HUDSON INSTITUTE
HOW IP RIGHTS KEEP MARKETS FREE
1
POLICY MEMO
How IP Rights
Keep Markets Free
JONATHAN M. BARNETT
Contributor, Forum for Intellectual Property, Hudson Institute
June 2021
Executive Summary
It is elementary that secure protection of property rights
is a necessary precondition for efcient markets that drive
economic growth. Yet this principle is not always recognized
in the case of markets for intangible goods. Rather, intellectual
property rights are often characterized as a monopoly
franchise that stands at odds with free-market competition.
Following this view, IP rights at best provide a justiable means
to incentivize innovation but are prone to abuse by incumbents
seeking to block entrants.
This standard narrative overlooks an inconvenient fact. As
I show in a new book, Innovators, Firms, and Markets: The
Organizational Logic of Intellectual Property, incumbents and
other large rms in US technology markets have regularly
advocated against stronger forms of patent protection and, in
certain industries, have resisted patent protection entirely. This
lobbying strategy poses a puzzle: Why would dominant rms
resist the opportunity to operate under the umbrella of a legal
monopoly?
This policy memo analyzes the counterintuitive IP policy
preferences of large technology rms and, in resolving this
apparent anomaly, shows that patents tend to enhance
competitive intensity by enabling idea-rich but capital-
poor innovators to challenge idea-poor but capital-rich
incumbents. Contrary to widespread assumptions, IP rights
are far closer to the familiar property rights that support
tangible goods markets rather than the monopoly grant to
which they are often (and misleadingly) analogized. These
insights, which are based on over a century’s worth of US
innovation history, raise signicant concerns about the IP-
skeptical trajectory that policymakers have pursued since the
mid-2000s.
The Surprising Political Economy
of the US Patent System
US patent and antitrust history, from late nineteenth-century
railroads through twenty-rst-century search engines, shows
that, outside pharmaceuticals, large rms, and especially
large rms that operate through integrated structures,
