What Everyone Should Know About Intellectual Property

Intellectual property (IP) is a catch-all term that covers creations of the mind, or intellect, that are both commercial and artistic in nature.

There are two categories of such property, the first of which includes creative works such as books, movies, music, paintings, photographs and software. These are covered by copyright laws, which offer copyright holders the exclusive right to control the adaptation or replication of the works for a certain statutory period of time.

The second category, known as "industrial properties," includes those things created for industrial or commercial uses. Patents give the inventor and/or patent holder the right to stop others from using the invention unless they pay a license fee (again, for a certain period of time). Trademarks, also a kind of industrial property, are distinctive signs that reduce the confusion among similar kinds of products.

“Intellectual property rights" includes, as a subset, industrial design rights, and these protect the particular appearance, design, form, style or design of industrial object from various kinds of infringement, such as being cloned, copied or counterfeited. Another type of intellectual property is a trade secret, meaning proprietary, normally confidential information about the commercial products or practices of a business. Disclosing trade secrets to the public without permission is illegal in most jurisdictions.

A short history lesson
If creators of intellectual property were not protected, they would have little incentive to continue researching and developing products for public use, and would tend to keep things secret. Therefore, economic growth in the industrialized nations is, to a large extent, dependent on the protections afforded inventors, writers and artists by IP laws.

According to some economists, some 60-70% of the value of large U.S. corporations is attributable to intangible assets. Even more important is the recent finding by a UN study group that found “a positive correlation” between stronger IP legislation and subsequent growth of the economy. Of course, correlation is not causation, but the observation is an important one. Clearly, the establishment of a legal framework to protect intellectual property is an important step in the maturation of the younger, Pacific Rim economies, as well as the countries of the former Soviet Union.

In point of fact, intellectual property rights are really a simple form of temporary monopoly that is enforced by the government, and subject to the legal proceedings of that government’s judicial system. The more mature and ingrained this outlook is in a nation and economy, the better.

Types of goods
Rights in intellectual property are normally limited to what are called “non-rival” goods, meaning goods that are used by a number of people at the same time, where use by one person neither prevents nor excludes use by someone else. On the other hand, “rival” goods, such as clothing, are used by just one person at a time. By way of analogy, any number of people can use a math formula or a cake recipe simultaneously. This explains some of the objections to the term “intellectual property,” as some legal experts assert that the term "property" can only be applied to rival goods, or that it is not possible to "own" property of any other kind.

Because “non-rival” goods can be copied, for instance, by many people at the same time – in economic terms, “produced at zero marginal cost” – creators have no incentive at all to develop such works. Of course, monopolies also have their own inefficiencies, as some producers will raise prices and reduce production in ways that are not “maximized” for social benefit.

The intellectual property rights system, then, is best thought of as a trade-off, one meant to balance societal interests with monopoly power in the creation of non-rival good. In other words, the developing IP structures encourage research, development and creation of new things, new products, new ideas, and new processes.

Making these trade-offs and strategizing IP issues, as an industry or even a nation, is a daunting task. The best hope we have is that a string of judicial decisions and business actions will chart a course through the confusion. In the meantime, it is important to remember that the existing framework is not set in stone, and is subject to changes both subtle and dramatic. The best advice for those working in this milieu is to have a good lawyer, stay on top of the IP court decisions and document everything – research, rulings, recommendations and, finally, a comprehensive listing of IP rights as they continue to take shape in the U.S. and around the world.