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Source link: http://archive.mises.org/17325/on-patents-hoover-sucks/

On Patents, Hoover Sucks

June 16, 2011 by

The Hoover Institution poses as a quasi-libertarian group interested in fostering “the free society,” and in favor of “The principles of individual, economic, and political freedom; private enterprise; and representative government”.

Yet in The Perils of Patent Reform, Hoover Senior Fellow F. Scott Kieff, a “member of the Property Rights, Freedom, and Prosperity Task Force,” argues against the pending patent reform bill, the America Invents Act. Well so do I. (See Patent Reform is Here! O Joy!.) But I argue against it because it does not significantly weaken the patent system, and in facts increases patent extortion in some ways. Is that Kieff’s objection? Noooo. It is because he thinks the patent system is an important part of our “free enterprise” system, and that the Act would harm that system. He is wrong on both counts.

First, the patent system if a blight on free enterprise. In the name of private property and free enterprise, the state grants monopolies that protect favored recipients from competition. This is the antithesis of the free market. It is a travesty to group free markets with state granted monopoly privileges.

Second, the America Invents Act will NOT harm the patent system. It will only slightly reduce patent abuse, but it will make it worse in other ways. In either case it is not radical or significant (see my Radical Patent Reform Is Not on the Way). Kieff writes that the Act “will at best gum up the patent system”. If only! No it won’t. “The bill would frustrate the ability for small and medium sized innovators to bring innovations to market, and block the opportunities they would create for capital formation and jobs.” What harms small and medium sized innovators is the patent system itself (see, e.g., Patent Cross-Licensing Creates Barriers to Entry).

Kieff writes, “Critics of the modern patent system tell countless ghost stories of the fear inflicted on everyone from basic scientists to large corporations by the demon artfully named a patent troll. Yet when asked to precisely define who this ogre is in reality, it often boils down to whoever successfully sued some sympathetic defendant or whoever is presently suing the speaker. While the ever-present threat of patent enforcement is said to be causing immense gridlock in our economy, we are never told what exactly is so precarious about this state of affairs and why some patent lawsuits would disrupt it.” You are in fact told all the time, by a bunch of people, including me (see e.g. Costs of the Patent System Revisited, and the resources on C4SIF).

Writes our clueless author: “Indeed, each of those just recited modern marvels of technology—jncluding the airplane—was rich with patents.” He should take a look at Boldrin and Levine’s book Against Intellectual Monopoly for a discussion of how James Watt and the Wright brothers actually impeded progress for many years, because of the mercantilist patent system; see also Mike Masnick’s Once Again: The Great Inventors Often Were Neither Great, Nor Inventors.

Incredibly, he says “In the software industry, the absence of patents led to the development of a monopoly.” Incredible–Microsoft gained its monopoly due to one state IP–copyright–which it has used to acquire patents to further cement its monopoly. (See my post Microsoft Copyrights –> Patent Dominance; and Government and Microsoft: A Libertarian View on Monopolies, by François-René Rideau.)

And “When patents facilitate good market coordination, they foster competition and innovation.” A patent protects an innovator from competition. It does not foster competition, it protects companies from competition. And when you have a monopoly and are free from competition, you can rest on your laurels rather than continuing to innovate.

What hogwash.

[C4SIF]

{ 21 comments }

Jeff June 16, 2011 at 2:53 pm

you actually believe that intellectual property should not be protected by law ?”the state grants monopolies that protect favored recipients from competition” … right “favored reciepients”, not the person who invented the idea/design … and they don’t grant a business monopoly … plenty of patent owners were never able to commercialize their idea … hard to be a monopoly if you never actually managed to sell your products …this is nothing but socialist drivel hidden by “competition” hand waving …you are completely missing the point of innovation … it has never been about helping society … it has been to make some guy/gal rich … if you don’t understand that then you really are a moron …if anything this post is hogwash …

Slim934 June 16, 2011 at 3:03 pm

Wow this is a well argued reply. 1 liner statements (most of them blatantly wrong) and name calling.

nate-m June 17, 2011 at 2:10 am

you actually believe that intellectual property should not be protected by law

Basically, yes.

right “favored reciepients”, not the person who invented the idea/design

Maybe, maybe not. Many significant inventions are invented by different parties almost simultaneously. The telephone is a famous example of this. Also many patented ideas are recreated multiple times by multiple different people since quite often patents cover rather logical solutions to common problems. Whoever is first to get a patent and claim they invented first is the one who has the right to sue anybody else. Also patents are bought and sold. So it’s whoever maintains control over the patent is the ‘favored recipient’

and they don’t grant a business monopoly

There is very few other ways to properly describe a patent. Patents are, by any correct definition, a monopoly grant.

plenty of patent owners were never able to commercialize their idea

Just because the government can grant monopolies, does not mean that it can grant commercial success.

hard to be a monopoly if you never actually managed to sell your products

It’s easy when you have a lawyer and enough money to pay to the patent office.

this is nothing but socialist drivel hidden by “competition” hand waving

Yes, because people that campaign relentlessly for capitalism, free markets, and liberation from the state government coercion of the economy are the socialists while the people that believe in that government granted monopolies, violation of private property, and regulations are necessary for a healthy economy the capitalists.

it has never been about helping society

Article 1, Section 8, Clause 8 of the constitution:

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;

I don’t see it mentioning “To make some guy/gal rich” anywhere, do you?

It seems to me that it’s saying that in order to promote advancement of science and art. If it is retarding the progress of science and art is seems that Congress has a obligation to do something about it.

(Not that I think they actually will. They are fundamentally corrupt and couldn’t give a crap about science, art, or society.. much less the constitution.)

if you don’t understand that then you really are a moron …if anything this post is hogwash …

When you say ‘this post’ you are talking your post, right? That would generally be the assumed meaning of the phrase.

Wildberry June 17, 2011 at 9:51 am

@Jeff June 16, 2011 at 2:53 pm

Despite the objections to your style by some, this is the first statement in the article that jumped out at me.

Such a conspiracy theory implies that there is a system in place to grant a patent to a person favored by the “state” over someone who is not. That make the whole discussion center around whether you support facism or communism, or something along those lines.

Stephan tends toward hyperbole, and sometimes it blooms into full-blown conspiracy theories.

Of course, this is pure anti-state rhetoric, and has little to do with the subject of patents, other than a genearl “I hate the State” slogan that launches from the assertion that “We have IP becausae we have the State”; two sentiments that Stephan has repeated often.

Charles Hanes June 16, 2011 at 3:35 pm

Jeff,

You do not seem to understand that in a free market, if an innovation “make[s] some guy/gal rich”, then by definition, the innovator has in fact helped society, in the estimation of his or her customers. The intention to get rich (or lack of same) on the part of the innovator does not matter.

If the innovator is not producing something that is a benefit to society, then he or she will lose money, not make it.

The purpose of patents is however indeed to “make some guy/gal rich”, by allowing exclusive control of an innovation for a period of time, in the belief that this will help society. This is debatable at best.

David C June 16, 2011 at 6:32 pm

This touched upon another topic that irritates me. All these foundations that put out property rights, and economic freedom ranking scores. They often include protection of “intellectual property” as a positive in their weightings. I’ve always felt, they should be called out on this.

Wildberry June 17, 2011 at 10:27 am

Stephan,

You have estimated the costs of patents is somewhere between $21B-$42B; let’s be generous and call it a whopping $50B, (even though to get to $31B the author your cited had to assume all pending litigation was adjudicated in a single year)

In an economy doing $15 Trillion a year, what percentage of that economic activity is affected by patents? The costs that you abhor amount to something like .3% of GDP.

Comparing the patent struggles at the time of the invention of the first telephone and the first airplane has limited utility for examining the current patent system.

In copyrights, the more elaborate the work, the less likely that a similar work could be written independently. I’m unaware of any case to the contrary. Even in the example of music, the number of cases disputing originality are rare, and are usually brought by an obscure artist against a big name. If you eliminate the opportunists trying to pull a fast one, the numbers must be even smaller.

On the other hand, one could make a pretty good argument, when looking at those past patent examples, there was a defense of “obviousness”. The application of electricity was so limited, the pace of innovation was probably a strain on the patent process. Also, the application and dissemination of innovation in the economy had to be a much slower process that today, in general. That is hardly the case in today’s highly complex environment of digital processing, drug development, etc.

You did not rebut his premise that the airplane, while an important innovation, was accomplished despite the fact that there were a number of pre-existing patents that were integrated into the design. Do you dispute this? (I personally don’t know)

You seem to agree with him about Microsoft; he says it happened without patents, and you agree that it was built on a copyright.

Finally, he asserts that patents foster innovation and you respond that an inventor, when he enjoys a monopoly, can rest on his laurels. I think you miss the point.

If an inventor has an idea for an invention, and encounters prior art, he is left with simply copying what already exists (your position) or innovating to move beyond the state of the art (his point). That drives innovation, and gives inventors an incentive for pushing the envelope.

The inventor that is resting on his laurels finds his products are soon obsolete, so he innovates too. In the absence of patents, it is not clear what that dynamic would evolve to. Not even you, as you have often admitted, know the answer to that.

Stephan Kinsella June 17, 2011 at 12:18 pm

Dingleberry:

If an inventor has an idea for an invention, and encounters prior art, he is left with simply copying what already exists (your position) or innovating to move beyond the state of the art (his point).

Inventors don’t merely copy. It takes effort to bring an idea to market, and often there are other changes made. Innovation is incremental.

That drives innovation, and gives inventors an incentive for pushing the envelope.

Stupid assertion. Immoral too.

Wildberry June 17, 2011 at 12:59 pm

Skinzilla,

Yes, inventors do so within a context of IP, and don’t merely copy. We agree. Mere copying would not be much a contribution to society or innovation.

And why would they take that “effort to bring an idea to market” if once they did, their products became public domain property?

We agree, innovation is incremental and ongoing. One cannot argue that it is not ongoing because of IP, since this innovation is taking place in an environment where IP exists. You hold that without it, we would have more, and point to the high costs of patent litigation as “proof”.

Maybe so and maybe not. You do not and cannot know. It is an economics policy question; whether a given policy (IP or no IP) will produce the expected outcome. If you are going to pose an economic policy question, since you can’t perform social experiments, you have to rely on economic theory.

What we apparently share, though it is hard to detect at times, is a belief in the soundness of AET. Given that assumption, sooner or later you are going to have to address directly the question I have posed to you numerous times; namely, Mises’s assertion that without IP, producers of intellectual goods, (which is the subject matter of copyrights and patents), would be producing for an external economy.

Stephan Kinsella June 17, 2011 at 11:05 am

I was speaking of patents only, and the estimate is very conservaitve IMO; if you take copyright and TM into account, my guess is it’s easily tripled, and in fact, I would bet that it’s 10 times as muhc. I would not be surprised if it’s half a trillion or more. But even if it’s “only” $50B, that does not make it trivial just b/c it’s a small slice of our economy. What weird reasoning.

Inquisitor June 17, 2011 at 11:28 am

Those would be direct costs too. Its anti-competitive costs (which are far harder to gauge) would likely be several orders of magnitude greater in terms of consumer welfare lost due to monopoly privileges awarded to certain firms.

Stephan Kinsella June 17, 2011 at 12:25 pm

Yes. Honestly I would not be surprsied if it’s in the trillions or tens of trillions. In fact I believe we would be ten or a hundred or a thousand times richer if the state had just been, say, 1/4 its size the last 100 years. Our GDP would be a quadrillion not 15Trillion. And IP plays a huge part of the state’s hampering of the market, its killing off the missing 900 Trillion.

Wildberry June 17, 2011 at 12:43 pm

One more round of speculation and the cost of IP will exceed the global GDP.

It is weird reasoning to try to account for costs of somethig without considering benefits.

If you are considering patents only, which is what I understood, what portion of the $15T is economic activity related to patented inventions? And what percentage is related to patents that have expired?

I don’t think weird is a strong enough word for trying to horrify us all with the costs, while completely negating the possibility of any positive consequences of IP.

We all know you hate the state, we have IP because we have the state, IP should be completely abolished, etc. etc. etc…

I know its a weird concept, but I am raising the issue of proportionality. Unless you are going to take a stab at costs and benefits, a parade of horrors on the cost side is meaningless.

Shay June 17, 2011 at 1:56 pm

One more round of speculation and the cost of IP will exceed the global GDP.

Frightening prospect, isn’t it, that IP might be more than halving our productivity?

Wildberry June 17, 2011 at 3:09 pm

Yes is is.

Oh, and watch out for that MONSTER under your bed. It’s really, really scarry!

Stephan Kinsella June 17, 2011 at 3:23 pm

Pretty disgusting you are so callous to the wealth destroyed and lives lost and ruined due to your horrible statist protectionism.

Wildberry June 17, 2011 at 3:56 pm

That was beneath even you.

Yes, Stephan, I am callous to destroying wealth and loosing and ruining lives. I also eat babies.

Why do I do it? Because protecting the State has made me rich and famous and powerful. I support IP so I can bestow it upon my preferred cronies for a kickback. I am the King of the World!

Or, I argue with you on this blog because I think you are wrong and I enjoy the practice of trying to tell you why.

You decide.

My principles here are property rights and economic freedom. The fact that you might say the same, and yet we can so completely disagree on this topic, should be illuminating of something important. I wonder what it could be?

Stephan Kinsella June 17, 2011 at 2:02 pm

Dingleberry:

One more round of speculation and the cost of IP will exceed the global GDP.

It easily could. Imagine the economy as a racehorse capable of galloping at, say, 25mph. But your state parasites are all over it, dragging it, slowing it down. Maybe to 5mph.

Likewise I firmly believe without the state we would be multiples richer. If he state were only half or 1/4 its size, I think the economy would skyrocket and we would be many times richer–like the the horse, if the parasites dropped off, would increase its speed from 5 to 25mph. (L. Neil Smith has a good estimate along these lines, arguing we’d be eight times richer absent state carnage.)

If that is the case, then our $15T economy could easily be $100T, say. What is repsonsible for the missing $85T? Maybe IP causes $20T of it–so what if this is bigger than our current 5mph ($15T)? Taxes another $40T. War, regulations, etc., trillions more. The damage caused can be far in excess of our current GDP.

It is weird reasoning to try to account for costs of somethig without considering benefits.

In fact the opposite is what dishonest iP advocates–or do I repeat myself–do allatime — http://mises.org/daily/1763 . They claim there are utilitarian reasons for IP but never give evidence.

“Mere copying would not be much a contribution to society or innovation.” It’s competition. That’s good. And suppose 50 people “copy” Beethoven by perfoming his songs on piano around the country. That’s good–it satisfies consumer demand. What’s wrong with this? Why do people have ot show that they are contributing something, to be left alone by your fascist state?

Wildberry June 17, 2011 at 3:45 pm

Skinzilla,

I’ve told you before where we align is on smaller government. Where we diverge is somewhere between small and zero. No one, not even the great Skinzilla, can quantify the benefits of zero with any certainty. Then again, you are not burdened with the problem of impossibility.

What we can say is that reducing carnage makes more wealth available. Again, we can agree. Someone recently offered the 2.5 year increase in life expectancy in Somalia as evidence of that.

Of course when dealing with the problem of stopping the carnage, the trick is to distinguish the “bad” guys from the “good” ones. This, one presumes, is the value of having principles to guide us.

The principle that I am highlighting here is one of protecting the rights of the producer, balanced against the rights of the consumer. As soon as you seek balance in something, it gets a little tricky. You have to distinguish one thing from another.

For example, one way to defeat the State is to simply burn it all down. That philosophy was recently illustrated in Vancouver. Unfortunately, people who don’t deserve it also get torched. Oh well, collateral damage on our way to anarchy/utopia?

So, you are right about a couple of things here; reduced carnage is a good thing. Competition is a good thing. People who do not contribute shouldn’t be victims of “my” facist state (or beneficiaries…see how this gets tricky now?)

What you are wrong about is that “copying” is “competition”. Depending on how one defines his terms, “copying” can be “unfair competition”. It depends upon ones presumptions and the facts. Darn, it was all so simple before we let those bothersome facts get in the way!

Here is my utilitarian evidence. Drum roll. Are you ready???

Since 1776, we have been on a path of enormous economic, technical, and social innovation. Our standard of living has steadily increased (perhaps until very recently?). We live longer. We have more drugs to cure and treat disease. We have books and the internet and music, both new and old. We have nearly unlimited access to knowledge and information.

All of this has taken place in a world in which IP has been present and operating. If it is a net negative benefit (cost), then we should see something like $15T of costs and no benefits today. To put it another way, the rate of innovation should have come to a screeching halt somewhere in the past 200 years or so, under the burden of IP oppression. Oddly that has not happened.

At the least, one can conclude from this that the impact of IP cannot have been a net negative factor. The best you can say is that without it, we would have been even better off. I doubt that, but that is the best you can say.

sweatervest June 17, 2011 at 7:57 pm

“The principle that I am highlighting here is one of protecting the rights of the producer”

But, as people os often point out, it is crazy to think anyone has a right to tell everyone else how they are to use something that they created. Where does a producer get such a right? Why should he have such a right?

“For example, one way to defeat the State is to simply burn it all down. That philosophy was recently illustrated in Vancouver. Unfortunately, people who don’t deserve it also get torched. Oh well, collateral damage on our way to anarchy/utopia?”

Real anarchists would never do such a thing (I know it sounds lame to bicker about who the “real” anarchist is, but allow me to explain my case here). It is stupid to reject violence violently. It is very stupid to try to destroy the state. It will only create a power vacuum and and an excuse for a bigger, more totalitarian state. Those Vancouver people were burning down McDonalds and Starbucks. Those are anti-captalist anarchists types, who are simply confused in the deepest way possible on what anarchy really is.

The state rules by ideology, and that is what the real anarchist goes after.

“People who do not contribute shouldn’t be victims of “my” facist state (or beneficiaries…see how this gets tricky now?”

Well I don’t see that as being so tricky. It is never a problem that anyone is a benefactor of anything. The problem would be in the fact that whatever wealth you are handing out to your benefactors were confiscated from your victims. That is where the problem lies.

“Depending on how one defines his terms, “copying” can be “unfair competition””

I think anti-state types tend to be very suspicious of “unfair competition”. That sounds like it is skirting around anti-trust laws or something similar. What could make competition unfair? Especially considering that if copying is legal, it’s legal for everyone?

“Darn, it was all so simple before we let those bothersome facts get in the way!”

I know this is the part of my theorizing you don’t like, but the facts themselves are never what is relevant. The important part is the connection between facts. Which facts are due to which other facts, which facts are despite other facts, etc. Your underlying theoretical framework determines how one makes such connections. So if we have competing theories the facts themselves do not help us to decide between them (assuming one of them does not contradict the facts, and neither of them do). We have very different interpretations of the same facts, so to decide between those interpretations we must consider the theories on a logical level, independent of any facts.

“Since 1776, we have been on a path of enormous economic, technical, and social innovation. Our standard of living has steadily increased (perhaps until very recently?). We live longer. We have more drugs to cure and treat disease. We have books and the internet and music, both new and old. We have nearly unlimited access to knowledge and information.”

There is a big problem with this interpretation of the facts. In fact, this precise view can establish totalitarianism as beneficial, since at least during the 20th Century while technology pushed forward very fast governments had already gotten as strong as governments had ever gotten (income taxes, conscriptions, tons of regulations/licensing, central banks, etc.).

The problem is only focusing on a part of the problem instead of the whole thing. The standard of living is a function of everything happening in society, not just one aspect like IP. Innovation sped up during the 20th Century, but this is at least partly due to the success of scientific theories in the 19th Century, and those have never been protected under any IP law. My interpretation of these facts is that technological progress is due to relatively capitalist order compared to other places in history, IP being an exception to this. For example, progress happened in the 19th Century, but I think this is thanks to private property recognition and, in the same way, despite the existence of slavery. Had slavery not existed said progress would have been even more rapid than it really was.

So did that increase in innovation happen thanks to IP, or did it happen thanks to scientific progress and in spite of IP (or thanks to some things and despite other things)? That is what the facts themselves can never decide between. We must compare those two theories on a logical level. On a logical level I think it is impossible that IP led to innovation. After all, IP makes illegal certain forms of innovation. Also, for example, copyrights drive up the price of albums and so people can only buy fewer of them and thus fewer artists could be successful playing music. It only makes sense to me that this works against the increased rate of production of music, and that the increase in music production is thanks to everyone with a laptop being able to make music, and in spite of copyright protection, for example.

“All of this has taken place in a world in which IP has been present and operating”

Well, another empirical fact we cannot ignore is that despite what IP laws are on the books, these days, i.e. those days where information is at all our fingertips, most IP laws are hardly enforced at all (at least in the realm of copyright). Even though it drives the lawmakers crazy, we live in a world right now where you can download whatever you want and not expect to get in trouble for it. So it may be present, but to what extent is it really operating?

“If it is a net negative benefit (cost), then we should see something like $15T of costs and no benefits today. To put it another way, the rate of innovation should have come to a screeching halt somewhere in the past 200 years or so, under the burden of IP oppression. Oddly that has not happened.”

No, see our theory does not lead to such a prediction. As long as technological innovation, scientific progress, or anything else that works to increase the rate of creative production has a bigger impact than IP, then the existence of IP will merely slow down technological progress to a rate less than it would be sans IP. The facts cannot tell us how fast progress would be without IP. We must theoretically construct such a scenario. But the point is that our claim is that IP slows the rate of creative production. This does not imply that production comes to a halt or reverses, anymore than the claim that excessive statism (would you agree that the U.S. state is fairly totalitarian these days?) being a drain would imply that progress in general would have to stop under that statism. It just means that without it progress would be faster than it is now.

“At the least, one can conclude from this that the impact of IP cannot have been a net negative factor.”

No, you need to do the whole problem, not just part of it. One can conclude that the impact of IP plus the impact of everything else that is going on in society has cannot have been a net negative factor. But it is still possible that all the positive factors outweigh the negative factor of IP.

“The best you can say is that without it, we would have been even better off. I doubt that, but that is the best you can say.”

That is all we have ever said, and that is all that is implied by claiming IP is a drain on society. As Stephen explained above, you can attach a chain to a horse and drag it back as it is racing. It may race at 5 MPH instead of 20 MPH. It is still racing forward, but that certainly does not imply that your holding it back is actually helping him race.

sweatervest June 17, 2011 at 8:59 pm

Forgive me for repeatedly speaking of “our” theories. I have my theory, and Kinsella has his, etc. What I say is an elaboration only on my own take on the problem, even if takes influence from the arguments of others. I certainly cannot speak for anyone but myself.

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