Tim Wu on IP and Decision Architectures

This summary of Tim Wu’s draft paper on intellectual property rights and decision architecture is right on the money. The key conclusion of the paper is this:

An intellectual property regime is most clearly desirable for mature industries, by definition technologically stable, and with low or negative economic growth. The reasoning is simple: in a stable business environment, good results may be achievable through incremental, predictable adjustments. In addition, if by definition profit margins are thin in a declining industry, it will be better to have only the very best projects come to market . . . . By the same logic, the case for strong intellectual property protections may be at its weakest in new industries, which can be described as industries that are expanding rapidly and where technologies are changing quickly. In such an environment the most promising line of development is by definition less clear. A polyarchical decisional structure may be necessary to uncover the innovative ideas that are the most valuable, at the costs of multiple failures. Stated otherwise, in markets where technologies are changing quickly, we should expect, as the literature suggests, that it would be more expensive if the best products are suppressed. Again, government, by refusing to grant intellectual property rights, can influence this outcome. This basic analysis suggests holding off on the grant of rights on which a new industry may depend.

Note that this conclusion seems to be at conceptual odds with the popular “Innovator’s Dilemma” argument, which is that firm growth via “incremental, predictable adjustments” contains the seeds of its own long-run undoing, and that firms need to find structural ways to support internal “disruptive” innovations that threaten short-term profits but create the foundations of long-term evolutionary success. In other words, consider the market for innovation within a firm, as well as among firms. Might it be the case that strong IP rights even for mature or declining industries may be counterproductive, because they may discourage incumbent firms from pursuing these “Innovator’s Dilemma” solutions?