6 Knowledge as capital: the case of intellectual property rights
A significant problem for innovators is that competitors might copy their ideas and therefore reduce the returns from their innovative investment. This difficulty in securing the returns from innovation might therefore discourage innovators from investing in R&D. In order to offer incentives to invest in new knowledge, firms have a legal framework allowing them to protect their innovation and image, this is known as intellectual property rights.
Intellectual property rights are the rights of firms and individuals to stop people from imitating or stealing part of their knowledge through patents, copyrights, designs, and trademarks. Patents refer to the exclusive right for an invention or innovation, it grants the patent owner to decide how or if the invention can be used by others. Copyrights are the rights that creators have over their music, books, paintings, films, computer programs, databases, advertisements, and almost anything that relates to an idea and is intangible. In the case of trademarks this protects the brand of a firm or person, is the sign capable of distinguishing the work of one enterprise to the other. Finally, designs refer to the ornamental or aesthetic aspect of an article. Design rights explain why the exact appearance of an Apple iPhone can’t be replicated.
As you might realise there are different ways in which firms protect their knowledge, innovation and image. Intellectual Property rights are important as they allow firms to earn monopoly profits through innovation and knowledge creation. The creation of knowledge can also create spaces for other firms and industries, for example, think of the production of video games, whose value chain is represented in Figure 7. At the beginning, Nintendo created its games but as the industry matured other game developers started appearing, creating a new industry.
It is usual for firms to maintain intellectual property rights which have become as important as production capital, leading to some economists arguing for their definition as intellectual capital. Let’s keep with the example of Nintendo. It would not be the same without Zelda or Mario Bros for the company: these IPRs have become a big part of their success. Economists have questioned if, in a world where oligopolies prosper, intellectual property rights could also be detrimental to competition.
Ugo Pagano (2014), a Marxist institutional economist, introduced the idea of intellectual property rights also being an important source of rent-seeking, naming it intellectual monopoly capital. In his words ‘the main characteristic of monopoly capitalism is that monopoly is not simply based on the market power due to the concentration of skills in machines and management; it becomes also a legal monopoly over some items of knowledge which extends beyond national boundaries’ (Pagano, 2014, p.1413). Pagano introduces the idea that knowledge can be also exploited and give firms a higher degree of monopoly, especially if intellectual property rights are abused leading to a decrease in competition.
Intellectual monopoly capital explains how firms have been able to capture knowledge by taking advantage of intellectual property rights and their market power. The theory explains how firms have been able to plan and control their supply chain through the control of intellectual property rights, for example, a specific design or patent and through the use of data, particularly in the case of the digital markets.