My basic thesis on why IV failed is that the property rights are terribly defined in intellectual property in general, since pretty much every single case has to be adjudicated by the judicial system, which means that markets fail for standard ‘tragedy of the commons’ reasons (in the strict economic model sense, not just the commonly applied metaphor). It’s as if land rights to houses were defined with the specificity of “the 3rd house after you turn the street corner, from about where the road bends for about twenty paces”. The entire system begs for expensive lawsuits at every turn the moment disputes about borders come into play.
The only way to deal with this scenario is exactly what economic models predict when dealing with commons - you have to internalize the externalities and manage the commons under a single ownership that cares for the stewardship of the ecosystem in totality. So most IP ownership is internalized inside firms.
The only way to make liquid IP markets is to bring down the transaction costs so that, in the Coasean sense, it makes sense for IP owners to trade it at arms length. There are definitely standard contracts that could work, if the ownership boundaries were cleanly defined. The trillion dollar question is: can the ownership boundaries ever be cleanly defined? IV simply assumed the system worked, and what you needed was to increase trading volumes to bootstrap a market. They never succeeded, and I think it’s because that question still needs answering.
It’s also worth studying the one situation where IP rules do result in working markets: pharmaceutical drugs. Here, there is something that can be defined pretty clearly: a specifically enumerated molecule, sometimes with a specific endpoint. It’s also interesting that the approach usually taken is to wrap that molecule in a firm, apply VC funding to it, and IPO it!
My basic thesis on why IV failed is that the property rights are terribly defined in intellectual property in general, since pretty much every single case has to be adjudicated by the judicial system, which means that markets fail for standard ‘tragedy of the commons’ reasons (in the strict economic model sense, not just the commonly applied metaphor). It’s as if land rights to houses were defined with the specificity of “the 3rd house after you turn the street corner, from about where the road bends for about twenty paces”. The entire system begs for expensive lawsuits at every turn the moment disputes about borders come into play.
The only way to deal with this scenario is exactly what economic models predict when dealing with commons - you have to internalize the externalities and manage the commons under a single ownership that cares for the stewardship of the ecosystem in totality. So most IP ownership is internalized inside firms.
The only way to make liquid IP markets is to bring down the transaction costs so that, in the Coasean sense, it makes sense for IP owners to trade it at arms length. There are definitely standard contracts that could work, if the ownership boundaries were cleanly defined. The trillion dollar question is: can the ownership boundaries ever be cleanly defined? IV simply assumed the system worked, and what you needed was to increase trading volumes to bootstrap a market. They never succeeded, and I think it’s because that question still needs answering.
It’s also worth studying the one situation where IP rules do result in working markets: pharmaceutical drugs. Here, there is something that can be defined pretty clearly: a specifically enumerated molecule, sometimes with a specific endpoint. It’s also interesting that the approach usually taken is to wrap that molecule in a firm, apply VC funding to it, and IPO it!