Acton Commentary

The Intellectual Property Swindle


The Justice Department has ended its crusade against Microsoft with a recently approved settlement. Legal troubles are not yet over for Microsoft – some states and the European Union are still looking to prosecute alleged anti-trust violations – but, for the moment, they have subsided. For the rest of us, however, the problems are just beginning. The final judgment in the Microsoft ruling holds hidden dangers for consumers and to industries beyond those involving software.

Chief among these dangers is the degradation of intellectual property rights involved in the current settlement. Microsoft has agreed to provide competitors proprietary codes that reveal how Microsoft Middleware inter-operates with a Windows Operating System Product.

In other words, this means that Microsoft will have to release the top-secret design information that allows its software (such as Internet Explorer and Microsoft Office) to work well with Microsoft’s Operating System. In turn, this will allow competitors to see what makes Microsoft’s Windows Operating System "tick."

No matter how competitors choose to use this information, it appears dangerous to Microsoft’s ability to protect the software designs that have made it a leading choice among consumers. With its competitors able to legally plunder Microsoft’s ingenuity for their own use, one wonders what will motivate Microsoft to remain on the cutting edge of software innovation.

Intellectual property rights are an essential component to economic development. Without assurances that inventions cannot be used by competitors who did not suffer the cost of research and development, companies will have no financial compensation to offset the great expense of research and development. In fact, it will be in their interest not to invent or improve products. Rather, the incentive seems to be toward simply waiting for some unlucky individual or company to build a better product and steal the design. This is a logical outcome if the product of a corporation’s labor cannot be protected.

The Department of Justice is right to conclude its questionable case against Microsoft. In the interest of expedience, however, both Microsoft and the Justice Department could be harming essential elements of a free and prosperous economy. In forcing Microsoft to give ground on intellectual property rights, in the form of surrendering Microsoft’s proprietary codes, the Justice Department is doing harm in calling into question the fundamental right inventors, be they corporate or individual, have to protect their innovations. Without a reliable legal framework that protects intellectual property, markets degrade into chaos. Forcing a corporation or an individual to place hard-earned ingenuity in the public realm for use without compensation is, undoubtedly, immoral and unjust.

Protecting innovations that elevate the standards of living for all people is a profoundly moral issue. It is important to note that in the world of business and commerce, there is a moral principle built into how the market delivers goods and services.

If the Justice Department were more interested in protecting consumers rather than punishing those who have successfully competed in our free and open markets, it would see that doing harm to the rights of companies to protect their property does harm to all consumers. If the ability to protect the intellectual property of a corporation is threatened, the incentive to innovate and take risks is diminished, leading to slowed technological advancement and higher prices for lower quality products. Disproportionately, it will be those on the lower end of the economic spectrum who will bear the brunt of these lesser products and higher prices.

While Microsoft’s coerced capitulation on intellectual property rights sets a troubling precedent, one could argue that the situation had the potential to turn out far worse. If the courts had not set the stage for a settlement by overturning Judge Thomas Pennfield Jackson’s original order to break up Microsoft, the economy would have suffered a much greater blow. An Institute for Policy Innovation study projected that the Microsoft anti-trust lawsuit was set to have a cumulative effect, for the period of 2000 – 2010, of roughly 45,000 jobs lost, more than $50 billion in lost government revenues, and $147 billion of our gross domestic product.

No doubt harm has been done to the free market system by this diminution of intellectual property rights. Microsoft, pressed by a costly prosecution, has cut this deal for the sake of its survival. Its very survival, however, is in question if it cannot protect the fruits of its labor from being plundered by competitors. Diminishing the protections surrounding intellectual property is an important issue for Microsoft, and many other industries, to consider as this settlement could have unintended effects on many industries that rely on protections surrounding intellectual property.

The Constitution describes "securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries" as a method "to promote the progress of science and useful arts." Moreover, this idea of progress, invention, and art revolves around the necessity of protecting creativity in order to promote creativity. Failing to protect the free exercise of human creativity deals a blow to an essential component of our nation’s great and unique presence in the world.