Strategy for Information Markets/Intellectual Property

Intellectual Property (IP) is a major source of competitive advantage among developed economies. Since often there is a huge difference between costs of development and costs of copying, IP protects the rights over the product for a set amount of time to allow the developer a chance to earn enough profit to cover the development costs, after which the work becomes public domain.

The two major forms of property rights that pertain to information markets are copyrights and patents. Both of these forms are used in information markets as a competitive tool. They are used to grant exclusivity rights over the IP to the creator so that the work can generate profits, enough of a profit to potentially entice, allow, and foster the production of intellectual property. It is important to point out, however, that they are not entirely a necessity, works can also be released in the public domain (today rarely done, due to changes to the copyright law that makes it unappealing), or preserving the copyrights freely licensed to use, reuse and distribute.

In the specific case of patents, the situation is more problematic, since they not only provide protection to the creator but can be used strategically to prevent competition. It is sadly very rare today to see any new freely accessible patentable idea and there is pressure to extend the definition of what can be patented, for instance to software (the US is among the few countries that permits it).

Patents

Patents permit that anything created, whether physical or not, using a labor- and/or cost-intensive development procedure, will be guaranteed the right to exist without competition until the developer can profit from their own creation. They give exclusive property rights to the holders of them. The duration of this protection is typically 20 years. In order for something to be eligible for a patent it must be new, or not previously used, made or practiced in the past and can’t have been previously described in a printed publication anywhere in the world. Applicants for patents may be denied if the suggested changes to a previously known invention or work are deemed obvious for a person who is specialized in the particular field related to the invention or work. Patents are internationally recognized and are organized by the IPC (International Patent Classification), which is a part of the World Intellectual Property Organization and was established by the Strasbourg Agreement (1971). Even still, cases in which one party doesn’t recognize or respect a patent of another party are not uncommon.

To be granted a patent in the U.S., the applicant must publicize the nature of the patented work. The patent holder gains a monopoly on the creation for a limited time, but gives up the option to treat the creation as a trade secret after the patent term expires.

In 2008, Michael Heller, an academic at Columbia University in New York, in an interview to technology law podcast OUT-LAW Radio ( Listen to: Are patents and copyrights making innovation impossible? OUT-LAW Radio, 28/08/2008 ) presented his theory, saying:
- "I discovered a paradox in the free market and it is this: usually private ownership creates wealth, but too much ownership has the opposite effect - it creates gridlock,". "When too many owners control a single resource – it can be a patent, a copyright, land – when too many people control a single resource, co-operation breaks down and wealth disappears. Everybody ends up losing.".
- "Imagine a drug developer walking into an auditorium and seeing 50 or 100 or several hundred patent owners, each with their essential patent on their lap, and the drug developer knows that unless he's able to negotiate successfully with every single one of those patent owners, his drug can't come to market,".
- "A standard, when it works, can solve the problem of gridlock. But to create the standard you need to get, in the context of a DVD, seven or eight hundred separate patents pooled together into a single patent pool; but there are many areas that we don't have because entrepreneurs can't get the pools together or can't get the standard negotiated.".
Heller has also published a book, The Gridlock Economy in it he expanded on his theory how too much ownership wrecks markets, stops innovation and costs lives.

In information markets many believe that patents or copy rights can essentially inhibit business. One of the biggest advantages in the electronic information markets is extremely low reproduction costs and distribution costs. It is strategic then to exploit these benefits and not let copy rights or patents inhibit a firm’s ability to do so. As mentioned previously, there is a trade-off between the level of protection of IP and its value to a buyer.

Copyright

Copyrights are a form of legal protection of authors and creators of "original works of authorship" which are fixed in specific forms of expression. The exclusive rights of a holder of copy righted materials include, but are not limited to... reproduction of works, distribution of works, publicly displaying of works, and authorization of other people to do any of the preceding. Copyrights are internationally recognized in the majority of the world. Currently U.S. copyrights are valid in 190 countries.

In regards to Copyrights regulations there is still a debate due to the rapid growth of the Internet as a means of communication. The cost of copying new products with the Internet in tow has dropped significantly toward zero, making competition fierce enough to wipe out any profits of development.

The ongoing legal struggle regarding this can be seen in the between the music recording industry (whom owns the IP rights of music produced by contracted bands) and various pirates operating around the globe copying the music created by those same contracted bands and distributing those copies at or hear the cost of reproduction; nothing. A good breakdown of this problem can be seen in the origins of copyright law in the late 18th century in Germany.

The argument supporting the record industry follows that most songs produced by the contracted bands were developed and produced at large cost, without property rights guaranteeing intellectual coverage, any producer would lose all incentive to create or develop something new. It’s important to understand that the objective of IP rights is not to just merely protect the IP, but instead is to protect the IP so maximum profits are achievable.

There are many things that a holder of protected IP has to consider when trying to make as much of a profit as possible. IP rights management is constantly evolving along with the growth and spread of technology throughout society. As a consequence, business models in such markets are constantly evolving as well, certain strategies work better when concerned with markets for information. For example, the electronic information market allows for extremely low reproduction and distribution costs. The holder of IP rights has the opportunity to implement techniques using this to their advantage rather than let it act as a threat. These extremely low marginal costs allow, for example, the easy spread of a new product and can help a new or “unsure” market grow. Non-information firms can similarly offer samples or free materials to boost the recognition of, and demand for, their products. Such opportunities are only possible because of the low cost to the firm. Another point of concern for holders of IP rights is that a trade-off exists between security and protection of IP and the IP value to an individual customer. That is, the less security that exists on your IP good, the more valuable it is to someone who would potentially purchase it, they can simply get more out of the product with the less security on it. A good example of this would be the competing operation software (OS) Leopard, written by Apple, and Linux. Leopard is strictly protected by IP rights so that any programs for the OS must be reviewed and approved by the IP rights holder, Apple. Linux, by contrast, maintains that anyone can write anything for the software and is encouraged to do so.

Extending these property rights into and increasingly digital age has required holders of various distributable or marketable property rights to engage in aggressive contracting in the distribution through virtual media. Late 2007, facing the expiration of contracts for media production and distribution, the Hollywood Writers Guild showed a unified front in negotiations regarding rights of compensation for an increasing level of online access to content. Shortly after that strike was resolved, The Screen Actors Guild held a similar demonstration of desire for the renegotiation of intellectual rights for content provided through virtual media. The Department of Justice ruled in 2009 to re-evaluate Google Inc.'s digital book settlement deal that seeks to expand Google's digital offerings. The central issues to be determined through negotiations with publishers and authors alike are the rights of distribution and sharing of profits. Though publishers will still maintain the physical book rights published under their name, those rights are slated to be shared by digital media giant Google Inc. , satisfying current copyright laws for intellectual and creative property. How this contract plays out, along with the digital media rights negotiated with actors and television personalities whose images and shows are distributed online, will help to shape the future landscape of negotiated settlements for within America and industry approaches to new dynamics in distribution rights around the world.