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Source link: http://archive.mises.org/3272/there-is-no-such-thing-as-a-free-patent/

There is No Such Thing As A Free Patent

March 6, 2005 by

Patents encourage innovation, we are told, but: at what cost? There is no real way to know what these costs are, much less to measure them against the benefit. We should leave it to the market and to entrepreneurs themselves to assess and forecast costs and benefits, and pay the price or reap the reward for their judgment. A pure market in this case would be one that does not award a monopoly privilege to a person or institution merely because a paper is filed with the government. [Full Article]

{ 47 comments }

Andrew March 7, 2005 at 3:36 am

The conclusion isn’t clear. “we should leave it to the market and to entrepreneurs themselves to assess and forecast costs and benefits, and pay the price or reap the reward for their judgment. A pure market in this case would be one that does not award a monopoly privilege to a person or institution merely because a paper is filed with the government.

Is this advocating abolishing the patent system entirely? (I wouldn’t want to quote the author as supporting this claim if I’m misunderstanding).

kyuuri March 7, 2005 at 5:46 am

I think your argument is correct.
But it is too difficult to make a cost-benefit analysis correctly.as the authors of “The economics of patent and copyrights” say that 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].

I think it is important to prove that a question of free riders is no problem even if we abolished patent system.
Because supporters of patent system always insist that we can’t avoid the problem of free rider without patent system by the state.

Silas March 7, 2005 at 6:54 am

Another cost of the patent system is that when you encourage innovation, people innovate at the cost of engaging in some other kind of activity. If someone decides to profit by innovating because he can get a monopoly on the idea, he’s doing it instead of profiting other ways. Since the only other way to profit is to exploit price differences in markets (and thereby make them more efficient), patents result in less efficient markets in tangible commodities.

Scott Jackson March 7, 2005 at 7:23 am

why would, say, someone produce new drugs at the cost of hundreds of millions of dollars and 10-20 years if someone could simply reverse engineer the drug and sell it at a lower price once it went out on the market? after all that second firm would put them out of business, as they wouldn’t have to make up virtually any R&D costs.

kyuuri March 7, 2005 at 8:07 am

>why would, say, someone produce new drugs at the cost of hundreds of millions of dollars and 10-20 years if someone could simply reverse engineer the drug and sell it at a lower price once it went out on the market? after all that second firm would put them out of business, as they wouldn’t have to make up virtually any R&D costs.
———————-

This problem is exactly a free-rider problem.
To oppose the patent system ,I think we cannot get around this question.
So I asked Mr kinsella how he explains this problem.

Stephan Kinsella March 7, 2005 at 8:29 am

A few comments at this juncture:

1. François-René Ã?VB Rideau wrote me: “you claim that: “there is no real way to accurately know what [the] costs [of patents] are”. Actually, you’re quite wrong. There’s already an excellent market-based price estimator for the cost of patents to its victims. This estimator is the double of the benefits to the protected parties. This is a straightforward application of the Law of Bitur-Camember, as well-known for centuries, and recently demonstrated praxeologically by Francois Guillaumat. You’ll find the proof idea on my blog.”

I have not yet read this “proof” but this seems flawed ab initio to me. For one, since benefits and costs are subjective and not quantitative or cardinal, one can never say a cost is “twice” a benefit. Even if it were so, how would one know the quantity of the benefit which is supposed to be doubled? If the author is speaking of some rule of justice, akin to Block’s “two teeth for a tooth” rule, then this is a different matter.

Andrew asks: “Is this advocating abolishing the patent system entirely? (I wouldn’t want to quote the author as supporting this claim if I’m misunderstanding).”

As my other writing points out, yes, the patent system seems to me to be unjustified per libertarian principles. But here I am making a more limited claim: that if one advocates a patent system *on the grounds* that it is a net benefit to society, then it is incumbent on this advocate to total up the benefits, and costs, and make sure the gain is positive. And I am saying that due to the nature of cost and benefit being subjective and not cardinal, the most objective way would be to let the market sort it out. It’s just a side-point.

Kyuuri: “I think it is important to prove that a question of free riders is no problem even if we abolished patent system. Because supporters of patent system always insist that we can’t avoid the problem of free rider without patent system by the state.”

I would say that the patent system is an intrusion into the natural state of affairs. Therefore its advocates bear the burden of proving it is justified. Opponents bear no burden of proving “free riding” is NOT a problem. Rather, proponents need to prove what the benefit is of reducing the free rider problem, and then prove that this is greater than the costs of the system set up to do this.

Silas: “Another cost of the patent system is that when you encourage innovation, people innovate at the cost of engaging in some other kind of activity. If someone decides to profit by innovating because he can get a monopoly on the idea, he’s doing it instead of profiting other ways. Since the only other way to profit is to exploit price differences in markets (and thereby make them more efficient), patents result in less efficient markets in tangible commodities.”

Yes; a similar point was made in the article re Plant’s mention of Brunel’s views.

Scott Jackson: “why would, say, someone produce new drugs at the cost of hundreds of millions of dollars and 10-20 years if someone could simply reverse engineer the drug and sell it at a lower price once it went out on the market? after all that second firm would put them out of business, as they wouldn’t have to make up virtually any R&D costs.”

This is an interesting question, but its tenor suggests that it is “obvious” to the writer that there should be patent laws–because the advantages of the system (avoiding the loss of pharmaceutical research) are so great. Even so, such IP proponents still need to quantify the gain, and the costs, of the system; or otherwise demonstrate that the gain exceeds the costs. This is not done by the wave of the hand or simply rhetorically asking, “but what about drug companies?”.

Moreover, such a proponent of patents should ask this question: if establishing a patent system, despite its costs, is warranted simply because it permits some drugs to be developed that otherwise would not be, what is the stopping point? Even in today’s system there surely are drugs that are not developed because even with the patent monopoly’s availability, the research costs outweigh the expected gains. So if we could encourage even more innovation by setting up a tax funded reward system, why not do this? Where is the stopping point?

kyuuri March 7, 2005 at 9:11 am

>I would say that the patent system is an intrusion into the natural state of affairs. Therefore its advocates bear the burden of proving it is justified. Opponents bear no burden of proving “free riding” is NOT a problem. Rather, proponents need to prove what the benefit is of reducing the free rider problem, and then prove that this is greater than the costs of the system set up to do this.

—-

Thank you for your reply.
I understand your logic.
But Can we expect that proponents would prove that patent rights are negative?
After all ,Proponents are usually rent seekers.

As Milton Friedman says,
“but simply because as long as you have governments which control a great deal of power, there always [will be] pressure from special interests to intervene. And once you get something in government, it’s very hard to get it out. ”

http://www.pbs.org/wgbh/commandingheights/shared/minitextlo/int_miltonfriedman.html#11

So if you could explain that “free riding” is NOT a problem,I think you can win this argument without waiting for proponent’s answer.

Ike Hall March 7, 2005 at 9:28 am

In the news, apparently the European Commission has passed legislation making software patentable in Europe. Groklaw has covered the process as part of the defense of open source software. If it passes the European Parliament, it will mean that not only will Europe now be enmeshed in the same kinds of court cases as SCO v. IBM, not only will open source software initiatives be permanently stifled by the threat of litigation, but it has now been proven that the EC can make decisions without regard to the wishes of member nations (Poland and Denmark, amongst others, tried to halt this process). No surprise to us here, I guess.

Gil Guillory March 7, 2005 at 9:38 am

Mr Jackson,

You have asked, “why would, say, someone produce new drugs at the cost of hundreds of millions of dollars and 10-20 years if someone could simply reverse engineer the drug and sell it at a lower price once it went out on the market? after all that second firm would put them out of business, as they wouldn’t have to make up virtually any R&D costs.”

The answer to your direct question is, “because such a proposition would still be profitable”.

Firstly, even in a milieu of non-binding patents, trade secrets can be maintained and command considerable market share, even if not 100%. An obvious example is Coca-Cola. Also, complex formulations, such as drugs, command premia. One that I personally witnessed yesterday, while shopping, was that Listerine sells for about $6.20/bottle, while (in my estimation, inferior) generic grocery-store imitators sell for only $2.50/bottle. As it turns out, I bought the generic brand, since the premium isn’t worth it to me; but, lots of people buy Listerine at its current premium. These premiums exist for lots of OTC drugs, like Robitussin, Claritin, and Actifed. Any trip to the grocery store confirms that premia endure in a free market across all sorts of goods.

So, even though profits may be cut, the venture may still be profitable in the absence of patents.

For something as important as one’s health, paying the premium to get “The Real Thing” is worth it to many people. So, I doubt that patents will completely eliminate profitability for most drugs with deep investment schedules. It will eliminate some marginal projects, of course; but, there are other ways to skin a cat…

Secondly, this question presupposes that the only viable business model is the one practiced by companies in today’s market. In the absence of a patent system (and anti-trust laws), tying and/or exclusivity agreements might become common between drug manufacturers and large drug outlets.

To be specific, a drug company might approach Eckerd and write a contract of duration 5 years that for a new drug on the market, Eckerd will be given exclusive distribution where it has geographic coverage for the consideration that Eckerd not sell any competitor’s generic substitute. The drug company could write many of these contracts, such that, say, Wal-Mart could distribute where Eckerd isn’t, thereby securing exclusive distribution in all major markets.

By making the price higher to consumers to seek out and obtain the generic imitators (since these will be in other, less reputable, or out-of-the-way stores), these exclusion/tying agreements would help to increase the monetary premium supportable, thereby helping to make more projects profitable.

This is only one suggestion among many. If businesses were faced with the prospect of elimination of the patent system, they would doubtless generate dozens of schemes to combat the problem of generic substitutes, such as tighter security on formulations, greater incentives to technical employees for loyalty to the company, agreements with insurance companies, aggressive informational campaigns aimed at doctors and/or pharmacists, etc.

Now, let me advance a devastating counter-argument. Drug companies, realizing such a predicament, may choose to create a cartel agreement whereby they honor one another’s exclusive right to produce a drug for X years. While not all the drug companies would join such a cartel, to the extent this were adopted, it would keep marginal projects profitable.

You may object to my suggestion of such tying arrangements, since they attempt to combat the very free-rider effects which you are pointing out. But such an objection would be weak.

In essence, you say there are free-rider effects. I have shown (briefly) that there are free-market mechanisms (premia for “The Real Thing”, tying/exclusivity arrangements, exclusivity agreements among drug companies, and perhaps other mechanisms) to reduce these effects, thereby making drug research and production profitable.

Also, unlike the patent system, the costs incurred to combat the free-rider effects would vary according to their importance. For some products, such as those that are difficult to reverse-engineer, or those that were less costly to develop, less would be spent in trying to capture high market shares through these means.

You might object that my suggestion of a cartel-like arrangement whereby drug companies agree to honor exclusive rights to one another’s discoveries for a specified term is no different and perhaps costlier than the patent system itself. I counter thusly:

The actual makeup of such agreements would be as minimally-constraining to the signers of the agreement as necessary to maximize the participation of drug companies to the contract. That is, maybe the term would be a function of actual man-years of research invested, the maximum term might be lower than the patent term, and the extent of disclosure might have to be higher.

The flexibility of such arrangements and the possibility that some companies would be able to choose not to be a party would ensure that social costs for such arrangements tended to a minimum.

More could be said, but this is supposed to be just a comment!

kyuuri March 7, 2005 at 9:42 am

If proponents proved what the benefit is of reducing the free rider problem, and then proved that this is greater than the costs of the system set up to do this,what will opponents say to them?

Opponents would say that their estimation lacks accuracy or simply claim that they are wrong.
But such arguments would be a barren controversy.
These argument would lack corker.

Curt Howland March 7, 2005 at 9:45 am

I worked for a plastics company. A very big, very profitable plastics company. This “free rider” problem existed for them, too, but they evolved their business to deal with it.

When a customer came to them with a set of requirements, this company would design, engineer, prove and produce a plastic to those specifications faster than anyone else. For the one year that it took the competition to gear up to produce exactly the same thing, this company made great profit. Time preference was what they made money on, which is something that patents can only interfere with.

Remember that a large amount of the “millions of dollars” spent to develop a new drug is regulatory compliance, a problem created by government.

Why would a company spend vast sums of money to produce something that could be reverse engineered? Because they did it first, and in the time it takes for someone else to reproduce it, they have the opportunity to charge “monopoly” prices and make back that cost. And when the copies came on the market, this first producer already has their production line in place, and are in a position to compete while the competition still has to make back their initial investment.

“Free Rider” problems are just like gravitation problems. People will deal with it.

Gil Guillory March 7, 2005 at 10:32 am

Kyuuri,

This reminds me of the (bad) argument that Milton Friedman levels at Austrian economics. Friedman notes that praxeologists have nothing to debate other than the logical content of their works. Because of this, contends Friedman, Austrians must inevitably descend to fisticuffs when in disagreement. So, his case for empiricism is presented as an appeal to peace in the profession by appeal to “facts” and not “merely” logical arguments. This argument fails if for no other reason than the fact that mathematicians are not wont to be literally at one another’s throats because of the methodology they embrace, and that statisicians are (for evidence of this, see the excellent book _Statistics on the Table_). In other words, Friedman’s argument fails on *empirical* grounds.

Similarly, when dealing with the political question of patents, we could go down two roads (even simultaneously): the moral case for/against patents, and/or the consequentialist case.

We can disagree over the moral case just as easily as we could disagree over the consequentialist case. There is no good reason to ignore either debate, and there is no good reason to think that either will somehow end in a total stand. People have been known to make commitment to true debate, as the now-famous kid-socialist Walter Block did (see his autobiography on LewRockwell.com).

But while some will never be persuaded to the opposing case (especially partisans such as myself that find the moral case against patents to be knock-down), this doesn’t mean that good debate cannot be generated. And, the many potential third parties to these debates will be stimulated in their thinking and perhaps persuaded to one side or another.

So, let the debate ensue! The problem, though, as Kinsella points out, is that most partisans for patents are not intellectually honest about the very great (but not, a priori, insurmountable) problems in advancing the consequentialist case for market failure wrt to patentable inventions.

Alvin Lowi March 7, 2005 at 12:53 pm

Galambos, like you Mr. Kinsella, rejected the government political patent system on coercive monopoly grounds, and he believed there was no such thing as a natural monopoly or a market failure. Although he failed to advance to a reduction to practice a practical method and means for rendering the protection of intellectual property in the free market, he did propose some unique, heuristic and stimulating ideas for doing so. One of the consequences of his approach I would call dilution of proprietary interest. This refers to to the natural tendency of good ideas to attract further innovation and add value to the whole of the know-how. Thus a proper system of recognizing intellectual property would somehow account for this added value and issue new “shares” for participation in the benefits of ownership, if any, as a consequence. Thus, the original inventor with 100% of the “rights” would be joined by other rightful owners to form a community of interest in the whole chain of innovation and improvement. As a result, contributors now treated as infringers of a parent patent would instead be issued fractional undivided shares in the cash flow stream attributable to the whole. Galambos envisioned a “clearinghouse” business or businesses like ASCAP or BMI would be able to sort out the various claims thereby encouraged to disclose to the public and discouraged from litigation to make equitable and timely distributions for fee. The clearinghouse could also resolve credibility, credit and reputation issues.

scott March 7, 2005 at 12:55 pm

..To be specific, a drug company might approach Eckerd and write a contract of duration 5 years that for a new drug on the market, Eckerd will be given exclusive distribution where it has geographic coverage for the consideration that Eckerd not sell any competitor’s generic substitute. The drug company could write many of these contracts, such that, say, Wal-Mart could distribute where Eckerd isn’t, thereby securing exclusive distribution in all major markets…

this seems reasonable, however it seems this contract approach might be infeasible at some times. because that’s all we are really left with, correct? but we can’t all just go around with lawyers all day at our side delegating contracts with each other.

moreover, what if the retailer denies the exclusive sale of the drug at the store? eventually it is the drug maker not the retailer who will have to give in, as they must make a return on their product, while the retailer is under no such pressure. would you agree that IF there is no such agreement, and thus there is a market within a store for the same drug, the free-rider problem exists?

Curt Howland March 7, 2005 at 1:23 pm

It seems my earlier posting was not received. My apologies if this is a duplicate.

Concerning “free rider” “problems”. I worked for one of the large, profitable, plastics companies.

When a potential customer gave them a set of specifications, they would design, engineer, test and be able to produce a plastic with the required properties faster than anyone else.

During the year that was required before the same material could be reverse engineered and available in quantity by the competition, this company could charge a premium. When there was competition for that material, this company already had its production line in place and could easily compete on price with those who still had to make back their start-up costs.

The reason that “free rider” is not an actual problem is that people adjust their expectations to fit reality. If the process is not viable without monopoly status, it will fail and something that does work will be erected in its place.

I believe that “free rider” was created in order to frighten people into supporting government grants of monopoly and all the corruption that goes along with it, rather than to address any actual problem.

Gil Guillory March 7, 2005 at 1:27 pm

Mr Jackson,

Yes, without patents, we are left only with contract.

If a retailer will not assent to such a tying/exclusivity contract, then the drug maker must sweeten the pot. At some point, the cost of the terms to the drug maker exceed the benefits, of course. There is a carrot for the retailer, though — the carrying of all the latest drugs. If you are a consumer who has a condition treatable by the latest drug and it is sold at store X, then you are likely to do more business there (other prescriptions, pick up groceries, etc.).

You ask, “would you agree that IF there is no such agreement, and thus there is a market within a store for the same drug, the free-rider problem exists?”

Yes, to the extent that it is a “problem”. Firstly, it is mitigated by the original formulator premium, as I explained above. Also, one would have to be very careful to demonstrate that in a particular instance that the reduction of market share for this drug made its production unprofitable. The fact that generics could be made is always a “problem” for the drug maker, but this is not a problem for drug consumers unless it means that the drug is not produced at all.

But, as Kinsella has pointed out, even if drug X becomes unprofitable, then resources are freed to produce drug Y (or, generally, good Y). So, at worst, we are left with Y in a free market or drug X and the patent system. Is drug X so much better that it is worth the costs of the patent system and the nonproduction of Y?

The devil is in the details, and almost no one is interested in digging them all out. Due to the counterfactual nature of the problem, it’s almost impossible to really work out, anyway. Summing over all markets is a practical impossibility.

The a priori consequentialist case against patents is quite simple: we know that the patent system has all manner of costs. Don’t incur them. The resources that remain will be invested in the best ventures, where one criterion of “best” includes consideration of free-riding/network effects.

Stephan Kinsella March 7, 2005 at 3:02 pm

Howland: “During the year that was required before the same material could be reverse engineered and available in quantity by the competition, this company could charge a premium. When there was competition for that material, this company already had its production line in place and could easily compete on price with those who still had to make back their start-up costs.”

Not only that: if someone calls you up to make something that can easily be knocked off, then you can insist on a long-term contract with the buyer ahead of time, something like this. Businessmen’s creativity knows no bounds.

“The reason that “free rider” is not an actual problem is that people adjust their expectations to fit reality. If the process is not viable without monopoly status, it will fail and something that does work will be erected in its place.”

I often wonder how staples get made. I buy a box for a dollar or so and it sits in a desk drawer, at home, gradually being used over like a decade. So I wonder how anyone can make money at this. Then it occurs to me, there is a demand for staples; and suppliers will provide staples if they can make a profit at it. Given the demand, whatever sales price level is necessary for a profit, that’s what supppliers will tend to sell for. Whatever that level is, is hard to say–but it must not be too out of line with current prices, even if it’s not easy for me as a consumer to see how a profit could be made. It must be in there, somehow. If a profit could not be made at $1 a box, then they would be selling for $2 a box.

Stephan Kinsella March 7, 2005 at 3:13 pm

Lowi: “Galambos, like you Mr. Kinsella, rejected the government political patent system on coercive monopoly grounds,”

This is not the forum to discuss Galambos (can there be such a forum?), but in my view his views were extremely crankish and incompatible with the Austrian view of matters (e.g., his scientism) and liberty (his IP views).

“Although he failed to advance to a reduction to practice a practical method and means for rendering the protection of intellectual property in the free market, he did propose some unique, heuristic and stimulating ideas for doing so.”

“One of the consequences of his approach I would call dilution of proprietary interest.”

Heuristic? “dilution of proprietary interest”? Crankish and scientistic.

Annway–I really don’t want to be compared to Galambos. He might have rejected the government patent system but he did advocate an absurdly extreme form of intellectual property rights, with perpetual terms. I think the story I heard is he would drop a nickel in a jar everytime he used the word “liberty,” to give to the descendants of Tom Paine, the alledge “inventor” of the term. I discuss this at p. 18 et pass of my Against IP article, quoted below, sans footnotes:

The most radical of all IP proponents is Andrew Joseph Galambos, whose ideas, to the extent that I understand them, border on the absurd. Galambos believed that man has property rights in his own life (primordial property) and in all “non-procreative derivatives of his life.” Since the “first derivatives” of a man’s life are his thoughts and ideas, thoughts and ideas are “primary property.” Since action is based on primary property (ideas), actions are owned as well; this is referred to as “liberty.” Secondary derivatives, such as land, televisions, and other tangible goods, are produced by ideas and action. Thus, property rights in tangible items are relegated to lowly secondary status, as compared with the “primary” status of property rights in ideas. (Even Rand once elevated patents over mere property rights in tangible goods, in her bizarre notion that “patents are the heart and core of property rights.” Can we really believe that there were no property rights respected before the 1800s, when patent rights became systematized?)
Galambos reportedly took his own ideas to ridiculous lengths, claiming a property right in his own ideas and requiring his students not to repeat them;52 dropping a nickel in a fund box every time he used the word “liberty,” as a royalty to the descendants of Thomas Paine, the alleged “inventor” of the word “liberty”; and changing his original name from Joseph Andrew Galambos (Jr., presumably) to Andrew Joseph Galambos, to avoid infringing his identically-named father’s rights to the name.

I am sorry to say that my personal view is that Galambos was a crank and a nut.

Robert Klassen March 7, 2005 at 8:00 pm

I endorse Lowi’s comment. I add that Galambos condemned the coercive State patent system for encouraging theft, and for retarding progress. Galambos acknowledged the existential reality that innovation is the intellectual property of the innovator forever, period.

kyuuri March 7, 2005 at 8:23 pm

Mr Gil Guilory

Your explanation is very persuasive to me.
Your alternative plan – free market mechanism approach as listed below.
1.Trade Secret approach
2.Premium effect
3.Exclusive distribution by Eckerd
4.Cartel approach
,,land so on.

I agree that free riding problem is NOT a problem.
But it is not very easy to persuade proponents of IP wrt this problem.
So I wanted to hear how opponents explain to them.

Industries that have high R&D cost like pharmaceutical industry usually claim that free-riding is a serious problem .
But Industries having low R&D investment such as Food industry usually doesn’t claim so.

I think this indicate another problem.
Their claim that they need patent system to eliminate free riders depends on a reason that their R&D cost is so expensive that they need monopoly rights or monopoly terms to recover investments.

Another problem is why their R&D cost is so high,
wrt pharmaceutical industries ,it is obvious government intevention by pharmaceutical law is a R&D’s cost driver .
If we could abolish those intervention by the state,
pharmaceutical company would be able to lower R&D costs drastically.
These government role to assess drugs should be made by private enterprises.

I think these interventions by state generate many problem,such as too expensive drugs, small variations of drugs ,and authorization of patent system,and so on.

tarran March 8, 2005 at 12:06 am

I want to point out another reason why people would spend money on R&D to produce new drugs in the absence of patents of monopoly: Sick people don’t want to die and will support R&D.

An analogue may be found in the free software movement. In the early days of the GNU project, people worked on the software not so that they would have something to sell, but to create something for their personal use. By liberally licencing their code so that others could modify and distribute it, they were able to reap the benefits of modifications introduced by others.

This pattern may be found in many industries. The aviation industry leaps to mind: for example, the legendary battles between Curtis and the Wright brothers, where the Wright brothers focused on patenting and licensing their inventions, while Curtis was ahppy to “give” away his ideas and focused on making a better airplane. It was fitting that in the end, it was Curtis who bought out the Wright brothers’ nearly bankrupt company.

Time after time, in industry after indutry, I see a pattern of innovation being stifled by patents, not enhanced, and the most profitable companies to be the ones that don’t participate in the patent lottery but instead focus on making things or providing services people are willing to pay for.

Alvin Lowi March 8, 2005 at 12:10 am

Kinsella: “This is not the forum to discuss Galambos (can there be such a forum?), but in my view his views were extremely crankish and incompatible with the Austrian view of matters (e.g., his scientism) and liberty (his IP views)….Heuristic? “dilution of proprietary interest”? Crankish and scientistic.”

Presumably, participants in an intellectual discussion of the nature of intellectual property under the auspices of the Mises Institute are entitled to their views subject to a modicum of decorum and tolerance. And it is understandable that those who would criticize Galambos’ ideas without the benefit of direct exposure to his unpublished lectures last given live over thirty years ago would miss his finer points. However, heresay is poor authority for criticism especially for a lawyer. Ad hominem remarks are especially inappropriate in this forum.

Actually, next to FEE, Galambos did as much as anyone to get recognition for Mises and Austrian school economics. His teachings and promotions ran Mises books out of print in 1964 after he brought Mises to Los Angeles for a couple of seminars and lectures. Where were most of the contributors and readers of this blog when appreciation of laissez faire was at this low point? And regarding the physicist Galambos’ so-called scientism, lets see the lawyer explain how science is in conflict with Austrian a priorism.

Kinsella; “Annway (sic)–I really don’t want to be compared to Galambos.”

In that case, refrain from citing defective second hand knowledge of the man’s work. Those who knew Galambos personally would never compare him with Mr. Kinsella or anyone else. In the present case, the citation in question is in footnote 5 of Mr. Kinsella’s May 7 Mises Daily article that is the subject of this blog. The journal article cited above was not in evidence when this blog was started.

Kinsella: “He might have rejected the government patent system but he did advocate an absurdly extreme form of intellectual property rights, with perpetual terms.”

Perhaps so, but one has to admit that this so-called extreme case has made good heuristic subject matter.

It is also understandable that one who argues forcefully and passionately against the existence of intellectual property would tend to consider a passionate argument for the contrary an extreme position in the matter. But to dismiss Galambos off hand as “absurdly extreme” borders on panic without a visible threat.

Kinsella: “I am sorry to say that my personal view is that Galambos was a crank and a nut.”

Mr. Kinsella is welcome to his personal opinions. Evidently, this one is based on inimate personal knowledge of the subject.

Stephan Kinsella March 8, 2005 at 12:11 am

tarran (so-called) says, “I want to point out another reason why people would spend money on R&D to produce new drugs in the absence of patents of monopoly: Sick people don’t want to die and will support R&D.”

And let me point out something obvious: people are devoting time and other scarce resources merely to post on this blog. This is not because of the hope of some monopoly profit. Why would anyone engage in this activity, if we always acted in the narrow way that is predicted by utilitarians and free-rider-phobics?

Stephan Kinsella March 8, 2005 at 12:22 am

Alvin Lowi:

“Presumably, participants in an intellectual discussion of the nature of intellectual property under the auspices of the Mises Institute are entitled to their views subject to a modicum of decorum and tolerance. And it is understandable that those who would criticize Galambos’ ideas without the benefit of direct exposure to his unpublished lectures last given live over thirty years ago would miss his finer points. However, heresay is poor authority for criticism especially for a lawyer. Ad hominem remarks are especially inappropriate in this forum.”

This is a fair point. However, I have formed the view that Galambosi is a nut and a crank. I ought to be permitted to say this as well. I do not mean it so much as an ad hominem, as a simple time-saving measure. We all size up nuts and cranks quickly, from rough and ready evidence and assumptions, and devote resources elsewhere.

“Actually, next to FEE, Galambos did as much as anyone to get recognition for Mises and Austrian school economics. His teachings and promotions ran Mises books out of print in 1964 after he brought Mises to Los Angeles for a couple of seminars and lectures.”

This could be. Mayhap he was a good popularize, despite his crankish views; and despite his apparent scientism which is opposed to Misesian Austrianism. For example he seemed to accept the idea that to be a true “science” it has to be in the model of the natural sciences, i.e. empirical, testable. I get the impression Galambas was a very bright but overly-ambitious engineer type.

“Where were most of the contributors and readers of this blog when appreciation of laissez faire was at this low point? And regarding the physicist Galambos’ so-called scientism, lets see the lawyer explain how science is in conflict with Austrian a priorism.”

I recall reading descriptions of Galambos (his own writing is difficult to find precisely due to the crankish nature of his views and adherents) in which he keeps trying to fit even economics into the mold of physics type reasoning. I don’t have time nor inclination to look it up; feel free to correct if I am wrong.

“In that case, refrain from citing defective second hand knowledge of the man’s work.”

I understand your desire but I have formed a view based on information I have, and feel no reason not to publicize it.

“Those who knew Galambos personally would never compare him with Mr. Kinsella or anyone else. In the present case, the citation in question is in footnote 5 of Mr. Kinsella’s May 7 Mises Daily article that is the subject of this blog. The journal article cited above was not in evidence when this blog was started.”

Yes, it was. It was in footnote 5 from the beginning.

“Kinsella: “He might have rejected the government patent system but he did advocate an absurdly extreme form of intellectual property rights, with perpetual terms.”

Perhaps so, but one has to admit that this so-called extreme case has made good heuristic subject matter.”

I have no idea what the word “heuristic” adds to your sentence.

“It is also understandable that one who argues forcefully and passionately against the existence of intellectual property would tend to consider a passionate argument for the contrary an extreme position in the matter. But to dismiss Galambos off hand as “absurdly extreme” borders on panic without a visible threat.”

I will be honest: I view die-hard Galambosians similar to the way I view die-hard Lyndon Larrouchies or die-hard Scientologists, or die-hard Irwin-Schiff-tax-nuts. They are dismissed not b/c they are threats but b/c they are not spilling a lot of ink over.

Chris P March 8, 2005 at 12:22 am

Aproximately how long does it take a drug company to reverse engineer a competitor’s drug?

Stephan Kinsella March 8, 2005 at 12:27 am

Chris P: “Aproximately how long does it take a drug company to reverse engineer a competitor’s drug?”

It takes 13 months on average to get the formula, then another 11.5 to finalize it, with an extra 3.7 months for provisional FDA approval. The first two parts can take place during the first company’s patent term; the last after it expires.

Who am I kidding. I don’t know. I just made that up.

Tracy Saboe March 8, 2005 at 2:36 am

I would encourage anybody who’s interested to read my column I wrote about Fiat PRoperty.

The Free Market Environmentalist Case Against IP

http://www.geocities.com/tracysaboe/fiatproperty.html

Stephan Kinsella March 8, 2005 at 11:04 am

Tom Giovanetti, President of the Institute for Policy Innovation (IPI) emailed me about this piece. He told me he did not agree that utilitarian arguments in favor of IP lead to statism–I had not argued this in this article, but I did make a comment about that in a previous blog post.

In my current article, I was addressing a narrow point. But as one can see, from the previous blog post, in this case utilitarian thinking does lead to some to call for redistribution of wealth, which is of course socialistic and statist.

Giovanetti said he himself favors an unlimited natural right to IP, but the Constitution does not seem to endorse this. This made me remember–his group, IPI, has posted the pro-IP pieces by Bandow and Epstein (click here, then click “Intellectual Property” on left side; then “Prescription Drugs”). As I said to Giovanetti, I admire Epstein but I did criticize him here. Also, I pointed out that Cato (rightly) backtracked after Bandow endorsed what is arguably (and in my view is) protectionism (see Re: Cato on Drug Reimportation, and Cato Tugs Stray Back Onto the Reservation).

He asked a question about my being an IP attorney who did not believe in IP law. MY reply:

I don’t think IP law (in particular, patent and copyright, and much about federal trademark law) is justified. And yes, I believe this even though–or maybe because–I practice IP law. There are also probably tax attorneys who think the tax code is an abomination and who would be unemployed if it were abolished, just as there are probably people who drive on public roads who also believe they should be private, and people who work in public universities who think all universities should be public, and people who pay FICA taxes and receive social security benefits who think social security should be abolished. There may even be a few employees of the Tennessee Valley Authority who are happy to keep receiving a paycheck but who really think the program ought to be abolished.

Surely this cannot be surprising to you. Surely it is not surprising that not everyone engaged in a given profession accepts the self-serving makeweight (and lightweight) arguments advanced by that same profession.

Surely you would not say that merely because someone is engaged in a profession that only exists because of a given policy or institution, that that means that the institution is therefore somehow justified.

Surely you would not say someone is prevented from disagreeing with aspects of the system just because one is part of that system. By similar logic, no black can ever oppose affirmative action–it would be said he has no standing to complain since he himself benefited by the system. Etc. Too convenient of an argument, IMO.

Being an IP attorney helps me understand the exact nature of this legal institution. By my lights, it is incompatible with a private property order, and with liberty and justice.

Stephan Kinsella March 8, 2005 at 11:15 am

Speaking of Galambos–see this post of mine, Rothbard and the Galambosians.

Vanmind March 8, 2005 at 4:29 pm

I know that I for one applied for a patent even though I hate them.

I have been trying to scrub my hands clean ever since. Ha.

kyuuri March 8, 2005 at 7:46 pm

>I know that I for one applied for a patent even though I hate them.

Ditto.

But those who use patent system are not guilty.
To be blamed for is the existence of these positive laws.

Patent law is considered to be the root of all evil.

Robert Klassen March 8, 2005 at 9:48 pm

Certainty derived from ignorance cannot be trusted. Galambos’ Sic Itur ad Astra, Vol. 1, has been for sale on Amazon.com since 1999.

Chris Donabedian March 11, 2005 at 10:11 pm

I am surprised (and dissapointed) to see this argument on this web site, of all places. The author has no grasp of the correct philosophical basis for patents. One of the proper functions of government is the protection of property. Patents properly observe that the mind is the source of production, and that the innovation is an INTELLECTUAL piece of property, which the state can properly observe and protect.

It is NOT the state’s job to foster innovation. That is NOT the purpose of the patent system. It is NOT simply a matter of cost benefit analysis. In fact that has nothing to do with it. We don’t conduct cost-benefit analysis to decide whether the military or police should protect say, one company’s prodcution plant. It is done on principal. Same with patents.

Thus, the entire essay argues against a strawman. It may well be that SOME argue for patents based on fostering innovation. That is simply a confession of their intelletual confusion as well. It does not follow that because THAT is a bad argument that patents should not be issued and protected by the state.

Jon March 14, 2005 at 2:17 pm

Without patent law, I (as inventor and holder of patents) would not publish the relevant information and make sure that the correct mechanisms for implementation are described: I would, however, publish misleading information, if I had to publish, to ensure that the technologies were not advanced by others.

This is the practical purpose of patent law: The article seems to me to be fraught with practical problems.

Stephan Kinsella March 14, 2005 at 2:51 pm

Chris Donabedian:

I am surprised (and dissapointed) to see this argument on this web site, of all places. The author has no grasp of the correct philosophical basis for patents.

Who does, I wonder? :)

One of the proper functions of government is the protection of property. Patents properly observe that the mind is the source of production, and that the innovation is an INTELLECTUAL piece of property, which the state can properly observe and protect.

This is just an assertion. It’s question-begging to state intellectual innovations are a type of property–that’s the issue. There are various reasons set forth to justify this assertion: some are utilitarian, and some are more deontological or natural rights based. My article here was simply addressing utilitarian arguments, and pointing out that if they point to the benefits, they must also take into account the costs. I have written elsewhere (see my 2 articles in note 2) about problems with other justifications.

It is NOT the state’s job to foster innovation. That is NOT the purpose of the patent system. It is NOT simply a matter of cost benefit analysis.

So say you. The Constitution’s grant re patents is explicitly cost-benefit, and that is the argument used by most of your fellow IP proponents.

In fact that has nothing to do with it. We don’t conduct cost-benefit analysis to decide whether the military or police should protect say, one company’s prodcution plant. It is done on principal. Same with patents.

Even if this were true, this is not germaine. The argument here is whether patents should be protected as rights; and some people say “yes” *because* they think it’s a net benefit. To this argument, it is relevant to ask about costs.

Thus, the entire essay argues against a strawman. It may well be that SOME argue for patents based on fostering innovation.

Actually, most people argue for it on these grounds–and these are your allies. Moreover, even those who claim to have a natural-rights or similar type basis for IP, often confusingly mix in utilitarian concerns–like Ayn Rand, J. Neil Schulman, etc.

That is simply a confession of their intelletual confusion as well. It does not follow that because THAT is a bad argument that patents should not be issued and protected by the state.

Right, and I didn’t claim this here: I was here only addressing one argument in favor of IP. I did not conclude here even that the costs outweigh the benefits–I only state that those who trot out its benefits must also be honest and subtract its costs.

Jon:

“Without patent law, I (as inventor and holder of patents) would not publish the relevant information and make sure that the correct mechanisms for implementation are described: I would, however, publish misleading information, if I had to publish, to ensure that the technologies were not advanced by others.

“This is the practical purpose of patent law: The article seems to me to be fraught with practical problems.”

Even if your argument is correct (and I am not sure it is–after all you wasted time writing this reply, even though you got no monetary benefit from this creative effort), this is merely a benefit of having a patent system–that it encourages publication of information that would otherwise be kept secret for a long time. Okay, this may be one of the benefits of a patent system. It is then reasonable to ask what are the costs of such a system, and if they are greater or smaller than the benefits.

Paul Aubert March 15, 2005 at 1:27 pm

I practice Corporate and Securities law and have done my share of licensing work since the focus of my practice is with bio-tech and tech companies. I completely agree (and have seen firsthand) that the cost of a “patent portfolio” can be astronomical and simply not feasible for many start-up companies. In that sense, I must concur that the patent regime currently in place stifles much creative development and competition in the market place by scaring off would be competitors. Certainly, the companies with the money to be able to afford expensive patent counsel enjoy the benefits of their government-enforced monopoly, but as long as the costs of protecting one’s property are cost prohibitive for start-ups with little working capital, the argument that the patent regime “protects” private property is shaky at best. Stephan, being a patent lawyer himself, is arguing against his personal interests in arguing against the patent regime in place, so his argument carries quite a bit of weight in my mind. I’m not saying I agree with everything he says, but I would hope that people would be willing to think about it critically.

Copyright 2005 Paul Aubert – All Rights Reserved

Stephan Kinsella March 15, 2005 at 1:38 pm

Re Paul Aubert’s comments–thanks Paul, and well put. And keep in mind in this piece I was not attacking the patent system but only saying that IF its costs are greater than its benefits, then it is not justified on standard wealth-maximization grounds; and I was pointing out that the costs need to be recognized, and that they may be greater and more extensive than is commonly realized. And still the IP proponents hit the roof. What does it say when the advocates of a law go ballistic at the slightest hint of a question about the justification for it?

Paul D March 15, 2005 at 6:25 pm

“innovation is an INTELLECTUAL piece of property, which the state can properly observe and protect.”

Chris, by perverting the word “property” to refer to non-scarce, non-exclusive, abstract things like ideas and information, you pervert morality itself. “Intellectual property rights” are the very opposite of true property rights.

With true property rights, I can do whatever I want with the physical property I own. I have no right to control what you do with yours. The state might recognize my property rights, but it does not create them, and it is not needed for me to protect my property.

Under a patents and copyright regime, I cannot do whatever I want with my physical property, because some patent or copyright holder might get the state to interfere. Likewise, by acquiring patents, I can interfere with your right to use your own property. IP laws are purely a state creation, and they do not exist without the state, nor can an individual protect his IP on his own, unless he controls the thoughts and property of all other people.

You simply cannot pretend that copying ideas or information is a crime without negating real property rights.

The only sense in which I can own an idea is in the sense that I may have and use it. Excluding other people from owning copies of my stuff is not a definition of ownership or property.

Chris Donabedian March 17, 2005 at 11:03 pm

Stehpen, you assert:
“This is just an assertion. It’s question-begging to state intellectual innovations are a type of property–that’s the issue. There are various reasons set forth to justify this assertion: some are utilitarian, and some are more deontological or natural rights based. My article here was simply addressing utilitarian arguments, and pointing out that if they point to the benefits, they must also take into account the costs. I have written elsewhere (see my 2 articles in note 2) about problems with other justifications.”

My point was that this article addressed the utilitarian arguments for patents, not rights based arguments, and that the proper justification of patents is rights-based. Just because someone else is defending the same CONCLUSION as mine does not make them my ally. It’s a classic non sequiter to state that we are allies. I could likewise say that a communist denies patent rights for Marxist reasons, and it would be silly for me to say he is therefore YOUR ally, just because your conclusions (without reference to what gave rise to that conclusion)are the same.

Peter March 18, 2005 at 12:22 am

A rights-based argument doesn’t hold up any better, though.

Chris Donabedian March 18, 2005 at 2:42 pm

Sure it does.

I’d be interested Stephen if you also do not believe that a copyright (say, of a novel) is property, and if not, on what grounds.

Alex March 18, 2005 at 2:57 pm

Chris, what if I invented the use of the English language. Would you agree with me if I said that you had to ask my permission to use it? I invented it, after all.

If you see the absurdity in this position, then there’s hope. If you don’t, then I guess there’s no point in arguing with you.

Stephan March 18, 2005 at 3:15 pm

Chris: “I’d be interested Stephen if you also do not believe that a copyright (say, of a novel) is property, and if not, on what grounds.”

Chris, I have covered all this in the writings noted above.

Wrong again October 19, 2005 at 2:26 am

You should delete the comment spam, just above this one. We’ll all think you are not paying attention to your blog.

Your take on patents is wrong. The main purpose of patents is covered slightly in the first footnote.

Patents do not protect the patent holder, they are granted to protect US, the people. Patents serve mainly to ensure new art is disclosed for the good of society.

How would you like someone to cure cancer, keep it all to himself and never tell anyone?

With a patent he can sell it, he has to disclose it to get the patent. Others can read the patent and improve on it if they can. It protects US from those that make marvelous discoveries and would otherwise keep them secret.

Paul Edwards October 19, 2005 at 11:32 am

Wrong:

Are you kidding around in saying that a patent “…protects US from those that make marvelous discoveries and would otherwise keep them secret”? You’re not saying that the idea behind a patent is to protect society from individuals wanting to keep their ideas to themselves are you?

Wrong again October 19, 2005 at 9:42 pm

Paul, that is the real purpose of patents.
Some people think that the purpose is to protect the patent holder, not exactly.

They get a measure of protection, sure. In exchange they have to come clean on their discovery.

The disclosure has to be sufficient that a person who is an expert in the field could duplicate it. That is the standard for issuance of a patent, read the patent law! So when the patent expires the whole of society can benefit from the new invention. Without that people might keep their discoveries secret. It’s a quid prop quo.

The other value that a patent has today more than ever, especially in biotech is that it allows research to be funded. What venture capitalist would fund clinical research and testing, which might cost hundreds of millions of dollars if competitors could just steal the new product as soon as it is sold? The competitors naturally would save millions in research costs. How can you compete with that and do original research?

Note that I did not mention software patents. I think that’s a ridiculous idea.

John Alvarado September 20, 2010 at 1:49 pm

In the absence of patents, research will continue the way it did before patents: at universities and other research organizations funded by government, private donors, and charitable fund raising. People give millions to research charity already (cure for cancer, for example). How much more gladly will people give when they know that the practical application of discoveries will be made available with the lowest cost possible because of free-market competition, as opposed to monopoly by a single bio-tech company? And how much faster will research progress go in general when scientist can build on each others work without fear of infringement?

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