The European Commission recently did something amazing and admirable. It conducted an empirical evaluation of whether an EU initiative was actually doing any good.
The initiative in question was the Database Directive, which required the creation of a broad new Community-wide “sui generis” intellectual property right over compilations of facts. The report honestly describes this as “a Community creation with no precedent in any international convention.”
Using a methodology similar to the one I described in an earlier column on the subject, the Commission found that “The economic impact of the “sui generis” right on database production is unproven. Introduced to stimulate the production of databases in Europe, the new instrument has had no proven impact on the production of databases.”
In fact, their study showed that the production of databases had fallen to pre-Directive levels and that the US database industry, which has no such intellectual property right, was growing faster than the EU’s. The gap appears to be widening. This is consistent with the data I summarised in my earlier article, but the Commission’s study is more recent and, if anything, more damning.
Commission insiders hint that the study may be part of a larger – and welcome – transformation in which a more professional and empirically-based look is being taken at the competitive effects of intellectual property protection. Could we be moving away from faith-based policy in which the assumption is that the more new rights we create, the better off we will be?
All this – particularly the comparison with the United States market – is exactly what I called for in my earlier column. So why only two cheers? Well, while the report is a dramatic improvement, traces of the Commission’s older predilection for faith-based policy and voodoo economics still remain.
The Commission coupled its empirical study of whether the Directive had actually stimulated the production of new databases with another intriguing kind of empiricism. It sent out a questionnaire to the European database industry asking if they liked their intellectual property right – a procedure with all the rigour of setting farm policy by asking French farmers how they feel about agricultural subsidies.
Yet the report sometimes juxtaposes the two studies as if they were of equivalent worth. Perhaps this method of decision-making could be expanded to other areas. We could set communications policy by conducting psychoanalytical interviews with state telephone companies – let current incumbents’ opinions determine what is good for the market as a whole. “What is your emotional relationship with your monopoly?” “I really like it!” “Do you think it hurts competition?” “Not at all!”
There are also a few places where the reasoning in the report leaves one scratching one’s head. One goal of the database right was to help the close the gap between the size of the European database market and that of the US. Even before the Directive, most European countries already gave greater protection than the US did to compilations of fact.
The Directive raised the level still higher. The theory was that this would help build European market share. Of course, the opposite is also possible. Setting intellectual property rights too high can actually stunt innovation.
In practice, as the Commission’s report observes, “the ratio of European/US database production, which was nearly 1:2 in 1996, has become 1:3 in 2004.” Europe had higher protection and a smaller market. Then it raised its level of protection, and lost even more ground. Yet the report is oddly diffident about the possibility that the US system is better. It also overstates the significance of an important, but limited, European Court of Justice ruling in curtailing the reach of the right.
In its conclusion, the report offers a number of possibilities, including repealing the Directive, amending it to limit or remove the sui generis right while leaving the rest of the Directive in place, and keeping the system as it is.
The first few options are easy to understand. Who would want to keep a system when it is not increasing database production, or European market-share and indeed might be actively harmful? But why would we leave things as they are? The Report offers several reasons.
First, database companies want to keep the Directive. (The report delicately notes that their “endorsement.. is somewhat at odds with the continued success of US publishing and database production that thrives without... [such] protection” but nevertheless appears to be “a political reality”.) Second, repealing the Directive would reopen the debate on what level of protection is needed. Third, change may be costly.
Imagine applying these arguments to a drug trial. The patients in the control group have done better than those given the drug, and there is evidence that the drug might be harmful. But the drug companies like their profits, and want to keep the drug on the market. Though “somewhat at odds” with the evidence, this is a “political reality.” Getting rid of the drug would reopen the debate on the search for a cure. Change is costly – true. But what is the purpose of a review, if the status quo is always to be preferred?
The European Commission has taken one important and laudable step towards rational policy-making on database protection. Now it needs to finish its journey.