earlier post asked if IP is affecting significantly income inequality. I do not have hard data to answer either way, and I guess it will take a long while before we get any. Still, my intuition says "yes", and probably significantly. But it takes a lot of "ifs" and "assumes" to argue it, so better leave it for a future date.

What IP certainly does is to increase the personal political power of IP monopolists beyond anything we had ever seen before, even in the "good old days" of the robber barons.

Today we learn that Bill Gates has the power of freeing or keeping people in jail for years in countries as far away as Russia. The press worldwide is reporting that Mikhail Gorbachev has pleaded with him (BG) to spare some obscure school teacher in the Ural region 5 (five) years of Siberian labor camp. When will a court of miracles open up in Seattle for the worldwide roi thaumaturge of the globalization era?

Morals from the Torcetrapib debacle

The recent decision by Pfizer to abandon development of the drug Torcetrapib has lead to a drop of about 11% in Pfizer's stock price, corresponding to a loss of roughly $21 billion in market value. Details can be found here and here. Less noted by the press was a second very similar story, in which Bayer's American partner, Onyx, reported that late-stage tests found the cancer drug Nexavar ineffective against advanced melanoma. Onyx stock dropped of almost 30%.

These two stories contain interesting lessons about the damaging effects that the current patent system has on economic welfare and innovation in the pharmaceutical sector. A few of these, related to legal battles, monopolistic marketing and pricing, strategic retardation in the development of substitutes are summarized here, and here. Let me briefly mention two additional aspects pundits seem to have missed.

The first, and most obvious, has to do with the timing of all this. If we have to believe Pfizer's top executives, the information about the ongoing clinical trials changed dramatically in the space of a few (at most: three) days. The trials had been going on for years, Pfizer had kept releasing a continuous stream of positive news, signaling it was monitoring progresses pretty closely. It had even be criticized by the American Heart Association for releasing some results too early, on October 31 instead of two weeks later at the AHA annual meetings in Chicago. Pfizer's stock had rised recently, gaining about 3% during the last week on the basis of information released by Pfizer iteself, according to which the company was ready to file an application with the FDA to commercialize Torcetrapib in 2007. Apparently, the critical statistics that lead to the decision to completely abandon the development of the drug was that the death rate in the group of patients taking Torcetrapib was about 80/N, whereas it was of about 50/N in the control group of not treated or treated with different drugs (Liptor). Did all those 40+ patients needed to turn the sample mean and the t-statistics around die suddenly and all together between Tuesday, November 28, and Friday, December 1?

Even leaving aside the possibility of insider trading, it is quite clear that, because of the very large profits that a single "blockbuster patent" may entail, stock prices sensitivity to patents has become extreme. The patent system tends to turn stock-trading of large pharmaceuticals into a blind lottery, in which the companies executives can time the release of information as they see fit, and shareholders have absolutely no way of monitoring what is going on until the jeux sont faits.

The second point is less obvious and more important. Pfizer reports having invested, and lost, about $1 billion in the development of the drug, including $90 million to build a plant, in Ireland, that had already started producing it. Also according to Pfizer, the cost of the clinical trial program for Torcetrapib, the largest ever, was about $800 million and involved 25,000 patients. In other words, at least 80% of the total cost is due to the clinical trial. This is the rule not the exception in the development of new drugs; in the Onyx case the number are smaller, but the percentages are very similar, see here and here.

Clinical trials are paid by pharma companies only because of the patent system, and strenghtening patent protection for pharma is continuously advocated because of the high and rising cost of trials. As the examples prove, clinical trial costs generate unwelcome and unnecessary volatility in the the market valuation of pharmaceutical companies. Drastically reduce the length of patent protection on drugs (three to five years) and transfer the clinical trial costs to the federal government. If there is one thing even I would approve the government to pay for, it is this. Let me argue why.

The clinical trials produce scientific evidence and information about the effects of a drug. To the extent that there exists something that is a public good, this is it: it is less rivalrous than national defence. Also, the purpose for which such public good is produced is purely regulatory - it may be good regulation, in fact it probably is: drugs that kill are not good to have around - but regulation for the sake of public safety it is. After Phase I trials are taken care of by the innovating company, let Phase II and III be managed by a Federal Clinical Trial Agency, affiliated to the Surgeon General (not to the US-PTO: the risk of capture is too high) under appropriate secrecy rules. Once the drug is released, mandatory licensing after a few years should be required, with a fee equal to the (properly capitalized and partitioned among licencees) cost of Phase I Clinical Trials.

Seeking advice

This is not about the last crime of some bad monopolist but, rather, it is about disclosing it.

David and I are back to the writing desk, reworking out the Against Intellectual Monopoly book to make it into a more readable one. More precisely, we may be up to writing yet another book, completely different from the one we completed last year, even if on the same line. The idea is to write something really simple, much shorter, with a narrative structure instead of an argumentative one and with dramatic examples of why IP is damaging, instead of statistical tables and case studies.

Hence the request for help and advice. Obviously, there are hundreds of possible examples, many of which this blog has been documenting since its inception. But many of these examples, while important, are too technical, subtle, and "nerdish" to make the average reader of a trade book perceive the seriousness of the matter and its relevance as a public policy issue. In this new book that's what we want to achieve: transmit the dramatic aspect, make the reader aware of how damn serious the whole issue is, for them individually and for milions of people around the world. Hence, we need a few good, well chosen and somewhat capturing examples.

Which cases would you guys consider as paradigmatic of the way in which IP may hurt society? Which stories come to your mind when thinking of a "movie" on how bad IP can get and how badly it can affect people? That's the question. Thanks

The Pirate Party: our kind of party!

Ok, here you go: as it were to be expected my first and very belated contribution to the jihad against the devil monopolists is going to be about politics. Bad habits are hard to get rid of!

Anyhow, here's the political scoop: someone is trying to create the US version of the Pirate Party, see here. So far, all that is available is a website, with a good statement of purposes, an explicit reference to the original Swedish experience, and an invitation to donate. Well, I agree: the latter takes a bit too much space in the site and, maybe, these guys should learn the ABC of founding a party. First you let people join and only a little bit later you ask for contributions. Anyhow, transeat.

As I said, the original idea - do not worry, the idea is neither patented nor copyrighted - comes from Sweden where it appears to have progressed. At least judging from their website, the Pirate Partit is quite advanced and well structured. In particular, there is nothing in what they claim that I find disagreeable, and the connection to the right of privacy, individual freedom and post-9/11 makes a lot of sense.

We should consider it, and figure out if these guys in the US are serious. Or, maybe, we should just get in touch with the Swedish. Either way, let's party!

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Most Recent Comments

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Let's See: Pallas, Pan, Patents, Persephone, Perses, Poseidon, Prometheus... Seems like a kinda bizarre proposal to me. We just need to abolish the patent system, not replace

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Do we need a law? @ Alexander Baker: So basically, if I copy parts of 'Titus Andronicus' to a webpage without

Do we need a law? The issue is whether the crime is punished not who punishes it. If somebody robs our house we do

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WKRP In Cincinnati - Requiem For A Masterpiece Hopefully some very good news. Shout! Factory is releasing the entire series of WKRP in Cincinnati,

What's copywritable? Go fish in court. @ Anonymous: You misunderstood my intent. I was actually trying to point out a huge but basic

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Les patent trolls ne sont pas toujours des officines

Les patent trolls ne sont pas toujours des officines

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Bonfire of the Missalettes!

Does the decline in total factor productivity explain the drop in innovation? So, if our patent system was "broken," TFP of durable goods should have dropped. Conversely, since