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Lawyers expand their monopoly

By Nicholas Gruen - posted Monday, 18 August 2008

As Mark Twain said, "It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so."

Our biggest mistakes often come when we’re most untroubled by our logic - even when it's wrong! For decades we've been applying this syllogism: Intellectual property (IP) stimulates innovation and creativity. Therefore, stronger IP generates more.

We might know it for sure, but surprisingly often, it just ain't so.


Given its costs to consumers, stronger intellectual property protection is only worthwhile where it encourages IP production that would not otherwise have occurred.

Yet we've often strengthened protection for IP that's already in existence. For instance we've lengthened the period of protection retrospectively.

  • Like when we agreed with all the other intellectual property importers in the world - that's pretty much everyone except the US - to retrospectively extend patent terms from 16 to 20 years.
  • Like when we negotiated the Australia US Free Trade Agreement to extend copyright protection for an additional 20 years. The pre-WWI song Happy Birthday finally escaped Australian copyright in 1997 - but back it went. Happy birthday indeed.

It hasn't just been the US's trade negotiating muscle driving this lurch towards IP mercantilism.From the early 1980s, judges around the world somehow caught the zeitgeist.Intellectual property came to be seen as such a Good Thing that well reasoned judicial taboos on patenting software and business methods and various doctrines which stood in the way of patenting the obvious were whittled away.

The result? Today we have people successfully patenting garden swings and toast!  Litigation on software patents is four times more likely than chemical patents; business methods patents 12 times more likely; finance patents 49 times more likely.

But what's ultimately much more serious are road blocks preventing further innovation. Along with this is massive uncertainty as software developers must now use lawyers as minesweepers as they negotiate the patent thicket before them - at hundreds of dollars an hour.


Last week the lawyers struck again! The Copyright Agency Limited (CAL) collects royalties for copyright owners. Over the last decade they've driven up their royalties from around $7 million to $50 million per year.

A lot of this money comes from the penurious education sector, and given that quite a bit of the content on which CAL earns royalties is generated by those on the public purse, a simple public subsidy to content creation would get more money through to creators.And see more creation.

CAL is still broadening its horizons. It's seeking royalties from the NSW Government whenever it "republishes" the surveyor's plans of your housing block. These documents have already been created, often decades ago, by surveyors paid by the original developer of the block.They have been deposited on the public record and so are available for free distribution.

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First published in the Australian Financial Review on 12 August, 2008

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About the Author

Dr Nicholas Gruen is CEO of Lateral Economics and Chairman of Peach Refund Mortgage Broker. He is working on a book entitled Reimagining Economic Reform.

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