The Pizzaright Fallacy in Patent Law

Scott Kieff, a law professor who works just down the street from me at Wash U, makes a novel (to me anyway) argument about the purpose of patents:

When patents are enforced with clear and robust rules, and backed up by a strong right to exclude, they serve an essential coordinating role in facilitating the complex process of getting inventions commercialised. Patents help get inventions put to use broadly and rapidly.

Bringing an invention to market requires coordination among many complementary users of that technology, including capitalists, developers, managers, labourers, other technologists, manufacturers, marketers and distributors. Patents help this diverse group act in a coordinated fashion in at least two distinct ways.

First, the right to exclude associated with a published patent acts like a torch in a dark room in drawing to itself all those interested in the patented subject matter. This beacon effect gets all the diverse individuals to interact with each other and with the patentee.

Second, everyone’s expectation that the patent can be enforced against anyone is exactly what provides these individuals with the required incentive to strike deals with each other. This bargain effect falls apart if everyone knows the patent can’t be enforced.

The profit potential associated with an enforceable patent incentivises everyone in the commercialisation process. Not least of all, for example, the promise of financial payoffs is what brings the essential capital investments to start and sustain businesses.

This argument has a certain superficial plausibility, but as I’ll explain below the fold, it runs afoul of Ed Felten’s Pizzaright Principle.

A pizzaright is an imaginary kind of “intellectual property” that gives its holder the exclusive right to make pizzas. The Pizzaright Principle states that, since everyone agrees that granting pizzaright would be bad public policy, any argument for a legal monopoly that would function equally well as an argument for pizzaright must be flawed. Or, to put it another way, to be credible, any such argument must somehow distinguish the right being defended from pizzaright.

Kieff’s argument simply bombs the pizzaright test. Consider:

Opening a pizzaria requires coordination among many people, including investors, construction firms, pizza oven vendors, managers, labourers, marketers and delivery drivers. Pizzarights help this diverse group act in a coordinated fashion in at least two distinct ways.

First, the right to exclude associated with a pizzaright acts like a torch in a dark room in drawing to itself all those interested in the opening of pizzarias. This beacon effect gets all the diverse individuals to interact with each other and with the pizzaright holder.

Second, everyone’s expectation that the pizzaright can be enforced against anyone is exactly what provides these individuals with the required incentive to strike deals with each other. This bargain effect falls apart if everyone knows the pizzaright can’t be enforced.

Actually, it occurs to me that this isn’t an entirely hypothetical example. In The Death and Life of Great American Cities, Jane Jacobs argues that suburban shopping malls are often propped up by zoning laws, which by limiting the number of commercial establishments in a particular area, ensure that the ones they do permit succeed. But no libertarian would defend the use of zoning laws for the purpose of reducing competition among retail establishments, and they certainly wouldn’t defend those as required by free market principles.

Update: As Noel points out, I got the link from his blog post, which you can find here.

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