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Kinsella on Liberty Podcast, Episode 237.
At Libertopia 2012, I delivered a 45-minute talk , “Intellectual Nonsense: Fallacious Arguments for IP,” the slides for which are below. I spoke for 45 minutes—well, 40, then the last 5 were taken up by a question from J. Neil Schulman—but only covered the first 25 slides. For more details, see Part 1, at KOL236 | Intellectual Nonsense: Fallacious Arguments for IP (Libertopia 2012).
Youtube, Slides, and Transcript below.
This podcast is Part 2, covering most of the remaining 41 issues, some of which are noted below.
- IP by Contract
- It’s in the Constitution!
- Utilitarian arguments for IP
- Commerce Dept. Study
- Prize system
- Venture Capital/startup funding
- Questions as Arguments
- You want something for free!
- IP abolitionists are not successful creators
- But you’re a patent lawyer…
- Okay, I’ll take your stuff and sell it!
- The plague of plagiarism
- No innovation without IP
- Tabarrok: Patent Policy on the Back of a Napkin
- You can’t make money without IP
- Identity theft
- Argument by grammar/semantics/emotion
- IP infringement is: knocking off, ripping off, stealing, taking, theft, piracy (“because” IP is “property”)
- Argument by possessive: it’s “your” idea; whose else would it be?
- IP used to work well, but now it’s “broken”
- The perils of “reform”
- Don’t throw out the baby with the bathwater
- How would s/he get paid?
- Randian: Man’s purpose is to “create values”, so he needs to own the “products of his creation”.
- Perils of argument by metaphor
- Anti-IP is Anti-Intellect, anti-creativity
- you own the fruits of your labor
- IP is/is not about protecting “ideas”
- Odd distinctions between “implementations” of ideas or “innovation” and “ideas”
- Patents: Innovation vs. Disclosure
- Only leftists would oppose IP
- Patent and Copyright could exist under anarchy/at common law
- We need IP to stop piracy!
- Conflict over ideas/Good ideas is scarce!
- EM spectrum and IP
- Computer Hacking and IP
Intellectual Nonsense: Fallacious Arguments for IP—Part 2
by Stephan Kinsella
(Transcript for the unfinished a speech delivered at Libertopia 2012 (San Diego, Oct. 12, 2012), Oct. 18, 2012) [transcript for Part 1]
STEPHAN KINSELLA: So this is Stephan Kinsella. It’s Thursday, October 18. I intend this to be part two, or the conclusion of my Libertopia lecture. In Libertopia, I gave a talk, about a 45-minute talk on – well, it would have been 45 minutes. It was about 40 minutes because there was a question at the end by Neil Schulman the last five minutes. Anyway, the talk was on Intellectual Nonsense: Fallacious Arguments for Intellectual Property, or IP, and I had about 65 or 6 slides prepared of notes for myself of topics to discuss. I got to about slide 25, so there’s several topics left to discuss. I thought what I would do is just go through those slides now, so I’ve already put the slides up on my website, c4sif.org, and you can view them there, download them, look them in Google Docs, etc. The – and there are several hyperlinks embedded in there.
So the next topic I wanted to talk about is the common argument you hear quite often, which is that we could form intellectual property by contract or that intellectual property like patent and copyright are justified as a type of breach of contract. And I am on slide 26 of my set of slides right now, by the way. The title is “IP by Contract.” So the basic argument, which I’ve addressed already, by the way, in my long IP article from 2001 in the reference given there. The basic argument is that imagine that imagine that you sell a book to someone or you sell a ticket to a movie to a customer.
And you put on there some fine print or you make someone even sign a contract saying I promise not to do certain things with the information which I’m about to receive. So in the book case, you promise not to copy it. You promise not to learn from it in certain ways. You promise not to use it in certain ways. You promise that if you ever write your own novel in the future, if it bears too much of a “resemblance” to the novel you’ve purchased, then you have to pay monetary damages to the seller.
If you go to a movie theater, you promise to not record the movie with a cell phone or with a hidden camera, etc. So I would say the first problem with these ideas is that you have to recognize that contracts only establish rights between the parties to the contract at best. That is, between the buyer and the seller or party A and party B, whereas the entire concept of intellectual property, patent, and copyright, is that they’re what’s called real rights. They’re rights against the whole world, similar to rights in your body or your tangible property. You don’t have to have a contract with someone to have a right that they don’t trespass against your body or burgle your house, etc.
That’s a real right, a good against the world. So the IP proponents want patent and copyright, for example, to be real rights, good against the whole world, and that’s how they’re enforced now. So there’s literally no way you can achieve that by contract. Contract you could at most have some kind of contractual regime against a certain number of people. But anyone outside of that regime would never be bound by it, so it’s just impossible even in principle. As a practical matter, I believe that these contractual regimens would not get off the ground because they’re not attractive to customers.
So let’s imagine Amazon and Barnes & Noble and iBooks and other different book sellers. If one of them or one of the publishers like McMillan or whatever, Penguin says we will only sell a physical copy of this book or even an e-book to someone who will agree to the following terms that you may not learn from, be influenced by, reveal secrets from, or make photocopies of, etc. the book that you’re getting from us, that you’re paying, say, $10, $12, $15, $20 for. And if you do, you agree to repay us monetary damages or pay us monetary damages in the hundreds of thousands or millions of dollars.
So I’m going to buy a $15 fantasy novel from Amazon, and I have to agree to be liable for a million dollars or hundreds of millions of dollars of damages to the seller if I make a copy of the book or if I learn from it or if I loan the book to someone without their permission. Now, I believe most people would be very reluctant to obligate themselves to pay millions and millions of dollars of damages just for the privilege of getting a book, especially when you can get it in a pirated copy that is not subject to these conditions. So basically book sellers and other sellers of content would be driving legitimate customers away from just a standard book purchase.
So they would have a dwindling and smaller and smaller set of possible customers who would actually buy their books legitimately and who would just be driven into the pirated world so they wouldn’t be subject to these draconian enforcement penalties. On the other hand, if the penalties were very small, they wouldn’t do any good because if I buy a book for $20 and the penalty is $5 or $100 if I posted a copy of the book, then I might do it because I’m not too worried about the penalties. So the contractual idea is problematic in that respect as well.
I mean if you look at what’s happening right now in the Supreme Court case that I mentioned earlier in the first part of the lecture, there’s a case pending about the copyright first sale doctrine. And the idea there is that physical things that you’ve purchased like a painting or a piece of furniture or a watch, maybe an item of clothing, certainly a book, anything that has something, some pattern or design on it that is subject to copyright protection, you can’t even resell the physical object anymore without the permission of the copyright holder if the item was produced overseas, outside of the US, because of the possible interpretation of the copyright laws first sale doctrine, which says that the copyright holder can only control the first sale of the item.
They can’t take a bite out of the apple after that, but the courts have now said, well, that only applies if the sales is in the US, which means if you buy something overseas like a foreign book that’s in a library, now the copyright holder can still prevent you from using that copy for other than personal use basically. You can’t resell it. You can’t even loan it to someone else, etc. because that would be a copyright violation.
So if these outcomes of copyright law had to be contractually negotiated, you can see that they would be very, very unpopular with consumers who want to just buy an object and own it and dispose of it. And the seller just wants to make a little profit off of the first sale and be done with it for the same reason that courts in – even modern courts in the US and other countries are reluctant to enforce specific performance in court awards. So, for example, let’s say someone agrees to perform a magic show at your child’s birthday party, and they don’t perform or they refuse to perform. The court is not going to issue an order saying you have to go perform your magic show on contempt of court.
What they’ll just do is they’ll award damages. They’ll say you own $1000 damages or whatever to the person who – to the other party of the contract that you breached because it’s easier to supervise for the court. And not only that, it’s just infeasible to expect someone to do a good magic show when they’re compelled by the court. The court realizes they don’t want to have to get their hands dirty enforcing all this, and likewise I think that, look, if you want to sell a ticket to a movie or a physical book or a DVD or whatever, you want to get your money and go on.
It’s just too much hassle to go around policing how the person who purchases this item is going to use it afterwards. Even if you have a contract with them that lets you do it, I mean we’re talking a few dollars’ profit per item. It’s just not worth it to have to get involved in this hassle of enforcing restrictions on how they use it, which is why I believe that it’s just infeasible as a practical matter for sellers of objects that are valuable to customers to expect it to be not really a sale in which all the rights are transferred, but instead some kind of basically a lease or a co-ownership arrangement.
To retain rights in the way a customer uses a book basically, you have to loan them the book or keep an ownership in the book. You have to say something like I am not selling you this book 100% outright. I am giving you a partial ownership right in it. I’m loaning it to you or leasing it to you or co-owning it with you so that you have certain defined rights, and I have certain defined rights. I’m selling you this $15 book, and you can only use it to read it in your bed at night or on the airplane. But you can’t do X, Y, and Z with it. You can’t even resell it. By contrast, I have all the remaining rights. For a very small sale like this, it’s just too much to keep up with maintaining who owns – keeping track of who owns what. So for that reason I think these contracts would be completely impractical and unenforceable.
Now, let’s talk about sort of the most sophisticated version of this that I’ve seen, which would be Rothbard’s view, which he writes about in Ethics of Liberty. And I’ll be totally honest. I think Rothbard went down the wrong path on this one. I think he made a mistake. I think that if he would have lived past 1995 and we could have had a discussion about it, he would have realized he had made a mistake because he basically ended up begging the question and making some bizarre assumptions and contradicting other things he had written, which are clearly anti-IP like his chapter in Ethics of Liberty on defamation law and knowledge, which clearly implies and supports the anti-IP case.
But his argument was that, look, the seller of a mousetrap could agree with the buyer that the buyer doesn’t have the right to copy it. And then if some third party – and then he says, but the problem is what about third parties? So Rothbard recognizes that to really simulate anything like patent or copyright, you have to somehow get third parties bound by these limitations as well.
Otherwise, there would be a whole class of people who weren’t bound by the restrictions, and the idea would just be able to be copied by all these people. So he recognizes this, so he tries to come up with an argument for how the third party could be bound. And what he says is he makes an analogy to property law, and he says, well, in property law, if you own a piece of property or you have some rights in a piece of property they’re not completely full rights. You can only transfer to a new buyer what you own. So, for example, let’s say you have a lease in an apartment. You don’t have full title to the apartment. Now, let’s say the lease lasts for a year, and you have the right to sublet it.
Okay, let’s just assume that. So you could sublet the apartment to someone else, but if you tried to sell the apartment to someone else, then that sale would be null and void because you didn’t own the apartment in the first place. And the person who bought it from you may have been swindled by you, but they wouldn’t have a right to the apartment against the landlord because they can only get title from the seller the seller is entitled to give over. So Rothbard tries to make an analogy, and the analogy is that the buyer of the mousetrap, if he has contractually agreed not to copy the mousetrap, well, he doesn’t have the right to copy so called. So, therefore, someone he sells it to doesn’t get the right to copy either.
Now, there are several problems with this argument, and so then Rothbard would say, well, in that way, third parties could be sort of ensnared. Now, there are several problems. Number one, even if he’s right, only some third parties could be ensnared, not all third parties, maybe only second sellers or whatever, second buyers or whatever you call them, but not third parties who just observe or view the mousetrap and they learn from it. The mistake Rothbard makes here is he assumes that knowledge or information is an ownable thing because you have to assume that to assume that you need some kind of property right to make a copy of something that you’ve learned about.
In other words, why would you need permission in the first place to just use your own property as you see fit to make a new mousetrap using knowledge that you’ve acquired? If you buy a piece of property – anyway, okay. I was interrupted. So the Rothbardian argument here just won’t work. There’s other problems with it. For example, he’s talking about a mousetrap, which is an invention, which is the subject matter of copyright – I’m sorry, of patent. Yet he’s talking about it being copyrighted. So it’s like he’s mixing together types of IP, and as an IP lawyer, I actually have no idea how he really expects this system to work. He says you stamp copyright on a product like a mousetrap. Well, I mean, first of all, patent right now covers things other than physical products.
It covers other types of inventions like methods or processes, and I’m not sure how you’re supposed to stamp the word copyright on a process. And the bottom line is if you reveal information to the world, then you have to expect people will learn from that. As Benjamin Tucker said, if you don’t want your ideas to get out there, don’t let anyone know. Keep them to yourself. Just like any type of free market activity, if you do something that is observable and physical and that people will see, you have to expect that they may learn from that and emulate or imitate you or compete with you.
And if you don’t want people to be able to do that, then don’t make it public. But that’s the choice you face when you want to make a profit sometimes. You have to do some things that are public. You have to advertise your product. You have to let people know what you’re doing. If you come up with a new innovation on a mousetrap, you want your customers to know what it is. You’ll put it on the label. You’ll say this new mousetrap has the following feature, and you’re hoping to attract customers by that.
By the same token, you are alerting the world to what is unique about your product, and if it’s successful and popular then you’re going to send a signal to people, hey, come compete with me. So this is the dilemma in a sense that any entrepreneur faces. As soon as you are successful in any endeavor, you’re going to make a profit, which is sort of an unnatural thing. It’s a temporary, unnatural thing that is going to be reduced as soon as you attract competition, and this is just the way the free market works. So there are several problems with this. I discuss this in detail in my “Against Intellectual Property” article in the section “Contract Versus Reserved Rights,” and I think that will address this issue as well, so let’s go on to slide 27.
Okay, so the next argument you’ll hear quite often from different types of advocates is that it’s in the Constitution. That is, the American argument that patent and copyright are justified because they’re in the Constitution. I’m not sure what to say about this kind of argument. It’s really nothing but appeal to authority and appeal to a weird authority at that because no serious libertarian would believe that the United States or the American founding or the Constitution are exactly libertarian.
There are some pro-libertarian things about it, but it’s not like a libertarian utopian document. I mean Ayn Rand, for example, who was a big pro-IP person, one of the original founders of modern libertarianism, and also a huge pro-American type and a minarchist and a pro-constitutionalist, was probably overly influenced, for example, by the Constitution and the thought of the founders. She did emphasize a lot of the good things about their thought, but she, like a lot of other pro-Americans, downplayed some of the negative aspects of, say, America. And you want there to be a libertarian utopia, and you look to the American founding as a reasonable facsimile of that, but of course it wasn’t. There was slavery. There was women’s rights not be respected. There was war. There was inflation. There was taxation, lots of defects of the Constitution, not to mention the state itself.
Even – the story I’ve heard, and I believe there’s some documentation to back this up is that Ayn Rand even initially thought that imminent domain, also called condemnation or takings, that imminent domain by the state, which is when the state takes some property, private property and uses it for some public use and compensates the expropriated owner. She thought that was legitimate because it was in the Constitution. It’s recognized in the Fifth Amendment. The Fifth Amendment says you can take property only if you pay compensation for it. So at least it requires the government to pay compensation, so that is a good thing.
But the fact that the government can take private property for public use is not a good thing from the libertarian perspective. And Ayn Rand initially thought that was legitimate because she comes here from Russia. She comes from a totalitarian system. She sees this wonderful, freer society with prosperity, and she sort of assumes I believe that the constitutional system we have set up was presumptively valid. And likewise, I think she made a mistake. Now, she changed her mind on imminent domain to her credit and probably on taxation and of course on slavery and things like this. So she recognized it wasn’t perfect. If you remember in Atlas Shrugged at the end, she has Judge Narragansett, her sort of libertarian judicial figure, making a few small amendments to the Constitution to make it “perfect.”
Actually, I don’t know if that’s a quote, but the point is she clearly thought the Constitution was almost a libertarian blueprint for the right kind of – or capitalist blueprint for the kind of society that we should have. And I think she was overly influenced by the fact that the Constitution has inside of it a patent and copyright clause, which authorizes the Congress to protect intellectual creations and inventions by means of copyright and patent if the Congress wants to.
Okay, so a few things I’ll mention about this. Number one, it’s important to understand that the constitution says that Congress can enact these laws to promote the progress of the science and the useful arts, of science and the useful arts. Now, back then, science meant not natural sciences, but it meant just knowledge like scienter.
So it was referring to creative works, and the useful arts would be like what artisans produce, which is mechanical contraptions and devices, so that’s the inventions parts. So actually the science part is what gives the right of Congress to enact a copyright law, and the useful arts part is what gives Congress the right to past the patent law. Now, there are other types of intellectual property like trademark and trade secret.
Trade secret is still state law because Congress has no authority to pass trade secret law, although they have invaded this field a little bit with some types of domestic – sorry, national trade secret protections, but it’s primarily state still. And in the field of trademark, there is no authority granted to the Congress whatsoever in the Constitution to enact a trademark law. So it used to be state-based, but the Lanham Act, L-A-N-H-A-M, the Lanham Act was passed oh, I don’t know, in the – maybe the ‘40s or ‘50s, maybe earlier, which is the national federal uniform trademark law. It doesn’t completely get rid of state trademark law, but it basically makes – it established a national trademark system, and the authority for that is claimed to be interstate commerce clause.
Now, oddly enough, the patent and the trademark laws are administered by the same agency, the United States Patent and Trademark office, which is an agency of the Department of Commerce. So patent and trademark are lumped together under one agency even though one of them is protected by the Constitution and the other is not. And the copyright law is administered by the copyright office, which is part of the Library of Congress, which is bizarre because that’s basically an arm of Congress, the legislative branch, not the executive branch.
But we can’t expect these things to make sense. But I would just say that we have to stop thinking that things are legitimate from a libertarian point of view just because they’re in the Constitution. As I mentioned earlier, we have conscription. We have taxation. We have wars. We have slavery. We have central banks. We’ve had institutionalized racism and lots of other terrible policies and institutions and laws because of the Constitution itself and the federal governmental system.
If you remember, if anyone’s read some of L. Neil Smith’s great anarcho-capitalist fiction like Probability Broach and The Gallatin Divergence, the word constitution is used in the sort of seeing he said so, a crumbling American confederation, which is almost anarchistic. The word constitution is used as a swear word. People will say constitution with an exclamation mark almost like a swear word. And I think that’s really how we libertarians should think about it. Constitution is not a good thing.
I’m on to slide 28 now. The other thing to recognize is that assumption among libertarians who argue for IP, they tend to be more rights-based or principles-based or deontological than utilitarian than – I’m sorry, than utilitarian about this. They tend to argue that intellectual property is a natural right, and they tend to – when they point to the US Constitution in support, they tend to assume that the founders viewed IP as a natural right as well.
Now, Professor Tom Bell and other scholars like I think Ronan Deazley – I have links to this, by the way, on my – I think it’s in the slide here, and it’s on my website that show, contrary to the claims of some Randians like Adam Mossoff and others, Locke, who was a major influence on the founders, and the founders themselves like Jefferson, etc., Madison – none of these guys really viewed IP as a natural right. They knew that it was not a natural right, but they felt the government had the authority to put in some temporary measure for some kind of a narrow purpose. So they thought they were – it’s a privilege basically. They were stimulating innovation.
They thought the government should have the authority to, if it in its wisdom, thinks it’s a good idea to give artists and inventors some kind of temporary monopoly just so they would be stimulated. So it was for a social end. It was a social policy tool. They were trying to intervene in the market. It’s clearly un-libertarian, but they didn’t at least think that it was a natural right. And yet on occasion they would use natural rights language in their lobbying attempts to sell these ideas or to defend them after people started wondering why the hell is the government granting these monopoly rights.
So that’s the first thing I recognize is that the Constitution – number one, the founders, the Constitution, Locke did not view IP as a natural right. You can even see that in the structure of the Constitution itself because it doesn’t protect these rights. It only gives Congress the ability to pass a law about it if it wants to, so it’s perfectly constitutional if the patent and copyright act were to be abolished tomorrow. There’s no obligation on part of Congress to have a patent and copyright act. It’s just an option that they have.
So – and furthermore, these rights are going to be limited to a certain number of years, and they are limited to a certain number of years. The patents last around 17, 18, 19 years, 20 years max. Copyrights last the life of the author plus, I think, 70 years right now, which is, let’s say, roughly 130 years, something like this, 130, 120, 150 years depending upon how long the person lives, so well over 100 years even though initially they were about 14, 28 years, something like that.
Now, what kind of natural right expires after an arbitrary time set by Congress, 14 years, 20 year, even 100 years? This is not how natural rights work. You have a natural right to your body. You can – you own your body as long as you live even if it’s 1000 years. You own your home, and you can leave it to your descendants, and they can own it in perpetuity, same thing with other property like a car or a watch or money, etc. So it’s clear that these rights were never viewed as natural rights.
Furthermore, as I quoted, the original clause in the Constitution is explicitly empirical and sort of wealth-maximization-based. It says that to promote the progress of the sciences and the arts. Now, some people argue that, unless there is proof available that shows that these laws actually do promote the progress of the science and the useful arts, then the law is unconstitutional. I think that’s kind of a weak argument, although I like it. I think that that’s more what we call precatory language.
I think it wasn’t a limitation on the power, but I’m all in favor of the argument that it was. But in any case, it happens to be the case that there was no evidence at the time of the Constitution or at the time of the first patent and copyright laws enacted shortly after the Constitution was ratified in 1789. There was no evidence at the time. There was no empirical evidence whatsoever available that showed that patent and copyright law actually did lead to over – some kind of overall increase in innovation. And in the 230-40 years since, there’s been no subsequent proof that unambiguously shows this either.
So if you basically view these things as monopolies granted by the state, as monopoly privileges, special privileges granted to certain people, which at least on their face impede competition, restrict property rights, etc., and they’re justified only insofar as they increase innovation, then you would think that the burden of proof would be on anyone who proposes these weird, temporary monopoly privileges, these sort of exceptional incursions into normal operations of the free market.
And because there’s no proof one way or the other – actually, there’s a lot of proof on our side. There’s a lot of reason to believe that the patent and copyright system cause hundreds of billions of dollars of damage overall to innovation and creativity to the economy every year, and at the very least, gross distortion and lots of individual unjust acts like people going to jail or suffering hundreds of thousands of dollars in damages because of otherwise peaceful actions.
But my point is even if we couldn’t prove our side and they can’t prove their side, the question is who is the burden of proof on? If you want to argue that a given policy, which invades private property rights at least facially, and that hampers competition, if you want to argue that that’s justified when it results in some kind of overall net innovative wealth benefit to society, the you need to show that it does. And if you can’t show it, even if it’s because it’s impossible to show it for methodological reasons, which I think it is actually impossible to show it.
I think it’s impossible to show because of Rothbardian, Austrian methodological views. I think you can never show that an act of coercion benefits society because if one party gains, the other party demonstrably loses because they had to be forced to comply. But even if you overlook this, the point is there are no clear empirical studies even ignoring these other methodological problems. There are no empirical studies demonstrating the utilitarian case. In fact, all the studies that I’m aware of, they usually are either ambiguous. They say, well, we just can’t tell. Now, there’s a reason they can’t tell because you can’t add ordinal value.
You can’t add value between individuals. It’s not intersubjectively comparable, and there’s other reasons for this too. There’s knowledge problems. There’s measurement problems. So that’s one reason they can’t prove this, so some of these studies are ambiguous. They say, well, we haven’t proved the case that IP is a good thing, or they will just say, listen, as far as we can tell, there is tens of millions or billions of dollars of damages being done by IP in this area.
So pretty much all the studies are against the utilitarian argument for IP, and you would think that if you are really a serious, sincere, honest, utilitarian, and if your argument for IP was really that you thought it did – it made us wealth overall, made everyone better off, then you would think that if you saw the results of these studies, you would say, hmm, I guess I was wrong, and you would withdraw your support, which leads me to believe that most people are not really serious that claim to be utilitarians.
They don’t really have any evidence. They know they don’t have any evidence, and it’s just sort of a make-weight argument. It’s not their real argument for IP. Their real argument is something else. It’s either intuitive or it’s conservative in the sense that they just know we have this system. They don’t want to change anything, or special-interest related. They are maybe an author themselves, or they – there is interests that have arguments on behalf of the movie and the music industry, etc. And clearly they’re self-interested, and they have an interest in keeping the system alive, or you have the patent bar, for example, and patent attorneys like myself make a good deal of money off the system.
Of course, you’re going to just argue that of course it’s a good idea, etc. But the bottom line is the utilitarian case has not been proven, so the constitutional argument falls on so many grounds. It’s an appeal to authority. It’s an appeal to legal positivism, that is, what someone else said, but it’s a just a committee of bureaucrats issuing edicts. It’s an appeal to some kind of wealth-maximization criteria, which has not been proven by any kind of studies that are reliable, etc., so the case just falls on so many grounds.
And I’ll go to slide 29 in a second, but one final comment here is we shouldn’t be surprised by this because the – given the history of patent and copyright, they arose from historical attempts to censor, to establish monopoly privilege, and a type of protectionism. So it’s no surprise that the modern outcome of these original systems is the same, maybe a little bit more sophisticated, a little bit more institutionalized, a little bit more de-personalized and fancier, but no different. So we shouldn’t be surprised that modern copyright law still results in censorship as does patent, by the way, and that the patent system, which originated in protectionism and monopoly privilege still ends up protecting certain entrenched industry players from competition and helps establish monopolies.
It’s no surprise that when the state grants a legal monopoly dressed up in the form of a patent – and by the way, patents originated in England in what’s called the Statute of Monopolies. It’s no surprise that when the state grants these monopolies that monopolistic practices and oligopolistic practices emerge from this.
Oh, I see on slide 29 here I’ve already mentioned some of this about Ayn Rand and eminent domain. But Ayn Rand, if I recall correctly, and some of her supporters still do this, supported the practice of the state having the power or the authority to compel, number one, jury duty service, and also witnesses. So if you’re a material witness in a case, civil or criminal, then under the current law, the government has the power to compel you by subpoena to appear and to give testimony, even if it’s dangerous to you like if you testify against the mafia or something like that.
They can force you to do this, and this is supported by the Sixth Amendment to the Constitution, by the way. And also, of course, she believed that we have – the jury is a – the jury system is a good system. She had some arguments there. But that means she also believes the government has the right to compel you to become a juror even if you don’t want to perform. So that’s another example of the perils of relying upon a legal – a positive legal document issued by the decree of basically a bunch of state actors, to rely upon that as an authority form, a standard of morality. I think she’s wrong about that. She’s wrong to rely upon them for anything. We need to evaluate it.
Some parts of the American system, for example, are justified like a law against murder, but it’s not because the government says it’s wrong. It’s because it is wrong. The government just happens to be right here because they’ve co-opted something that is a natural rule that people would adopt without the government in the first place.
Okay, so – okay, I see earlier I talked about utilitarianism, and I did this before I had actually gotten to my slides on this. I’d forgotten I hadn’t gotten to that yet, so I’m on slide 30 now. Let me briefly go through the utilitarian argument on IP and why there are many problems with this argument.
So the basic utilitarian argument or the wealth-maximization argument, is the idea that we can adopt certain legal rules or laws or policies that will tweak sort of the baseline set of rules that we have, and it will shift what’s going on in society, shift behavior. And it will make us all better off overall. And even if on occasion a given person might be disadvantaged by the operation of a given law, overall a society is richer and theoretically – and this is Richard Epstein’s argument, by the way, in his Takings book. Theoretically, you could compensate the people who are harmed with a surplus.
So, in other words, if you imagine society as having a pie of wealth of a certain size and everyone’s got a certain slice of it, different-sized slices, if we could adopt a law that will grow the overall size of the pie by a significant amount, even if you have to hurt one person to do that like taking someone’s land to make a road, for example, then the overall surplus in wealth that you generate, you could take a part of that, compensate the person you’ve expropriated.
So, for example, let’s say we want to build a highway system, and we think it will generate $100 billion worth of economic activity because we’ll have more traffic. But you have to take the land of a thousand people to do this, and you have to pay them, let’s say, $10 billion to pay them back. Well, if you get a 100 billion in increased value and you take 10 billion of that to compensate the people who have been expropriated, then they’re no worse off.
And society is worse off by $90 billion, and you can use that money to fund the government or to redistribute back to the people or whatever. That’s Epstein’s idea. Now, it suffers from a lot of problems, but that’s the basic idea also behind IP law. The idea is that if we restrict people’s rights in a certain way, then we make certain activities more profitable like publishing books, making paintings, making movies, coming up with new, innovative, and inventive ideas, etc. because people can now use their monopolies that the state gives them to make a profit for 10 or 15 or 20 or whatever years and that, although some people are harmed a little bit, overall we’re made better off. And so overall, this is a good idea. In other words, the government can actually make us wealthier by shifting and adjusting and tinkering with the economy.
So the first problem with this idea is what’s called methodological. It’s the Austrian – it’s based upon the Austrian idea, the idea of – the approach that Mises had, for example, to economics and value. Mises recognized that value is not a substance. It’s not a thing. It’s not a quantity that you can measure. Value is just what he called demonstrated in action. So when you choose among different things you could aim at in a given limited amount of time with a limited amount of resources, you choose among a number of ends. You choose to do A instead of B or C. So when you choose a, the opportunity costs of that action would be B or C, which you could have done. But all you show is that you value A more than B, but you don’t value it more in a numerical sense.
These are not numbers. They’re orders. Like you have your first preference would be number one, would be A. Your second preferred thing would be two or B, but it wouldn’t be like you have 110% on A and 92% o B. All we know is that, in action, you demonstrate the one thing that you prefer more than the others, so that’s the first idea.
The first idea is that all value is subjective. That is, it’s the result of your subjective preferences. It’s demonstrated in action. It’s ordinal, and it’s not interpersonally comparable. That is, you can’t say that person – John prefers an apple 2.2 times, and Sally prefers the apple 2.1 times. Even if there’s a money price on an apple in a given market of a dollar an apple or $0.10 per apple, that doesn’t mean the apple is worth $0.10. It only means that’s the result of the market’s interplay of all the subjective valuations resulting in a number, but it’s not a measure of the value that people put on the apple, as Mises explicitly says.
So the first problem with utilitarianism is that it wants to add up all the values people have and to choose legal policies that will somehow shift these values around and result in an overall sum total of utility to society that is greater than before. So the first problem is that that’s not how value works. It’s just not a number. It’s not cardinal. It’s only ordinal. And, by the way, at Libertopia I had a long discussion with David Friedman about this who is a – more of a Chicago wealth-maximization type, and he believes that von Neumann proved that you could cardinalize value. I don’t believe it. I don’t buy it at all. [Update: see Robert Murphy’s devastating critique of Friedman’s contentions, at Why Austrians Stress Ordinal Utility.]
Even if you could, we go on to the next problem, which is ethical. The ethical problem is that even if you could attach numbers somehow, objective cardinal numbers to value, that doesn’t mean that it is valid for – to transfer property from one person to the other. So let’s take an example. Let’s say that we could prove that Bill Gates values his marginal dollars of his top million dollars out of his billions of dollars. He values each of those – each dollar in his top million dollars out of his $70 billion of wealth. He values each one of those dollars less than a poor person values it and, of course, there’s arguments that this is actually false, that poor people value them even less than he does. Otherwise, they would have worked to get them or whatever, but the point is the Austrian view is that there’s no numbers associated in the first place. So these interpersonal comparisons are meaningless.
But let’s say that we assume that Bill Gates, if we take a dollar from Bill Gates and we give a dollar to a poor person that Bill Gates is harmed less by that act of theft than the poor person is benefited. Well, this still doesn’t mean that it’s ethical to do it because it’s still an act of theft. You could take the more extreme examples. You could take cases where some person or group of people really desire to do something very, very horrible like murder or rape or kill someone else.
I mean let’s say there’s some person who expresses some religious view that is out of sync with the community, and it really offends everyone in the community. So let’s say we have 100 people in the community who are so offended by this one heretic who recanted their religion or whatever. I mean you could argue that if they stone the heretic to death, then the heretic suffers of course.
But they only suffer once, and they only suffer one human’s experience of death, whatever that is. Let’s say it’s 100 negative utiles. And let’s say every person in the crowd gets ten utiles of pleasure out of knowing they’ve vanquished this heretic. So if you add up the sum, ten positive utiles per person for 100 or 1000 people, it’s much greater than the negative damage that they – the victim suffered. It’s still not ethical according to libertarianism because you basically are violating someone’s rights, and you’re making those suffer when they’ve done nothing wrong.
So the first two hurdles that utilitarians have to face is this. It is that, number one, there are methodological problems, and basically that’s the Austrian take on it. And number two, there’s ethical problems. But finally, even if we forget these two problems, there’s the empirical problem, and that is that, as I mentioned before, the numbers just do not show their case. You would think that if you’re arguing for an intervention into the natural free market propertarian system on the grounds that it’s justified because it causes an increase in wealth that you would have some evidence, some kind of study, some kind of measurement, some kind of argument for what the – to prove that your patents and copyrights system actually does increase overall wealth.
So, for example, if you say we need a patent system to cause there to be more innovation, it’s a reasonable request for me to say, well, what would be the total value of innovation in a patent-free society? What is the value of the innovation when we do have patents? What’s the difference? What’s the cost of the patent system, and how do you know these numbers? Where did you get them from? Instead, the advocates of the patent system, for example, never ever produce these numbers.
True, there have been some attempts to come up with some of these numbers, but as I mentioned, by all the people who study it, they pretty much conclude we have no way of proving this whatsoever. Or they say it looks like to us this system is causing billions or tens of billions or even hundreds of billions of damage every year or whatever relevant period of time that there is.
So if you’ll go to slide 31 of my slides, which is entitled “Utilitarian Arguments for IP,” I’ve got a few quotes here. You can read through them yourself. So let’s just go through it. Like I mentioned, the founders in 1789, when they put these clauses in the patent system, they didn’t do a lot of empirical studies first. They just were putting in place in the Constitution the authority for Congress to continue what the European system had been doing for a couple of centuries in the name of censorship and monopoly privilege and protectionism. They made it a little bit more institutionalized, but – so they didn’t really do a lot of studies, and of course, there weren’t a lot of sophisticated, modern, econometric, or empirical studies done by – in the, say, the next hundred years, in the 1800s.
In the 1900s, the 20th century, people started looking into this. There was actually lot of controversies. Most economists used to believe that monopolies were a bad thing, which is the impetus behind the anti-trust law, etc., but they made an exception for these types of laws. In any case, Fritz Machlup, who’s an Austrian economist who was commissioned by the Congress in the US in ‘50s to do a big study of this whole issue, in 1958, he concluded that “No economist, on the basis of present knowledge, could possibly state with certainty that the patent system, as it now operates, confers a net benefit or loss on society.
The best he can do is to state assumptions and make guesses about the extent to which reality corresponds to these assumptions.” And then he concludes, “If we did not have a patent system, it would be irresponsible on the basis of our present knowledge of its economic consequences to recommend instituting one.” So what he’s saying is even 160 or so years after the original patent system, we have no reason to have a patent system.
Another economist named George Priest in 1986 says that “In the current state of knowledge—so this is 30 years after Fritz Machlup’s landmark congressional study. George Priest says, “In 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.”
Okay, and maybe ten years, eight years ago, 2004, two French researchers concluded that “The abolition or preservation of intellectual property protection is not a purely theoretical question. To decide on it from an economic viewpoint, we must be able to assess all the consequences of protection and determine whether the total favorable effects for society outweigh the total negative effects. Unfortunately, this exercise is no more within our reach today than it was in Machlup’s day in the 1950s.”
So what they’re saying is even as – even in the 2000s, we still don’t have any reason to believe that IP contributes this net gain to society that its proponents say it does. In 2008, just four years ago, two Boston University Law School professors and their economists as well, Michael Meurer and Jim Bessen, they concluded that on average, the patent system discouraged innovation. They said, “it seems unlikely that patents today are an effective policy instrument to encourage innovation overall.” And in fact, they said it seems clear that “patents place a drag on innovation” and that “the patent system fails on its own terms.”
Okay, and finally, in the paper that’s a draft working paper right now, it’s still a draft form by Boldrin and Levine, the authors of the landmark empirical anti-IP study against intellectual monopoly, not to be confused with my book, Against Intellectual Property. My case is more principled and rights-based and based upon libertarian principles and propertarian principles. Theirs is simply based upon examining the empirical arguments for it and showing why they all fail. And in their recent study, they said that “The case against patents can be summarized briefly: there is no empirical evidence that they serve to increase innovation and productivity.”
And then they conclude that “there is strong evidence that patents have many negative consequences.” So the point is that if you are really a serious utilitarian, if that was really your approach to policy, you would actually be against IP law because all the evidence is either inconclusive or pushes against it.
Okay, so let’s talk – but as we’re talking about numbers, let’s look at a few other things just to put these things in perspective. Again, the main case against IP is that it infringes property rights and liberty, not the empirical case, but the empirical case itself for IP falls – can’t sustain itself. On slide 36. There was recent – I think that the IP defenders know that they’re on the ropes, and they’re trying to pull out every argument they can.
And they know there’s no good studies in favor of IP, so whenever something comes out, they try to color it as contributing – arguing for IP. So there was a recent Commerce Department Patent Office study, and all the advocates of IP said that this study showed that intellectual property can attribute $5 trillion and 40 million jobs to the American economy I think every year.
Now, all they meant was that they looked at what part – how much of the United States economy, which I think is around $14 trillion a year in GDP, $14-15 trillion a year, how many of the industries that generate part of this GDP have aspects of their industry that are protected by IP. And then they said, well, then IP contributes to that. Well, there are, first of all, so many problems with this. Number one, correlation is not causation. Just because the computer industry or the car industry is affected by patent rights, for example, it doesn’t mean that patent rights are the cause of their prosperity.
It could be that it’s a neutral effect, or it could be that they’re successful despite it. In fact, that’s my view. I believe that the American industry – American economy would be much stronger without patent or copyright. I think it’s strong despite intellectual property just like it’s strong or it’s prosperous to a certain degree despite taxes and wars and conscription and regulations and tariffs, etc. So that’s the first thing. And another example of the flaw of the study, the number-one intellectual property-intensive industry that was identified in the study was grocery stores.
Now, usually you would think of Apple or IBM or some high-tech or the movie industry as being more affected by IP law. This just goes to show you that every industry is basically affected by IP law. I mean grocery stores have food. Food is made by companies that have patents on corn or genetic patents or trademarks on the brand names they use like Crest toothpaste, etc. So this is supposed to be some kind of proof that patents and IP contributes trillions of dollars of gain. It’s just not even a serious argument at all.
Okay, now, what’s the reality? As I mentioned, there’s no studies that really show that it imposes any benefit on society. My own estimate as a patent lawyer, as a libertarian, as an Austrian economics student working on this area for a long time, my estimate is that the patent system in the United States alone imposes at least $100 billion of net damage to the economy, probably far more. My guess is probably far more. I don’t think it’s possible to know these numbers exactly, but we do have some cost: patent lawsuits, research and development dollars that are diverted towards acquiring patents or defending against patents, reduced competition, etc.
There was also a fairly recent study done showing – it was talking about software patents only. And the question is – the question was regarding software patents, which are fairly recent innovations. They last 15, 20 years. And a lot of people that want patent reform want us to get rid of software patents or patent trolls. They are never principled of course. They never look at the root issue. They never strike at the root. They never want to get rid of patents per se. They always want to just nibble at the edges.
So their focus is on patent trolls and software patents. So they say what would it take for the American software industry to comply with all the software patents out there and to avoid infringing each other’s patents? And the study concludes with some numbers, and I have scaled them up for the whole industry because they were conservative numbers. But based upon the study and my understanding of the industry and how the patent system works, the study basically would back up the idea that the software industry needs to hire six million patent attorneys and take almost $3 trillion per year just to examine, to take a look at, and be aware of all the patents out there and to change their products to avoid infringing them.
So we’re talking an industry that would have to hire six million patent attorneys and spend almost $3 trillion a year. Now, this is an industry – let me go to slide 38 now. I don’t have the number here. I have it in my original post, which I have linked here about this, but basically just the revenues alone of the software industry are not anywhere near $2.7 trillion.
Just think about it. That would be about one – I don’t know. It would be about one-eighth of the entire US economy just from software. And there’s only – I don’t know – 40-50,000 patent attorneys in the entire American legal system right now because you have to have an engineering degree and a law degree to be a patent attorney. So you would have to multiply by tens or hundreds of times the number of patent attorneys and the budget spent – it would have to be more than even the revenue the software industry makes just to let them avoid infringing patents, which means it’s impossible to avoid infringing patents basically. It’s just impossible. So this is to put some perspective on – and this is just software patents. If you scale this up to the entire patent system, we’re talking probably tens, maybe hundreds of trillions of dollars a year would have to be spent by everyone to avoid infringing patents.
Now, how can this be a real property right? Regular property rights, they are very easy to avoid infringing. You observe a physical, publicly available border, and you just don’t cross it, very simple. This is not what patents are about. There was a recent study that if Google, which owns YouTube I believe, were to prescreen all the YouTube videos to prevent any copyright-infringing videos, it would cost Google alone $37 billion a year. Now, Google’s revenue last year, 2011, was $38 billion, revenue, not profit. So in other words, it would take all of Google’s revenue to just make sure that YouTube is not having the wrong kinds of videos up.
Okay, so we have lots of huge, horrendous costs from the copyright system and the patent system. Copyright is causing people to be jailed for uploading movies or extraditing foreign students to face federal prison fines in America for just having links on their website, which are legal in their own country like in Britain with the case of Richard Dwyer. We’re having invasions with SWAT squads with 59 federal and other officers in other countries in the Megaupload case, ratcheting up the police state, choking back on internet freedom with attempts to – attempts like SOPA and PIPA, which have been defeated but only temporarily, the TPP, the Trans-Pacific Partnership, ACTA and other laws coming down the pike.
And if you go with this empirical mindset that we – the government is justified in passing laws to try to tweak incentives to maximize or to optimize or to at least increase valuable, innovative behavior, where is the stopping point when, number one, I mean we can always make the patent and copyright terms even longer? Why stop at 17 years for patent and a hundred and X years for copyright? Why not go to a million years? Why stop at civil penalties in the case of patents or treble damages for patents and civil penalties and some jail fines for copyright? Why not go to ten times penalties for patents or public executions?
Why not – how about public torture? I mean there’s no limit to what you could do to try to increase these incentives to make the holding of these monopoly privilege rights more valuable to give a higher profit opportunity to the innovators so they would come up with even more innovations that they’re not coming up with now because they can’t make enough money. And what if having a monopoly by the government, even if it’s very strongly enforced, even if the penalties are draconian, what if that monopoly right is just not enough?
What if there’s a life-saving drug that a large pharmaceutical company could come up with, but even the prospect of monopoly sales for 50 years, monopoly-priced sales of the drug, what if that’s not enough to make it up? Well, hell, there’s a drug there that we could be making that we could be benefiting from. So why not take some money from the taxpayers and give it to these companies to give them a little bit more cushion, give them a little bit more ability to engage in research and development?
Apparently, the only goal of public policy is to just keep increasing the amount of innovation and creativity so – and the cost is irrelevant since people that promote IP and patents don’t care about the cost and don’t have any idea about what the cost is. They don’t take it into account in their arguments, so what would be their opposition to having a taxpayer-funded, say, prize system? Well, it turns out that they don’t oppose this actually. In fact, I think I mentioned it earlier in the first part of the talk.
Nobel Prize winners like Stiglitz, socialist – the Vermont senator, Bernie Sanders have proposed, and this has been endorsed by a quasi-libertarian. I don’t know, quasi-Austrian, Alexander Tabarrok, they say that they would like to either augment or replace the United States patent system with this prize system. And they were talking about medical innovations only. So what they said was for medical innovations, it would be reasonable – I don’t know how they get these numbers – but to have $80 billion a year of prizes, that is, taxpayer dollars, that some government-appointed committee of scientific experts can dole out.
It’s like an American taxpayer-funded, huge, huge Nobel Prize award except – so instead of giving patents or maybe in addition to giving patents or maybe in addition to giving somewhat weaker patents – who knows what they’re in favor of – every year the government would announce here’s our 5,000 award winners or 10,000 award winners. And they would hand out checks ranging from, I don’t know, $1000 to a $1 billion or whatever. They’ve got to get rid of this $80 billion, and they’re doing that to incentivize people.
You figure if you engage in some heroic research, then the government is going to recognize your work and give you an award for it. I mean the idea is so ludicrous and so un-libertarian, but at least it’s honest. But if you think about it, they’re talking only about medical innovations. That’s only one narrow sliver of the entire innovation space that the patent system, for example, covers. The patent system covers genetics and chemical and electrical and software and computer and hardware and lasers and mechanical devices and watches and any number of types of technology.
So if you were going to be consistent, then you value all types of innovation. You would need to have the prize system ratcheted up to cover all types of innovation, not just medical devices. So this is – we’re talking tens of trillions of dollars a year. Now, we have an economy of $14-15 trillion a year in the US, the richest on the planet. Even if we expropriate 90% of our wealth every year and use it all on innovation prizes, we have $10-12 trillion. That’s not – even that’s not enough. The idea is literally insane and obscene I would say.
Okay, enough on that. Let’s go to slide 39. So here’s another argument I’ve heard before, and I’ve been at small companies, general counsel at a small high-tech company for awhile. And I’ve dealt with venture capitalists, people who invest money in these small companies. So what they do is they will – they’ll look at your business plan. They’ll look at your sales. They’ll look at your potential customers, your products, and they’ll look at everything. They’ll look at your numbers. They’ll look at your employees. They’ll look at your intellectual property. So the argument is that, well, without intellectual property, venture capital won’t invest in companies.
Now, there is a little bit something to this argument, and that is in today’s society, a VC is not going to invest in a company that’s a high-tech company that hasn’t done their homework and gotten the right amount of patents. In other words, who isn’t playing ball and playing the game as it’s supposed to be played? But this is – doesn’t mean that there should be a patent system. It only means that, if there’s a patent system, then it causes certain behaviors.
It gives rise to certain behaviors. It gives rise to the risk, number one, of being sued for patents, and it gives rise to the need to have a potential defense in the form of having patents. This is why these companies waste millions of dollars every year on patent attorney salaries and patent office fees, etc. or on buyouts of other companies’ patent portfolios to increase their patent holdings. Sometimes they’re doing it to get weapons to use for aggressive reasons like patent trolls do or like larger companies like Apple do. Sometimes they’re doing it for defensive reasons, and that’s usually the reason.
You want to have – it’s called sometimes the porcupine defense, like you want to imagine you have a bunch of quills or weapons on you that are defensive and that your big competitors know that if they sue you for infringing their patents, you can sue them back for infringing your patents. Well, you can only do that if you have a big arsenal of patents, which is too expensive for them to take time to dig through. They just assume if you have a big stack of patents, there might be something in there that they’re infringing if you’re in the same sort of technical space. So that’s why these companies acquire these patents. It’s almost like the nuclear weapon – the Cold War – during the Cold War time that the USSR and the United States both acquiring thousands of nuclear weapons only to dissuade the other side from firing first at you.
Of course, what this does is this causes the large companies to either not sue each other in the first place because they’re afraid, so they just compete, or if they sue each other, they finally settle, and one pays the other a few billion dollars in royalties, and then they go back to business. They just raise their prices because they don’t have any competition from the outside, outside these few small, large companies with the big patent arsenals because the smaller companies can’t compete. They can’t compete because they’ll get sued for patent infringement. They get sued for patent infringement because the big companies like Apple and Microsoft know that they’re not going to get sued back.
They’re not going to get sued back because the small companies haven’t had time and money to acquire a big patent arsenal themselves, or they can’t even afford the $3 million, $5 million they need to pay lawyers just to defend themselves in a patent lawsuit. So basically the patent system gives rise to these small number of players in an oligopolized or even monopolized industry. There’s lower competition, higher prices partly because the prices of all the patent acquisitions and patent lawsuits and the royalties that they pay each other are passed onto the consumers.
Consumers can’t go to the smaller players because the smaller players don’t exist. They don’t exist because they can’t compete, so this is one big problem with this whole argument. So the whole VC idea is just a ridiculous argument. You know, given the fact of the drug laws, a VC is not going to invest in a company run by someone who is selling cocaine openly because they’re going to be arrested. That doesn’t mean that cocaine laws are justified.
What about tax laws? If there’s a notorious and open income tax cheat like Peter Schiff or someone – not Peter Schiff, sorry, his father, Irwin Schiff. He’s not going to – a VC is not going to want to deal with that. They’re not going to invest in them because they know the guys is about to get arrested maybe. That doesn’t mean income tax law is justified. It just means that VCs are rational, and they respond to the effects of these laws. It doesn’t mean the laws are justified at all. And, in fact, my view is that in a patent-free society, it would be at least as easy if not easier to get a venture capitalist to invest in you because now the VC knows that the risk of your small company being sued for patent infringement is zero.
That’s a huge risk that small companies face now, small start-up companies. In fact, it’s a common technique for the established companies to observe a small competitor, a small startup, about – becoming more and more successful. And when they file – they start filing the papers for their IPO, their initial public offering, right before they go public, they’ll get slapped with a lawsuit, a patent infringement lawsuit.
Now, why do they do it? They time it like this on purpose because they know that it’s going to delay or maybe ruin or reduce the success of the IPO. So they hit them with these lawsuits last minute, and that’s why, if you look at the prospectuses of all these companies that are small companies that are filing their IPO statement, they always have these big sections saying we can’t know that we’re not infringing on anyone’s patents.
There’s always a danger that we’ll get sued for patent infringement. In fact, there’s a danger we’ll get sued for patent infringement ten days before we’re going to price our IPO, and that’s quite often what happens. So without that risk – and look, seriously, a lot of these companies, even if they’re successful, a lot of small companies don’t have $3-10 million of cash sitting in the bank. They’re lucky if they’re paying their suppliers. Even if they’re profitable, they’re trying to expand.
So if they get sued for patent infringement, even if they’re in the right under the law, they don’t have $3 million or a million or $5 million to take a gamble on a patent lawsuit to defend themselves when it’s up to a jury who doesn’t know much about technology and who’s interpreting vague, ambiguous, hyper-technical, weird, arbitrary legal standards in the patent law. I mean they might lose even if they’re in the right. And even if they don’t lose, they’ve lost $3 million, and they won’t be able to keep going on. So they cave in of course, or more likely, they don’t get engaged in this business in the first place.
This is what Hazlitt or Bastiat would talk about, the seen and the unseen. There are lots of marginal small businesses that just don’t exist now that would exist if they weren’t afraid of the terrible, damaging effect of the threat of a patent lawsuit. Just think of the smartphone space right now, which is dominated by, say, Samsung and even Android, Google, and Apple and Microsoft maybe to some degree. Some small company who wants to innovate in this area, there’s almost no doubt they would be sued into oblivion by some of these players. So there’s no wonder there’s not a lot of small companies selling smartphones.
Okay, let’s go on to slide 40. Here’s one of my favorites, which I’ve been dealing with a lot lately. The slide is entitled “Questions as Arguments.” So the important thing to point out here is to let people know and to be aware of the fact that having a question is fine. You can have questions. You can ask questions, but questions are not arguments. Now, what do I mean by this? What I mean is I will come up with an argument like I’ve done here that patents and copyrights are unjustified for the following reasons, for whatever reasons. And the implication of that, of course, is that we should get rid of patent and copyright.
Now, instead of saying, well, here’s what I disagree with or here’s a mistake in your argument, I will often hear someone respond with, but how would people make money in an IP-free world, or, but how would – or, sorry – but what is the incentive of someone to come up with a new software product or write a new book if there’s no IP? Now, they ask it like they’re asking a question, but they’re not asking a question because a question is not an argument. It’s just literally not an argument. But they’re responding to an argument with a question as if it’s an argument. So what’s going on here is that they’re implicitly saying this. They’re implicitly saying I think that the purpose of law is to tweak incentives to make sure we have certain social goals achieved to a desirable level.
And I think it’s possible for the government to do this, and that’s what makes law justified. Now, they don’t want to say that because they don’t really think in those coherent terms. If they did, they’d probably be libertarian instead of utilitarians, and they don’t put it that way because if they did it would be – it would make it clear that they need to come up with a whole argument about social theory and legal theory and this is how laws are justified, and they don’t want to do that either. So they want to sort of just assume that we all agree with these kind of common assumptions a lot of people share.
So that’s the first problem. And then they would have to – so what they’re really saying is if you don’t answer my question adequately, then it means your argument is wrong. Now, that’s just a bad argument, so I never answer these questions unless I first establish it’s fine to be curious. It’s fine to wonder what a future free world would look like. But we need to establish right now that it’s not incumbent on me to predict that or to satisfy you that my predictions are accurate. And it’s not incumbent on me to even be able to predict it to know what laws are wrong or right.
So on slide 40 here, as I mentioned, imagine the USSR under communism in the ‘70s or ‘80s. Let’s say you made the standard arguments that communism is evil. It’s uneconomic, it’s a bad idea, and we should abolish it. We should allow private property and freedom. It wouldn’t be a rebuttal argument for someone to say, but how many types of toothpaste would there be in a free market? Even if we don’t know what the answer is, even if there was no other private economies of the world to look at to get some idea, even if the whole world was communist and we had no idea what the toothpaste market would look like if we freed up things, that doesn’t mean that we have to keep communism until we know these things.
Sometimes the only way to know is to free things up and see what happens. And another example would be slavery in the south or slavery in Ancient Greece, etc., slavery in the antebellum US. Someone proposing abolition of slavery could have been met and probably was met with questions like, if we get rid of slavery, who’s going to pick the cotton? I mean it seems like a – almost a joke now, but that probably was a real question because the slaves actually did pick the cotton, and a lot of the industry at least in the south was plantation-based and farm-based and cotton-based. So who would pick the cotton? I don’t know. Maybe no one would pick the cotton. Maybe cotton wouldn’t be a viable industry without slavery or maybe…
But the point is if you make an argument against a given practice and argue for freeing people’s lives up and say you argue against slavery and someone says, but who would pick the cotton, that question is literally not an argument. We have to recognize the same thing is true for intellectual property. When people have questions about what a free society would look like, what a real free economy would look like, free of these government monopoly privilege in shackles, that’s fine that they have questions. But they have to recognize that their questions are not arguments to keep the current system unless you basically are the ultimate conservative, which in a way, Fritz Machlup was.
Remember I quoted Fritz Machlup earlier. Let me see if I can find this quote here. I don’t see it on slide 40 or 41, but the earlier quote by Machlup was that if we didn’t have a patent system, the current economic knowledge that we have wouldn’t justify putting one in place. But he also said that we also don’t know enough to get rid of it. If we have a patent system, we don’t have enough knowledge to know that we should get rid of it.
Now, to me that argument makes no sense whatsoever. It’s basically retreating to conservativism, like whatever laws we have in place, we should keep unless we have a good reason to change. Now, I might agree with that for certain social practices and traditions. You could make an argument for that but not for artificial laws decreed by the Congress, a bunch of bureaucrats and politicians.
Okay, I’m on slide 42 now. Here’s another argument I’ve heard. Advocates of IP, especially authors and others, they get really upset when people say they’re against IP. Now, I don’t know why they’re upset in the first place because they won. They have an IP system in place. They are forcing us to comply with their IP system. They have their copyright. They have their patents. It doesn’t look like they’re going away any time soon. So they’re upset that other people disagree with them even though they are forced to go along with it.
I would much rather switch places with them. I would be happy to have no patent or copyright and have a couple of socialist, fascist people griping about it on the sidelines. I would be so happy to have – switch places. I would let them gripe about it to their heart’s content. But in any case, they’ll make this argument. They’ll say, oh, all these young kids now, they just want something for free. Now what kind of argument is that? First of all, it’s – I don’t think it’s honest and right. Maybe there’s a lot of young people who want something for free.
Everyone wants something for a smaller price. That’s why there’s Kmart and Walmart and grocery stores that advertise they have the lowest prices because people bargain shop. They want something for the lowest price possible. That’s called economic action. There’s nothing wrong with trying to achieve something for the lowest cost. That’s called economizing action or efficiency. But it also disparages the motives of, say, the bulk of people that are pirating.
But what it does is it just changes the subject. It assumes that they’re doing something wrong and then goes on to address their low motives, which is merely material or crass or materialistic or profiteer. People just want to reduce their bottom line, and that’s not a good motive to do something wrong. Well, that presupposes that it’s wrong in the first place, so it’s just a bad argument.
And most advocates of IP, people like me, are not going around pirating. Some of us are successful and we have money and we – I’m happy to pay iTunes for a song. I don’t care. I’d rather it be a lower price, and I think it would be a lower price in a free society. Maybe it would be a penny a song, maybe a tenth of a penny a song, maybe a nickel a song. It wouldn’t be a dollar a song, and I wouldn’t have a DRM restriction, and it wouldn’t be a license. It would be a real sale.
But in any case, I’m happy to pay six bucks for a movie on iTunes, not just me. But the point is people that have a serious, sincere argument to make, they are generally – there’s no reason to assume they are making this argument just to – just for economic self-interested reasons. I mean it’s not likely we’re going to get rid of the IP system any time soon. We’re making these arguments because we think they’re right.
And in fact, in my case, for example, I’m a patent attorney. I practice it for a living. It’s really not in my narrow economic self-interest to let the world know that I believe that the patent system should be abolished. I mean 99% of my fellow patent lawyers hate this idea. It doesn’t – when they hear it, they’re not really happy about it. It doesn’t help me in my career. So not that that makes my argument stronger, but the point is the argument that people just want something for free is not an argument they shouldn’t be free.
Another thing you can think about is – I think I might have mentioned this earlier in part one of this talk is that, in human life, there are two aspects of successful action. That is, the actor has to have knowledge, knowledge that informs him as to what ends are possible, and knowledge as to what causal laws there are in the world that lets him choose available means, scarce means, that will help him causally achieve his end. So you have to have knowledge, and you have to have means. You have to have actual physical control, causal control over these means to help you achieve what you want.
And the scarce means of action are scarce. There’s only so many of them to go around. That’s the way the world is. The free market heroically despite this is always seeking to increase abundance. Even though we don’t have infinite abundance, the free market is trying to increase abundance, trying to always find more efficient means of producing goods, lowering costs, increasing abundance, basically making things in a sense less scarce even though we’ll never get away from that completely.
So the market is trying to overcome this challenge that we have, which is that there’s scarcity in the physical world. There’s lack of super abundance. The free market tries to make things more abundant, but that’s one ingredient of action. That’s having available these things that we need to achieve our ends.
But the knowledge luckily is already non-scarce. Knowledge can be multiplied or copied infinitely. Everyone in the world can know how to bake a cake at the same time. That’s why we have an increasing body of human knowledge every generation because the more things people learn, the more it’s recorded and transmitted, learned by others down the ages. We have this almost infinitely duplicable body of knowledge that we can dip into and use, and the more of it, the better. So the free market tries to overcome the problem of scarcity in the physical world, and the law tries to impose scarcity on knowledge, which is already non-scarce, so it’s sort of a complete perversion.
Here’s another one, slide 43. Well, the people that are against patent and copyright, the IP abolitionists, the only reason they’re for that is because they’ve never created anything themselves. So it’s another sort of ad hominem argument, you saying that you’re not self-interested. You don’t want there to be patents because you wouldn’t benefit from them anyway. I mean I’ve had this argument with people before, and I’ve said before, well, I don’t know what to tell you.
I mean I’m a patent attorney. I’ve made a lot of money by being a successful patent attorney, and I’ve also been an author, and I’ve written some things for free like scholarly publications, which also can’t be explained by their theories. Why would all these scholars and thinkers and bloggers, commenters on blogs, why would they waste time writing if they’re not getting paid for it? They do it anyway. Anyway – and I’ve written a lot of things for a lot of money as well, legal publications for some major commercial legal publishers. I’ve gotten paid lots of money over the last decade or two, which is basically a refutation of their idea that someone who is vested in the system wouldn’t be against it, or on the other hand, someone who’s not vested in the system has no reason to favor it.
And so when I point out, well, you say that the only reason you have to oppose the system is – or the copyright system is because you have nothing to contribute that would be of any value anyway. And I say, well, that’s just – in my case, for example, it’s false. I’ve made lots of money off of selling books that are copyrighted. And then they’ll say, well, then you’re just a hypocrite. So in other words, you can’t win. There’s nothing you can say to satisfy these people. Either you’re a completely creator-less loser who has no reason to want there to be a patent system or a copyright system, or if you actually are successful like they say is important and you’re still against the copyright system, then you’re a hypocrite.
So in other words, they’re the ultimate conservatives. If there’s a law in place and you benefit from it, even if you don’t want to benefit from it, then you oppose it, then you’re a hypocrite. I don’t know how we’re supposed to ever have any law overturned ever if anyone who’s at all affected by it can’t speak out against it. I mean this is the same argument used against blacks who are against affirmative action, let’s say. So one argument against affirmative action is that it tars – it makes – it gives blacks who would normally be successful a bad reputation because the whites in the work place assume that the black is only successful because he’s benefited from affirmative action. So that’s one of the arguments conservatives and some libertarians use against affirmative action, and the left says, well, that’s not true of course. They deny this effect.
And on the other hand, whenever a black comes out against affirmative action, the liberal will then make that assumption and say, well, how dare he oppose a system that benefited him? So which way is it? And are you saying that if some statist, coercive government program confers some narrow benefit on you, even if it’s manifestly unjust, that you are – that you’re prevented from objecting to it so you’re forced to comply with the system, and now you’re prevented from arguing against it? I mean what about slavery? What if you are, I don’t know, the son of a slaveholder in the south and you know slavery is immoral? Can you not argue against slavery because you were educated or raised by a family that had money from the slavery industry? I mean the argument is just completely dishonest and incoherent.
All right, let’s go to slide 44. Okay, this slide – well, this is more of the same. They’ll say something like you say you’re against patents, but you’re a patent lawyer. I don’t know what this argument is supposed to mean. First of all, it’s personal. It’s directed against me, Stephan Kinsella, as a person. And I can guarantee I don’t have the metaphysical ability to change the moral status of different rules or propositions in the universe. Whether I was born or not, whether I have an opinion one way or the other or not doesn’t affect whether or not patent law is valid. Even if I’m a hypocrite doesn’t mean patent law is valid or that it’s not valid. It’s either valid or invalid or legitimate or illegitimate, just or unjust on its own terms.
And second of all, it’s just a weird argument. It would be like saying that a cancer doctor, an oncologist, is hypocritical for opposing cancer because, after all, he profits. Maybe he makes hundreds of thousands of dollars a year as a successful cancer doctor. He profits from some evil that he wishes wouldn’t exist, or a defense lawyer who defends people who are accused of income tax evasion or, let’s say, violating the narcotics laws. Let’s say he’s a libertarian. Can I be a libertarian and defend people from the state trying to put them in jail for doing something that’s a victimless crime? Does it mean I’m a hypocrite because in my ideal society I would have – I wouldn’t have this job? This job wouldn’t exist? No. It means that, given the existence of an enemy to people, given the existence of the state, there is a need for people to navigate the system and to defend themselves from it.
And it’s unfortunate that money is wasted and has to be wasted on certain people. It’s unfortunate that I have to hire a patrol company to patrol my house to stop robbers. It’s unfortunate I have to lock my front door all the time and have sophisticated locks on my house and have an alarm system in my car. It’s a waste. It’s made necessarily by the possibility and likelihood and existence of crime, which we all wish wouldn’t exist. That doesn’t mean that car alarm companies and locks, people that sell locks, are hypocritical for selling these locks even if they say they’re against crime too. So this is yet again another bad argument.
I’m on slide 44. Let’s go to slide – oh, this is another good one, slide 45. So I’ve had this happen before. I’ll have someone – and this is not really a serious argument. I’ve seen them do this many times. It’s kind of a smart-ass argument. What they’ll say is they’ll say, oh, well, if you’re against IP, how about if I just take your articles and sell them for millions of dollars? Now, again, it’s not even really a real question. It’s more of a rhetorical question, but it’s a smart-ass question. But as I noted earlier, a question is not an argument. But it’s not even really a serious question. It’s not even an argument. It’s not even a serious proposal.
They don’t really want to take or copy my article and sell it. They don’t really think they can take one of my articles that’s free online. They don’t really think they can sell it for a million dollars. They probably don’t think they can sell it for anything at all. And sometimes I say, fine. Go ahead and do it. And then they shut up and they change the subject, so they’re not serious at all about this.
The other problem with this argument is they – what they often do in this kind of argument is they’ll say, well, what if I take your article and I change the name, and I put my name on it? I’m plagiarizing. I mean what am I supposed to say to that? Well, then you’re going to look like an idiot for lying to people. I don’t know how they think you’re supposed to get along as a society if you have a reputation for being dishonest. This mistake is made quite often in arguments for IP. You’ll have people say, well, if you’re against – if you’re for IP law being abolished, if you’re not for IP law, you must be in favor of plagiarism.
Now, this argument is completely false and disingenuous for many reasons. Number one, again, I don’t think they’re serious about it because if you really know the difference between types of IP like copyright and patent and you know what plagiarism is, then you know there’s almost no relation between them. And if you don’t know, then you shouldn’t be arguing until you figure this stuff out. But in fact, plagiarism has almost nothing to do with copyright or patent and wouldn’t be a real problem in a free society in the first place.
So as an example, I can take – plagiarism just means being dishonest about who the author of something is or not crediting your sources, which is more of a scholarly rule than a copying rule. So for example, I could take one of Aristotle’s books, and I could publish it on Amazon tomorrow, self-publish it, and put my name on there. Now, that is literally plagiarism, and it’s not a copyright violation because Aristotle’s works are in the public domain. No one would buy it. I would look like an idiot, and it doesn’t need any kind of law to police that.
At best, it would be a type of fraud on my customers because if they think they’re buying a new work called Nicomachean Ethics and they’re not, then I’ve defrauded them, but fraud law is there to cover that already. And on the other hand, most aspects of copyright infringement have nothing to do with plagiarism. For example, if I take the latest Transformers movie and I make a copy and I put it online and I either put it online for free or I sell it, I’m not going to put my name on it.
I’m not going to say this is Stephan Kinsella’s Transformers. Why would I do that? Because no one is going to download it then. They’re going to think I’ve messed with it or I’ve tampered with it or it’s a joke. No. People want the original Transformers by Michael Bey or whoever is in charge of it. They want the movie. That’s why I put it online. That’s why I sell it. That’s why pirated copies are desirable because they’re a duplicate or a close duplicate of the original. So most copyright infringement wouldn’t be plagiarism, and most plagiarism wouldn’t be copyright infringement, or it doesn’t necessarily involve it. So they have really nothing to do with each other. So the reason that the IP proponents bring this up is they’re trying – they know plagiarism is a little bit dishonest or usually a contract breach like at a university or something. So there’s something about being a plagiarist, so they’re trying to associate dishonesty and shadiness of plagiarism with competing in the free market and copying and sharing and learning information, which have nothing to do with each other.
Okay, slide 47. Let’s get back to – a little bit to the discussion about a utilitarianism and wealth maximization. So quite often the proponents of IP will say something kind of extreme and hyperbolic like without patents and without copyright, there would be no new art, novels, movies, no new inventions ever created again. Now, if they were right, then a lot of people would have pause. They would go, oh, we can’t live without future innovations and future discovery of knowledge and future creative works being made. But of course there’s no evidence whatsoever for this contention at all, and in fact, it’s completely implausible.
Even if they’re right that there would be less innovation, they could not argue there would be none. Even if we stopped copyright and patent tomorrow, some companies would still innovate and some scientists would still do research. Some artists would still write. In fact, most people research, write, and innovate today with little or no financial payment anyway, so you would still have some. So really their argument is that we wouldn’t have enough or that we would have less. But so what they’re saying is that in a patent-free world, let’s say, we have level X innovation. And in a world with patents, we have X plus Y, and more innovation is better. Having extra Y innovation is better.
But the problem with this argument is that, first of all, they have no proof that there is a Y that’s positive. Maybe Y is negative actually. Maybe patents skew and distort innovation and reduce innovation, which I actually think it does. But even if Y is positive, how do we know that it’s worth it? In other words, the patent system has a cost. Let’s say it costs Z. Now, is Y greater than Z or is Z greater than Y? They don’t know. They have no idea what these numbers are.
In fact, they have no – they don’t even make an argument about what the numbers are. They just make the hypothetical case. They assume that we’re all going to agree that there is going to be a Z, that the Z – I’m sorry, that there’s going to be a Y. But the Y is going to be positive and more innovation is always better. And they assume that the Z is zero.
They assume there’s basically a trivial or negligible cost of the patent system even though a recent report that just came out shows that the top tech companies like Apple, etc. spent more money last year on defending or acquiring patents than they did on research and development in their own companies. I don’t know the numbers, but let’s say it’s $10 billion of R&D for Apple and $15 billion for patent acquisition. Now, I don’t know how anyone can believe that the $15 billion that was spent on patents, some of that couldn’t have gone to more R&D or at least been returned to their – to the public in the form of lower prices or to the shareholders in the form of higher dividends or higher share price, etc. And then that extra money in the hands of consumers or shareholders could have been used for something productive and maybe more R&, maybe more economic activity, etc.
The point is there’s no way you can argue that this money is not a diversion from the overall amount of R&D or human prosperity and satisfaction that we enjoy at all. And on slide 47, this – I mentioned Alexander Tabarrok earlier. He’s a free market guy, but he’s not anti-IP. He wants to reform IP, and he had this recent post called “Patent Policy on the Back of a Napkin.” And he sort of drew like a Laffer curve, which is like a bell-shaped curve, which shows the relationship in his mind and in the mind of most people who favor IP, the relationship between the strength of patents and the amount of innovation we get.
And his idea is the curve starts at some non-zero number on the left side, goes up to a peak, and goes down. And the idea is that if you have no patent system you have some innovation, but if you have a patent system you can increase the amount of innovation. But then if you make the patents too strong, then you start suppressing innovation, and we’re past that point, so we should reduce the patent strength. I guess that means the patent term from 17 roughly years to, I don’t know, five or whatever or ten. Then we get closer to this optimal. Now, he has no reason whatsoever for thinking the shape of the curve is a bell curve. And even if it was, he’s not taking patent cost into account because the patent strength comes with the cost.
So even if you have a patent system and it increases the amount of innovation, the value of that extra innovation might be less than the cost that the patent system opposes on the economy as a whole. In fact, I think it is. But I don’t think it actually increases net innovation at all. I think it actually decreases innovation and distorts the market. I think the line would be sloping downwards. You have innovation, and the more patents you have, the worse everything gets. So the lower you make patent strength, the better off you are. You don’t have to go to this optimum peak he points to. You go all the way down to zero. And unless they have an argument otherwise, that is the default position.
Another argument is that you just can’t make money without IP. This is completely false. There’s lots of ways you can make money. Kickstarter is around now. Lots of other ideas will no doubt come about in the future. There are videogame companies. There are recording artists. There are documentary makers who are getting funding for their projects through Kickstarter and other projects. I – the thing is everyone has to be an entrepreneur and is an entrepreneur, and you have to realize that in a world of competition, you have to face competition. And you have to be aware of that and try to come up with mechanisms and ways and practices where you can make a profit or achieve your goals.
And if that’s in the face of people being able to easily compete with you by copying what you’ve done, either identically or by improving it or tweaking it, then that’s the world we face. I was listening to a podcast with two economists, and they were talking about J.K. Rowling, the author of the Harry Potter books, and she’s worth about a billion dollars now because of all the money she’s made off of her books and the franchising of her books and the movies based upon her books.
Now, I believe that in a free market, she probably wouldn’t be worth a billion dollars for writing seven books. But it’s easy to see how she could be worth tens of millions. So let’s say she writes the first book, which she did as a labor of love, which is how most such books have to get made in the first place, not for money. And she sells it on Amazon as a self-published Kindle book or something like that. Let’s say she makes $100,000.
And soon the profits go down because there’s pirated copies, which are legitimate everywhere, but the pirated copies actually give her more fans, so she has a large number of fans because the books are great. And she has even more fans because everyone – even more people can get them than could the first time she sold the books in the real world because the price was too high for some people. So she probably has even more fans than she otherwise would have. So anyway, she has a lot of fans.
She made some money. She publishes a second book and becomes even more of a bigger phenomena. At a certain point in time, she sketches out all seven books, and she says, you know, to all my fans out there, I’ve got book number four written, and as soon as I get a million people agree to pay $10 each for this book, I’ll release it to the world. Well, I guarantee she’s going to get a million people that are going to salivate at the prospect of getting this book. So she makes $10 million right there, and then she can repeat this and maybe in escalating terms with each book.
And then when the movie – and people start making movies of her books. Let’s say someone makes a movie of her first book, which they won’t need her permission to do. You could have five movies made in the same year based upon her book. It’s a free market. She can’t stop it because there’s no copyright let’s say in a copyright-free world, but what she could do is she could get a phone call from one of the producers who says we’re planning to make a movie based upon your book, and if you will cooperate with us on developing the script and say that it’s authorized, promote it to your fans, tell them this is the authorized version, we think we’ll get twice the ticket sales of our competitors because all your fans are going to want to see the movie that’s blessed by you because it will probably be better, and they’ll believe it’s going to be better, and they’ll think it’s more authorized and legitimate.
We’ll give you, I don’t know, 5% of the ticket sales. So there’s another $10-20 million, whatever. I mean there’s lots of ways, or maybe someone writes a smaller novel, and it helps them to land a job teaching literature at the local college because they have a reputation now. There’s just so many ways you can profit from your activities. It’s just not the government’s job to figure that out for you.
Here’s another one, slide 49, identity theft. So some people would say, well, without IP, then what’s to keep you from just using your name and stealing money in your bank account or whatever? Well, you don’t really need IP for this. Let’s – now, this story is complicated in today’s world because money is not a tangible, physically ownable thing because the government has corrupted it. So let’s assume that we have world where there’s honest gold money and everyone has, say – I have a certain amount of gold coins stored in a bank, which I pay a hosting fee for.
And I have a warehouse receipt, or I have some kind of identification key that allows me to access and transfer the ownership of the gold when I want to, to pay for something or to access the money. Now, someone pretends to be me. They go to the bank. They pretend to be me, and they’re able to bamboozle the bank into opening the vault and letting them take my gold out. Now, this has nothing to do with identity theft really or with intellectual property. It simply is a means of committing a type of theft or fraud.
Basically I own the gold. I’m the owner of the gold, and the bank has some kind of ownership relation too in the sense that they’re the custodian, and this person has taken control of something not owned by them without my permission. That’s called theft or trespass or conversion or something like that. It’s basically a type of trespass. They probably also violated the bank’s rights by using the bank’s property under false pretenses and in violation of the bank’s implicit rules where they make it clear that you have to be who you say you are. You can’t be lying to us. You guarantee that you’re telling the truth when you sign on the dotted line, etc. So you don’t need IP law to stop people from committing various types of theft, so that’s another bad argument.
Okay, and then we have arguments by grammar or semantics or even emotion – so I’m on slide 50 now – where people use the argument that – they use the argument that IP is called property, intellectual property, or they just use these synonyms that are bandied about now by the IP lobby like theft or taking or stealing or ripping off or piracy which, if you think about it, piracy means going onto someone’s boat without their permission and killing them and taking their stuff. That’s a clear violation of tangible property to your body or your stuff or your boat.
They use that now to refer to people copying information, which doesn’t take anything. And, in fact, one of the first pirates was – pirates use to be authorized. They were called privateers or something, authorized by the state by what’s called a letter patent actually. So patents actually were authorizing piracy back in the 1500s, etc. like Sir Francis Drake. So it’s kind of ironic that they claim they’re against piracy, but anyway. So you can’t just – you can’t say something is property because it’s theft to take it. That’s begging the question. It’s only theft if it’s property in the first place. You can’t justify it that way.
And of course copying is not theft. If you learn some fact from someone, if I make a copy of a book or if I make a copy of your iPod and compete with you, I’m actually not taking your iPod or your book from you. I’m – and then the IP proponent will retreat and they’ll say, well, yes that’s true, but you’re taking from me the money I could have made. So now they’re kind of getting a little bit more honest, so they’re admitting that really it’s about money.
It’s about revenue and things like this. So – but what that means is their argument is really that they’re saying if you have a business where you’re making a certain profit or you expect to make a certain profit or you could make a certain profit if you had a monopoly that you have some kind of property right in that future uncertain income stream. But the income stream is not just a stream. It’s money that’s owned by future people, money that they own, not you.
And you don’t have a right to money in customers’ pockets. They have the right to spend it if they chose to. This is exactly why competition is permissible. This is why, if Walmart competes with a drugstore in a little town and “steals their customers,” that’s not really an act of stealing even though the word is sometimes misused there. In fact, there’s nothing wrong with stealing customers because the drugstore doesn’t own those customers. The customers own those customers. If I steal your girlfriend by persuading her to date me instead of you, I haven’t stolen your girlfriend. I know the word your is used, and it’s possessive. This is another dishonest argument.
People say, well, whose idea is it if it’s not mine? It’s my idea, isn’t it? This is argument by semantics or by possessives. It’s ridiculous. Just because the English language or some languages use possessives to identify things doesn’t mean they’re ownable. Just because there are things and concepts that we can identify in the world doesn’t mean they’re ownable. I can identify a poem. I can say it’s my poem, which means I am the one who came up with the poem, doesn’t mean that I should own it in some kind of legal sense anymore than I own my girlfriend or a drugstore owns its customers.
Okay, so this is – and by the way, the patent and copyright used to be called monopolies. They were – the proponents were quite honest about this. As I mentioned, the modern patent system originated with the Statute of Monopolies in England in 16 – I want to say 1623-1624. And a lot of economists and free-market types were against them for this reason or at least thought they should be severely limited because they knew they’re a derogation from or an exception to the normal free market property-type system.
But in response to sort of mounting a tax on the legitimacy of this cold, corrupt system like, say – I don’t know exactly the date. I think it was in the early 1900s, maybe late 1800s. I think it was early 1900s. The proponents of patent and copyright and to some extent trademark and trade secrets but primarily patent and copyright started using the word industrial property or intellectual property. So they started using the word property because people had a positive connotation with property. They thought property was a natural right. It’s what you’re entitled to by law and by justice, etc. So if you call these entrenched interests, these monopoly privileges, the government grants, you call them property rights, the people are going to sort of assume they’re legitimate and just and part of the capitalist or property system, and that’s exactly what happened.
Now, of course, there are lots of people now that argue that you have a property right in your social security benefits or that you have a natural human right to a job or to education or to medical care or to welfare. Well, they’re wrong. Just calling something property or a right doesn’t make it justified, so we need to be aware of these sort of argumentative tricks.
Okay, slide 52 now. You hear this all the time, the continual refrain of the non-principled person who has really – everyone is utilitarian now. It’s the problem. So there’s never any kind of bright line about anything. So they’ll say the patent system is broken, and they’ll usually say it used to do a good job, but now it’s been broken, so therefore we need to do what? We need to fix it. We need to reform it. So then you have people like Tabarrok and others saying, oh, we – or Judge Richard Posner recently saying, oh, the system has gotten out of hand.
Now, they’re implying that it used to work fine. I don’t know how they’re supposed to know this. But anyway, so what they want to do is they want to reduce the scope of patent or copyright. They want to reduce the terms. They want to reduce the economic or the civil penalties or even the criminal penalties, but they don’t want to go down to zero. They have no reason for this except they’re either hunches that we need some system, but they sort of know we – they know that it’s messed up. They know it’s bad. They see egregious examples, but because they can’t think in principled terms, they don’t want to abolish it.
Oh, I found the quote now I mentioned earlier by Machlup. So what Machlup said, as I mentioned earlier, he said if we didn’t have a patent system, it would be irresponsible to say we should have one. But then he said, but since we had had a patent system for a long time, it would be irresponsible on the basis of our present knowledge to recommend abolishing it.
Now, why is this? I mean by this reasoning we could never get rid of slavery if we had it. We could never get rid of the drug war. We could never get rid of income tax, never stop war. I mean after all we have these policies and institutions and laws. The same type of person would say don’t throw the baby out with the bath water. Well, of course this kind of stupid, non-serious argument, this argument by bromide, argument by slogan assumes that there’s a baby there and that the bathwater is bad, but the baby is good.
In other words, they’re assuming that the core idea of patents and copyright is good. We need some. We’re better off with some reasonable small amount of patent or copyright but not too much. So we need to get rid of the bathwater and not the baby. Well, first of all, even if they’re right, they’re assuming it’s possible to get rid of the bathwater but not the baby. I don’t know why they assume that. They sound like these republican and democrat candidates every presidential election who say we need to get rid of waste in the government. It’s impossible to get rid of waste in the government. This is part of – this is what you get when you have that kind of system.
So even if some small amount of IP would be a good idea, it’s evidently impossible to keep it from being beholden to and corrupted and distorted by the special interests like Disney and the movie industry and the pharmaceutical industry and the software industry, etc. and having it metastasize and get worse and worse every year, where we started with 14-or-so-year terms for patent and copyright, and now it’s grown to 17-20 for patents and over 100 for copyright.
But second of all, they’re assuming there is a baby there. In other words, they’re assuming the patent system – some patent and copyright system is good. And as the quote goes, which I borrowed from – actually I didn’t borrow it from Harry Brown, but I found out later that Harry Brown had an ad for when he was running for president 15, 20 years ago where he said something like don’t throw the baby out with the bathwater unless it’s Rosemary’s baby, which was – which is a line I use, something like that. I said in response to people who say we shouldn’t get rid of the – we shouldn’t throw the baby out with the bathwater, I said we should if it’s Rosemary’s baby, which is how I view the IP system. It’s evil.
So slide 54. Another argument I hear is that – is more the argument about intuition where people say we – it just seems wrong to me to take people’s things. Well, first of all, you don’t take people’s things. You make a copy of it. The original person with the original mousetrap in the case of inventions or a novel or a movie still has it as do all the other people who have gotten copies of it in the meantime. So your making a copy doesn’t take it from them. All you take from them is the money they could have made if they had had a monopoly, but that begs the question to assume they have a right to that money, and that’s just wrong to assume they have the right to that money.
So anyway, it’s just not really an argument. And furthermore, sometimes they’ll do the thing I talked about earlier. They’ll mix it up with plagiarism. They’ll say, well, it’s wrong to plagiarize. Well, what do you mean by that? Well, it’s wrong not to give credit to an author. It’s like, okay, well, then give credit. I mean you might have an argument that it’s maybe wrong or unprofessional or unethical in some sense to extensively quote from someone in something you’re writing with, say, and not to put quote marks around it and give credit to the author.
Okay, that’s got nothing to do with copyright. All it means is you should be honest about where you’re getting substantially quoted material. Copyright doesn’t just prevent literal copying, by the way. Copyright prevents derivative works like if I wanted to make Stars Wars #12 – well, number – let’s say #7 myself with my own plot based upon these characters, that’s not copying at all. It’s what’s called a derivative work, and everyone would know that it’s a derivative work because I’m saying this is Stephan Kinsella’s Star Wars #7. It’s my interpretation of what I think would have happened after Star Wars #6. It’s not dishonest. It’s not failing to attribute. It’s not even a literal copy. It’s simply fan fiction. What’s wrong with that? Nothing’s wrong with it.
Slide 55, I’ve already talked about this a little bit, the question you get: how would I get paid for writing a novel? And as I’ve mentioned, number one, a question is not an argument. Number two, there are some possible answers to this. I gave a possible example of J.K. Rowling. Ayn Rand and the Randians – they have this confusing way of talking about all this where they talk about – I think I mentioned this in the first part of the lecture. They talk about man’s way of living on Earth is to create values. It’s a weird way of arguing. I agree that man is – man needs to use his mind to be – to understand reality. He doesn’t live by intuition. The Randians are right about that.
So the – putting it this way is bizarre. A value in the Austrian sense is a subjective phenomena. It’s more of a relationship between a human actor and some desired goal, which sometimes could be a scarce resource or a scarce means either valued directly to achieve it or to acquire it or as an indirect means of achieving some goal down the road. But when the Randians talk about man creates values, it’s a little bit ambiguous, and of course – so the problem is with ambiguity and at least to equivocation and to sloppy arguments, it is true that when we are creative, that means we take existing resources that are owned, scarce resources, and we manipulate them using our intellect, our creativity, our labor.
And we make them more valuable. They’re more valuable means we regard them as more valuable, means we create wealth. You could say that we create wealth, but we don’t create new property. There’s no new property rights. It’s just property that’s owned. It’s rearranged. So when Rand says we create values, it’s a little bit ambiguous – or it’s a lot ambiguous because it makes you think of some thing that exists. Sometimes the value is an object like a new car, and I guess sometimes the value is a reputation, and sometimes it’s a novel or a poem. So basically what they’re saying is anything that’s a thing that you can conceptually identify with a word that has value, that is, that’s the end of action, is an ownable, existing entity.
See, that’s the implicit assumption, and that’s their mistake because they’re wrong about this. Not any thing that I can conceptually identify is ownable. And, in fact, to own a poem, let’s say is literally impossible because to own is to have the legal right to exclusively control. It’s impossible to literally own a non-scarce thing like a pattern of information. I mean it’s just literally impossible. There’s just no way to do it. It would be like having a one and a zero at the same time.
You cannot control a pattern of information. What the law actually does is the law uses that metaphor of ownership of information as an excuse to justify transferring real resources from one owner to another. So, for example, by saying I own this poem or this movie or this novel or this invention, I’m able to persuade a court to use physical force against some other person who has not made a contract with me and has not trespassed against me or my property. So in other words, those things would justify taking property from them and giving it to me if I had agreed to it. But the government is basically able to use the metaphor of pattern ownership as an excuse or a fake justification for taking your money and giving it to me to pay me “damages” for the “trespass” I did to your “intellectual property.” But really it’s just a complicated way of taking your property from you and giving it to me, which is normally called theft or redistribution of wealth.
Okay, so this is the problem with the Randian focus on values is they lose sight of what property relates to. It relates to ownership. It controls – interrupted by dogs, but the point is they lose sight of the fact that property is a relationship of exclusive control, a legally recognized ownership relation between a human actor and some scarce resource that otherwise people could fight over or conflict over. It has nothing to do with non-scarce patterns of information. And it doesn’t mean that ideas don’t have value if you don’t recognize property rights in them.
Love has value. We don’t put a property right on that either. Just because there are not property rights in some thing doesn’t mean that there’s no value in it. It doesn’t mean we don’t value it. But it does – and the same thing with the intellect. The Randians like to deride people who are against IP as being some kind of anti-mind looters and materialists who don’t appreciate the role of the mind. Of course we do. The mind is extremely important. It’s what makes us human, and the – as noted, human action, as Mises looked at it in the praxeological lens, is a physical human actor living in the world who’s not only physical by the way.
We have a – by the way, human action is distinguished from human behavior in Mises’ epistemology. He’s a dualist. He sees both sides to human life. We have a physical body. We have a brain. We also have a mind. We’re actors. We have behavior, and we also have action. We have goals we pursue. We need our intellect. We need our understanding of the world. We need creativity. We need labor to understand the world so that we know how to have successful action and how to live good lives. And we also need to successfully use physical things in the world. Even Ayn Rand recognized this when she said man is – he’s not a ghost.
He has a physical body. He has real needs in the real world, and that’s why in her kind of libertarian view of the non-aggression principle, she recognized that physical force is a thing that we’re opposed to in terms of interpersonal ethics. She said man may not use force against each other’s physical stuff. So she recognized this physical aspect of life and the spiritual or the mental aspect, and so does human action in the Misesian sense because it recognizes we need to have a teleological framework for understanding action.
We have goals. We have ends, which are subjective, and we have to understand the causal laws of the world to know what ends we can achieve and what causal scarce means can help us achieve those ends. And we need control over those physical causal means as well, and that’s what property rights are for. So by speaking kind of loosely about man’s purpose, his creating values, and therefore – they basically just jump to the question, well, if you create a value, who’s supposed to own it? Well, the answer is naturally the person who creates it. That’s if we assume that values are ownable things. Values are not ownable things unless by values we mean scarce means that are subject to conflict and dispute.
And a related error made quite often by people who advocate IP just like an error made by lots of non-libertarians is this idea that not only do you own values, but you own the value of things. So that you not only have a property right in the physical integrity of physical objects that you are the owner of, but you have some kind of – you have a property right in the value of these things, which is the Randian argument for a right to a reputation. You put effort into it. You put your labor into your reputation. It has “a value to you.” It’s “a value you created.” Therefore, you “own it.” This is another confused argument. You actually do not have – as Rothbard showed in his argument…
Okay, interrupted again. So this mistake is what a lot of people make is the idea that you own the value of things that you own. But as Rothbard showed in the Ethics of Liberty when he talks about owning knowledge and information and when he talks about reputation rights and defamation, first of all, value is subjective. It’s what – it’s how people regard something, and the value of something on the free market, sort of the fair market value, is how other people regard something or how they appraise it, how they are willing to pay for it, how much they would be willing to pay for it, etc.
And you can’t own how other people regard something. If you have a house, let’s say, its value may go up if your neighbor chops his rose garden down. But that doesn’t violate your property rights because it’s not a trespass against you. And the value of the house anyway in this sense is what other people are willing to pay for it. You don’t have a right to that either. You only have the right to the physical integrity of your property, that is, to not have its borders invaded against your wishes, to not have it used without your consent. And, in fact, this mirrors perfectly Ayn Rand’s idea of the non-aggression principle where she said no man has the right to use force against other people’s property rights or bodies. So she was recognizing there this. She just was inconsistent on this whole issue.
Another bizarre argument I’ve gotten – I’m on slide 57 – is that I’ll have patent lawyers or others or patent proponents. They’ll – if I have – when we talk about…
Anyway, this argument is kind of silly. What they say is that – when we say IP is about protecting ideas and that’s illegitimate, they’ll say, well, it’s not really about protecting ideas. So they basically just keep hiding the ball on you. They’ll – it’s just like some of the arguments of the – some of the proponents of IP say it’s not really a monopoly. And then others say, yes it is a monopoly, but it’s justified. These guys say it’s not about ideas. It’s about implementation of ideas. I mean it’s just a little detail that’s kind of really irrelevant, and it’s basically however we want to describe the system they’re in favor of. We try to do it in accurate, descriptive, honest ways, and they, of course, object to that because they don’t want us to shine light upon this bizarre system that they’re in favor of.
The other one is kind of an arcane matter that I get into debates with other patent people who know a little bit about the patent system. And they’ll say that, oh no, you’re wrong in saying that the purpose of the patent system is to stimulate innovation and that it’s unjustified because there’s no proof that it does that. The real purpose of the patent system is to stimulate disclosure. I mean what can you say to these people? They keep changing the goal. It is true that the original – the patent law as written – I mean the patent provision in the Constitution implies that this limited monopoly is justified to promote the useful arts. Does it mean to promote their creation or their disclosure? Well, probably both, and that’s what the patent act does.
The patent act gives a monopoly in exchange for disclosing in a patent disclosure a description of your invention. But the idea is also that you can charge a monopoly price for it for some period of time, and therefore, you have a higher incentive to engage in the research and development of the idea in the first place. So that is their argument. If that’s not their argument, then I guess they don’t have any argument for IP.
Slide 59. Well, the other one is you must be a leftist if you’re against IP. What, are you against capitalism? Are you against property? And of course the main argument against IP is that undercuts real property rights. It is because – like I am in favor of strong, undiluted private property rights in scarce resources that I oppose IP because it undercuts the libertarian – excuse me – the libertarian, Lockian basis of owning property, which is that every scarce resource, we can identify who should own it, who has the right to own it by asking either who was the first one to use it or find it in the Lockian sense, or who did you – who was the one who acquired it by a contract from a previous owner?
It’s one or the other. That answers the question. If you come up with a third rule like, or who invented the idea that’s embodied in that thing, then you’re undercutting the first two rules, and you’re transferring ownership of an existing thing to a third person who didn’t find it and who didn’t acquire it by contract. This is why one of my first IP articles on lewrockwell.com was called “In Defense of Napster and Against the Second Homesteading Rule” because what I was pointing out was that the only way to enforce IP rights is to basically come up with a second property allocation rule that undercuts the basic Lockian homesteading rules like a second homesteading rule, which is, of course, what any criminal or socialist does.
They come up with yet another rule for redistributing property. They’re saying instead of the first user or the person who acquired it by contract, then instead of that first person or the person who acquired the property by contract from a previous owner, someone else gets it instead. That’s why – that’s the argument behind, say, taxation or conscription is that no, you’re not yourself owner of your body. We are. We’re going to put you in jail if you don’t go fight in this war. We’re going to put you in jail for smoking marijuana or whatever. So basically every criminal act and every un-libertarian law deviates from the Lockian property rules that libertarians adhere to.
Okay, slide 60. Well, sometimes you’ll have an argument that patent and copyright could exist under anarchy or common law. Usually this is based upon this contractarian argument I talked about earlier where they say, well, you could have something like IP formed by contract, which I’ve already discussed. Other people would say that it could be done by some kind of court decisions. I find it inconceivable that people are serious they could really believe that anything like the arbitrary, artificial, legislated schemes of state grants of monopoly privilege in the form of patents and copyrights could just spontaneously or gradually somehow or organically emerge from court decisions.
Basically, you would have someone publish a book, and they make it public and other people make copies of it. And then the publisher or the author would go to a private arbitral tribunal. They would have to accuse the copier of either committing a tort, which is like a type of trespass, or being in breach of contract. But they wouldn’t be able to show that because the copier, number one, doesn’t have a contract with him, and if he does, it’s just a contract case. It’s not really a copyright case, or he would have to show that they committed some kind of trespass, which is basically the use of or invasion of the borders of the tangible, scarce, real resources owned by the original seller.
But they won’t be able to because they didn’t do that. He released the information into the commons – not the commons. I mean he made the information public, and as Benjamin Tucker says – I’m going back to slide 51 – if you want your invention to yourself, keep it to yourself. You can’t go making knowledge and facts available publicly, which has certain benefits to you to make it public. You get fame or you get fortune or you sell a product and you tell the world my new mousetrap has this feature. You can’t reveal this information and make it public and expect people not to learn from it and be able to use the information that they’ve gained.
Okay, finally 61 – well, not finally but almost. Pharmaceuticals is one of the common cases. Almost every patent reformer says, well, at least in the case of pharmaceuticals, you can admit that we need patents because it’s so easy to make a copy of a pharmaceutical that takes billions of dollars of research and development to develop. Well, in the empirical case for pharmaceuticals is just simply false. There have been countries in the past that have had strong patent – strong pharmaceutical industries without a patent system in pharmaceuticals like Italy and Switzerland. And if you look at chapter 9 of Boldrin and Levine’s book, Against Intellectual Monopoly, they go through this whole case exhaustively.
And they just show that all the assumptions about the necessity – so-called necessity of patents for the pharmaceutical industry are just empirically false. There’s no reason to believe that we wouldn’t have a very strong pharmaceutical industry without patents. In fact, I believe it would be much stronger, especially if the government got out of its way in the other areas like taxes and regulations and the FDA, etc. So we have the federal government imposing untold billions of dollars of red tape and cost on capitalism and industry, and we can’t expect that government to make things better by imposing handing out little patent monopolies. The government needs to get out of the way. We’d all be richer. There would be more money for investing.
I mentioned the Francis Drake thing earlier. I have a little bit of this on slide 62 talking about how letters patent were used in the 1500s to give pirates like Francis Drake the authority to engage in legalized piracy. I’ll skip that one for a second. One more on slide 63. This idea that you can have conflict in ideas is actually – again, this is false because conflict is always conflict over scarce resources. This is what scarce resources mean. A scarce resource in the economic sense is what we call a rivalrous resource, that is, something that there can be rivalry or conflict over. That is, only one user or actor can use this thing at a given time. If two people could use something at the same time, it wouldn’t be a scarce resource, or it would be two things or something like that.
It’s like when people say people fight over religion, it’s – again, this is the danger of sloppy or overly metaphorical discourse. What they’re – when people say there are wars fought over religion, it’s accurate if you understand what they’re really saying is that disagreements over religion are the motivation that people engage in the war. But the war is always over scarce resources, that is, over the physical control over land or resources or people’s bodies. So if I want you to say you are a Christian and if you don’t admit you’re a Christian and you instead say that you’re a Muslim, I will kill you, then the dispute is really over who gets to control your body.
I’m saying I have the right to control it. You want the right to control it yourself. If my threat to you to do something to you if you don’t change your mind about religion was just words and I wasn’t threatening to use your body, then you wouldn’t care. I’m just saying you better change your mind, and you say, or what? And I say, well, you just better. So all disputes, all conflicts are always over scarce resources, which is why in a patent suit, for example, or copyright suit, it really comes down to something that the defendant, let’s say, controls – his printing press, his factory, his body, his money.
The IP plaintiff, the copyright plaintiff, or the patent plaintiff is trying to use – get the court to use physical force directed coercively against the physical body or bank account or property of the defendant, victim, to tell him you have to hand some of this over to the plaintiff, or you have to stop using your property in a certain way. Otherwise, we will hurt you. So it’s always a dispute about who gets to control what, and when you put it this way, you see that this is why intellectual property is incompatible with libertarianism because libertarian rules already give us the answer to the question, who gets to control that guy’s body.
Well, the answer is he gets to control it unless he’s using it to commit an act of trespass or aggression against someone else. So then the IP advocates sometimes will get sneaky and they’ll say, well, but IP is my property. But you see, this is question begging because they can’t use the conclusion that IP is property in an argument meant to show that it should be recognized as property. So again, they just end up with a circular, dishonest, question-begging argument.
And I have some useful quotations starting on page 64, but I think I’ve covered all the main objections I get from IP. So I will end this here, and it’s been kind of a long series of discussions. I, as always, welcome questions. Feel free to email me or post them on my blog or talk to me on Facebook, etc. So thanks a lot, signing out now.