Rocket Fuel for Tech Stocks
Delong Op-Ed in Tech Central Station
Last week, Bill Clinton and Tony Blair harrumphed about ownership rights in human genetic research, and biotech stocks took a dive. Which shows dramatically something that everyone knows but few think about much: Intellectual Property is the fuel of the current stock market boom. Scholars at the Brookings Institution calculate that in 1978 the book value of property, plant, and equipment of public non-financial corporations equaled 83% of the long-term financial claims on these companies (i.e. the value of their stocks and bonds). By 1998, the comparable figure had fallen to 31%, which left 69% of the value to be based on assets of the mind, such as patents, trademarks, copyrights, trade secrets, know-how, brand names, and customer lists. Given the explosion in the market, especially the NASDAQ, since 1998, heaven knows how much of the $13.33 trillion of stock now held by Americans is based on IP. A striking feature of IP is that it depends on government for its existence and protection. More solidly corporeal assets are protected by law, but they can also be fenced in, locked up in a vault, or otherwise defended physically. IP is almost totally dependent on the legal system, on webs of contract rights, legal doctrines, patent rights, and copyrights. (Only "almost" because people are scrambling frantically to invent protective devices that will serve as the barbed wire of the digital age.) Investors’ willingness to put hard cash into such soft assets shows a touching faith in the sanctity of property rights. People seem to think of them as just sort of being there, part of our national ambience, existing outside the currents of politics, and protected by both courts and culture. In fact, over the past few decades governments at all levels, with the acquiescence of the courts, have become quite cavalier about rights to property. The average citizen would be surprised to learn just how little firm protection is left, as long as the government trots out some apple pie and motherhood excuse for ignoring, taking, or redistributing them – "wetlands," "historic preservation," "artists’ rights," "fairness," or whatever else comes to hand. Most of this undermining took place in the context of real estate. Since land is no longer a major source of wealth for most Americans, the changes snuck under the radar. But IP is actually less secure. The Constitution specifically gives Congress power over patents and copyrights, and some legal scholars argue that IP has no existence whatever except what Congress chooses to give, and that what Congress gives Congress can remove. The protection from governmental whim of this prime IP real estate is tenuous indeed. And the questions raised by property rights in general and Intellectual Property rights in particular are excruciatingly difficult. How does a patent system recognize novelty without allowing people to appropriate chunks of the "cultural commons"? How does it umpire the conflict over the fruits of high tech among new IP assets, old assets of bricks. mortar, and industrial equipment, and the claims of newly-ascendant high tech workers. How does the legal system adjust the inevitable conflicts and uncertainties in a fair and acceptable way? All the issues become more intractable if people believe that they’re being driven by special interest politics. Congress is showing distressing tendencies to carry its cavalier attitudes about property rights into recent IP legislation -- extending copyright terms at the behest of special interests, and settling such knotty issues as the right to broadcast music in business establishments by politically-motivated fiat rather than principle, and not to the benefit of the copyright holders. The high tech community has a huge stake in this issue. It needs clear, fair, and broad principles. If it allows IP rights in individual situations to be determined by the whims of politics, it will soon learn that the middlemen are extracting huge chunks of the value involved. So far, the signs are not promising. This community has shown an unfortunate opportunism, such as a willingness to goad the government into using its power against Microsoft in the naive assumption that the man-eater can be controlled after it has tasted human flesh. As James Freeman’s recent Tech Central article on the probe of eBay illustrates, this assumption is improbable. So it is time for the high tech community to take a good look at current problems of property rights and stand up for principle. It is the only expedient course.