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KOL173 | “Rethinking Intellectual Property: History, Theory, and Economics: Lecture 2: Overview of Justifications for IP; Property, Scarcity, and Ideas” (Mises Academy, 2011)

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Kinsella on Liberty Podcast, Episode 173.

This is the second of six lectures of my 2011 Mises Academy course “Rethinking Intellectual Property: History, Theory, and Economics” (originally presented Tuesdays, Mar. 22-April 26, 2011). The first lecture may be found in KOL172.

Youtube and slides for this lecture are provided below. The course and other matters are discussed in further detail at KOL172. The “suggested readings” for the entire course are provided in the notes for KOL172.

Transcript below.

Lecture 2: OVERVIEW OF JUSTIFICATIONS FOR IP; PROPERTY, SCARCITY, AND IDEAS

SUGGESTED READING MATERIAL: See the notes for KOL172.

Transcript

Rethinking Intellectual Property: History, Theory, and Economics—Lecture 2: Overview of Justifications for IP; Property, Scarcity, and Ideas

Stephan Kinsella

Mises Academy, March 29, 2011

00:00:01

STEPHAN KINSELLA: … check today.  If there are any that I’ve missed, please alert me, and we can talk about them later, or I’ll answer them after the class.  Okay, so I think my name is showing up correctly now because I’m just another panelist with you guys, and Danny is Mises Institute.  So Danny, can you hear me?  Are we good to go?  Okay, I uploaded the slide myself.  That worked okay.

00:00:29

Okay, good evening everybody, glad to be back, and let’s resume with the talk, and we’re going to pick up where we left off if I can find – there we go.  Okay, so this week I’m going to do something I did last class, which worked out pretty good.  I mean I have this blog at – it’s C4SIF.  Let me see if I can turn on the laser pointer actually.  I had trouble last time.  It’s not going to let me do it.  Never mind.  I have a blog or a site called C4SIF.org, and I post regularly various IP-related items.

00:01:12

There’s probably one about every maybe two or three a day.  There’s so many things to blog about, so that’s a good way to keep up with what’s going on.  And so in the beginning of each class, I have an Outrages of the Week, and I just kind of go through quickly some of the things I posted in the last week or two of the course actually.  It’s hard to keep up because there’s so many things going on.  So anyway, like I said, it’s C4SIF.org, which is a think tank I started, or really just kind of a private research foundation I started last year.  It means Center for the Study of Innovative Freedom.  But basically it’s about getting rid of IP law so we have innovative freedom.

00:01:54

The New Grave Robbers – I’ll just go through a few of these right here.  The New Grave Robbers is about – let me see if I can turn on this laser pointer somehow.  It’s not letting me do it.  I’m not sure where it is on here.  Anyway, so the New Grave Robbers is about a type of IP right called the right of publicity, which is – it’s called grave robbers because it’s lasting past the death of the famous person in some American states.  And it’s being used more and more.  It’s called a right of publicity or an identity right, and one recent case is the Tolkien estate.  It’s trying to block a novel that uses Tolkien as a character.  So this could threaten historical fiction, so this is an example of one type of IP law can actually restrict free speech and free expression.

00:02:52

Here’s a blog post about recent IP cartel advances.  This was – a lot of these are reposts of other people’s blogs.  But this is about how in Europe there’s steam for motion against agitation for changing the law and adding new IP rights and strengthening IP law even in Sweden and in Italy and in France.  So you can browse that later.  We have a lot to go through, so I’m just going to go through some of these quickly.  You can read these blogs.  These are all linked, by the way, on the slides.

00:03:27

Owning language, using trademark law, a lot of companies are fighting over the use of words.  This has always been done, but it seems to be an increasing problem.  Right now, we have Apple actually claiming the right to the term App Store, which is ridiculous because Amazon actually has the Amazon App Store up now.  And so Apple is – and Amazon may be in litigation.

00:03:53

There’s a new white paper up, and it’s kind of funny.  It’s called “It Will Be Awesome If They Don’t Screw It Up: 3D Printing, Intellectual Property, and the Fight Over the Next Great Disruptive Technology.”  3D printing is going to be some people think an amazing new thing where you can basically have – you can have manufactured 3-dimensional objects using a recipe.  And so of course if you have intellectual property that interferes with this, you could stop people from making things in their own houses like making screws or shades or widgets or gadgets.

00:04:30

00:04:34

I found a quote from 1986 which I liked, an economist named George Priest in a law journal.  “[I]n the current state of knowledge economists know almost nothing about the effect on social welfare of the patent system or of other systems of intellectual property.”  So we have this system where, even today, we still – economists have still yet not been able to verify the claims of empiricists or the advocates of the IP system, and we’ll get to that later in today’s course or maybe next course in detail.

00:05:12

There is a new patent reform act.  There’s been one pending for the last five or ten years, but finally it looks like it’s attaining steam, and maybe about to pass.  The Senate passed at like 95-5.  By the way, Rand Paul did vote for it, which is disappointing.  But anyway, so there’s a new patent reform act called the America Invents Act, and I did a blog post just going through the provisions, showing how they’re not a big deal or they’re a negative.

00:05:35

  1. Neil Schulman, an old friend of mine who’s a science fiction author and a kind of quasi-Randian and a huge advocate of his strange version of intellectual property called logo rights – he’s starting to get testy about all the challenge to IP by libertarians. And he recently called me the foremost enemy of property rights. I guess I took that as a compliment.

00:06:03

Jock says did Sanders?  Jock, are you talking to me?  I’m not sure what that question is about.  Did Sanders – I don’t know what that means.  There’s a recent lawsuit by the RI – or the recording industry – oh, I don’t know.  It was 95-5.  I didn’t look to see how everyone voted.  Jock says did Bernie Sanders from Vermont vote for that law?  I don’t know.  That’s a good question.  In my post, I tried to have a link to – I tried to have a link to the intersite, which shows the status of this vote.  So just check on that – click on that link there that I have there, and maybe you could find out, but it was 95-5, so only a few people held out.  I saw the people who voted – didn’t vote for it, and I don’t remember seeing his name.  It’s like three Democrats, two Republicans if I recall.

00:06:57

But there’s a suit where the RIAAA is suing Lime Wire for file sharing, and they have done the math.  Using the statutory damages in the copyright statute, and they added it up, multiplying it by all the different sharings of each files like 10,000 files being shared many times.  And they’ve calculated that they’re owed $75 trillion of damages from Lime Wire.  This is not a joke, $75 trillion.

00:07:24

I have a blog post about an old patent from 1924 where they’re warning people you cannot use your airplane to write words in the sky because you violate our patent.  That’s kind of funny.  I also have a trademark about – I mean a post about trademark absurdities with two cases here in Houston.  That’s me in front of this pub called the Velvet Melvin, which used to be called the Velvet Elvis because they had a painting of that velvet Elvis painting on the inside or the print or whatever on the inside of the pub, and that was their name.  And then the Elvis Presley estate sued them and shut them down actually, so they finally reopened and renamed themselves the Velvet Melvin, which is ridiculous, but they had to do that.  And then there’s the famous Taco Cabana and Two Pesos suit, which I discuss briefly in that post.

00:08:13

Here’s one.  There’s an Asian-American band up in Portland called The Slants, and they applied for a trademark, and the trademark office denied it on the grounds that the trademark – or the name of their band is racist.  So these are Asian Americans, and they call themselves The Slants for obvious reasons, but anyway.  I have a sign down here, Fat Ho Burgers.  That’s actually from a blog post about this actual burger stand called Fat Ho Burgers, so I guess they would have trouble too.

00:08:49

One more thing, Howard Hughes, the famous eccentric billionaire, actually filed a – he purchased a bunch of companies and copyrights under the name of some other companies that he owned, copying – and he purchased copyrights to articles written about him that were used for this unauthorized biography.  And then he sued the publisher of the biography for copyright infringement, so he was using copyright to stop people from commenting about him.  I’ll skip this one for now to try to save a little time.

00:09:25

So where had we left off?  We were talking about the types of IP—patent, copyright, trademark, trade secret, and other types of IP and what the focus of the course is going to be.  And today’s lecture will be on – we’ll continue talking about law.  I’ll elaborate some more things about law.  And then we’re going to go into the history of the patent and the copyright system.

00:09:48

00:09:52

So I didn’t mention last time, let me explain one thing.  So I mentioned several types of IP—patent, copyright, trademark, trade secret, boat-hole designs, mask work protection, publicity rights, reputation rights, moral rights.  But we’re going to focus in this course on patent and copyright.  These are the two big ones that cause the most problem.  These are the two that are the most dangerous.

00:10:22

Now, it’s hard to say which one’s worse.  I’m a patent attorney.  I’ve done copyright as well.  It’s hard to say which one is worse.  I tend to think patent is worse in some ways, but then patents only last 17 or so years.  Now, there are – as I mentioned, there are reputation rights and related rights like publicity and media rights and identity rights, which we just talked about, which are also un-libertarian in my view, which I’ll discuss why later.

00:10:48

Many aspects of trademark law are un-libertarian in my view.  Let me just give a quick overview of the problem with trademark law.  The only good thing about trademark law could be done by just pure fraud law, and that is if one company defrauds a customer by misrepresenting the goods he’s selling for them.  So let’s say I sell you a fake Rolex watch for $10,000, and I represent it as a genuine Rolex.  I’ve defrauded you, and you can sue me.  Under the current law, Rolex can sue me for trademark infringement.  They’re the plaintiff, not the defrauded customer, which makes no sense.  But in the real case, a Rolex watch is sold for $20, and it’s a fake Rolex, and the customer knows it, and he’s not defrauded.  And yet Rolex can still sue the seller even though there’s no fraud, so that’s the other problem with trademark.

00:11:44

There are also un-libertarian aspects of trade secret law, which we’ll get to later.  But the main focus will be on patent and copyright because once you understand the problems with these, it’s easy to figure out how to view the sort of more junior type of IP rights.  Oh, by the way, I mentioned earlier EDGAR.  I was thinking wrong.  EDGAR is the online database for securities filings, SEC filings with the Securities and Exchange Commission.  What I meant was THOMAS.  If you search T-H-O-M-A-S, which stands for Thomas Jefferson, THOMAS is the big database for congressional bills and votes and things like this.  So that’s where you can check and find out who voted for that America Invents Act and find out whether Bernie Sanders from Vermont voted for it.

00:12:40

00:12:46

Okay, so let’s continue with patent rights.  And by the way, I just want to mention something – okay Jock is posting here who voted against it I guess.  Sanders is not there, so I suppose Sanders voted for it, which is sad.  Now, some people think that the reform act improves a little bit.  If you look at my summary of the provisions, I don’t think it’s an improvement.  Anything that’s improved is minor, and there are some negative parts to it.  In any case, let’s move on.

00:13:17

I call it intellectual property.  That’s the American terminology, or IP.  It’s typically called industrial property outside of the US.  Although there really is no such thing as intellectual property as a type of right, that is sort of a descriptive term used to cover many types of rights: patents, copyright, trademarks, trade secrets, etc.  Now, on patents, it’s important to remember, and I think I emphasized it last time, and if anyone has any questions about this, please ask me because it’s important to understand this just to understand how patents work.

00:13:48

Patent is not the right to practice your claimed invention.  It’s only the right to stop other people from practicing it because it’s possible that by your practicing your invention, you would violate someone else’s patent.  Patents can overlap.  So to get a patent, it needs to be new on the basis of a prior art.  It doesn’t have to not infringe someone else’s patent.  It could infringe a patent, and the chair example I gave last time is an example of that.

00:14:22

Someone invents a stool, and they have a patent on a stool, which is like a seat with some legs attached to it.  And then someone else comes up with this chair, which is a stool with a seat attached to the back of the – I’m sorry, with a back attached to the seat.  And the – you could get a patent on the chair because it would be novel and non-obvious possibly.  But you could not – you couldn’t use it because it would still be a stool, because it would still have a seat and legs, so it’s a type of stool.  So that’s the example.  That’s the difference.

00:14:58

So there are two types of sort of publications or things that matter for a patent.  One is publications like any article or any knowledge that’s publicized in a way like a magazine article.  It can be what’s called prior art, or a patent application itself.  Even if it’s expired, like even a 50-year-old patent application published in the patent office records, it could serve as prior art, and you wouldn’t be able to get a new patent if it’s already described in one of those – if the examiner at the patent office finds it that is.  But when you infringe a patent, it has to be a live, existing patent, one that does not expire.

00:15:42

00:15:49

Now, for patents, let’s talk about remedies.  When you have a patent and someone makes, uses, sells, or exports – I’m sorry, imports a device or uses a method that is covered by the claims of your patent, then one of the remedies you can get is you can go to the court and you can ask that court – well, you could sue for money, money damages.  But you can also ask the court to grant an injunction, which is an order by the court telling the infringer you must stop doing this.

00:16:22

Now, if you think about it, a patent is a monopoly license granted to an applicant by the government.  So the government claims the right to break that grant if they want to.  That’s called a compulsory license.  So the government claims the right if they want to, to issue to someone else a license to make your patent, and then they’ll pay you reasonable damages like it’s compensation.  So they treat it like a property right even though the have the right.  They don’t have to grant you patent rights.  So – and in fact, they threaten to do this in the anthrax/Cipro case about ten years ago.  If you remember, there was an anthrax scare here in the US.  And there was only one maker who was making the Cipro drug, and they couldn’t make enough.

00:17:11

They were charging a lot for it.  And Congress or the patent office, whoever is in charge of that, the Commerce Department I guess threatened to issue a compulsory license to authorize other people to make this drug, but they didn’t have to because the maker of Cipro lowered their price and made more.  And the funny thing is, sometimes you’ll have advocates of IP – they will bristle with outrage if you talk about the government issuing a compulsory license.

00:17:44

But all that means is the government is kind of taking back a monopoly privilege grant that they gave the patentee in the first place.  It’s kind of funny outrage about the government taking back a monopoly grant that they gave someone.  It would be like if they authorized someone in a town.  You’re the only guy who can make shoes, and then the government one day says, oh, we’re going to take away that.  We’re going to stop enforcing that and let other people make shoes, and someone would accuse the government of infringing this guy’s property right to be the only one to make shoes in a given town.  That’s what it’s about.

00:18:17

By the way, some libertarians actually – or some people actually call for either supplementing the patent system or replacing it with a prize system or a bonus system.  So instead of granting people these monopoly rights and letting them use it to extort higher prices out of customers or extort damages out of the competition or to reduce competition with a threat of a lawsuit, what they say is instead of doing that, you ought to have the government steal money from taxpayers, put it a big fund like someone said, like $80 billion.  Take $80 billion from the taxpayers, put it in a – and use that every year with a – it should be handed out to people that come up with worthwhile inventions like in the medical industry, something like that.  It would be sort of like a private Nobel – I mean like a government Nobel Prize or a government MacArthur Prize.

00:19:16

We kind of have that already with medical – I mean with government funding of R&D.  The government takes money and funds it for R&D and military contractors all the time already.  Big science is already heavily corrupted by a similar idea.  But this idea is you appoint a panel of government-chosen experts who would decide who’s going to get – I give you a million dollars.  I give you half a million dollars.  I give you $10,000.  I give you $10 million here and there.

00:19:43

I mean this is advocated as far back as 1787, maybe earlier as far as I know, but James Madison in the US advocated in 1787.  Michael Polanyi advocated in 1944.  This was actually done in Russia in 1834 and the Soviet Union in 1941.  So you can see it’s a really free-market idea to do this, right?  It has been advocated by Joseph Stiglitz, who is an alleged quasi-free market economist and Nobel Prize winner I believe, Bernie Sanders, the socialist from Vermont that Jock just mentioned, and the libertarian, quasi-Austrian, Alexander Tabarrok.

00:20:23

Anyway, let’s skip down to the next slide now.  There is something in patent law, and there’s actually something similar in copyright law.  It’s called the exhaustion doctrine.  I had this in here because in my last class in November last year, a student asked this question, and I thought it fit in nicely here.  They asked about what the exhaustion doctrine was about.  The idea here is that if you sell a patented item, then you’re giving an implicit license to the buyer to use it.

00:20:58

In other words, you can’t sell a new mousetrap that you have patented to someone and then sue that person for violating your patent.  You’ve basically given them permission to use your patent by selling them the device.  Now, then if he resells it to a second customer down the line, you can’t sue him either because the idea is that you’ve exhausted your right to exploit your monopoly already.

00:21:19

Now, I won’t go into the details of this, but you can read this later if you’d like, this Quanta v. LG Electronics case that was an intel sort of dispute.  It involved intricacies of this exhaustion doctrine.  There’s a similar idea in copyright by the way.  I don’t think I have this in any of my slides, so let me mention here.

00:21:39

I have a blog post up.  If you search on my C4SIF.org blog for the Omega, O-M-E-G-A-A – I’m sorry, O-M-E-G-A case, it’s about the exhaustion doctrine too.  And I think it’s called “Leveraging IP,” “Leveraging IP.”  So in copyright, there’s a similar doctrine, and what happened was there was Omega was selling their watches, which are apparently very expensive.  They sell them at a higher price in the US than in some other countries, so you have these guys.  They went down to, I don’t know, Argentina or Brazil or somewhere, and they would buy the watches legitimately, legally down in Argentina and for a lower price and then sell them back in the US for a higher price.

00:22:22

Jock, you found it.  Thank you.  It’s a Mises blog post.  It’s also on C4SIF, but thank you for finding that.  And Omega doesn’t like it, so they like to control their prices in their markets, which is their right.  But they couldn’t stop it.  They couldn’t say it was any kind of violation of any kind of IP right because it was a legitimate watch.  There was no fraud being alleged.  There was no trademark violation.  So what Omega did was they designed this special little globe logo or something that’s copyrightable.  So basically they designed an original mark, and they put it on the front of the watch or the back of the watch or something, which becomes part of the design of the watch.

00:23:01

And so now there’s a copyright on there, so then they sue this guy for copyright infringement.  Well, you would think that the exhaustion doctrine would apply to that, but in a sort of intricacy of the copyright law, the court ruled that – well, it’s called the first-sale doctrine in copyright law, the first-sale doctrine.  That means that whoever you sell it to first, then they can resell it and they’re not guilty of copyright infringement.

00:23:30

This is why libraries can re-loan books, and this is why there’s a used book market, and it’s not called a copyright infringement when you sell that book.  But the court said that the first sale has to occur in the US for that to be triggered.  So it’s ridiculous but – and anyway – and the danger of this ruling is that some libraries now are wondering if some of the books they have on their shelves that they purchased from another country are now not covered by the first-sale doctrine anymore.  So maybe they can’t resell them or even loan these books out.  Maybe they’re infringing copyright as libraries.  I don’t know if anything has developed about that.

00:24:09

Another sort of twist on this idea in the patent area is this idea.  You guys may have heard of the re-importation issue.  That is – so drugs are – pharmaceuticals are sold in the US for a high markup if they’re patented let’s say.  They’re very expensive.  Now – so Bayer or some company might sell in the US for $1000, and they might sell it in Canada for $300 because the Canadian government imposes price controls because they’re more – they’re not quite as free market in some ways.  And then so you’ll have the drug be re-imported back to the US because it’s the same drug that’s sold here, and there’s no patent infringement because of the exhaustion doctrine.

00:25:00

And this first-sale idea of copyright law doesn’t apply here, so it actually is not a patent infringement.  But now you have the FDA problem.  So in other words, the FDA said, well, we haven’t approved that one, although it’s the same drug.

00:25:11

We’ve only approved the one sold in the US, so you have all these patent advocates saying the FDA should crack down on this re-importation of drugs.  And so Congress was poised to pass this drug re-importation act, and there was controversy about that.  But a lot of the free market advocates who are in favor of patents like some people at Cato like, if I recall, Richard Epstein and few other people over there actually were opposed to the right to import a drug from, let’s say, Canada that had been sold over there to re-import it back to the US because that would undermine the patentee’s right to charge a higher price here.  So basically you have the advocacy of patent rights, of free market guys corrupting their free market principles.

00:26:01

And I have some posts on this.  I think they are on the Lew Rockwell site, and if you search for “Cato Tugs Stray Back Onto the Reservation” if I recall, I think you will find that too.  I don’t think this has anything to do with TRIPS, Jock.  It was just lobbying in the US.  Jock asked whether this was related to the TRIPS, T-R-I-P-S, in all caps, agreement.  This is the trade-related aspects of intellectual property.

00:26:29

No, this is just lobbying to change the law or to force the FDA to go ahead and permit drugs to be re-imported if it was the same drug by the same manufacturer that was already approved over here go ahead and let it in.  And then you had patent advocates fighting against it, and then you have patent rights.  And they’re saying, well, the fact that Canada has a socialist economy and they’re having price controls shouldn’t penalize Bayer drugs or whatever over here in the US.  But, you know, Bayer sold this voluntarily over there.  They’re selling it presumably for a profit.  And if the buyer wants to resell it to the US, it’s hard to see how that violates their property rights.  Okay, that’s an interesting topic, but we spent a lot of time on it.  Let’s move on.

00:27:14

Okay, like I mentioned, the first-sale doctrine is the analog of the exhaustion doctrine in copyright law.  I’ve already talked about this, so I will skip slide 14.  I do have the Omega – I already have the Omega case here, but I’ve got you guys searching for things I already have on here.  I forgot what I had on here.  And so I have the numbers wrong.  So Costco bought the Omega Seamaster watch, so it was Costco actually, the big retailer here in the US, like they’re a Walmart-type store or a Sam’s Club-type store.  So it sold for $1300 instead of $2000 in Paraguay, so it was $700 cheaper.   So they bought it there, and they resold it here.  So they put a globe on it, so anyway I’ve already described this case.  So it’s an interesting case.

00:28:03

00:28:09

And on this page here, on slide 16, I have a quote from the Wall Street Journal talking about how this decision could affect public libraries because of this first-sale doctrine idea.  I’m going to skip some of this stuff on the top here of slide 17.  It’s a little bit arcane stuff about how the actual Quanta case worked out, so don’t worry about that too much.  It was just one application of the exhaustion doctrine, but I think you can see from this that these monopoly privileges—copyright and patent—granted by the state, you can see how they lead to infringement on property and contract rights.

00:28:55

And by the way, one other interesting point, remember how I said that Omega, in order to stop arbitrage, fresh arbitrage, in order to stop Costco from buying one of their watches in Paraguay and reselling it in the US, in order to stop that, which they couldn’t do legally otherwise, they put a design on their watch, which they probably otherwise wouldn’t have done just so they could take advantage of the copyright law and sort of hook into copyright law.

00:29:26

Now, forget about the ethics of this, of their action.  I mean they’re exploiting state IP laws to control their price basically.  But the point is they actually changed their design in response to IP law.  So you could see how IP law in this case is distorting and maybe corrupting, you might say, culture and fashion.  And you can also see this in the case of the fashion industry like Gucci or Louis Vuitton or Chanel purses and shoes and dresses and jewelry.  They have their logos plastered all over these purses and things.

00:30:16

Now, we’re used to this now, but why do they do that?  They do that because there is no copyright in fashion.  So you could knock off a Louis Vuitton purse.  You could knock off a Chanel dress.  Maybe I’m using the wrong fashion names, but I’m not into high fashion.  But you could knock it off.  In fact, this is done all the time.  So what these guys do is they start embedding their trademarks into their products as part of the design so that now they can accuse a knockoff artist of trademark infringement.

00:30:48

Now, if trademark law also wasn’t available in the same way that it’s available now, then you could see that they may never have integrated their trademark or their logo into their fashion design.  That’s sort of a weird thing.  It’s like Costco – I’m sorry.  It’s like Omega adding the globe design to their watch, not for aesthetic reasons but just to use copyright law to sue people so they can control their price.  So we have a whole distortion of the culture industry just because of the existence of IP law.

00:31:23

Now, in addition to patent and copyright and trademark and trade secret, there’s a type of law centered around cause of action for defamation, and you can think of this as reputation rights.  Now, this is not traditionally called intellectual property, but I think it should be included as IP because it’s based on the same kind of mentality that you are entitled to have a property right in some sort of immaterial or intangible thing that has value that you created by your efforts even though it’s not an actual material or scarce resource that you own.

00:32:12

In fact, it’s just what other people think about you, so it’s kind of strange that you have a right to what other people are going to think about you.  Now, defamation – there are two types of defamation.  One is called libel.  One is called slander, so defamation, libel, and slander.  These terms are used sort of interchangeably and sometimes improperly by people.  To keep them straight, think of libel as written because they both have an I in them.  That’s how – that’s a little device I use.  Libel and written both have an I.

00:32:44

Slander is oral, so it’s when you say something bad about something that is untrue and that hurts their reputation.  And when you communicate it or publicize it, it’s called.  By the way, the word oral is also misused by people, by laymen, and even by lawyers.  They’ll say a written agreement or an – is that an – they’ll say is that a verbal agreement or a written agreement?  Well, all agreements are verbal.  Well, actually, some are not.  Like if I silently hand you a dollar for a candy bar that’s not verbal at all.  Verbal just means words, like verbs.  Think of the word verb.  So whether you write it or speak it, it’s still verbal.  So even a written agreement is verbal.  People use the word verbal as synonym for oral.  This is just a little thing of mine that – a myth to keep up these things, and people misuse words and it bugs me.

00:33:36

So I’m just letting you guys know be careful.  Use the word oral if you mean spoken agreement, like, say oral agreement, written agreement.  Don’t say verbal agreement.  Anyway, it’s a – defamation is some kind of statement published to someone else, made to someone else that damages someone’s reputation.

00:33:56

There are some details about defamation law.  Number one, it has to be false, so truth is usually a defense, at least in the US.  There’s a distinction between fact and opinion.  If you just say in my opinion that movie was bad, you can’t be sued for defamation usually.  But if you say the director of that movie took a bribe to make it or something like that, you might be sued.

00:34:26

Now, of course the state usually exempts their own people.  Judges and prosecutors and legislators and presidents, when they make statements officially from the floor of their office or whatever, it’s called parliamentary privilege or other terms are used for it.  So of course the government makes these laws and then exempts themselves from them.  Now, a public figure, you need to show actual malice.  There’s a higher standard, at least in the US.

00:34:53

There’s a famous – I think New York Times v. Sullivan case, New York Times v. Sullivan if any of you are interested, which established that back in the ‘70s or ‘60s I want to say.  So if you say something about Madonna or Arnold Schwarzenegger, someone really famous, it’s harder for them to sue you for defamation because you have to show the statement as malicious.  In other words, people that are public figures, they’re sort of open game for criticism.

00:35:28

Now, there are other types of things.  There’s saying something that puts someone in a false light is related to – similar to reputation rights.  There’s invasion of privacy.  That’s publicly revealing a private fact.  Of course there’s blackmail, which libertarians don’t think should be a crime.  And there’s this publicity right, which I mentioned earlier.  So you have a variety of passive legal rights that are related to you.  They’re reputation rights or other rights to IP.

00:35:59

Now, there’s also domain name issues.  This was established, I don’t know, 10, 15 years ago.  There’s a domain name dispute resolution procedure, and basically if someone registers a domain, so let’s say you register the name tomcruise.com.  Tom Cruise may be able to use this UDRP procedure to get the domain from you even if you’re not infringing.  It’s – so it’s like – it’s considered to be a sort of tech version of trademark infringement even if it’s not technically counted as trademark infringement.

00:36:37

So there’s elements here under the policy.  This is I think an international policy by the way.  I think there’s different countries you can sue in.  I think Czech Republic is one, and actually I think they’re done online, but there are different censors for this.  But the domain name has to be identical or confusingly similar to the complainant’s trademark.  The registrant has no legitimate interest in the name, and they registered it in bad faith.

00:37:04

And the bad faith factor could be asking the – like if you approach Tom Cruise, hey, I registered tomcruise.com.  Would you like to buy it from me?  So that’s one factor for your bad faith.  So if you don’t ask him for it, you have a better chance of not being sued by him, but then he can’t get the name from you, so it’s a weird system.

00:37:21

00:37:27

So let’s go on.  By the way, the whole course will not about the nitty gritty of the IP law.  I’m trying to go through in these first two lectures about what IP law is, so you have a good feel for the actual legal system so we’ll know how to analyze it, understand it, critique it, put it in its place, decide what parts are good and what parts are bad, etc. because you’ll find that a lot of people that comment on IP, especially the defenders of IP, often don’t know what they’re talking about.  And libertarians and laymen often confuse and – different types of IP rights.  They’ll say doesn’t Coca-Cola have a patent on their name?

00:38:06

No, that’s a trade secret.  I’m sorry – that’s a trademark.  Stephen King has a patent on his book.  No, that’s copyright.  Or some company has copyright on their drugs.  No, that’s a patent.  I mean they mix these things up all the time, and yet they’re in favor of them when obviously they don’t really know the differences and even understand how they work.  So I think it’s important to see how they work to lay open the guts of these systems and to really understand how they’re a really clear example of an un-libertarian legislative bureaucracy basically.

00:38:45

Okay, there’s also something related to domains, the Anticybersquatting Consumer Protection Act.  This is related to what I talked about before.  This is a US law though, so it’s basically a way of stopping cybersquatting.  And of course, this is partly uneconomic and partly based upon IP ideas because the IP aspect is that you can see from the fact that there’s a cause of action for registering or using or selling a name confusingly similar to a trademark or someone else.  That’s basically trademark concepts.  But the fact that it’s against squatting, and you know that a lot of cities or states have laws against scalping on tickets.

00:39:28

Of course there’s nothing wrong with scalping because it just means you buy the ticket and you sell it to someone else.  It’s just arbitrage.  I mean it makes – you only hurt people when you stop scalping and when you outlaw that type of action, which is a type of squatting in a way.

00:39:43

Okay, and again, there’s – Madonna is an example I have here.  I do have an example.  Robert De Niro – so Madonna used it, and so she was able to get madonna.com and some other names turned over to her under the UDRP procedure that I mentioned earlier.  Robert De Niro, the famous actor, he claimed ownership of domain names that had Tribeca in them that had an content on the website related to film festivals because I guess he’s got some ownership with the Tribeca Film Festival.  So he’s got some dispute with the owner of tribeca.net.  I don’t know how it turned out.

00:40:22

Okay, now let’s turn to history.  It’s 8:48 my time.  Before we go on about the history of the IP system, and primarily I’m going to talk about patent and copyright, does anyone have any questions at this point about the actual types of IP and the legal systems themselves?  Because I’d be happy to pause here and to address any questions.

00:40:53

00:41:01

So Matt asks is DRM legal?  In parentheses, you’re not allowed to resell digital media that you’ve purchased.  Oh, you mean is it legal for the copyright holder who sells music to put DRM on it to prevent you from reselling digital media that you purchased?  Well, I – well, let’s just clear the facts up here.  So digital media – media usually means a physical media like a CD.  I don’t think they’re – like a CD is usually not covered by DRM, right?

00:41:36

So if you own a CD, which is old technology I know, or an LP or a paperback book, those things are something physical that you’ve purchased and you can resell that under the first-sale doctrine.  Now, I do think some software is sold in that form and is encoded or encrypted or disabled or something unless you have a lock.  So basically there’s no – it’s not illegal to ever put DRM on something if you want to.  That’s just like putting a lock on something.  It’s not illegal.  But the distinction here is in the law, there’s a distinction between a sale and a license.

00:42:20

A license is more like a lease, so when you buy a CD, you are buying the physical object, but you only have a license, which is permission, to use the music on it for noncommercial purposes.  But you can sell that physical medium under the first-sale doctrine, but you couldn’t make a copy of it and sell the copy because you don’t own the content.  You don’t own the copyrighted material on there.  You only have a license to do it.  You don’t have the ownership of it.

00:42:54

When you download, let’s say, movies or songs, or when you purchase software even on a disc I believe, usually the way the seller words is it that they’re granting you a license.  So even if you buy a song for $0.99 from Apple’s iTunes store, you’re not really buying a song.  You’re purchasing a license to that music.  Even if it’s not DRM’d, and they’re not DRM’d anymore, you still don’t have the right to give a copy to someone else or sell a copy to someone else because you only have a license to it.

00:43:29

And because it’s not a physical medium that the first-sale doctrine would apply to, and anyway, the first-sale doctrine applies at the sales.  So you don’t technically – you didn’t technically have a sale.  You have a license.  So there’s no first-sale doctrine.  So no, you cannot – well, it’s a little fuzzy in the law right now.

00:43:49

There’s a company that was just started.  I forgot what it was called, and they’re actually trying to come up with a model where, if you have a digital song that you bought or a movie, you can resell it to someone else.  But I think there’s a system where it actually wipes it from your hard drive or something.  Now, of course there’s no way to guarantee this, which just shows why all these property concepts, applying them to the realm of non-scarce things, makes almost no sense because these things can be copied over and over.

00:44:20

I mean let’s say I buy a CD, I believe in the US you have the right to make a backup copy of that CD or to rip it and to put the songs on your iPod let’s say.  So that’s legal, okay?  But if you then sell the CD and you keep the copy you made on your iPod, are you infringing copyright?  Well, the sale of the CD is not an infringement because the first-sale doctrine.  The copy on your iPod was already there, so you didn’t really copy it at a point in time when you didn’t have the right to do it.  So are you grandfathered in?  I mean I don’t really know what the answer to these things is.  I don’t think anyone knows.  It’s cloudy because these laws really are incoherent and make no sense.

00:45:02

00:45:06

Jock says you could use something like Bitcoin’s mechanism to pass on the digital media and lose the ability to use it yourself.  Well, yeah, that’s the idea.  Amazon has this already with the Kindle with this loaning your book for 14 days or two weeks or whatever to a friend.  It disables it on your device, and then you get it back, and then this site I was talking about, this service, it was discussed recently on TWiL I think, This Week in Law or maybe This Week in Tech, one of the recent episodes.

00:45:34

Anyway, there’s a service that was trying to come up with a way to let you sell – resell your used – so-called used digital media, and I think it would have to find a way to disable it on your own computer, which is problematic.  So the bottom line – DRM is legal.  You can put DRM on anything as long as the person agrees to it.  If it interferes with your ability to resell something, well, too bad.

00:46:03

Okay, any other questions before we go on to history?

00:46:08

00:46:17

Oh yeah, Gwendolyn asked a question.  This is relevant to what we just talked about too.  I have a blog post on my C4SIF in the last couple weeks about this topic.  What she says is there’s talk of putting a limit on how many times an e-book can be leant in public libraries to, like, 12 lendings.  I thought it was more than that, but it’s something like that, 20 or 30 or some small number, and then it would expire and then need to be repurchased from the library.

00:46:42

Yeah, they already talked about that, which of course they’re ridiculous.  I mean books – libraries buy books now and they can loan them as many times as they want until the book falls apart.  Well, digital media cannot fall apart, and this is what the sellers are saying.  They’re saying, well, it’s unfair that these digital copies will last forever.  So they’re trying to penalize you for the fact that it lasts forever.  I mean it’s ridiculous, but there is talk about doing that.  That’s correct.  And of course the idea of lending an e-book makes no sense anyway.

00:47:11

I mean we’re trying to apply these models applicable to the world of physical scarce goods and material things and objects to the realm of things that can be copied forever and that last forever, and they can be perfectly duplicated easily in a second.  It makes no sense.

00:47:29

00:47:36

Okay, so let’s go on now to the history of IP.  Now, there’s something I sometimes call the Immaculate Conception of IP.  By the way, it’s 8:55, and in five or ten minutes I’m going to take a five-minute break, and then we’ll resume.  We may go to the end of the 90-minute period on the history part, so I want to cover everything so we don’t get farther behind.  If we stay up on history then we’re good for the next lecture, and I could stay a little bit later for questions if anybody likes.

00:48:10

Okay, now, I call it the Immaculate Conception of IP based upon one of my favorite Rothbard articles called “Robert Nozick and the Immaculate Conception of the State.”  Now, what Rothbard does is he criticizes Nozick’s Anarchy, State, and Utopia, which most people who haven’t read it assume is a radical libertarian book defending anarchy, but of course it’s not at all.  It’s a somewhat libertarian book, but it’s – Anarchy, State, and Utopia basically is an attempt to justify the state.

00:48:44

It’s an attempt to show how the state – at least a minimal state, so Nozick was more advocating minarchy here.  It was an attempt to show how the state could arise by a series of legitimate steps, and therefore, the state is not inherently illegitimate.  Now, of course, even if he was right, which he’s not because there’s mistakes in his argument, the states we have didn’t arise that way.  They – none of them arose by the steps that Nozick outlined that would be a possible way for a legitimate state to arise.  And that’s what Rothbard critiques.  So I’m going to – Jock says he doesn’t make any arguments, just assertions.

00:49:24

Well, I think you’re referring to his – the beginning of his book where he talks about – he’s going to just assume that we have rights.  Right, he doesn’t.  He never argues for rights.  He just assumes.  He takes it for granted that we have rights.  I actually don’t have a problem with that too much.  His problem is how he applies it.  Anyway, these Rothbard quotes are good.  “Beginning with the free-market anarchist state of nature, Nozick portrays the State as emerging, by an invisible hand process that violates no one’s rights, first as a dominant protective agency, then to an ‘ultraminimal state,’ and then finally to a minimal state.  For every State where the facts are available – for every state where the facts are available originated by a process of violence, conquest, and exploitation: in short, in a manner which Nozick himself would have to admit violated individual rights.”

00:50:16

Now, I bring this up because there’s a similar romantic notion, a conventional account – I’m on slide 23 now – of how IP arose.  And so if you ask anyone who has some familiarity with this, they’re typically in favor of it.  But they would say, oh, it’s sort of this Saturday morning Schoolhouse Rock cartoon version, romanticized notion of the founding of America and how great civil government is.  And a democratic government is wonderful, and our government is the best in the world, and we’re here to protect rights and blah, blah, blah, and the founding fathers are wonderful quasi-libertarians even though they owned slaves and conscripted people and taxed people and forced an illegal constitutional coup on the country.

00:51:02

And George Washington took his slaves’ teeth out to make his own false teeth, and all these heroes are really great.  Anyway, so the conventional account is that – so the libertarian founding fathers of the country recognized this important natural right, and so they put it in the constitution.  And that’s why Article I, Section 8, Clause 8 of the Constitution grants Congress the power to promote the progress of science and the useful arts by giving to authors and inventors limited monopolies on their inventions and works.

00:51:44

Now, just as a point of trivium, you might think that science is what patents are for promoting, and the useful arts is what copyrights are promoting because copyright is for the artistic area and promotes artistic works, creative works, original works.  And patents protect inventions that are usually scientific in nature, something like that.

00:52:10

But that’s actually not correct.  Science, back in the language of the late 1700s, had to do with knowledge.  So that actually had to do with general knowledge including artistic knowledge, so that’s what they were talking about.  Copyright was sort of the promotion of science.  Useful arts was like artists.  Think about artisans, practical guy that made shoe horns for horses and ironworks and craftsmen.  The useful arts are inventions.  Now, so basically understand this.  Patent and copyright are constitutional in my view because there’s a clause in the Constitution granting Congress the authority to do it.

00:53:02

So the problem with copyright and patent is not that they’re not constitutional.  They are constitutional, although you could argue that they actually do not promote the progress of science and the useful arts because they actually harm that.  And so the laws that we have are contrary to the purpose granted for that power, but I think that’s a weak argument because the power is still there.  The purpose is merely explanatory or what we say in law as precatory, really precatory.  I don’t think it’s a limiting clause.  Some argue that.

00:53:32

00:53:37

Jock says we have the Royal Society for the Promotion of Science, Arts, and Manufactures, and Ben Franklin was an early member.  Interesting, very interesting.  I have a blog.  I put a post on the C4SIF in the last few weeks about Jefferson, how Jefferson came up with some new technique that he thought would be really useful.  And he wanted to make sure it worked, and when it worked, he was going to publish an article about it anonymously to prevent anyone else from filing a patent on it.

00:54:08

And then he was just going to let it become part of the public domain and let everyone use it.  He was actually trying to prevent people from publishing it.  If I recall, Franklin was also – didn’t believe in patents and didn’t patent his inventions, but I can’t remember if that’s correct.

00:54:24

Okay, but back to the origin of these statutes.  In the US, trademarks have traditionally been protected by state law, but this act called the Lanham Act I think in the ‘50s, L-A-N-H-A-M Act was enacted, a federal law which gives federal protection to trademarks that pertain to services and sales and products that pass through interstate commerce.  So if you have something that sold only within a state, it wouldn’t be protected by federal trademark but by state trademark.  And so that’s based upon the IC clause, or the interstate commerce clause, which of course is nonsense.  The interstate commerce clause was not meant to give the federal government the power to regulate anything that had an effect on interstate commerce.  It was meant to basically establish a free market, an interstate free market in the US, which it had done that too, which is one reason I think why the US was so prosperous early on.

00:55:24

Now, trade secret law is still mostly based on state law.  So you have patent and copyright are federal law in the US.  Trademark is federal and state, although the federal part is unconstitutional I believe.  Trade secret is primarily state law.  So you have it being called a natural right, but you also have it being touted on utilitarian grounds.

00:55:52

So people will always say, well, we need patent and copyright to encourage innovation or to incentivize innovation.  And they’re always talking about finding the right balance between how long the term of patent and copyright should be, etc.  But as we’ll see later, John Locke and even the founders – none of them ever regarded patent and copyright as natural rights.  They viewed it just as a policy tool, that is, in a sort of – in a utilitarian way.  They sort of had this hunch I call it.

00:56:26

They thought, well, if we grant these temporary monopolies, it will give an incentive to these guys to invent a lot more things, and everyone will be better off.  That was their hunch.  Now, they had no way of proving it, but that was their hunch.  But the truth is, the origins of these things were in monopoly and censorship.  There’s a great quote by Nietzsche from book one of Dawn, and I learned this from Stefan Molyneux, by the way.  I’d never heard this quote before until I heard it a few weeks ago, and I like it and it’s on rationality ex post facto.

00:57:07

The quote is – and I’ll take a break after this quote.  “Whatever lives long is gradually so saturated with reason that its irrational origins become improbable.  Does not almost every accurate history of the origin of something sound paradoxical and sacrilegious to our feelings?  Doesn’t the good historian contradict all the time?”

00:57:32

And I agree with that, and that’s what I’m going to try to go into the actual history on the origins of IP to show you, to reveal its sordid origins and just try to reverse some of these rosy myths about the real purpose of patent and copyright law.  So let’s take a five-minute break.  It’s five past the hour.  We’ll resume at ten past the hour.

00:57:55

[five-minute break]

01:02:18

Okay, I’m back.  Erik said he’s having a hard time hearing me.  I’m sorry.  I have no ability to – I have a little volume control, but it’s maxed out, and it’s not letting me – I’m not sure actually which microphone is me, so I’ll just get closer to it.  I’m not even sure if it’s this microphone or the laptop’s microphone.  I have my nice snowball, which I’ve been trying to use, but I don’t now if it’s using this as well.  Okay.  Anyone here that’s not ready to continue?  Okay, let’s continue.  I’m going to kind of go quickly through this because a lot of the details are not that important.

01:03:30

But it’s important to just kind of have a feel for where these things came from.  I mean you’ll see the messy guts of it.  I always say that you never want to see how sausage or legislation is made, and I think that’s true.  Sometimes with the history of some of these practices that we’re used to, we take for granted now.  Jock, by the way, you said this – the video is freezing.  It hasn’t happened on my end at all unlike in the Dimdim session from the last class I gave that you were a participant in.

01:04:05

Is the technical quality here as good, better, worse?  How would you compare it to the – okay, good.  He said it’s better.  All right, fine.  So I have here a little snapshot of a – I think that’s a patent.  So what a patent is – the word patent is used – the word patent is used because it means open, patente, so an open letter instead of a private letter.  So a monarch would give an open letter, which is like a public proclamation that this guy has the authority to do the following.

01:04:48

This guy has the authority to explore the new world in my name and homestead land in Virginia or whatever.  This guy has the authority to capture Spanish ships and plunder them and kill people and keep 25% of the spoils and bring me the rest.  That’s Sir Francis Drake.  This guy has the right to make shoes in this town, and no one else does.  So basically patents were monopoly grants or authorizations from the Crown.  And you know, I’m not clear why they call some shoes patent leather shoes.  I don’t know if it’s got anything to do with that at all.  I need to find that out.

01:05:42

So this was done a long time in the past.  It was done back in Italy, but one of the – kind of the modern origins of it or the quasi-modern origins – what happened was you had the Crown—the king, the monarch—abusing these privileges.  They were granting all these monopolies to their favorites to get loyalty from these people to reward people without having to use tax money, etc.  And parliament passed the State of Monopolies.  Now, they called these things monopolies back then.

01:06:21

They didn’t mince words.  And in the Statue of Monopolies, they did that to restrict the abuses the king was – the monarch was doing.  They took the power away from the king, and they gave it to parliament, and they reduced the power to do this, and they set criteria for it.  Okay, so basically they took an indefinite and broad monopoly, and they replaced it with a more definite restricted one.  So it was actually a restriction on the right to grant monopolies, and they carved out an exception for useful inventions.  So they basically limited it, but they kept that one invention.  They kept that one type of patent.

01:07:07

Now, at the time, no one called these things intellectual property.  No one thought of them as property.  They knew it wasn’t property.  They knew these were monopoly grants by the Crown.  This was just a later propaganda ploy to try to justify these things in the face of criticism of these types of state grants of monopoly.  And as Fritz Machlup, who’s a famous Austrian economist who wrote several important studies in the ‘50s, as he wrote, “Those who started using the word property in connection with inventions had a very definite purpose in mind:  They wanted to substitute a word with a respectable connotation, ‘property,’ for a word that has an unpleasant ring, ‘privilege.’”

01:07:55

So it was – it’s propaganda.  It’s using different words.  And I mentioned earlier that Francis Drake – he was a given a letter patent in 1587 that allowed him to engage in piracy.  Now, if you think about it, it’s ironic that modern-day opponents of IP or scofflaws of IP, people who skirt IP law, people who download movies and share files were called – or they’re called pirates – we’ll say we, don’t want to be in trouble.  They’re called pirates, right?  But real pirates kill people and break things, and the actual early use of patents, which is the origin of our modern patent system, was actually used to authorize actual pirates.  So it’s ironic that IP proponents accuse IP opponents of being pirates when they are the ones who are more associated with real piracy.  So that’s kind of an interesting and ironic historical fact.

01:08:57

And here’s another funny thing.  You’ll notice nowadays, like I said, you had the Statute of Monopolies.  They used truth in advertising back then.  But nowadays, so you have libertarians and others who are in favor of IP.  If you call it a monopoly, they get indignant.  They’ll say that’s not a monopoly.  It’s a property right.  It’s not a monopoly.  So you’ll find that nowadays our statists are much less honest.  Like I said, they will call it a property right instead of a monopoly.  If you think about the Department of War, I think someone might have mentioned this earlier.

01:09:36

Oh no, that was in the email I had today about a blog post I did on Lew Rockwell.  In the US, we had a Department of War.  It was called Department of War, good, honest name.  That’s what it was for.  That’s what the military is for, to go to war, until 1947, and then it was called the Department of the Army of the new military establishment.  And then a couple years later they changed it to the Department of Defense, which it’s called now.  That sounds a lot more peaceful, right?  But it is widely recognized that patents are state-granted monopolies even by some advocates of the system and by opponents of course.

01:10:17

I mean Richard Epstein who is a proponent of IP law, the US Supreme Court.  I mean these things are recognized to be monopolies.  The United States Supreme Court, they routinely recognize the historic tension between patent law and antitrust law because antitrust law is meant to stop monopoly power.  But patent law is granted by the government and gives you monopoly power, so there’s what they call a tension.  So the courts are always saying, well, there’s a tension between patent law and antitrust law.  So they give you these monopolies, but you’re not supposed to abuse them, whatever that means.  And in fact, as I mentioned, the first patent statute, the modern one, was the Statute of Monopolies.

01:10:58

Okay, so clearly the purpose of IP is to provide a monopoly to a creator or an inventor or an innovator to give them an incentive to disclose the idea or to come up with it in the first place.  Now, copyright, the origin of copyright is in literal censorship, and in fact, they’re still used for censorship, and I’ll give you some examples in a minute.  So you have the printing press in, I think, the 1400s.  Gutenberg’s printing press started becoming more popular and started threatening the control that the church and the state had over the spread of knowledge.

01:11:38

Before that, they controlled these guilds of scribes, guys that hand-copied books.  So what happened was the court had a list of prohibited books, and then this company called the Stationer’s Company, in 1557 – I think the Stationer’s Company was formed in the 1400s, had to do with printing books, using the new-fangled printing press.  Well, the church gave them a monopoly over what books could be approved to be printed.

01:12:10

So basically copyright arose out of this because in – oh, as a – who’s B&L?  Boldrin and Levine in Against Intellectual Monopoly.  They – Galileo’s trial was an exercise in copyright enforcement by the pope of Rome because they wanted to prevent him from publishing his book.  So the roots of copyright are literally in censorship.  Now, what happened was the Statute of Anne was passed.  It’s called the Statute of Anne of 1709, and I think it was passed in 1710.  It granted 14-year copyright terms.  But what it – they were trying to – what happened was the Stationer’s Company – is that what we call it?

01:13:07

So the Stationer’s Company charter expired, and then the publishers had gotten used to this monopoly privilege, and they asked parliament to pass a new statute.  Parliament said, well, we think we’ll give it to the authors instead.  So that’s what the Statue of Anne did, so that’s where copyright came from.  And here’s one important thing to recognize.  One reason the authors were in favor of this at the time – think about it.  Up until that time, to have your book published or copied, the government had to approve it.

01:13:43

So basically it went through a government censorship system.  So by transferring this copyright from the Stationer’s Company or the publishers to the author, now they had the control of copying their books.  So the original motivation or the reason that authors liked this was it kind of liberated their own works from the control of the state, but now it’s look at as a monopoly right that you hold that you can stop people from copying your works.  The original goal or the original motivation was to permit your work to be copied more instead of having the state prevent it.

01:14:20

It’s a good quote here.  I’m going to skip this quote.  You can read this later.  Basically it’s a summary of what I’ve been saying on slide 31, so I want to try to get through the remaining.  I think I have 40 slides.  I think we can do it in the next ten minutes.  Now, let me see something here.  I might have some of these out of order.  I’m going to skip this because I think we cover this next time.  So we have less slides than I thought.  That’s good.

01:14:54

01:14:58

Oh, here’s some more interesting history.  So even before 1624, the early history of state patents, back in 500 B.C., there was a Greek city of Sybaris, which is now in southern Italy.  They had these annual culinary competitions, which gave the winner the exclusive right to prepare his dish for one year.  So can you imagine the arguments we have now about – I mean right now there’s no copyright in food, in restaurant dishes.  Maybe someone is going to dredge this up again, right?  But you can see this idea has been around a long time granting these monopolies.

01:15:37

And as I mentioned, the way these things started, Kings were granting these back in the 14th century.  The first general patent law was actually in Venice in 1474.  It was used in the 16th century by German princes, and sometimes actually the good thing about these – remember they had all these guilds.  So sometimes these patents were granted to give you the right to make something that the guild otherwise had the monopoly over.

01:16:06

So in a way, patents were used sometimes to reduce monopoly positions and increase competition because of the existing guild system.  So sometimes patents are credited with liberating industries from restrictive regulations by the guilds and local authorities.  And as I mentioned earlier, it’s similar to the initial purpose or use of copyright law to counter the censorship of the author’s own works.  So these things had sort of good – some good aspects originally.

01:16:37

By the way, this is an interesting fact, which in a way shows the arbitrariness.  Right now, the patent term is about 17 years.  It’s 20 years from the date of filing, but it takes about two or three years to prosecute the patent.  So when it issues, you’ve lost about two or three years of that 20-year term, so you have about 17 years left.  Copyrights now last, I don’t know, I think 70 years past the death of the author, so well over 100 years in many cases.

01:17:04

Originally, patents were 14 years, and I think copyrights were similar.  The reason that it was 14 years was because that was the term of two consecutive seven-year apprenticeships.  Now, remember the apprenticeship system was really more prevalent back in those days.  As Machlup in a 1958 study noted, the duration of patents was determined by historical precedent and compromise, political compromise.

01:17:34

It was based upon the idea that two sets of apprentices should, in seven years each, be trained in new techniques that the master came up with and through a prolongation by another seven years – though a prolongation by seven years was allowed in some cases.  So the idea was that we’re going to give you a monopoly over your new idea for time for you to train some apprentices.  Otherwise, they might be competing with you or others can be competing.  So basically this 14-year time, if you add seven years to it, that’s 21 years, which is close to the current term of patents.  It’s based upon the time of apprenticeships, which is completely arbitrary, has nothing whatsoever to do with today’s economy or with natural rights.

01:18:22

01:18:28

I mentioned some of this already, but there were – these patents were granted to court favorites for revenue purposes, and they were abusive.  They were unpopular.  And what happened was, in 1603, in the case of monopolies, a court declared a monopoly in playing cards void under the common law.  And so then, as I mentioned, 1623-24, the Statute of Monopolies was passed by the Crown to scale back this practice of monopolies, but they made an exception for inventions.  And, by the way, sometimes – some of you have probably heard of the Magna Carta, which is one of the sort of founding documents as the origin of natural rights theory or the American rights system based on the English rights, Magna Carta, or the great charter.  So the Statute of Monopolies is sometimes referred to as the Magna Carta of the rights of inventors.

01:19:25

01:19:30

A little bit more on the history of this, in the – 1620-1850 was the spread of the patent system because 1624 was when the Statute of Monopolies was finally enacted.  It became the basis of the British patent law, which became the model for patent laws in other places.  Interestingly, the first what’s called general patent law, which was South Carolina, 1691, so you have sort of – you have the Italian system.

01:20:04

You have the English system in 1623, but the first really modern patent law was 1691 in South Carolina.  And then finally, the first really modern one was the American one in 1790, which is the system we have still in place now, although it’s been modified since then.  So basically you have 1624-1850, spread of all these patent ideas all based upon the grant of monopolies early on.

01:20:34

Now, this is my favorite period, 1850-1873.  There was a vigorous opposition to patents.  People started waking up saying what the hell have we done?  These are government grants of monopolies.  It’s a horrible idea.  There was a lot of arguments similar to the ones we have now that are starting again now, a lot of pressure.  Well, there’s pressure to expand them.  Engineers and inventors wanted them because they’re pressure groups, right?  They’re special interest groups.  But the free trade groups were opposed to patent monopolies.

01:21:07

So there’s lots of commissions and studies and calls for abolition, and the Swiss legislature refused to enact patent law several times—1849, 1851, 1854, and twice in 1863.  And here’s a quote here.  The economist of the greatest competence said the patent system was pernicious and indefensible.  But it was a losing battle.  You can see that it was inevitable.  Everyone is finally going to adopt it, sort of like Obamacare and the minimum wage.

01:21:38

Even though economists all know that the minimum wage is a bad idea and causes unemployment, we still have it because it’s politically popular and hard to get rid of.  And we have socialized medicine spreading, I don’t know, 50, 60, 70 years ago in Europe and South America and finally spreading to the US.  We’re about to get it with Obamacare.  I mean we held out for a long time, but these things have an inevitability about them, which is depressing.

01:22:05

Now, interestingly, in 1869, the Netherlands repealed their patent law.  They had enough of it.  They said you just can’t make a good patent law.  This stuff is ridiculous.  But finally the patent advocates had a victory.  Now, here’s one interesting fact about it, which most patent advocates don’t know or don’t care about it.  So in the – up until this late 1800s period, patents were largely seen as anti-free market.

01:22:38

So the free traders would attack patents and tariffs together as things that were invasive of a free market or free-trade system.  But you had this big depression in 1873 in Europe, the panic of 1873, and what that did was that led to the rise of protectionism and nationalism.  So you had reduced opposition to tariffs and protectionism and into patents because they all went together.  So what happened was because everyone started becoming more – or less resistant to people’s calls for protectionism and nationalism.

01:23:20

We have to protect the – our national economy because of this horrible recession we were having, this depression we’re having.  So free-trade rhetoric basically became unpopular because of the depression, so in a way you could say that this recession is one of the main causes of the victory of the patent advocates and the loss – the reason that the anti-patent movement, which I have on page 39, lost steam.  They lost steam because of a depression, which gave rise to protectionist sentiments.  So it opened the door to an increase in patent propaganda by interest groups, and then so finally, 1887, even Switzerland gave in.

01:24:07

Now, although they had some limitations on their initial patent law, they had a mechanical model limitation.  To have a patent, you had to give a mechanical model, which most other countries didn’t require.  They even removed that in 1907 because Germany threatened them with tariffs.  They said, look, you’ve got to get rid of this mechanical model limitation.  So it’s similar to what the US does now in twisting the arms of China and India and other developing economies to adopt a western, American-style patent and copyright system primarily for the benefit of western copyright and invention-related interests like big pharmaceutical or electronics companies.

01:24:54

Apple, Intel, Microsoft all rely on copyright and patents and also Hollywood and the music industry.  So basically at the behest of these corporatist lobbying groups, the western nations are twisting the arms of China and the developing countries to adopt our IP system, even though it’s going to stifle their economy, hurt their innovation, cost them money, increase the price of drugs, pharmaceuticals, put people in jail for copying songs, bootlegging, etc.  So can see that this practice was common even back in the 1800s when – or 1900s when Germany twisted Switzerland’s arm to give in to their idea of what the patent system should be like.  So finally, the Netherlands, which as the last holdout, the last bastion for free trade and inventions, they reintroduced the patent system in 1910, effective in 1912.

01:25:53

Let me see.  I have some duplicate slides here.  So let’s just – we’ll stop here.  Let me just say what we’ll talk about in the next class.  We’re going to now talk about the different justifications for IP and give an overview of sort of the Austrian-libertarian approach of how to view property, scarcity, and ideas.  So we have a way of analyzing these empirical and utilitarian and natural rights-type arguments for IP.  So we went five – well, not five minutes over because we started five minutes late.

01:26:33

So I’m happy I stopped on time.  Sorry I didn’t leave time for questions in the official period, but I wanted to get all this in.  And I’m happy to stay longer and take any questions now for as long as anyone wants to stay, so shoot.  Any questions?  Everybody want to go home?  Jock, I know it’s 2 in the morning or something for you, 2:30.  I’m reading something Jock clipped here about William Shipley.  He wanted to use public subscriptions to make awards to inventors in the arts and commerce.  So he founded a royal society to encourage it, which had competitions.

01:27:32

That’s interesting.  I didn’t know about that, and that’s perfectly fine.  That’s more like the Nobel Prize award or the MacArthur prize.  I mean there’s nothing wrong with having private – I’m assuming this was private, right?  The Royal Society, I don’t assume this was funded by tax dollars.  The ones I talked about earlier – and this is probably not $80 billion or he inflation-adjusted equivalent of $80 billion, which was suggested by – 30 billion or 80 billion was suggested by even like some libertarians and Stiglitz.

01:28:08

And that was just for medical innovation, so they said we should have $80 billion of tax dollars set aside for annual rewards to people who come up with really cool, useful innovations in the medical area.  Well, I mean where are you going to stop?  And then I guess maybe a trillion dollars in the pot for other types of inventions and for copy – for artistic works and new painters and new artists, which of course we have already in smaller forms with the – what is it – the National Foundation for the Arts or whatever they call it.

01:28:43

Anyway, that’s interesting, Jock.  Thanks for the information.  I’m going to look into that.  Any other comments, questions from anyone?  Okay, Donald, I understand.  It’s been an hour and a half, and that’s a long class.  So I think we should call it a break, and I’m happy to have an office hour some time if we think we have a need for it.  Why don’t we see how this goes?  If anyone has any questions they want to post in the course materials page, I can answer them either next time or in writing.  So I enjoyed the class.  Thank you, everybody, for your attention, and everybody have a good night, and I’ll see you next Tuesday.  Good night, everybody.

01:29:48

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