An earlier post asked if IP is affecting significantly income inequality. I do not have hard data to answer either way, and I guess it will take a long while before we get any. Still, my intuition says "yes", and probably significantly. But it takes a lot of "ifs" and "assumes" to argue it, so better leave it for a future date.

What IP certainly does is to increase the personal political power of IP monopolists beyond anything we had ever seen before, even in the "good old days" of the robber barons.

Today we learn that Bill Gates has the power of freeing or keeping people in jail for years in countries as far away as Russia. The press worldwide is reporting that Mikhail Gorbachev has pleaded with him (BG) to spare some obscure school teacher in the Ural region 5 (five) years of Siberian labor camp. When will a court of miracles open up in Seattle for the worldwide roi thaumaturge of the globalization era?

I tried to write a couple of comments on my earlier post, Competition--surprise-- fosters innovation. For some reason they were just deleted.

After I posted my original piece, I was off the web and didn't see the comments from others, but I think David answered them pretty well.

I would add one thought. A contest doesn't guarantee that the resulting innovation won't be patented, so if the sponsor patents it, the price to society may be a lot higher than just the prize money. Thus, I may have exaggerated the relative merits of contests and patents or copyrights. But I remain intrigued.

I was led back to this subject by a post from Alex Tabarrok (link here) which takes you to a Business Week story about Goldcorp. The gold mining company was in trouble and had suspended mining. It had mining leases. Question: should it develop any of them and if so how. In a contest, it posted the geological data on the leases and issued the "Goldcorp Challenge" which made a total of $575,000 in prize money available to participants who submitted the best methods and estimates. Big response and big success for Goldcorp, though rising gold prices had something to do with it as well.

Subsequently, I Googled "contests+innovations" and got 915,000 hits. Obviously, I haven't looked at more that a few, but there seems to be more going on out there than I thought; lots of competition, just not from patent and copyright holders.

A while back, I sent David an email questioning whether patents and copyrights didn't contribute significantly to rising income inequality in the US. He didn't think so (his emphasis was on significantly) and I ceased that line of inquiry. This week, Matt Yglesias raises the same question (link here) and references posts from Brad Delong on income inequality (link here) and from Bradford Plumer who writes on how rich people control politics and get their wealth enhanced (link here). Yglesias cites the Sony Bono Copyright Term Extension Act and sends readers to Wikipedia. The logic of that story is that the act served no purpose but to enrich existing copyright owners (usually not the creator and therefore constitutes little incentive to innovate) and served to create income inequality. As David argued earlier, this by itself could not be a significant contributor to total inequality. I remain unsure and would like to see more evidence.

Yglesias cites as well Dean Baker's book, the Conservative Nanny State (free to download here), which argues that the rich have overwhelming political power. Commenters on Yglesias' piece cite only one additional piece of evidence, that the Mar's and other rich families spent $500 million to get the inheritance tax reduced (link here). But none of this actually uses statistical data to make the case that it is a significant cause of income inequality.

Ideology, Marxist or Libertarian or Friedmanesque or Keynesian, doesn't count in this discussion. We need more numbers.

UCC or user-created content has become a problem for Korean webcaster Pandora which is being sued for copyright infringement by Korea's TV networks (link here). The users have been editing short network broadcasts to make them funny or critical and posting them on Pandora.

UCC got more complicated when Korea's National Election Commission asked that obvious advocacy clips be taken down as they violated Korean election law during the short period when a political campaign is formally declared (link here).

Pandora which collects fees for advertising in connection with a post proposes to pay the stations half the fee and to cap the length of any video to five minutes. It has also proposed "reference rights" so it gets sued rather than the poster and "submitted a written statement to the National Internet Promotion Agency of Korea and the three national broadcasters - KBS, MBC and SBS - asking them to guarantee Web users the rights to 'freely edit' a certain part of a TV program, be it news, documentary, drama or entertainment show, in order to add fun or wit to the content."

UCC is apparently very widely created and viewed in Korea. As elsewhere, the broadcasters can benefit from the exposure as well as any fees Pandora would pay. Stay tuned.

The copyright office has released a proposal to mitigate the orphan works problem. They basically propose that there be limited liability for copyright infringment if a "good faith" effort is made to find the copyright holder. The proposal is a lawyer's wet dream, and Lessig who has worked hard to formulate sensible proposals is rightfully furious. It appears that the reason for rejecting some sort of sensible registry proposal is that the Berne Convention pretty explictly forbids registration as a requirement for copyright. So, hoist by your own petard. The U.S. eager to force the rest of the world to pay us tribute for our valuable copyrightable "expressions" can't very well ask the Europeans to give up the "moral" right to have everything no matter how trivial under copyright. So we continue down the path in which copyright law becomes ever more ridiculous even as it becomes de facto irrelevant.

David Leonhardt writes in the NYTimes today about another way to increase innovation offer prizes (link here). He takes off from Netflix' search for better algorithms to suggest movies to subscribers in which they would likely be interested, based on what they have already seen and rated highly. The prize is a million dollars, and there is a threshold to beat, a ten percent improvement over Netflix' present algorithm. The competition lasts five years and seems very risky to enter, but has attracted widespread participation.

Prize competitions were apparently common centuries ago; Leonhardt cites one example, the British Parliament's £20,000 prize for a way to determine longitude and thus a ship's position at sea.

Leonhardt argues that prizes are efficient in that they only pay for success, the cost is fixed in advance, and the competition is open to everyone. This contrasts with grants, an alternative way to get innovation, but one which is essential in the sciences where the setup costs are so great.

I would suggest that the lesson is, if you want innovation, create competition. The contrast is with patents and copyrights, where the payoffs are undefined, the costs to consumers are huge, and they are increasingly used to prevent competition; in the process, they end up slowing innovation.

Borys Musielak writes a long piece on DRM (link here). He calls for boycotting the hardware and software that impose DRM, most notably Vista currently, and for political action. He points us to ways to get around the controls where they have been broken but then notes that may not be legal. "For instance, if you have the misfortune of being located in the United States or France, you are prohibited by law to play your legally purchased music or films (sic!) that are secured by DRM if you don't buy an approved operating system (like MS Windows or MacOS) with an approved media player (like PowerDVD or iTunes). In the US this has been enforced by the DMCA act. In France, a similar act called DADVSI."

Are these great countries or what?

The Jan. 27th issue of The Economist has an interesting article, "Billion Dollar Pills," about the problems affecting the pharmaceutical industry. Industry profits are declining amid generic competition and pressure from large purchasers (including the government). New therapies are becoming more costly, and capital spending has been funnelled from R&D to sales and marketing. The bill for bringing a new drug to market is inexorably rising. Estimates run from $500 million to $2 billion, with one expert pegging it at $1 billion.

So what to do? Disaggregating the model is one suggestion, whereby pharma companies focus on a few areas they specialize in--discovery, developing, and marketing are mentioned. They could then contract out to specialist firms other parts of the business they need to add to their core strengths to have a viable product, or perhaps develop joint ventures.

The article mentions that Big Pharma has had profit margins of around 20%, double that of Big Oil. The oil and drug businesses are supposedly "self-liquidating," uniquely among big industries. An oil firm has to find new oil, and a drug company has to produce a new drug. The article says that Coca-Cola can just continue peddling sugar water (thank you, Steve Jobs). (Well, no, Coca-Cola has two problems, one called Pepsi, and another consisting of a bunch of newer and sprite-lier beverage firms that are rolling out new varieties of bottled waters and power drinks. Hansen Natural's stock went from $0.55 in 2003 to over $50 in 2006 while Coke's stock went from, well never mind. Let's face it: the company is being out-innovated by its smaller rivals.)

Big Pharma's lawyers continue to defend their patents, as if that will somehow make the industry more innovative.

A Wharton researcher, Patricia Danzon, thinks the industry is resting on its laurels from past successes. Joseph Fuller, head of consultancy Monitor, points out that drug labs are still the big and bureaucratic behemoths they were in the 1970s. Big Pharma has become Enormous Pharma. A better innovation killer can't be scripted.

Meanwhile, smaller pharmaceutical firms are discovering new methods of finding new drugs, such as the use of molecular imaging techiques being pioneered by the British drug company GSK. This will allow personalized drug therapies available for smaller and more segmented markets, which can still be profitable. The blockbuster approach is unable to fill an emptying pipeline. R&D spending is up, but "the number of new drugs has still to grow." Actually, today's Investor's Business Daily (no link available, but there is an online edition) carries an article, "Pharma Industry Lags on Research Efficiencies," citing a recent GAO report that points out that from 1993 to 2004, U.S. drug R&D investment increased 147% while drug approvals rose by 38%. Only one-third of FDA-approved drugs were new; the others were "me-too" drugs. The former president and chief operating officer of Abbott Laboratories says that the "top 100 drugs developed since 1950 targeted only 50 conditions."

Jeffrey Kindler, the new CEO of Pfizer, has slashed costs (including giving pink slips to 10,000 sales people) and wants the firm to become less secretive and to reach out to partners. Bravo, Mr. Kindler, and how about kicking the patent habit to jump start this initiative?

Pharma should reinvent itself by kicking its blockbuster habit and by looking for innovative methods and drugs that target new markets and smaller groups of patients. It should also zero in on treatments tied to the unfolding of the human genome.

The old blockbuster model based on the trial-and-error method is being replaced. Drug firms can either seize the opportunities or be swept into the dustbin of economic history.

Some investment advice: when a companies main business is filing lawsuits - sell short. Apparently the stitching on the pocket of your jeans is a trademark. Who knew.

At the risk of being somewhat off topic: over on slashdot they are claiming that you won't be able to upgrade (or reinstall) windows Vista unless you already have some other version of windows installed...Vista already seems to be deep in the colossal blunders department. Have to wonder at this point how many people are going to try upgrading to this. The price is right - and you don't need to have old windows installation disks lying around to try it out.