Mark McDonald

A member of the Gartner Blog Network

Mark P. McDonald
GVP EXP
8 years at Gartner
24 years IT industry

Mark McDonald, Ph.D., is a former group vice president and head of research in Gartner Executive Programs. He is the co-author of The Social Organization with Anthony Bradley. Read Full Bio

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The Knockoff Economy: how imitation spurs innovation — A Book Review

by Mark P. McDonald  |  August 24, 2012  |  4 Comments

The Knockoff Economy  explores the validity of the belief that innovation and growth only happen when there are strong protections against copying or duplication.  The authors, both lawyers, make a compelling argument that IP protections like copyright, patents, etc. do not themselves create an environment of innovation.

Creating ‘monopoly’ rights is not a requirement for vibrant innovation, growth and creativity.  Rather than argue against IP protection, the authors provide examples of industries with low IP protections and a degree of copying that still have high levels of growth and innovation.  In showing the positive case, the authors provide a compelling and thoughtful view on the connection between protection and innovation.

Raustiala and Sprigman discuss innovation and growth in industries as diverse as fashion, football; stand up comedy, medicine, cuisine, fonts and high finance.  The analysis and discussion of each of these industries is first rate providing a balanced, evolutionary and focused approach.  I learned much about these industries simply by reading the relevant chapters.    Each provides examples that are relevant to today’s business.

Copying drives consumption and creativity where consumption is more immediate and tangible.

In fashion copying actually creates demand for new designs and drives consumption.  In Raustiala and Sprigman’s analysis of the fashion industry they found a “fashion cycle” which is based on the status created by wearing designer closes.  These positional goods drive a cycle at the top where the demand is to have the latest and greatest designs, but also a cycle in the middle where the knockoffs live, thrive – driving growth and then die, as they become passé.   That cycle is not possible if there were tight IP restrictions and there was no need for creativity. The authors find a similar circumstance in Cuisine and recipes.  This is another example of IP that is valuable but where creativity and success are not based on protecting it.

Fast moving, short-term gain less focus on long term leads to creativity and competing based on the ability to execute.

In football and in high finance, the need to win now influences the practicality of IP protection.  In football the world is measured in a season.  This leads to rampant copying of plays and defensive schemes. Coaches actually meet in the off-season to learn from each other.  Competitive advantage is based on execution of the plays and that requires a good fit between the plays and schemes with the physical qualities and characteristics of the players.  So the playbook is not so important but the way you handle the plays in the book is critical.

In finance the same thing exists but for slightly different reasons, quoting from the book: “Financial firms innovate to satisfy the unmet needs of particular customers; to lower transaction costs; to avoid taxes and regulation; to take advantage of rating agency rules for assessing the quality of debt; and to take advantage of opportunities offered by new technologies.  And for many of these kinds of innovations, patent protection would be counterproductive, because haring with rivals is helpful or even necessary to grow markets to the size at which they become efficient and lucrative.” (pp. 155)

It is no joke to steal other’s material – the power of social norm to protect IP

Comedy is another industry that is growing, creative and innovative without traditional IP protection.  The need to produce fresh material to feed a digitally aware audience is tremendous and creates an incentive to leverage others materials. But unlike other industries, there is a strong code of ethics or norms against copying among comedians – particularly the few thousand that earn a living by doing comedy.  In this case, the authors show that IP protection in the traditional sense is not the only form of IP protection as comedian’s police themselves, shun those who steal material, and take their reputations very seriously.

How to read this book

This is a top rated book because of the summation and implications provided in the concluding chapter.  Like any good TV attorney, the authors save the best for last. I recommend reading this book in the following order.

  1. The introduction, then
  2. The conclusion and the epilogue, then
  3. The first chapter and the rest of the book.

Reading the conclusion second seems a bit disconcerting at times, but it brings a deeper appreciation to the arguments made in the middle chapters.

Share this book widely across the executive suite.  I highly recommend it to those in Product Development, Corporate Strategy, CIO, CMO, CEO, CFO and the Chief Corporate Council.  Too often we all get set in our ways of thinking, translate everything into dollars and cents, and ignore the possibility of alternative ways of competing.  This book combats all of these tendencies, providing a fresh look at an important fundamental issue:  innovation and IP.

The Knockoff Economy provides powerful arguments that require rethinking the view of intellectual property and creating deep disruption by changing industry terms.

Be warned this is not a business book in the traditional sense.  The authors are not selling a five-step program, a framework or a solution.  Rather they point out the limitations of an existing and deeply held belief that innovation requires protection against copying.  This is an argument that leads you to create your own conclusions, but in light of digitalization, innovation and the pace of change, we all need new thinking in this area.

4 Comments »

Category: Book Review Innovation     Tags: , ,

4 responses so far ↓

  • 1 Jay Oza   August 24, 2012 at 1:23 pm

    Mark, this is an excellent book review.

  • 2 Mark P. McDonald   August 24, 2012 at 2:18 pm

    Jay

    Thanks for your kind comments, please consider the other book reviews under the key word book review.

    Mark

  • 3 Dale B. Halling   August 25, 2012 at 11:41 am

    Imitation creates innovation? What is your definition of innovation? When Edison invented the (high resistance) incandescent light bulb was that innovation? Did it involve copying someone else’ work? The same questions arise with respect to the laser, radio, erbium doped fiber amplifier, streaming multimedia, PET scans, etc. Did these innovations occur in North Korea, Africa, the Middle East where they are not burdened with Monopoly rights?

    The premise of this book does not even pass the laugh test. First the idea that imitation is innovation is one of the Orwellian statements that boggles the mind. Innovation is about creating new things, copying is about creating old things. To suggest imitating creates innovation is oxymoronic. Second, the premise that weaker patent laws (IP generally) spurs innovation is without any statistically significant empirical evidence to support it. On the other hand there is mountain of evidence that shows the PROPERTY RIGHTS for inventions, aka PATENTS, do result in innovation. For more information see http://hallingblog.com/source-of-economic-growth/.

  • 4 Mark P. McDonald   August 25, 2012 at 1:03 pm

    Dear Mr. Halling

    Thank you for your comments and the time to put them on the blog. The post is a review of the book Knockoff Economy and the arguments the authors make. They point out that ‘requirement for heavy IP protection’ is not a precondition for innovation and the authors use several industries as examples. The authors do not say that IP is worthless rather recognize that it is not the only way to create innovation.

    Tweaking is one of the things that the author’s commented on that I did not mention in the review, but in fact much of the innovation that happens involves tweaking, or a series of improvements that lead to new inventions. They point out that traditional notions of invention — the lone inventor with the Eureka moment are more a work of fiction than fact.

    Thomas Edison, whom you mention in your comments in fact did not invent in the romantic sense, but had an industrial approach to innovation that involved tweaking — in the case to find the right materials for a light bulb filament. The other inventions mentioned in your post may also be the result of tweaking but I have not investigated them.

    The premise of the book, the evidence it presents, etc. do pass the laugh test. The book does not advocate weaker IP laws, these two lawyers are pointing out that IP laws alone are not only bulwark toward innovation.

    It’s interesting to point out that today’s WSJ summary of Apple’s victory over Samsung points out. “That means that Apple could find it easier to defend its market position and lofty profit margins, while consumers may see a bit less choice and higher prices — as fewer competitors court buyers with me-too models and pass along costs of damage awarded in the price of their products.” Funny higher IP protection, less choice, fewer competitors, less innovation because less people are experimenting, mashing-up, putting a new spin on a piece of functionality?

    Yes patent rights and IP production do lead to innovation and that is something the authors do not dispute. But they do point out that there are vibrant, growing and innovative industries where IP rights are not at the core of innovation. These industries are not the high-tech, medical device, automotive industries we normally think about as innovative — I would imagine the authors would say that their industry cycle times require IP protection. But in faster moving, more consumer oriented and less centralized industries there could be another case.

    One final point, if you count innovation based on patents, then of course you will find IP at the heart of invention. It is like counting vowels in words. But if you take a slightly different view on what is ‘new’ like a new recipe in cuisine, a new style of clothing, a new set of football plays, a new financial services instrument, etc. then you see invention without high IP walls. It’s just something to think about – a radical idea that has obviously touched a cord and therefore merits exploration rather than expulsion.

    If this book was silly, stupid or poorly researched, then I would not have written the review and posted it on the blog. The author’s offer a different idea, one that merits consideration and therefore one you might consider exploring. After all new ideas, which are not protected by IP, often lead to new industries, inventions and growth.

    Thanks so much for your comments and for reading the blog.

    Mark