Kinsella on Liberty Podcast, Episode 364.
This is my Soho Forum debate held Nov. 15, 2021, in Manhattan, against professor Richard Epstein, moderated by Gene Epstein. I defended the resolution “all patent and copyright law should be abolished” and Professor Epstein opposed it. Oxford debate rules applied which meant that whoever changed the most minds won. My side went from about 20 to 29 percentage points, gaining about 9; Richard went from about 44 to 55%, gaining about 11, so he won by 1.7 percentage points.
My notes, and a Transcript, are below. Postmortem episode to follow.
See Gene Epstein’s note about Oxford debate rules at Soho Forum and the margin of error:
Patent lawyer Stephan Kinsella debates Law Professor Richard Epstein
GENE EPSTEIN | 11.24.2021 1:00 PM
The United States Constitution explicitly calls for copyright and patent laws to “promote the progress of science and useful arts” by “authors and inventors.” But would getting rid of all intellectual property laws actually encourage more creativity and innovation by inventors, writers, and artists?
That was the topic of a November 15 Soho Forum debate held in New York City.
He believes that government-created intellectual property laws empower patent and copyright trolls and powerful corporate interests while limiting the free flow of information, thus reducing the rate of innovation and creativity.
Richard Epstein, the Laurence A. Tisch Professor of Law at NYU School of Law, says that our current system isn’t perfect but sees copyright and patents as a natural extension of private property rights and believes that it should be defended by libertarians accordingly.
The debate took place in New York City in front of a live audience and was moderated by Soho Forum Director Gene Epstein.
Narrated by Nick Gillespie. Edited by John Osterhoudt. Production by Caveat. Photos by Brett Raney.
In 2018, Soho Forum, which he co-founded in 2016, a monthly debate series that receives fiscal sponsorship from the Reason Foundation.retired from a 26-year stint as Economics and Books Editor at Barron’s, where he wrote the weekly column, “Economic Beat.” He’s director of the
—✦— Kinsella Notes —✦—
Resolved: All patent and copyright law should be abolished.
A Soho Forum Debate
Stephan Kinsella vs. Richard Epstein
Nov. 15, 2021
Caveat, 21 A Clinton St. New York, NY 10002
MAIN PRESENTATION – NOTES
- Resolution: All patent and copyright law should be abolished
- because these laws violate property rights, they violate freedom of speech and the press, they distort culture, they impede innovation, they literally kill people, and they impoverish the human race.
- There is nothing good about patent and copyright law.
- They are total abominations and harm humanity.
- They are a mistake.
- [No, you don’t have to be an anarchist, anti-legislation, a Rothbardian, Austrian, or even a libertarian to oppose IP law]
- (By the way I’ve been practicing patent and IP law for 28 years, representing clients such as Intel, General Electric, and so on.
- So I have some rough idea of how the actual system works.)
- What are the laws in question?
- Copyright protects the right to copy of make “derivative works” of “original works of authorship” for the life of the author plus 70 years = 120–150 years.
- This is enforced by injunctions and legal protections, such as statutory damages of $150k per act of infringement
- Patents protect the right of inventors to their inventions for 17 or so years.
- Also can be enforced by injunctions, unless the government grants a compulsory license
- Copyright protects the right to copy of make “derivative works” of “original works of authorship” for the life of the author plus 70 years = 120–150 years.
- There are obvious objections to these laws: they violate natural property rights
- They prevent people from using their own property as they see fit
- Copyright: prevents you from publishing books, singing songs
- Patent: prevent you from making products (competing), or even improving on others’ products
- They prevent people from using their own property as they see fit
- Why would anyone favor state monopoly privilege grants that violate property rights, protect people from competition, and censors speech?
- Because the free market and property rights, while generally good, sometimes fail.
- There is “market failure”
- Due to “freerider” or “holdout” problems”
- So the state can come in and take private property and make everyone better off
- This is the Chicago school and minarchist-utilitarian approach
- This is in fact the thesis of Professor Epstein in his book Takings:
- The state can identify these freerider and holdout “market failures”
- Take property (eminent domain power), generate a “surplus”—make the pie bigger.
- The surplus can then be used to compensate the victim of the expropriation
- Everyone is better off, in principle
- Road example
- Epstein uses this argument to argue that most of the modern administrate state is not justified
- This is one of the notions behind his “Simple Rules for a Complex World”
- “Take and Pay” principle
- This is the empirical argument for patent and copyright: without some state intervention, there will be an underproduction of inventions (patent law) and artistic creation (copyright)
- Because it’s hard for the innovator to “recoup their cost” if others can compete too easily.
- So the state needs to grant a temporarily monopoly privilege to protect innovators and artists from competition for a limited time, so that they can “recoup their cost”
- Otherwise they won’t invest time in innovating in the first place.
- This is in fact the basis of the Copyright Clause in the Constitution:
- Congress has power “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”
- The origin of copyright lies in state control of thought and censorship
- The Printing Press threatened state and church control of what could printed, which led to the Stationer’s Company and its monopoly on printing, and then culminated in the Statute of Anne of 1710
- The origin of patents lies in mercantilism and protectionism
- The King would grant open letters, “letters patent,” granting someone the exclusive right to sell a given product
- Playing cards, sheepskin
- Culminated in the Statute of Monopolies of 1623
- The King would grant open letters, “letters patent,” granting someone the exclusive right to sell a given product
- This led to the US Constitution in 1789 authorizing Congress to grant similar powers
- Since Copyright has its origins in censorship and thought control, it’s no wonder that this is how it still works today
- the seminal German silent film “Nosferatu” was deemed a derivative work of “Dracula” and courts ordered all copies destroyed.
- Shortly before his death, J.D. Salinger, author of Catcher in the Rye, convinced U.S. courts to banthe publication of a novel called 60 Years Later: Coming Through the Rye.”
- A grocery store in Canada mistakenly sold 14 copiesof a new Harry Potter book a few days before its official release on Saturday, July 16, 2005; a British Columbia Supreme Court judge “ordered customers not to talk about the book, copy it, sell it or even read it before its official release date
- Threatens Internet freedom: constant attempts to ban various platforms and services; SOPA, the Stop Online Piracy Act, was only narrowly defeated years ago
- Aaron Swartz, the brilliant young inventor of RSS (the technology behind blogging and podcasting) and anti-SOPA activist, uploaded some academic journal articles to the Internet. Facing possible life in prison, he killed himself.
- Gilberto Sanchez bought a copy of an unfinished version of the 2009 movie X-Men Origins: Wolverine in The Bronx and uploaded it to the Internet, and was sentenced to a year in federal prison.
- British grad student Richard O’Dwyer was ordered extradited to the US for having website with links to pirated movies to face federal prison. Life derailed for years and almost ruined.
- 2011 — In his paper Infringement Nation: Copyright Reform and the Law/Norm Gap, law professor John Tehranian explains how the normal activities (see pp. 543-48) of a typical Internet user–he takes an “average American, …take an ordinary day in the life of a hypothetical law professor named John”–someone who does not even engage in P2P file sharing–could result in up to $4.5 billion in potential liability annually, for copyright infringement.
- Susan Boyle was prevented from singing a song because of copyright.
- NFL Pulls Plug On Big-Screen Church Parties For Super Bowl, Washington Post(Feb. 1, 2008) (NFL prohibits churches from having Super Bowl gatherings on TV sets or screens larger than 55 inches)
- Ford Motor Company claims that they hold the rights to any image of a Ford vehicle, even if it’s a picture you took of your own car)
- Since patent law is rooted in protectionism, again, it’s no wonder this is how it still works today
- Amazon’s notorious 1999 one-click patent—the patent on clicking onceto purchase something instead of twice—when it sued Barnes & Noble at the dawn of e-commerce, right at the beginning of the 1999 Christmas shopping season, for daring to let its customers complete a purchase with a single mouse click.
- In 2008, a patent holder threatened to use court injunctions to force Ford not to use various technological safety measures, such as Active Park Assist, Stability Control, Blind Spot detection, and hands-free voice control.
- Of course Professor Epstein is all in favor of patent injunctions—after all, if you are going to “have a property right,” the owner needs to be able to enforce it!
- Even though “the practice of saving seeds after a harvest to plant the next season is as old as farming itself,” patents prevent farmers from saving patented seeds.
- Monsanto and others even come after farmers for growing patented crops even when it’s caused by the wind blowing the seeds from a neighboring farm
- Back in 2010, there were reports from people with Fabry’s disease literally dying because Fabrazyme is in short supply and the sole, monopolistic manufacturer, Genzyme, can’t make enough quickly enough–and no one else is permitted to make it due to the patent.
- For a more recent example, for the Bitcoin fans – of course the person who pretends to have invented Bitcoin has used copyright to force some websites to take down the original Bitcoin White Paper
- And in the patent sphere: because of a patent on “Schnorr signatures” which expired in 2008, a year before Bitcoin, no code or libraries had been developed
- So Bitcoin used a variant of the Digital Signature Algorithm (DSA) scheme instead of Schnorr
- Finally, THIS WEEKEND, Taproot was just activated
- implements the Schnorr signature scheme into Bitcoin
- Simpler, more efficient, better for privacy
- As noted, the initial stated purpose of patent and copyright law is “To promote the Progress of Science and useful Arts.”
- The ultimate empirical question is: do they?
- Does granting a temporarily monopoly right really promote the progress?
- It was just a hunch at first
- The English Parliament never did a study before the Statute of Anne 1710 of the Statute of Monopolies 1623
- Congress never did a study in 1789 to show that these laws do “promote the progress”
- We have had 230 years. Has any study yet been done that bolsters Professor Epstein’s case?
- For Professor Epstein to prove his case that the state may take private property by its patent and copyright grants, he needs to show that a surplus is generated.
- This means: These laws stimulate additional or earlier innovation and artistic creation, that are on the whole positive (because some innovation is retarded), AND,
- The value of which is greater than the cost of this patent and copyright system.
- You can’t just say “maybe if if if”
- We have had 230 years to gather evidence to support the Founders’ Hunch
- Professor Epstein’s “hunch” isn’t good enough
- So what do the actual studies say?
- In the 1800s many free-market economists opposed patent and copyright law on the grounds that they were state-granted monopoly privileges that hampered the free market
- In response, the defenders came up with the term “intellectual property” to make it sound like these laws are like natural property rights
- Just another property right
- “property” had a good connotation
- [Even Professor Epstein argues that the “structure” of IP law is “similar” to that of natural real property rights
- [And so it is
- [But you could also trade, mortgage and sell slaves
- [So, so what?]
- [Even Professor Epstein argues that the “structure” of IP law is “similar” to that of natural real property rights
- What about modern empirical studies since 1790?
- In the 1950s Congress commissioned an in-depth study by Fritz Machlup:
- In 1958, he concluded: “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 a net loss upon society. … 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.”
- George Priest, 1986: “[I]n the current state of knowledge, economists know almost nothing about the effect on social welfare of the patent system or of other systems of intellectual property.”
- Wesley M. Cohen & Stephen A. Merrill, 2003: “There are theoretical as well as empirical reasons to question whether patent rights advance innovation in a substantial way in most industries. … The literature on the impact of patents on innovation must be considered emergent. One reason is that the effect of patent policy has many dimensions … and these continue to challenge scholars both theoretically and empirically.”
- François Lévêque & Yann Ménière, of the Ecole des mines de Paris, 2004: “The abolition or preservation of intellectual property protection is … not just 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 [an economic analysis of the cost and benefits of intellectual property] is no more within our reach today than it was in Machlup’s day [1950s].
- Boston University Law School Professors (and economists) Michael Meurer and Jim Bessen, 2008: “it seems unlikely that patents today are an effective policy instrument to encourage innovation overall”; instead, “patents place a drag on innovation” and “the patent system fails on its own terms …. Overall, the performance of the [U.S] patent system has rapidly deteriorated in recent years. By the late 1990s, the costs that patents imposed on public firms outweighed the benefits. This provides clear empirical evidence that the patent system is broken.”
- [Michele Boldrin & David Levine, 2008: Exhaustive empirical study in Against Intellectual Monopoly, concludes that patents do not promote, but hinder, innovation.]
- See also Boldrin & Levine on Covid-19, Vaccines, the Pharmaceutical Industry, and Patents
- Update: see also Dean Baker, Getting Ready for the Next Pandemic: Can We Get Patent Monopolies on the Table? (Dec. 20, 2021) (“We are still seeing no real debate as to whether we want to rely on these monopolies as a primary mechanism for financing medical innovation in the future.”); Dawn Niederhauser, CEPR Spotlight: Vaccines, Patents and Copyrights (Dec. 20, 2021) (“CEPR has written extensively on how patent monopolies allow pharmaceutical companies to extract billions from everyday people using drug research that is already publicly funded at a fraction of the cost.”) But see, on Dean Baker’s inconsistent and confused views on IP policy: “$30 Billion Taxfunded Innovation Contracts: The ‘Progressive-Libertarian’ Solution”; Libertarian Favors $80 Billion Annual Tax-Funded “Medical Innovation Prize Fund”; The “Artistic Freedom Voucher” [sic].
- And Peter S. Arno & Michael H Davis, “Should Medicare be Allowed to Negotiate Drug Prices?“, CQ Researcher Vol. 26 Iss. 20 (2016), p. 473
- Andrew Torrance, 2009: “little empirical evidence exists to support” the assumption that the patent system spurs innovation
- Boldrin & Levine, 2013: “The case against patents can be summarized briefly: there is no empirical evidence that they serve to increase innovation and productivity”
- Petra Moser, 2016: “when patent rights have been too broad or strong, they have actually discouraged innovation”
- Heidi L. Williams, 2017: “To summarize, evidence from patent law changes has provided little evidence that stronger patent rights encourage research investments…. A half-century ago, Penrose (1951) and Machlup (1958) argued that insufficient empirical evidence existed to make a conclusive case either for or against patents. Today, I would argue that given the limitations of the existing literature we still have essentially no credible empirical evidence on the seemingly simple question of whether stronger patent rights – either longer patent terms or broader patent rights – encourage research investments into developing new technologies.”
- In law professor Thomas Cheng’s view, theory and empirical studies “firmly refute the notion that patent protection is necessary for securing innovation.”
- [Hon. Maureen K. Ohlhausen, 2016: Respected economists Michele Boldrin and David Levine find “no evidence that intellectual monopoly achieves the desired purpose of increasing innovation,” describe IP rights as an “unnecessary evil,” and call for the patent system’s abolition.38 Economist Adam Jaffe and Harvard Business School professor Josh Lerner call the patent system “broken.”39 Law professors Michael Meurer and James Bessen think it “unlikely that patents today are an effective policy instrument to encourage innovation overall.”40 As for encouraging ideas, the Economist wrote that “[t]oday’s patent systems are a rotten way of rewarding them.”41 Indeed, the magazine appeared to embrace the notion that “society as a whole might even be better off with no patents than with the mess that is today’s system.”42 In law professor Thomas Cheng’s view, theory and empirical studies “firmly refute the notion that patent protection is necessary for securing innovation.”43 Richard Stallman argues that “patent law should be abolished.”44 The Electronic Frontier Foundation’s view is that the “patent system is broken” and “it’s time to start over.”45
- [The chorus of criticism goes on. Attorney William Hubbard argues that “patent protection in the United States should be weakened.”46 The Hon. Richard A. Posner sees “serious problems with our patent system.”47 A leading authority on patent law, Mark Lemley, has proclaimed the existence of a “patent crisis.”48 A renowned economist, Carl Shapiro, believes that the “patent system . . . provides excessive rewards to patent holders . . . reduc[ing] economic efficiency by discouraging innovation.”49 Even Google, which secured more than 2,500 patents in 201450, has sometimes poured cold water on the importance of IP rights. Its general counsel, Kent Walker, has opined that a “patent isn’t innovation. It’s the right to block someone else from innovating” and that “patents are not encouraging innovation.”51 Although outright elimination of the patent regime is an outlier view, many commentators believe that society ought to jettison patents in particular fields of invention such as computer software, business methods, and genetics.52 Even some who have defended the status quo have done so reluctantly.53 ]18 ]
- Without patent, you could easily have privately financed innovation prizes, such as the Space X Prize for reusable spacecraft.
- As sci-fi author Cory Doctorow has noted, the Internet is the world’s greatest copying machine and copying will never get any harder.
- There is no doubt that the costs of the patent system are huge, due to attorneys’ fees, lawsuits, patent trolls—estimates are that the cost is around at least $100B per year in the US alone
- And there is NO EVIDENCE that any new innovation spurred on by this system is worth $100B.
- There is every reason to believe that the patent system impedes innovation
- So we are paying $100B a year and get less innovation out of it. Some deal.
- Meanwhile the copyright system ruins lives, distorts culture, censors free speech and the press, and threatens Internet freedom.
- It is clearly time to abolish these monstrous regimes
- there are currently 11 different vaccines approved at least for emergency use somewhere in the world.
- As of December 2020, there are over 200 vaccine candidates for COVID-19 being developed. Of these, at least 52 candidate vaccines are in human trials.
- Moderna on 8 October 2020 waived its vaccine patent rights
- No drug patents in Italy and Switzerland until the 1970s but had a thriving pharmaceutical industry.
“Boldrin and Levine looked to a poll of the British Medical Journal’s readers on the top medical milestones in history, and found that almost none had anything to do with patents. Penicillin, x-rays, tissue culture, anesthetic, chlorpromazine, public sanitation, germ theory, evidence-based medicine, vaccines, the birth-control pill, computers, oral rehydration theory, DNA structure, monoclonal antibody technology, and the discovery of the health risks of smoking — of these top 15 entries, only two had anything to do with patents.“
“nothing on the US Centers for Disease Control‘s list of the top ten public-health achievements of the 20th century had any connection to patents. And even a review of the most important pharmaceuticals reveals that many came about without the motive and/or possibility of acquiring a patent, including, for example, aspirin, AZT, cyclosporine, digoxin, ether, fluoride, insulin, isoniazid, medical marijuana, methadone, morphine, oxytocin, penicillin, Phenobarbital, prontosil, quinine, Ritalin, salvarsan, vaccines, and vitamins.“
- Purpose of property rights
- Two key ingredients for successful action: scarce resources (means) and knowledge. We are rich today because knowledge is continually added to the “fund of experience” in Hayek’s phrasing
Three or four billion years ago, by some process that we don’t understand, molecules began to copy themselves. We are the distant descendants of those early copyists – copying is in our genes. We have a word for things that don’t copy: ‘dead’.”
As for the American Founders, Thomas Jefferson famously observed that “He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me.”
And as the inventive Benjamin Franklin realised: “As we enjoy great Advantages from the Inventions of others we should be glad of an Opportunity to serve others by any Invention of ours, and this we should do freely and generously.” For the sake of property rights, liberty and, yes, innovation–the patent system should be repealed.
Possible Questions for Epstein
- Copyright term used to be 14+14; now it’s >100. You have said you think “about 30 years” is “right.” How do you know?
- How do you know 30 years is not too much? Not too little? Maybe 5 years is better
- Jeff Bezos re software
- Maybe 0 is better
- Maybe 5 or 10 or 30 is better, but in the real world it will inevitably metastasize to 150, so if the choice is life + 70 or 0, which do you prefer?
- How do you know 30 years is not too much? Not too little? Maybe 5 years is better
- Copyright and First amendment conflict. Why not unconstitutional?
- To be justified on empirical grounds the patent system must make us better off, in terms of innovation: the value of the marginal innovation produced (not innovation that would have happened anyway), minus the innovation discouraged, must be positive. And this number must be greater than the cost of the patent system, which runs to $__ billions. What are these numbers and if he doesn’t know them, how does he know the resultants are positive? That is, that the patent system doesn’t either cost more than it’s worth, or that it doesn’t actually impede and distort innovation?
- And please let’s not hear the correlation-causation fallacy.
—✦— TRANSCRIPT —✦—
Resolved: All patent and copyright law should be abolished.
A Soho Forum Debate
Stephan Kinsella vs. Richard Epstein
Soho Forum, Manhattan, Nov. 15, 2021
M: The United States Constitution explicitly calls for copyright and patent laws to promote the progress of science and useful arts by authors and inventors. But would getting rid of all intellectual property laws actually encourage more creativity and innovation by inventors, writers, and artists? That was the topic of the November 15 Soho Forum debate held in New York City. Stephan Kinsella, who spent 28 years as a practicing patent law attorney, argued in favor of the proposition that all patent and copyright law should be abolished. He believes that government-created intellectual property laws empower patent and copyright trolls and powerful corporate interests while limiting the free flow of information, thus reducing the right of innovation and creativity.
Richard Epstein, the Laurence A. Tisch Professor of Law at NYU, says that our current system isn’t perfect, but he sees copyright and patents as a natural extension of private property rights and believes that they should be defended by libertarians accordingly. The debate took place in New York City in front of a live audience and was moderated by Soho Forum director, Gene Epstein.
GENE EPSTEIN: Now, for the main event. The resolution reads, and again, you have voted on it, all patent and copyright law should be abolished. Here to defend the resolution, Stephan Kinsella. Stephan, please come to the stage. Opposing the resolution, Richard Epstein. Richard, please come to the stage. If Richard could climb over a couple of bodies, he will come to the stage, and – that’s okay. All right, don’t get too friendly. Stephan, sit here. Richard, you sit on the far seat.
RICHARD EPSTEIN: You want me to sit on the far right.
GENE EPSTEIN: Far right, yes, absolutely. Richard Epstein is no relation to Gene Epstein, but – because there are a lot of Jews named Epstein. And – but we now have to close the voting. Jane, please close the voting. And Stephan, you can take the podium, which I assume you’d like to do. You have 17-1/2 minutes to defend the resolution. Take it away, Stephan.
STEPHAN KINSELLA: All right, thank you very much, Gene. It’s a pleasure to be here, especially with Professor Epstein. I’m really grateful you agreed to discuss this with me. You’re one of my intellectual teachers, and I’ve learned a lot from you over the years. The resolution is all patent and copyright law should be abolished. Why? I want to briefly say I’m a patent attorney. I’ve been doing it for about 28 years.
I’ve been a libertarian for far longer than that, and I actually wrestled with this intellectual property issue because patent and copyright are types of intellectual property law. I wrestled with this issue all throughout college and law school and as a young attorney, and around the time I passed the patent bar, I decided that it should all be abolished. So I came to it through a lot of hard thought, and my 28 years of practicing has only deepened my feeling about this. The bottom line is these laws violate property rights. They violate freedom of speech in the press.
They distort culture. They impede innovation. They literally kill people, both copyright and patent, and they impoverish the human race. There’s literally nothing whatsoever good about patent and copyright law. They’re complete abominations, and they harm humanity. They’re a mistake. That’s why we should abolish them.
Now, what are these laws? Okay, these are arcane laws that specialists like me learn about and Professor Epstein teaches about. Copyright is – protects the right of authors, like creators of artistic works, for original works of authorship like novels, paintings, movies for the life of the author plus 70 years, which means the term of copyright now lasts about 120, 130 years in many cases. And, by the way, originally it was 14 years at the beginning of the country. Copyright law is enforced by injunctions and by legal protections like statutory damages of up to $150,000 per act of infringement.
Patents are granted by the state to inventors of practical devices like machines or processes, and they last for about 17 years, and they can also be enforced with injunctions unless the government takes it back with what’s called a compulsory license, which they threaten to do sometimes. Now, there are obvious objections to these laws. The first objection is that they obviously violate natural property rights because they prevent people from using their own property as they see fit. Copyright, in effect, prevents you from publishing a book or singing a song because someone can a court force to stop you from doing it.
Patents prevent you from making products, competing, or even improving on other people’s products. Legally speaking, in my view, these laws should be thought of as what’s called a negative easement or a negative servitude, which you guys are familiar with in the term of a – in the form of a restrictive covenant or a homesteading association policy where your neighbors can prevent you from painting your house a certain color.
So negative servitudes or easements are fine if they’re consented to, but these are not consented to. The state just grants this negative easement, which is a property right, so it’s a taking of property. It violates property rights. I’m not 100% sure, but I believe Professor Epstein even agrees with that. It’s just that he doesn’t think property rights are absolute. So the idea is that, generally, so why would you favor if monopoly privilege grants by the state that violate property rights, protect people from competition, and censor speech? Because they think that property rights and the free market, while generally good, sometimes they fail.
There’s what we call market failure due to various problems as Professor Epstein points out repeatedly in some of his writing on intellectual property and in his Takings book like the free rider problem or holdout problems or coordination problems. So the idea is that, on occasion, the state can identify these problems and come in, and they can do a taking of private property, which is the power of eminent domain or some kind of regulation, and they will solve this problem and make society better off. And when it does this, it generates a social surplus because it makes us richer. And out of this surplus, you can now compensate the person that you took property from.
So like in the case of building a road, you need to take someone’s house to build a road. They’re compensated for the fair market value of their house by tax receipts, and everyone else is better off. That’s the theory, but the point is, as Professor Epstein points out in his Takings book, most government regulations are takings, but they don’t make us better off because they’re not solving a real problem, and they’re doing damage to us all, and therefore, they’re unconstitutional under the fifth amendment.
Okay, so the question is, in the case of intellectual property, why do we – why does this logic apply there? Why can you violate property rights in the name of helping out – helping – granting a monopoly privilege to an artist or to an inventor? Okay, so the idea is that, because of the unique nature of certain types of products and services that are intellectual based like if you write a novel, paint a painting, or if you come up with a new mousetrap or a new iPhone, it’s too easy for other people to compete with you.
So, generally, competition is accepted and tolerated. As a libertarian, I think it’s generally a good thing, but the Chicago people think it’s tolerable if competition is difficult. If competition is too easy, then it’s going to be difficult for the first guy to recoup his investment costs, so then he’ll never invest in it in the first place. So that’s the basic idea, and this is the idea, by the way, behind the copyright clause in the Constitution of the United States, which says Congress has the power to promote the progress of science and the useful arts, by securing for limited times to authors and inventors the exclusive right to their writings and discoveries. So that’s where patent and copyright come from, from that clause.
Now, historically, the origin of patent and copyright come from thought control and censorship and protectionism. The printing press threatened state and church control of what could be printed, which led to the Stationers Company and eventually – and its monopoly on printing books and then culminated in the Statue of Anne in England in 1710. And the origin of patents lies in mercantilism and protectionism where the king would grant open letters or a letter patent because the word patent or patente means open, granting someone the exclusive right to sell a given product in the region, like you’re the only guy who could sell playing cards or sheepskin. It’s pure protectionism. That culminated in the Statute of Monopolies in 1623. This finally led to the US Constitution authorizing Congress to pass similar laws, which we have now.
So let’s talk about copyright. Copyright has its origins in censorship and thought control, so it’s no wonder that’s what it still does today. So I’m going to give some examples. These are just some examples, and I’m going to go to some data in a little bit. So the seminal German silent film Nosferatu, which some of you may have heard of and even seen was deemed a derivative work of Dracula, and courts ordered all copies destroyed. Now, luckily, someone preserved a copy, and that’s why we still have it today. Shortly before his death, the author, J.D. Salinger, author of Catcher in the Rye, convinced US courts to ban publication of a novel called 60 Years Later: Coming Through the Rye as a sequel, unauthorized, and it was a derivative work, and copyright law prevented the publication of a book.
There was one time, about 2005, a grocery store in Canada mistakenly sold 14 copies of the new Harry Potter book a few days before its official release. And so a British Columbia Supreme Court judge ordered customers not to talk about the book, copy it, or even read it before its official release date. Copyright also threatens freedom on the internet, which is very serious because the internet is one of the most important tools we have in the fight for freedom, to fight state – the state tyranny. And just a few years ago, the Stop Online Piracy Act, or SOPA, was only narrowly defeated by an internet – an uprising on the internet.
Aaron Swartz, who some of you may have heard of, was a brilliant young inventor of RSS, the technology behind blogging and podcasting, and he was an anti-SOPA activist. He uploaded some academic journal articles to the internet, and he was facing life in prison for federal copyright infringement, and he killed himself.
A guy named Gilberto Sanchez bought a copy of an unfinished version of the 2009 movie X-Men Origins: Wolverine in The Bronx, uploaded it to the internet, and was sentenced to a year in federal prison. There was a grad student in Britain named Richard O’Dwyer who had a website with hyperlinks to other people’s pirated movies. And the US went after him and finally got a judge to order him to be extradited to the United States to face federal prison. He finally escaped it, but his life was almost ruined and derailed for many years.
In 2011, there was an interesting paper by law professor, John Tehranian, where he talks about how the normal activities – because of the statutory damages clause of copyright that I mentioned earlier, up to $150,000 per infringing act, a typical internet use like an average American law professor, like maybe named Richard, who doesn’t even engage in P2P file sharing, could theoretically result in up to $4.5 billion in liability annually for copyright infringement. And you might remember the singer, Susan Boyle – okay, the singer, Susan Boyle from American Idol, was prevented from singing a song because of copyright.
Now, patent law – let’s take some patent law examples. Patent law is rooted in protectionism, so it’s no wonder that’s what it does today. It protects people from competition. Back in 1999, at the dawn of e-commerce, Amazon had a patent on one-click, which was clicking once to complete an order, and they sued Barnes & Noble right at the beginning – right before the Christmas season for daring to let its customers complete a purchase with a single click. By the way, these are not abuses. These are how the laws work and are supposed to work.
In 2008, a patent holder threatened to use court injunctions to force Ford not to use various technological safety measures like active park assist, stability control, blind spot detection, and hands-free voice control. So this is another example of how patents can prevent safe measures from being implemented and can cause injury or death. And, by the way, Professor Epstein is all in favor of patent injunctions because, after all, if it’s a property right, you need to enforce it.
Even though – here’s another one. Even though the practice of saving seeds after a harvest to plant the next season is as old as farming itself, patents prevent farmers from saving patented seeds. Monsanto even – and others even come after farmers for growing patented crops just because the wind carried it from a neighboring farm.
Back in 2010, there were people who were literally dying who had Fabre’s disease, and they could be treated with a drug called Fabrazyme made by Genzyme. It was in very short supply because it was being sold in Europe for a higher price. No one else could make it because of the patent, another example of how patents kill people. And for a more recent example, some of you may know this. It always turns to Bitcoin, by the way, in Gene’s opening remarks.
On Saturday, Taproot was activated, which implements something called Schnorr signatures in Bitcoin, which is going to make it much more secure, more efficient. For 12 years, we’ve had Bitcoin, and we haven’t had this because of a patent, which expired right before Bitcoin came out. Okay, but what’s more important here is what is the empirical evidence? Because, in my view, if the argument is we need to infringe property rights for this limited purpose to make society better off, where’s the evidence for this?
Does patent and copyright – do they promote the progress of science and the useful arts? So it was first – it wasn’t even a hunch at first. This wasn’t done in England to promote progress. It was done to bribe court cronies to collect taxes for the king. So the English parliament never did a study before the Statute of Anne in 1710 or the Statute of Monopolies in 1623 to see if these things benefit society. So we’ve had 230 years. The founders didn’t do a study when they put it in the Constitution. So it’s been 230 years. Where’s the evidence? Where’s the proof?
So back in the 1800s, there was a growing reaction against patent and copyright law by free market economists who were wondering what the hell are we doing limiting trade and limiting competition? And in response, because they were being attacked by free market defenders, the defenders came up with a term like intellectual property to make it sound like these are natural property rights, but they’re not.
Now, the first big empirical study was in the ‘50s. The Austrian economist, Fritz Machlup, who actually did his PhD under Mises, in 1958, after commissioned by Congress to do the study, concluded no economist on the basis of present knowledge could possibly state with certainty how the patent system, as it now operates, confers a net benefit or net loss on society. If we did not have a patent system, it would be irresponsible on the basis of our present knowledge of its economist consequences to recommend instituting one. That was in 1958.
1986, George Priest, an economist and attorney, a law professor: 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. Wesley Cohen and Stephen Merrill in 2003: There are theoretical as well as empirical reasons to question whether patent rights advance innovation in a substantial way in most industries. The literature on the impact of patents on innovation must be considered emergent. And then he says: An economist analysis of the cost and benefits of IP is no more within our reach today than it was in Machlup’s day in the ‘50s.
Boston University Law School professors and economists, Meurer and Bessen in 2008: It seems unlikely that patents today are an effective policy instrument to encourage innovation overall. Patents place a drag on innovation. There is clear empirical evidence that the patent system is broken. Law professor, Andrew Torrance, 2009: Little empirical evidence exists to support the assumption that the patent system spurs innovation.
Economists Boldrin and Levine in 2013: The case against patents can be summarized briefly: there is no empirical evidence that they serve to increase innovation and productivity. Petra Moser, 2016: when patent rights have been too broad or strong, they actually discourage innovation. Heidi Williams in 2017: To summarize, evidence from patent law changes has provided little evidence that stronger patent rights encourage research investments. And, finally, law professor Thomas Cheng’s view: Theory and empirical studies firmly refute the notion that patent protection is necessary for securing innovation.
So in my view, the evidence is on our side, on the patent abolition side. There is no evidence that shows that the takings done by patents benefit society. My own estimates, based upon estimates of the cost of patent trolling, is that patents cost at least $100 billion a year on the economy. And it’s not like we’re hurting people to the tune of $100 billion and then we’re getting $300 billion of innovation out of it. I believe we’re actually getting less innovation because once you have a patent on a product, you have less of an incentive to keep innovating because you can rest upon your laurels for 17 years.
And your competitors have less of an incentive to innovate by improving your product because if they make an improved product, they can’t sell it. So I believe patents actually discourage innovation. So we’re paying $100 billion, and we’re getting less innovation for the bargain. So I believe it’s clearly time to abolish these monstrous regimes, and I welcome Professor Epstein refuting what I said because then I can feel better about the career choice I made 28 years ago. Thank you very much.
GENE EPSTEIN: That’s the maximum. You can take less if you want.
RICHARD EPSTEIN: Oh, I never take less.
GENE EPSTEIN: Okay.
RICHARD EPSTEIN: I do not believe transferrable trespass. I want to thank Stephan setting me up in a way. Let me see what I can do in order to answer him. And let me begin in effect by reminding everybody what the resolution was. It’s a rather extreme resolution. It calls for the abolition of the system. And I don’t think that you could establish the abolition of any particular system for any reasons if what you can show is that the system, as it now exists, contains certain kinds of excesses, which need not be put there.
So to start with the copyright example, the so-called Copyright Term Extension Act did give people copyright protection for 70 years after death. It is one of the dumbest statutes that has ever been drafted. There is no reason whatsoever to tie any exclusive right, however it may be created to the life of the author so that Gilbert outliving Sullivan gets longer protection for his part of this thing than the other. But the question is, can you make the same argument that about a statute, which has a 14-year term and a 14-year extension with respect to original work, and that’s going to be a much more difficult kind of thing to do.
It’s certainly correct if you talk about copyrights and the kind of statutory damages that are given that in many cases are absurdly high because they bear no relationship to real losses. But it doesn’t follow that a regime, which has been tempered a little bit, is going to have those difficulties. It says that sometimes what you do is you issue injunctions that shut down very useful situations, but it doesn’t follow from that that you can’t put together a rather effective regime with either copyrights on the one hand or patents on the other, which gives limited injunctions and conditions them in various kinds of ways so as to permit the uses that are truly necessary with respect to the patented or copyrighted technology while avoiding wholesale exploitation.
And so what you have to do is to figure out from first principles as to whether or not you want this thing and why do you want it. Well, what we’re told by Steph is that, if you look at the world, what you will see is that it’s a system of natural rights as one that we protect in a system of copyrights and patents, given the fact that they’re always going to be created by some kind of statutory authorization, offend the system of natural rights.
If you go back and you start doing the classical history on all of this stuff, what you find out is that many people made exactly the same arguments associated with having property rights and land acquired by first possession. So if you want to go back to the [indiscernible_00:21:02] type theories, what they said is the moment somebody takes a piece of land, puts a fence around it, and claim it’s his, what happens, he has now prevented the rights of other people to move various places across the face of the Earth. And so, therefore, a system of private property is necessarily unjust because of the way in which it takes the normal rights of mobility.
I was trained in Roman law, and what I discovered is, amazingly enough, these yokels managed to get it exactly right when they said that there’s certain kinds of resources that should be left in common rivers and beaches and so forth because the holdout problem was too great, but there are other kinds of resources, mainly land, chattels, animals, and so forth in which private property rights are going to be necessary, even if you take things out of the nature because what happens is the incentive to create and to develop these things is only going to exist if you have exclusive rights to them.
This started off as an agricultural metaphor, most famously in the expression—those – only people who are to be able to reap are those who sow, and if, in fact, you had only common land, nobody would ever be able to plant anything because somebody else would be able to snatch it away. And when you start dealing with various kinds of intellectual property, you have exactly the same kind of distribution. There are, in all systems of natural property, things which cannot be reduced to private possession by any form of grant or administrative application, and these are generally called abstract ideas and natural elements.
These are the two main categories. And the theory is you try to run a world in which you could patent or copyright the Pythagorean Theorem, it means that anybody who wants to do a proof for the next 20 years is going to have to pay him. There are going to be thousands of theorems that you have to buy, and the whole thing will break down. And so what you do is you say these things are held in common, and you give a system of prizes or rewards or something if you try to stimulate that stuff.
But if you’re then starting to talk about various things that could be made using these mathematical theorems, algorithms for the designs of various medicines and things of that particular sort, all of a sudden, the dynamics start to change. If you decide that you’re going to leave these things in the public domain no matter how much work is put in, you get the following kind of fatal disequilibrium, which is – are going to really hurt innovation. I spend a billion dollars to develop a brand new drug. I get no protection for it. Somebody else can figure out what the formula is quite easily by reverse engineering. I have to recover my fixed cost when I try to sell this stuff.
This particular fellow doesn’t have any fixed costs, and so what he can do is outsell me in the marketplace. I understand this going in, and once I understand it, I don’t engage in the kind of investment you’re talking about. Steph is quite right to say you want to look around, and you can do things by trade secrets, and that is certainly a dominant mode with respect to formula and various kinds of processes, but if you’re trying to sell a drug and so forth that could be easily reverse engineered, you’ve got to have a patent system. And so the way in which the intellectual property space is organized, you have things that are kept in the common domain.
You have things that become trade secrets. You have things that become copyrighted and patented, and all of these things, if they work together, are going to create some kind of greater efficiency. Now, I’ve heard that there’s no empirical evidence that supports this particular position, but I think on balance, that’s probably not the case. If you start looking at this, one of the things that I would refer to is a well-known statute called the Bayh-Dole statute, which was introduced back in 1980, and Bayh-Dole had the following proposition.
It said the government gave lots of money to various universities in order to sponsor research, and the theory was that you now have something, which is sponsored by the government, and the government could say there’s a condition of this particular grant. It wants you to leave this stuff in the public domain so that anybody can use it in whatever way, shape, or form that they happen to see fit.
And if you go back to a famous book by Vannevar Bush called Science: The Endless Frontier, back in 1945 at the beginning of the period of American dominance in science and research, and what he said is he wanted the following kind of patent regime. He wanted to make sure that when you were working with things up to the proof of principle, that is, general arguments about how various things in nature start to work, nobody ought to be able to get a patent on that. But when it came to talking about compositions of matters, for example, particular kinds of drugs or various kinds of processes with industrial application, at that particular point, he encouraged people to patent these things because of the incentive effects that it had and that they would hope that they would give the government a license to use them free of charge, itself a rather tricky situation.
Well, the question is, can we figure out whether this is a good or a bad thing? With Bayh-Dole, the general rule was that stuff was left unto the public domain, and so therefore, without patents and without any copyright protection, what you should be able to say is a-ha, we’re going to get an enormous amount of innovation coming out of this stuff. But in fact, they found exactly the opposite. They found out that there were many [indiscernible_00:25:59] that had all sorts of very clever techniques, but when it came to commercialization, nobody was prepared to commercialize something, even though it was left in the public domain.
And so what the statute said under these circumstances is that we are now going to create a device to incentivize people to privatize this stuff and to patent. So the way the system started to work is that you work with a university on a government grant, and then the school makes an elaborate kind of contract. The author gets a certain percentage. The department gets a certain percentage. The university itself gets a certain protection, and all of a sudden, out of nothing, you see all sorts of research arms developing in universities, the sole purpose of which is to market these kinds of patents into various kinds of spaces.
And the question is, well, why is it that they want this kind of protection? And it’s a kind of a subtle argument because the empirics were very clear. There was a massive growth in innovation that took place in the early ‘80s in response to this kind of development, and the attitude I think most people had is, if this thing is out there and it’s not being protected by patent, we have no idea who our competitors are going to be. There are going to be so many of them in so many different directions, and that has a very substantial chance that if we develop this stuff, there’s going to be somebody else who’s going to try to sell the same thing.
There are going to be too many people who are coming in. They’ll compete the price down to zero, and none of us will be able to recover the fixed cost associated with the operation and development of our patent. And on the other hand, once you start to give patent kinds of protection, it’s very important because it changes the game. Now that you have this particular kind of protection, what you do is you have an exclusive right to the invention that comes there. It may well be that you’re going to get competition from somebody who has a different device and a different patent, but you don’t have to worry about the added risk that the particular technology that you are trying to develop through the patented resource is going to be the [indiscernible_00:27:54]. It’s going to be misappropriated and taken by somebody else.
And so what happens is now you start to see people really springing to action, and the level of increase in various industries that have taken place was nothing short of spectacular in virtue of this particular situation. Innovation now became institutionalized. Proof of principle was left in the university, and the development of various kinds of goods and so forth was taken and put together in this other kind of system.
And now, when you start looking at this, the question is how do you describe these things? And here it’s very important to draw an intellectual distinction between two ways of thinking of the patent system or the copyright system. Those people who think about this system in a hostile fashion almost always call it a system of monopoly power. Those people who think about it in a more positive light, as I tend to do as a classical liberal but not a hardline libertarian, we tend to call them exclusive rights.
What’s the differences between the two of them? Well, every system of private property has to have a system of exclusive right. So I happen to own unit 8E in my particular building on Central Park West. Actually, I don’t own it. The university does. It’s there, and there are lots of people who own their own homes. They have a monopoly, as it were, over their own house, but when you look at a real estate market, everybody calls this market highly competitive, even though there may be no two houses that are identical if only because they’re all – each of them is located in a different place from the other.
But they’re close enough substitutes that in organized markets with brokers and intermediates taking place, and nobody would want to say that the guy owns 430 Walker Drive in Los Angeles has a monopoly over that particular property given everything else that is done. So essentially, the creation of a system of exclusive rights with respect to land is an absolute prerequisite for trying to create a competitive market. What you have to do is to have strong exclusive rights, and then there have to be enough close substitutes out there so that you do not want to call this thing a monopoly.
So, for example, you compare the system of private property that I’m just talking about with the system of common carriers where it turns out there’s only one carrier that can take you in 1400 letters, say, from Oxford to London. This fellow was under a duty to serve because he does have a monopoly position. He’s entitled to get revenue, and what you then do is develop a very different kind of system than you have with competitive markets.
Namely, there’s a system in which regulation is going to be permissible, and you’re trying to dance between [indiscernible_00:30:24] figuring out how this guy can change enough to cover his costs and make a reasonable profit but making sure that he doesn’t engage in a form of monopoly exaction. Those sorts of risks do not exist when you start dealing with ordinary people.
Now, when you start coming with respect to drugs and chemicals and [indiscernible_00:30:40] and so forth, it’s exactly the same thing. I may have a monopoly of writing my new book on Shakespeare, but there are other people who could write other books on the same topic, and so you start looking under S in the bookstore, you’ll find 50 or 100 books, all which are in competition with one another. If you start trying to say, well, I really need to have some kind of a drug to control my high rate of cholesterol, well, you could find a number of drugs that do this, all which are in competition with one another. And so what happens is the competition between these drugs drives the prices down.
It’s also the case that when you think about this, particularly in the patent space, the way the system is organized, there is now an enormous incentive on the part of people that piggyback off of everybody else. So one of the important features of a patent system is what it does is it requires you to make a full disclosure of the various methods that you have used in order to develop the particular device in question and to give a complete specification of the product design.
Now, why are you required to do that? Well, for one thing, what it does is now somebody reads this. Two things happen. They can use this, and then they could try to develop complementary products, or they can try to develop substitute products. The complementary products are ones that you want to put into place and to deal with the first guy, and the substitute comes back on the other side to give you a competitive market. It turns out there’s a very nice work by Jonathan Barnett who says as follows: If it turns out you are a big company, you really don’t care as much about patent protection because you can internalize things through contracts and trade secrets, but he says it has ample evidence empirically to show the point that if, in fact, you’re a small guy, you want patent protection because the network of contracts that a large firm has is not available to you.
So contrary to the conventional wisdom is sort of things that big guys must allow little guys. The actual empirics of the situation goes in the other direction. The little guy is the one who needs the patent protection because he can’t resort on the other contractual network, and these guys come in, and if they’re pioneers in their new area, they’re going to get extraordinarily high rates of return because they will be “a monopolist” for a short period of time.
But the system of disclosures and the narrow limitations on the patent mean that other entrants can come in and try to fill the same space because you’re only allowed the patent you have devised for your medicine. You’re not allowed a patent to protect yourself with respect to the way in which you have a particular end. So if you have something like Celebrex as the drug, you can’t use beta-cox drugs or whatever the hell they’re called, and blame everybody else from putting arrival, and what you do is you develop a competitive market out of these things.
Now, it turns out this is a competitive market that is given to you for a reason. The reason is to create this innovation, and when they found out, for example, with respect to the Hatch-Waxman Act in 1984 that if, in fact, you had to get a patent before you applied to the FDA for drug approval, that your patent term would essentially run before you could get the drug to market, and the patent would become worthless. And so what they did is they passed another adjustment, which essentially extended at that time for five years the patent for a long enough period so that you could go through, at the time, the FDA process and still have the full term.
Unfortunately, the FDA, no surprise, has become more complicated, and the Hatch-Waxman offsets have become somewhat inefficient, but this was, again, clearly market driven. Everybody said, you know, it cost me $1.2 billion to make a drug, and if the only thing I can do with this drug is to do it under these circumstances, I won’t get any return from it. So when you look at all these systems, what’s going on is you’re talking about a copyright bargain, and you’re talking about a patent bargain.
You’re talking about situations where the folks who come in and get this particular protection have to supply something in exchange for it, and then just to make sure that it works really well, what you make sure is that these patents and these copyrights are for limited terms. They’re much too long today on the copyright space, probably too short today with respect to the patent space, particularly with respect to pharmaceuticals.
And when you do that, the things then go into the public domain because having given the incentive to create for a long enough period of time now allowing a drug that has already been created to be used at zero price is going to have reasonably desirably effects because you no longer have to worry about the problem of how are you going to create the darn thing. It’s already been created, and so you can try to reduce the level at which it’s done.
And so there is another additional source of competition, which is that off-copyright drugs and off-copyright patents and so forth, all of these things can be in competition in which things are created the other way. The system looks a little bit messy, but it really, in fact, works amazingly well, at least if you get rid of some of the distortions and the errors that are associated with its application. And this is violently different—and I’ll end on this point—than some of the practice that you had in England where the patent system was worthless because it was so expensive to use that nobody could rely upon it, and where it was also so corrupt that these things were given not in exchange for a new invention. They were given to people simply to allow them to raise revenue, which they could then kick back to the crown.
And so the useful invention requirements associated with the patent clause are designed to get rid of all of that stuff, and when you do get rid of that stuff, the current system, with all its warts, is better than no system at all, and it could be made a lot better if, in fact, we prune away the excesses and basically return to the theory of patent and copyrights that animate the original design of the system. Thank you.
GENE EPSTEIN: Thank you, Richard. Five minutes of rebuttal if you would like to take the lectern.
STEPHAN KINSELLA: Sure. I’m sad to say I’m still a little bit depressed about my career choice. A slightly technical matter, Gene – I mean, Professor Epstein, I’m familiar with – the patent bargain refers to the idea that the patent law grants an exclusive right to an inventor in exchange for him disclosing everything.
Okay, so that’s to overcome the practice of people using trade secrets where they kept things secret, so that’s the patent bargain. I have never heard of a copyright bargain, so I don’t know. I look forward to reading up about that. I never claimed that patents grant monopolies, but they are called monopoly privilege grants, and the Supreme Court actually refers to them as monopoly privilege grants just in a case last year.
And the purpose, as you say, is to allow these drug companies to recoup their cost. How are they going to recoup their cost if they can’t sell it for a higher price than they otherwise could? I mean sometimes that’s called a monopoly price. It doesn’t mean that they get a monopoly that would classify as a monopoly under the antitrust laws, which have a different standard than economists do. As for the idea that payments help the little – that patents help the little guy, first of all, most patents are owned by employers, not the little guy who’s the inventor who invented it.
Okay, so it’s almost always owned by the employer. And as for helping small companies and not big companies, I think it’s exactly the opposite. What happens is you have large companies amass huge patent treasure troves, and a good example of this was the recent smart phone patent wars about seven or eight years ago between Apple and Samsung and Motorola, and they all – Apple is suing because they – someone else had a smartphone with a touchscreen and rounded corners because they had a patent on that, and then they’re being countersued.
What you do is if you’re a large company, you have tens of thousands of patents, which you’ve paid lawyers like me to get for you, and you didn’t reward your inventors for. And when someone sues you for patent infringement, you look through your pile of patents, and you sue – you countersue them for some. So the patent lawsuits go on for five years, and they finally settle with each other, and they grant a cross-license, and in the meantime, little companies are left out in the cold because if they tried to enter this fray, they’d be sued into oblivion because they don’t have 10,000 patents to go after the large companies with. So patents, of course, help big companies, and they basically help form cartels and oligopolies, which is not surprising because they are monopoly grants of privilege.
As for pharmaceuticals, the idea – first of all, anyone who’s interested, we can’t do this while we’re debating, but you should read chapter 9 of Boldrin and Levine’s book, Against Intellectual Monopoly. They completely explode all the myths about the pharmaceutical industry needing patents and being – and requiring patents.
So let’s take COVID as an example. Right now, there’s 11 different vaccines that have been approved for emergency use somewhere in the world. And as of December 2020 last year, there were over 200 vaccine candidates of COVID being developed, and at least 52 were in clinical or human trials. So there was lots of innovation going on, and Moderna, on October 20, waived its patent rights. So if it needs a patent to recoup its cost, why did it waive its patent rights?
Look, Italy and Switzerland didn’t even have drug patents until the late ‘70s, and they were some of the leading creators of drugs. Just as an example, Boldrin and Levine – they did a study. They looked to a poll at the British Medical Journal’s readers on the top medical milestones in history. They found that almost none of them had anything to do with patents. Penicillin, x-rays, tissue culture, anesthetics—I can’t read that one—public sanitation, germ theory, evidence-based medicine, vaccines, birth control pill, computers, oral rehydration therapy, DNA structure, monoclonal antibody technology, and the discovery of the health risks of smoking.
Of the top 15 entries, only two had anything to do with patents. And the Centers for Disease Control in the US, they had a list of the top ten public health achievements of the 20th century. None of them had anything to do with patents. A review of the – even a review of the most important pharmaceuticals reveals that many came about without the motive or the possibility of requiring a patent including aspirin, AZT, cyclosporine, digoxin, ether, fluoride, insulin, medical marijuana, methadone, morphine, oxytocin, penicillin, phenobarbital, prontosil, quinine, Ritalin, salvarsan, vaccines, and vitamins. So you don’t need patents to develop drugs. Thanks.
GENE EPSTEIN: Five minutes rebuttal.
RICHARD EPSTEIN: Let me start with the first point that he raised about the question about employers in large firms and domination. There is a key distinction between small firms that have employees and large firms that have employees. In both of these cases, the patent is always filed for by the particular inventor, and they’re assigned over to the firm, but they’re going to be assigned in very different ways to large firms and to small firms.
And one of the things that we now discovered is that to the extent that patent rights turn out to be weak, the small firm no longer can be confident that it can get injunctive relief against the large firm that blizzards it with respect to suits, and so they can be put into difficulty. If, in fact, when you started to have a patent and you knew that it was protected, you’re not going to be suffered by the particular difficulties at hand.
The second thing to understand about all of these things is that the so-called monopoly risk associated with these patents and the coordination problem is handled in other ways. One of the most important institutions associated with patents is the system of licensing. This can work in many different ways. Sometimes it’s one person just gives a license to another person to use it on a non-exclusive basis, and then what happens is you can get this out to many other people and see the exact same method that you used with respect to trade secrets, only you don’t have quite the same confidentiality problem.
But the more important development with respect to these various licenses is one which allows you to have license pools of one kind or another in order to develop various kinds of technology. So you take something like telecommunications where the particular cost of transmitting and collecting various kinds of information has dropped exponentially for the last 40 or so years. What you discover, in fact, is that these things are all organized by [indiscernible_00:42:45] patent pools. They have all sorts of rules which tell them how it is that you’re going to figure out what you put inside the particular standard, how it is you enter into agreements with various companies so that they restrict their monopoly price if, in fact, one of their elements is in the standard.
It turns out that the number of companies that you now need as the patents become – or the products become more [indiscernible_00:43:06] it increases, and yet the continued rate of decline in prices has all been driven by the ability of these licensing arrangements to start the work to create these kinds of standards or you would never get these devices to begin with if you didn’t have a patent system. And in addition to that, you would never be able to get the coordination without the licenses.
To understand how this system particularly works, what you have to do is to understand that when you’re dealing with real estate and other kinds of situations, it will give people as a property right only the exclusive right to use something, and you don’t give them the right to enter into various leases or mortgages or gifts or other kinds of transactions, or they’re going to be relatively useless. And the patent system essentially overcomes the holdout problem that you get by having an extremely developed institutional set of arrangements, which works in this particular fashion.
And when it comes to the invention, it’s important to understand that there’s a distinction. Many of these drugs were discovered in earlier and simpler times where it turns out that you didn’t have the kind of massive develop costs that are associated today. But even then, it may be that the device wasn’t discovered through a patent system, but its marketing, in fact, probably did require some kind of additives or other stuff, which may well have been protected by a patent.
And so the question you have to ask is whether or not the unprotected stuff will make it into the marketplace faster than it will with some degree of protection, and I didn’t hear any response to the statements associated with Bayh-Dole, which took a situation where everything was, in fact, in the public domain and found that it did not work particularly well, and there was an enormous uptake in the number of drugs. If you’re trying to figure out what it is that blocks innovation, it’s the same kind of standard regulatory arguments that all libertarians and classical liberal makes.
It’s essentially something like the FDA, which comes along and in the name of safety and effectiveness, imposes requirements that keep drugs off the market for so long that it turns out that their healthy qualities are not going to be exploited. And there are all too many cases of drugs that are left on the market only after years, when in fact, if they had been introduced earlier, they would have produced the same benefits ten years before and ten years longer than had otherwise had been the case. So putting this whole system together, the question is not whether you can find devices that we develop without patents in one form or another. The question is do the patents add to that?
We mentioned about Moderna and other kinds of companies that do this. The point to remember is you may not need patent protection if you’re going to get tens of billions of dollars of payment guaranteed by the company – the government for the property that you create because if, in fact, you have a guaranteed buyer of the particular situation, all the incentive problems aren’t there.
The issue you have to worry about in all those cases is whether or not the government is paying too much, and it may well be if you ran a patent system, you could actually get the things for less total cost after you subtract out the tax subsidies and put into place the patent protection. So it’s much more complicated, I think, than Stephan has said. Thank you.
GENE EPSTEIN: Thank you both. We now go to the Q&A portion of the evening, and as you know, in this particular case, we’re going to give either of you the option at any time to ask the other a question. Would one of you – Richard or Stephan, would you want to exercise that option now?
RICHARD EPSTEIN: I’ll wait for the question first.
GENE EPSTEIN: Wait for the question first. Do you want to waive the opportunity, or do you want to ask Richard a question?
STEPHAN KINSELLA: I’ll him one.
GENE EPSTEIN: All right. He wants to ask you a question. Fire it. Go head.
STEPHAN KINSELLA: Okay, so Professor Epstein, you seem to believe with me that 130 years or so for a copyright is absolutely absurd and ridiculous. Now, apparently if you have a copyright system, that’s what happens. So would you prefer to have no patents or 130 – or I mean – sorry, a zero copyright term or 130 years if that was your choice?
RICHARD EPSTEIN: I’d take the 130 years even though I hate it because it turns out…
GENE EPSTEIN: Excuse me. I’m sorry.
RICHARD EPSTEIN: I would take the second of the miserable one of these alternatives because most of the value with respect to any literary work, most of it for most of them, are going to be concentrated in the first ten or 15 years. So essentially the distortions [indiscernible_00:47:27] from the years 20 to 120 may matter with respect to Mickey Mouse and a few other things like that, but with most things it turns out it doesn’t.
And remember, it’s not just books and literature that are subject to copyright. A software is subject to a complicated regime, but it’s often protected by copyright, and the useful life of a software copyrighted device is sort of five, ten years at most, usually less than that. And so essentially I think that the overage is harmful, but I think the most important years are the in years, not the out years, and so I would keep the system, and I would do everything in my power to get rid of the silliness, all of which was introduced by international agreements because I think what I would answer is I’m talking about an ideal patent system, which doesn’t have the terrible risks that are associated with the public choice dimension that we have in the current law where the ability to take things out of the commons and to put them into these things are – is completely up to legislative discretion.
There was, in fact, as I tried to make in one of these cases that were brought early on that if something is already in the public domain, to put it back and to say it’s now going to receive copyright protection or patent protection is just crazy. And the culprit there is the constitutional system, which is so weak that when it says we use a rational basis test, which in my Takings book I attack and allow them to be re-protected.
And this was the case that Larry Lessig argued in 2003. Somehow the name seems to have escaped me, but I thought that it was exactly right to say that if you want to extend it for no quid pro quo whatsoever, which is what they did with the Term Extension Act, that should be unconstitutional. So again, I think the simplest way to put the point is I’m trying to defend an ideal system, not the current system, and the only way you can get to that system paradoxically is to do what I wanted to do in the Takings book, which is to create a strong and stable system of property rights, which would also mean that things that have been put into the public domain will be kept there.
GENE EPSTEIN: I want to inform. The microphone is over there, and so please, if you want to answer – ask a question of either one, please line up at the mic, and so – do so with that microphone over there. And I wanted to ask – exercise moderator’s prerogative to also ask Richard a question. I guess pertaining to a similar one where you – there seems to be a notion on your part that when you give government power, it won’t abuse it.
I mean that’s an accusation where, obviously, in eminent domain, for example, notoriously you defend eminent domain. But you’re saying, oh, well, Donald Trump exercising eminent domain in Atlantic City, that’s not an inevitable part of the system that when you allow government to exercise these actions, that the crony capitalists and the corruption won’t take over and that therefore it’s – we can always imagine an ideal system. Have you heard that kind of complaint before to your view, and what do you say in response to it?
RICHARD EPSTEIN: I have to say that I have not heard. It would commit gross perjury on my part. It is, I think, in fact, the central objection that you made – that has been made to my system about eminent domain. They said the problem about you, Richard, is you prefer to have corrupt judges doing this stuff, and I prefer to have corrupt legislatures. My answer is in effort to try to stop the corruption on both sides, I want A) to divide the powers, and B) to resort to a title which I’m now associated with, Simple Rules for a Complex World, that will start to delineate when it is that the government can and cannot take.
And so what happens is you see the errors going both ways. There’s a case called Monsanto, and what they did is they had a series of devices that were pay trade secreted, and they had to essentially get government approval for their use. And the government tried to condition their approval of this thing on the grounds that they allow other people to use it for a license fee that was either zero or set by the government.
And my view was that if you’re doing things for health and safety, you’re not allowed to – under the doctrine of unconstitutional conditions, to permit somebody in the government to give it to your rival for – as something below market cost. So that’s the trade secret system. It’s – Stephan is in favor of that. And you have exactly the same kind of corruption that could exist there. My view about this is I spent my life trying to argue for a system of coherent property rights and just compensation and limited public use to control those particular public choice problems. Have I been successful?
I think that question answers itself, but it’s not because the system has been tried and failed. It’s because it’s never been tried at all, particularly after a famous case called Penn Central, which says there’s a rapid distinction between “regulations” on the one hand and takings of property on the other. And the government rolls over and dies with respect to regulations, so zoning and also to their rights are now at risk, and I think the answer is we don’t want to mess around with the intellectual property system, which works very well between private parties by and large, although there are obviously huge cases of error. But what you want to do is to make sure that the government can’t corrupt it by taking these rights and giving them to somebody else.
So the culprit in all of these endeavors is, in fact, a weakened and definite system of property rights sponsored by the courts who essentially give up on their constitutional function. And by the way, they do it with land. Zoning laws are a classic illustration of gigantic government overreach with respect to use because they don’t follow the common law prescriptions on zoning and reciprocal covenants but allow huge wealth transfers to take place. So this is a problem endemic across the entire system.
GENE EPSTEIN: And you don’t think that the endemic nature of it is what you’re up against, Richard, that that’s the system.
RICHARD EPSTEIN: It is – but it is if you grant them, and it is when you don’t grant them. The government is essentially a promiscuous beast. You put any system of rights together whether it’s a good or bad one, and they have the infinite capacity, if left to their own devices, to make it worse. And so what I’m trying to say, quite simply, is you have to attack the monster at the other end. What you have to do, and the reason I wrote the Takings book was you have to stop the rent seeking, which, of course, is exactly what we both agree on.
And what happens is you have a bunch of courts out there who believe that all government agents in the legislature are well intentioned in what they do, and so they defer to what it is that they want to say. And if you’re going to get a regime of judicial deference, no matter what the system of property rights you start with, you’re going to end up with something that’s truly horrible. And so either you tighten up the constitutional system, or we’re going to have to fight it through – and sometimes it will be better. In the ‘80s, we actually had a bit more sense on this.
You just come to a Biden and you come to Obama and you come to everybody afterwards, and it’s been pretty much downhill since that time, and it will continue to be so unless there’s a fundamental change. And on that issue, constitutional limitations on the government to confiscate, I think we’re at one. I mean I’ve spoken too long, but I think we’re at one.
GENE EPSTEIN: You guys agree the government is a whore, Richard just said.
RICHARD EPSTEIN: I didn’t say that. I said the government is [indiscernible_00:54:36]. I prefer to be much more delicate.
GENE EPSTEIN: You said it’s a promiscuous beast. But anyway, do you want to comment?
STEPHAN KINSELLA: Just a quick comment. I actually would abolish trade secret law too, but that’s a different argument.
RICHARD EPSTEIN: Oooh, tough guy.
STEPHAN KINSELLA: It’s a little ironic that I believe you have argued—correct me if I’m wrong—you have argued that you think there might be some use for antitrust law, but generally you would oppose it because it’s going to be abused. So to say…
RICHARD EPSTEIN: No, no, no, no, no, no.
STEPHAN KINSELLA: I can send you the quote.
RICHARD EPSTEIN: Let me…
GENE EPSTEIN: You guys are talking about antitrust now. It’s a little bit off topic, but anyway – but if you want to say something.
RICHARD EPSTEIN: Just the one-sentence answer is the only area in which antitrust law seems to work at all well is with respect to horizontal arrangements, and the big uncertainty is whether you render those unenforceable or put the Sherman Act behind it. And the actual history of this stuff started very badly, but I think it got a little bit better, so by the time you got to the 1990s, it was a terrible body of law. You’re seeing systematic decline coming back again. My former student, Amy Klobuchar, just put forward a bill to end all bills.
GENE EPSTEIN: That’s a Richard Epstein sentence. Thank you very much for that Richard Epstein sentence and…
RICHARD EPSTEIN: Period.
GENE EPSTEIN: And question. You don’t have to identify yourself. Lay it on these guys. Who do you want to ask the question of? Go ahead.
M: Hi. My question is for Stephen, and I came to this debate…
GENE EPSTEIN: Stephan.
M: Stephan. Inclined to try to be sympathetic to your view, but I – and then I heard the debate, and the debate is more about efficiency and what produces the greatest amount of wealth and things like that. And I wonder how you answer the argument that doesn’t it seem fair that, if somebody writes a 2-or-300-page book and tries to sell it for $20 a copy, that there ought to not be – that it ought to be prohibited that for some period of time that person not have a competitor who can say, well, I’ll sell it for $10 because, hey, I have a copier, and what the heck. And so there is a moral element other than just an economic element, and I wonder how you meet that.
STEPHAN KINSELLA: I don’t think it’s fair. I think that if you choose to make information public, then you can’t complain if people copy it, period. That’s the principled argument. And not only that, there are ways to make money. Creators find ways to make money off of novels, for example. I’ve pointed out – take the Harry Potter example. J.K. Rowling writes Harry Potter. She writes it on a train because she has a passion. Let’s say she sold it on Amazon for $0.99, and she got a million fans, and then she was knocked off the next day, so then her profits tailed off right away.
Okay, so now she writes the sequel, and she tells her fans, I’m going to publish this as soon as I get – five million people give me $5. And then there’s a movie made, and they consult with her. They pay her some of the ticket box office because she’s going to be a consultant, and this is the legitimate movie, not all the other knockoffs that are coming out.
She could have still been a very wealthy woman. So people can find ways to profit off of their artistic creativity, but I think if you reveal information to the public, just like if you sell a product which pleases customers, you’re choosing to make your new invention public, and if people compete with you, no, I’m a libertarian. I believe in the free market. I think competition is good, and I think learning is good.
RICHARD EPSTEIN: Well, I think there’s more competition between Harry Potter and some other book rather than having knockoffs sell for the price of originals. You can use ingenious schemes to overcome some of these difficulties, but the revenues you could get from those schemes are far less, so you put the scheme together and say I’ll put this thing public the moment I get 1,000 readers each to pay me $5. Okay, you do very fine on that. Then the book turns out to be a hit, and the next generation there are a million people who agree to pay nothing but the marginal cost. The productions are going to clearly go down with respect to that, and I don’t think there’s any particular social reason to do that.
To put it another way, the problem about libertarianism, it has the first correct move, which says the prohibition against the use of force and fraud is an improvement over the license to do everything in the state of nature. And so what really happens is there’s a consequentialist argument given what we know about human beings.
GENE EPSTEIN: Of course, the – go ahead.
RICHARD EPSTEIN: Given that we know what we know about human beings, can we create pareto improvements by changing legal systems without cash transfers? And the argument in favor of patent and copyrights is we could do exactly the same thing in areas where physical possession does not give you adequate control. And so when we do that, we give you the right, and then we try to limit it so what is a powerful right does not become a complete monster.
And there are always – what is a derivative work? There’s a lot of abuse on that. But Abie’s Irish Rose was not a derivative work of whatever it was that somebody said it was and so on it goes. Get good judges. You can control it. And the issue is where are you going to get more abuse, and I think in effect an open regime with contract gimmicks won’t do it nearly as well as a copyright regime. And what you then have to do is to try to make sure that it doesn’t go off the rails. So the correct answer is we do recognize these things, and then what we try to do is to figure out where the abuses are and propose something to do it.
And for many years, these techno committees that work on patents and copyright really did it. The work that was done for the 1952 Patent Act by Giles Rich and Federico, I mean these guys were geniuses, and they did it with two guys. They sat around the kitchen table, and they did a much better job on this than the – well, I would ask you the question. Do you prefer the 1952 act or the America Invents Act?
STEPHAN KINSELLA: I think the America Invents Act only made trivial changes to patent law.
RICHARD EPSTEIN: You think only trivial?
STEPHAN KINSELLA: Yeah, only trivial changes. The whole system is basically the same.
RICHARD EPSTEIN: Well, I hope you’re right.
STEPHAN KINSELLA: One quick point to make following up on that. If you think about it, copyright is basically dead already because the internet is the world’s biggest copying machine, and thank God for that. So encryption, file torrenting—you can go get the next Harry Potter book the next day. You can get music, movies. It’s rampant. So basically copyright is dead. And do we see a reduction in the supply of artistic creations today? We probably have more books being printed and published every year than in the history of mankind. So the idea that copyright – without copyright we wouldn’t have artistic creation is obviously absurd because it’s happening right now.
RICHARD EPSTEIN: On the other hand, when you have these various books that command these enormous advances, it’s because essentially there’s a belief that there is some exclusive right even though there’s going to be some leakage associated with it. And people take enormous steps in order to make sure that these things cannot be distributed in an illicit fashion. Clearly, you have to worry about that when you put the system together, but because it’s a worry doesn’t mean that you want to say the system is now 60% effective. Drive it down to zero.
What you do is you keep it at the 60%, and you recognize the leakage. And to answer what Steph says, for example, on the next thing is yes, I mean, you’re a great artist, and people start stealing your stuff, so the record business goes. You do recover some of it by going on tour. On the other hand, after you reach 40, you don’t like going on tour anymore, and if it turns out it’s your back issues rather than your new issues, going on tour is not going to do it for you at that point. So these are very imperfect substitutes, and it turns out that the protection does induce the production in all of these industries. How you release them, movies and Netflix and so forth, all that system is still driven by copyright.
GENE EPSTEIN: Question.
M: Thank you two speakers for coming out. My question is for Professor Epstein. You mentioned Mickey Mouse and how most inventions have some kind of natural death that occurs, whereas Mickey Mouse has lasted forever. But you also mentioned how a corollary to private property whereby you have exclusive rights to those forever. Why isn’t – why shouldn’t Mickey Mouse last forever with rights to the original owner or to the corporation? Why should the expiration change, and how is that different from private property?
RICHARD EPSTEIN: Okay, I think that’s great. I’m attacked on both sides now, so I feel extremely comfortable. One person says, for God’s sake, Epstein. You don’t want any of this system, and the other says if land rights are perpetual, why isn’t the same thing true with respect to copyrights and patent? Well, the explanation is, I think, best understood by comparing both of these things to something known as a trademark, and a trademark is, in fact, a form of intellectual property, and it’s a form that lasts forever because what it is, it’s a beacon that warns the potential user that you can be associated with the reputation of the party so that if the people start to chisel on the thing, you’re going to be hurt because your brand is going to be compromised, and I think that’s a very good system.
But the copyright system doesn’t have that reputational signaling function, and what you want to do is to say there are two goods that you have. One of them is if you put this thing into the public domain since it’s a thing that could be non-rivalrous and reproduced every time, you get a large number of people who could use it for zero, and that’s a good. But if you do that at the beginning, you don’t get the thing. So it’s a balance, and what you try to do is to figure out how long a protection do you have to give to induce the production at a satisfactory level.
Given what I said before, the out years are much less important with respect to the production than the early years. And so there, after you put into the public domain, it turns out that the thing continued to be used. Take land, and you own it for 100 years, and then you put it into the public domain. The whole thing is going to become an absolute mess because I can’t farm if you’re going to farm and so forth. So exclusivity is needed to make sure that land holds its value. It’s not needed to make sure that patents and copyrights are produced. They’re different situations.
And if you try to think of this as a kind of a sort of social engineering based on empirical hunches, some of these hunches are better than others, and this one seems to work. And the question then is how long, and nobody in his right mind would say 115 years is necessary to induce the production. The 24 – or the 14, 28 was probably pretty good. Most people on drugs, if you know their profile, understand that good drugs actually become more valuable in many cases towards the end of their term rather than less because they now have a history of use, which means that the side effects are understood. So in the last year of a cholesterol drug going out there, it may have its highest level of sale.
So if you knock that down from ten to – from 12 to 10, that’s a huge difference, and generally speaking, I think what you want to do is to extend those a little bit longer, modify Hatch-Waxman. And then as these things become generic, they place a necessary price constraint on the next guy who has to make an improvement large enough to justify the premium and the research costs that he has to put together. So I think they’re perfectly good reasons for the way the system works if you understand it. What you have to do is to understand that all of these things require judgments at the margin, and when you get politicians, they’re not very good at marginal judgments.
GENE EPSTEIN: A comment from you on that.
STEPHAN KINSELLA: So I would abolish trademark too, by the way, but for different reasons.
RICHARD EPSTEIN: Okay.
STEPHAN KINSELLA: Professor Epstein…
RICHARD EPSTEIN: Good. I like it. I mean you’re a brave man.
STEPHAN KINSELLA: The reason that you don’t want patents and copyrights to last forever is because you don’t really think they’re property rights, which means they violate property rights, although you call them property rights in your writing. And one of your arguments in the structural unity of intellectual property and real property, you analogize it to property – to normal property, and you favor injunctions because it’s a property right. So you’re all over the map, I believe, on that. But there are some insane libertarians who do take a principled approach, a consistent approach like some Randians, Galambos, Spooner. They wanted these things to last forever. Hey, if it’s going to be a property right, it should last forever. And if that had happened, we would be dead now. The human race would have died out because you couldn’t do anything. You’d have to get permission from the descendants of Ug from cavemen days.
RICHARD EPSTEIN: Well, that’s why I don’t want perpetual rights. I mean in the Constitution, when they talk about limited rights, they do not mean that you could create a copyright for a million years and say that it’s limited. They meant this in a much more functional way about, in real time, how long makes sense, and the 14, 28-year kind of principle is there. The whole point here is utilitarian on both ends. If you basically keep these things perpetual, people will, in fact, die off in a terrible way because everything new will be derivative or dependent upon everything before and putting into the public domain.
So you’re trying to figure out how it is that you’ve maximized over the long term the sum of the incentives to create and the sums for the incentives for effective dissemination. I think it’s perfectly principled to do this. What it is, is it introduces an element complexity at the middle, but it’s worthwhile because if you have the zero alternative, you won’t get enough of the stuff that you want into commercialization, and if you keep it perpetual, essentially the patents and the copyrights will become strangulation devices. So what you do is you try to go for a transition. This has always been the history. So I will put the question back to you in the other way.
If everybody who’s ever worked in these fields on a day-to-day basis believes in limited copyright and patent protection, why is it that the extremes are correct? I think the correct thing to do is to figure out how it is you take that middle and figure out how you massage it? And I don’t mean this as an abstract matter. I mean I’m pretty confident that if you were to ask serious people, there’s nobody who’s going to start wanting to have 50-year patent terms. The longest you ever hear in any discussion is going to be 20, and I think that that’s a perfectly good compromise. Life is filled with tradeoffs. I just want the right people to make them, which in this case means me, not you.
GENE EPSTEIN: But he won’t run for office unfortunately and…
STEPHAN KINSELLA: One quick comment.
GENE EPSTEIN: Okay, go on.
STEPHAN KINSELLA: You may not be aware of this, but when the Constitution was being drafted, Jefferson wasn’t there, but he sent a letter. I think Madison, proposing an amendment to an article in the Bill of Rights, which would have said the monopoly grants—I think he used the word monopoly—of patent and copyright can only be granted for X years. So he wanted to put a time limit in there. It was rejected, but I wish it had happened.
RICHARD EPSTEIN: Well, I mean my answer is a bit – it had been 18 months. God forbid if it had been 20 years. I would have been comfortable with that.
STEPHAN KINSELLA: It was a blank. I read it as a zero.
RICHARD EPSTEIN: And that’s always the problem. I mean a number beats a principle. That’s why they have statutes of limitations and so forth, and you could ask the same question about that. Why is it, if you have a good situation, to sue a trespasser sitting on your land? One year, you’ve got a million. Two years, you’ve two million. You get to 20 years, you get zero. And that’s because the statute of limitations is put in there in order to basically make sure the security of titles will take place and that these disputes will resolve themselves in the time we have it. And so having limits like that is everywhere within the law, and you have sometimes soft limits, the estoppel doctrines, and sometimes they’re hard limits. And if you get them wrong, it’s catastrophic. A one-day statute of limitations isn’t going to cut it, and 100-year statute of limitations isn’t going to cut it either.
And so what happens is it started at 40, went down to 30. Now, it’s down to about 10 [indiscernible_01:09:56], and why is that? Because the devices for detection are more powerful, so there’s less reason to allow for longer periods of uncertainty. And again, it’s a question of finding transitions. Hard transitions are needed because you can’t live in the middle space where a patent is 60% valid. That doesn’t make any sense. So it’s an on/off switch, and the correct thing to do is to figure out where you put that particular switch rather than to pretend that you don’t have the patent at all or that you don’t have an on/off switch once you do have a patent.
GENE EPSTEIN: Next question, yeah, next question.
SAMUEL MARX: Samuel Marx, Harvard Medical School. I’m really convinced, Kinsella, by your argument. I’ve been taught everything. I invent new medical devices. How do I convince my comrades, so to speak?
STEPHAN KINSELLA: When I figure that out, I’ll let you know. I have been doing this since 19 – I’ve been writing on this since 1995, and I just keep trying to beat people over the head with it and doing this, hopefully. Tell them to watch the video.
RICHARD EPSTEIN: I can say. I mean there are several of these cases, Mayo and Alice, which starts to play very tricky games. The exception is to what counts as a natural law. There’s always been a convention, and everybody agrees that E=MC2 is something you can’t protect, but suppose what it is, you make a device which allows you to put together certain kinds of chemicals in a thing. This is done empirically. And do you call this thing a law of nature, or do you, in fact, call it a new invention? And when this thing actually came up, Justice Douglas was a very strong anti-patent guy in the 1940s in a case called Funk, basically said it was a law of nature.
And Giles Rich and Federico, they came back and said, now, we’re moving this to the other side of the line because we want to have incentives to create it, and we could have all sorts of nice stories, after Alice and Mayo, the two cases on this, which indicate, in fact, that there’s a serious risk of the decline in innovation that could take place in the medical business if you can’t protect certain kinds of algorithms that start with natural events and then lead to natural cures.
So I’m on the other side of that. I think, in fact, every time I write one of these briefs is try and say please get rid of these two particular kinds of cases because if you expand the notion of natural law to the point at which it’s currently done, you’re going to get many techniques, which were introduced in profusion on going the other way.
And remember, Rich and Federico are the two best patent lawyers of the 20th century, and to have two guys write a statute, it was a great intellectual achievement. I agree with Steph to some extent that the 2011 act didn’t change as much as it purported to do, although it did some harm seriously with various kinds of business method patents. But what they did is it was a zoo. They had billions upon billions of dollars’ worth of entry and public choice nightmares by a bunch of guys who didn’t know what they were talking about.
GENE EPSTEIN: Question. You had a question? No? You do. Okay, go ahead, yes. Go ahead.
RICHARD EPSTEIN: Up to the microphone. This is so civilized.
GENE EPSTEIN: Go please.
M: So I’ve always found – I love the theoretical aspects of this debate, but it seems like we’ve had a solution sitting right in front of us, and that is compulsory licensing so…
RICHARD EPSTEIN: No.
M: Okay, we’re done. I’ve always thought the way it works in music publishing or with – or performance royalties, every – you can play these on radio now, but you can’t reproduce them. You can’t – theoretically, wouldn’t this work for any aspect of intellectual property? And I’ll leave that to either one of you.
RICHARD EPSTEIN: No. I mean it works for ASCAP and BMI, and what happens is the first thing to note about the system is that there are multiple uses, all more or less identical, of relatively small value so that the transactions cost to negotiate in many cases are simply not worth it. But the fly that you have in the ointment is how do you set the rate? And if it turns you set the participation rate too high, nobody is going to do it, so that’s generally not the risk. Inventors will always – or composers will go down. But if you set them too low, there’s a real risk that this stuff will not be produced in sufficient quantity.
The other key feature about that system is for large users, it is always permissible under the current law to negotiate a side deal with them so that you have a customized rate when it turns out that you have large consumption. But if you start using, for example, the compulsory license system with respect to drugs and so forth, it turns out that there are going to be real wipeouts associated with their particular operation so that what works in one area doesn’t work in the other, and this is generally the case with intellectual property. The systems of use and licensing and exploitation are very sensitive to the kind of intellectual property that you have.
So just as a kind of an empirical verification for that, it turns out that when people work in either patents or copyrights, there’s almost nobody who does both because it’s too difficult. They work in very narrow fields, so if you’re a guy who’s doing it, you will do cholesterol drugs. You won’t try to do diabetes stuff because you don’t know the science well enough, and they’re very different conventions of efficiency that work in different markets, both on the licensing side and on the compulsory licensing side.
GENE EPSTEIN: Next question. We have time for only one final question. That final questioner, please take the mic and ask a question. Thank you.
M: I would like to add a bit of a practical and realistic question, which I have missed so far a bit. We have had, at some point in time, where there is for the small companies who benefit most from patents even though the large companies have the most, and I don’t think that is a contradiction. We develop drugs, and we are a small company. And the experience is if you don’t have a patent or only a use patent, nobody is going to talk with you.
RICHARD EPSTEIN: That’s correct.
M: So you have no chance of ever getting that to the market. So without a patent protection, there is no way small companies can ever approach even a large company and get some of their inventions brought to a larger public. We have a drug to prevent children who develop autism from becoming nonverbal. Nobody was interested until we had the patents granted. So even having just applied for a patent is not enough. Nobody is interested. So how do you overcome that?
GENE EPSTEIN: Thank you for that question. We’ve run out of time, but you each have seven and a half minutes for summary. I suggest Stephan and Richard address that question in your summary. Thank you for the question.
RICHARD EPSTEIN: Amen, brother.
GENE EPSTEIN: We now go to the final part of the evening, and take it – no, no. Take it, and address the question that was just put to you.
STEPHAN KINSELLA: Sure. In today’s world, we have a patent system. Given that system, investors want to see your patents, and large companies want to exploit patents so, of course, they have value. If there was no patent system, people wouldn’t demand that you show them your patents. So in my concluding remarks, let me just say if I happen to win tonight because I’ve done so well in my career because of the largesse of the system Professor Epstein is in favor of, I’m going to donate my winnings to charity. The Tootsie Roll will go to charity. Okay, we’ve been talking practically. Normally, my defense of my position has been on more principled and propertarian-type grounds, not on the utilitarian side so much, although I think the utilitarian argument just fails because they haven’t met their burden of proof. All the studies that I read or all the studies that I’m aware of, I’m actually not aware of any solid, reliable studies that prove that Professor Epstein is correct. You heard the quotes. He didn’t counter any of those quotes.
So the way I look at it is this. I’m going to a little bit into Austrian economics. Mises is my favorite economist, and Ludwig von Mises looked at human action from his praxeological lens, which very simply means he understands what we do as humans by viewing us as human actors that employ scarce resources in the world to achieve ends or goals. This is what we do in life, and economics studies this.
But one thing that’s overlooked in all these discussions is that there’s a second key ingredient to successful action, and that’s knowledge because if you don’t have knowledge, you can’t do anything. And the reason that we’re so wealthy today as a society is not because we’ve discovered more things in the Earth. The Earth is basically the same, and we’re not really any smarter than the Romans.
It’s because we’ve accumulated technological knowledge over the years. This is what’s made us rich. Hayek calls it the fund of experience. Now, the scarce resources are things that only one person can use at a time. This is why property rights emerge to ration those efficiently and to let us use them peacefully and cooperatively in trade without having violent conflict. So property rights emerge as a response to the scarcity of these means. But the knowledge that we have is not scarce. It can be copied freely.
This is why China got rich so quickly because they’re copying some of the things that we’ve done. This is not a bad thing. This is a good thing. This is how the human race advances, by emulating, by learning, by seeing what people do to please their customers, and you compete with them to do the same thing or something better. These are all good things. To try to apply a property rights model to the second key ingredient to human action, which is the main source of our wealth today, is suicidal and homicidal and genocidal. It’s insane.
Okay, I’m going to just close with a couple of quotes. Cory Doctorow, science fiction writer, wrote: Three or four billion years ago by some process that we don’t understand, molecules began to copy themselves. We are the distant descendants of those early copyists. Copying is in our genes. We have a word for things that don’t copy—dead. As for the American founders, Thomas Jefferson, himself the first commissioner of the patent office, famously observed that he who receives an idea from me receives instruction from me without lessening mine as he who lights his candle—taper—at mine receives light without darkening me.
And finally, as the very amazing polymath and creative inventor himself, Benjamin Franklin, realized: As we enjoy great advantages from the inventions of others, we should be glad of an opportunity to serve others by any invention of ours, and this we should do freely and generously. So for the sake of property rights and liberty and innovation, the patent system and the copyright system should be abolished. Thank you.
RICHARD EPSTEIN: I’m going to have to get myself up.
GENE EPSTEIN: You don’t have to carry that.
RICHARD EPSTEIN: Each time – oh, there’s two mics, basically two mics. Well, thank you so much. Let me start answering the question about the autism, which I think is exactly on point. I’m trying to be a very practical person when I say that there are tradeoffs associated with these systems, and that if you give too much protection, it’s going to have a negative set of consequences. If you give too little, it’s also going to have that. And the situation that you talk about is exactly the one that Jonathan Barnett wrote about in his book on innovation. He’s saying little inventors, either they have a copyright, or they can’t negotiate with anybody, and so therefore, the information will remain private. And if you want to talk about dead information, private information is going to be like that, or you really want to find other ways to do it.
There are other systems that you could try to put into place. One of them is you could try to use a contractual system to do it, but you will never be able to keep the information private, and once it’s leaked, it’s going to go out there. And even if you kept it private, you would never be able to reach the volume of people you want. There is also an effort in many cases to start using various kinds of prizes because they don’t associate themselves with any deadweight losses in the sense that if I give you a Nobel Prize or some kind of prize for making some kind of innovation, it doesn’t increase the cost to the public at large.
There is a recent book on this by Zorina Khan, and I think she’s a little bit nuts when she says that, oh, we don’t want to have any prizes at all or draw that implication. But by and large, prizes essentially have very, very soft limitations associated with their operation. One is that they’re very tiny. So if you develop a cholesterol drug like Lipitor and so forth and you can get $11 billion sale, if the government is going to stand up there and say, well, we want this thing to be freely competed.
We’re going to give you a million-dollar prize to develop this stuff. It’s just not going to happen. You do it for a mathematician who proves Fermat’s Theorem. The thing is going to be proved, and you couldn’t copyright it anyhow or patent it anyhow because it’s a general idea. So sure, you want to have prizes that are built into the system, but they are not going to be able to replace the patent. So you give the prize to the first person who comes up with an invention, and there’s somebody else behind him.
He doesn’t get the prize, but it turns out that the second iteration is far better than the first. If you had a patent system, the second guy patents his because there’s enough distance between it and the first guy, and he can then make a bloody fortune, whereas the first guy won’t make anything. So if you’re relying on prizes, you’re relying on centralized knowledge ostensibly either by a government party who pays for the prize or a private guy, and in fact, they don’t get the benefit of any kind of information coming out of it. Now, I fully agree that when you’re dealing with these systems, what you’re doing is you’re trying to create knowledge. Well, the patent system and the copyright system actually do that.
You write a book, which you wouldn’t otherwise have written. Now, anybody else can read it, and whereas there are certain reproduction limitations on it, if I have a copy of my particular book, I could let my wife read it even though she didn’t buy it because there’s a very well-understood set of limitations that people can share these books around them. What they cannot do is re-commercialize it and go into the market at the same level as the first guy. So you’re going to get information coming out of that particular system, and the same thing if you have to disclose best mode of invention with respect to something for which you patent. That information is out there, and it could be used, and then once the copyright or the patent runs out after a sensible limit of time, all of that stuff goes into the public domain.
So it’s not as though, when you start to create these systems, you’re basically denying the importance of knowledge. What you’re trying to do is to figure out an efficient deployment, which takes into account both the cost of the creation of the knowledge and the cost associated with its dissemination. And the only way in which you can do that is to have a limited term of years, which is the constant point that I took, and then you have to figure out how it is you organize this.
And so if I – when I teach patents or copyrights, what you always do is you start worrying about the situation of when an exclusive right starts to become some kind of a monopoly. And if you see the latter thing, then you want to move it. So, for example, to give you one case is in a very gifted set of rules—this government sometimes does something right—and in the early ‘90s, what happened is they were trying to figure out the rules associated with the question of when it is that you could put copyrights into a pool – rather, patents into a pool one to another. And what they did was as follows. If it turns out that you wish to put tools that are – patents that are substitutes for one another into a pool, that’s the creation of a cartel, and we’re not going to allow it.
But if, on the other hand, what you do is you want to take patents that are complementary to each other in the sense that there’s a vertical integration—each one leads to the next one—putting those together in a pool will essentially eliminate what is called the double-marginalization problem where each person essentially having his own patent will try to maximize the revenue on that patent. So by the time you have to go through six or seven patents, what’s going to happen is the process will be worth nothing.
And the first person who saw the way in which you put this together was none other than that arch progressive Louis Brandeis who, when he put together the United Shoe deal around 1900, figured out that by having different stages of production put together in a single merged company allowed you to have better products at lower prices than you would if you had them separately. So you want to allow that to take place, so what you do is you then figure out when you have these patents, some forms of interaction between them are monopolistic, and some of them are pro-competitive, and this is an overtly consequentialist theory. So just to end, it was mentioned earlier. What do I think about the antitrust law? Well, I’m schizophrenic about the antitrust law because, frankly, what happens is it runs in both directions.
There’s a recent book written, which I regard as quite bizarre by my – a colleague at Chicago, Eric Posner, who seems to think that what we have to do is every time we see a contract of employment, we have to assume that there is a deep conspiracy on the part of employers who are trying to put together some kind of monopoly situation so as to pay their workers low wages. And he says what that means is you get all these workers hanging around there, desperate for getting jobs, and these skillful monopolist buyers, that is, monopsonists as they’re called, will essentially only hire a few of them. Then you look at the real world. If 4.9 million people quit jobs, it doesn’t seem to be a situation where people are being shut out of the markets to raise prices. People are raising wages desperately in order to get these back.
It’s a competitive kind of market, so you don’t want to sweat that kind of stuff. But there are other sorts of barriers in which you can have various kinds of dangers, and in all of these markets, you’re trying to figure out, oh, which will way will work one way or another. So as I mentioned to you before, there’s a world of difference between an exclusive right on the one hand and monopoly on the other, and people who essentially work within the more, shall we say, utilitarian tradition, which I surely do, basically will say if you’re going to create exclusivity where it promotes competition, then you’re in favor of it. Where you create exclusivity where it tends to frustrate competition, it turns out that you’re against it.
Well, how do you figure out which is which? You actually have to know something about the subject matter. And so the basic point I think that comes out of all of this is this is a very complicated, rich body of information that you have to be able to assemble and coordinate, if that you start to look at it, the corner solutions of perpetual property rights and no, property rights don’t work, you’ve got to live in the messy middle.
But the good news is, if you understand the theory well enough, you can make mid-level adjustments that are worth making, and you can do so at least if you could overcome the congenital, shall we say, ignorance, which is associated with our courts and our legislature, a problem that exists under every legal regime. Thank you.
GENE EPSTEIN: Thank you to you both. Jane, please open the voting. Then if you voted once, we want you to vote again. And well, let’s see. Now, all patent and copyright laws should be abolished. Well, the yes-votes started at 20.37%. Yes-votes started at 20.37% and gained to 29.63%. The yes-vote then picked up 9.26 percentage points. The yes-votes picked up 9.26. That’s the number to beat. The no-vote started at 44.44 and went up to 55.56. It picked up 11.1 point. I have to call this very close race. However, since Richard picked up 11 points and Stephan picked up a little over 9 points, you win by 1.7 points, Richard. Therefore, the Tootsie Roll goes to Richard Epstein.
RICHARD EPSTEIN: Well, I’m going to share it anyhow.