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.
- The introduction, then
- The conclusion and the epilogue, then
- 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.