There’s already been a big revolution in how we view intellectual property. So it’s not so much the question of what’s owned or what’s not owned. It’s a question of how can you leverage the assets you have to realize the most value.

From the author’s point of view, the threat really isn’t piracy; it’s obscurity.

The average person in the U.S., even if he or she doesn’t illegally download music or movies, violates copyright laws so many times a day, according to John Tehranian, a law professor at the University of Utah, that if he or she were sued for just one day’s worth of violations, the damages would amount to about $12.45 million. It involves everything from forwarding an e-mail with another e-mail or a photo attached to taking a photograph with a TV on in the background. All these activities are technically illegal.

But humans are copying machines. We learn by imitating one another. That’s how we learn to speak. That’s how we learn social norms. That’s how culture happens. Everything we do is an invitation to copy. And now, thanks to digitization and the Internet, we can express that in ways that we couldn’t before. The Internet is the ultimate copying machine, and it’s affecting many business models. There are times when piracy is a great idea and there are times when it’s not; that’s why I call it a dilemma. The point is, though, it is not a dead end. It’s in the interest of all who deal with the buying and selling and sharing of ideas to confront piracy and its implications now — that is, to reevaluate their business models so they include ways to capitalize on a freer flow of ideas and on more sharing of information and content.

Because of patent law, which exists to protect intellectual capital, we often think the value of an idea lies in its creation. Yet the value of an idea lies in the audience, not its source, and one idea can be ‘created' many, many times. Creativity exists in a chain: an idea comes from this group and goes to that group, and that group then carries it over to another group. An idea is a multiple sequence of creative acts. This is important because it means that creativity isn't just the domain of brilliant people, it's also the domain of average people who travel to other groups. The simplest way to feel creative is to find people more ignorant than you. Nobody knows that better than academics, who are constantly in the business of reading widely, coming up with ideas, then shipping them to groups unaware of the ideas.

One thing differentiates intellectual capital or knowledge assets from physical and financial assets, and that's what economists call "rivalry" and "non-rivalry" assets. Physical assets are rival assets. Different users rival for the use of an asset. This asset cannot be used elsewhere at the same time. ...Physical, human and financial assets are rival, or scarce, assets, where the scarcity is reflected by the cost of using the assets. On the other hand, intangible assets are non-rival assets. The use of an asset in one case does not prevent it from being used simultaneously by others in another case. ...This is what some people call "scalability" or the ability, after you've made the first initial investment in intellectual capital, to scale it endlessly and enjoy increasing returns. And if you know how to work your market you can get huge value out of it. So this non-rivalry attribute of intangibles is the main thing that differentiates intangible assets from physical assets.

The first negative [for intangible assets] is what economists call "partial excludability." With physical and financial assets, you can completely exclude others from enjoying these assets. If I own a car and there is an effective police force, I can prevent anybody from using my car. But let's say that I have an employee who is brilliant and that I have invested in his or her training. If he leaves tomorrow, then others will enjoy the entire benefits of my investment. It's very easy to invent a round patent, for example, and just get most of the benefits.

So with respect to intellectual capital, it's very difficult-even with patent laws-to appropriate, to secure and to derive all the benefits from the assets. This weighs heavily on accountants, because for something to qualify as an asset, it must control the benefits. But you don't really control the benefits from training employees, for example. So they say, "Well, you may get benefits from it from time to time, but you don't control it, so it's not an asset."

The second thing that is unique to intellectual capital is that there are basically no markets in intellectual capital. You cannot trade in them. There is no market in R&D, no market in processes, and no market in human assets. Which means that it makes it riskier and more difficult to manage and value these assets. The market provides guidelines for valuations. ...But there are no comparables for R&D, no comparables for human resources, because there are no markets, no prices and no trades. So it's very, very difficult to value these assets.

In principle, patents open up innovations in two ways. First, they confer only temporary rights; once patents expire or are abandoned, the intellectual property they are designed to protect passes into the public domain. Second, they require the details of the invention to be disclosed so they can be replicated. This permits follow-on innovation, which is essential for industrial progress.

More recently, as the patent system has evolved, it has been seen to provide other benefits. It leads to a degree of economic specialisation that makes business more efficient. Patents are transferable assets, and by the early 20th century they had made it possible to separate the person who makes an invention from the one who commercialises it. This recognised the fact that someone who is good at coming up with ideas is not necessarily the best person to bring those ideas to market.

...As the patent system has matured and licensing has become much more widespread, these transfers are turning business relationships on their head. Some economists argue that the growth of patent transactions is establishing a proper "market for technology"...just as the banking system created a market for capital and the insurance industry created a market for risk, the growth of the patent system may be creating a market for innovation.

He who receives an idea from me receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me...Inventions then cannot, in nature, be a subject of property.