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Source link: http://archive.mises.org/5347/the-three-stages-of-invention/

The Three Stages of Invention

July 20, 2006 by

Nicholas Snow explores Frédéric Bastiat’s theory that an invention goes through three stages: initial innovation that rewards the first to come up with the idea and implement it, an imitative stage, and a gratuitous stage where the new product or service is so common that people regard it as tantamount to a gift from nature. Patents, on the other hand, prolong the first stage with a grant of government privilege, and thereby interfere with the market process. FULL ARTICLE

{ 65 comments }

David C July 21, 2006 at 12:28 am

RogerM: It’s interesting to me that anti-IP people use examples like toothepaste in discussing new inventions, while pro-IP people use pharmaceuticals and high tech.

This is nonsense. The IT industry in particluar is defined by blatent disrespect for copyrights and patents. People only use the toothpate examples to dumb it down for others who clearly don’t get it. In fact, one of the defining moments in the IT industry was when IBM and Intel lost their big lawsuits over reverse engineering the BOIS and the manufacture of slot compatable devices. ( that they thought they had IP rights over) This created an explosion in the market place and the PC revolution was born. Also, anybody can cleary see that the internet wasn’t held back by concern over IP rights.
Almost all the internet protocools were written for free, and the cutting edge today is in the Linux space, while Windows is stuck in the mud till Vista comes out, and all the other UNIX’s are dying – by own admission. Also, notice how it is TCP/IP and Ethernet based and not Novell networks based or Token-Ring based??? Also, I live in San Diego with some of the worlds biggest biotech industries. For the first 10 years it centered around patetns and got nowhere, then the scientists starting revolting and sharing gene sequences and research, and now, funny enough the industry is taking off.

Win: I can see it now. Libertarian utopia, where everyone is mooching, copying, reverse engineering, and otherwise stealing what others have done the legwork on.

You are also wrong and don’t know what you’re talking about. In this utopia, for every $1 worth of information I loose control over, I gain $100 million dollars of information for free. So it is worth it for people to participate from a service based side, “mooching” or not.

Win July 21, 2006 at 12:53 am

David C,

Is your motivation for abolishing IP protection the expectation of gaining something for nothing?

In that case, I’d say you are the one who is misinformed. The unintended consequences of living in your world would bring much, if not nearly all, of the innovation you hope to mooch to a standstill.

RogerM’s comments are quite insightful.

banker July 21, 2006 at 1:33 am

This 3 step process is precisley what happens in the financial servicies industry. Banks rush to develop new financial products for their clients. Whoever is first gets to charge fat margins on this new product. Then other competitors either copy or improve new product and fees start coming down significantly. Overtime the new product is commoditized and money is made on volume rather than fat margins. At this time banks are already moving on to the next big thing. At no point in this process do patents or copyrights come into play. Innovation in this space requires significant investment in technology and market research.

So capital markets is the best place to see what happens without IP laws.

averros July 21, 2006 at 4:06 am

Anyone who was around in the high-tech industry for a while knows that if all patent rights were enforced THERE WOULDN’T BE ANY HIGH-TECH INDUSTRY to speak of.

It is absolutely impossible to check any design for non-infringement against dozens millions patent claims.

So nobody bothers. The patent litigation risk is simply treated as a cost of doing business. Small companies are generally below the radar, the large ones acquire patent portfolios they use as a deterrent (in a “mutual assured destruction” fashion). What is in those patents is completely irrelevant.

Patents are for losers. I have yet to meet an actual engineer who made his fortune because of his patents. Does anyone know one personally?

Stephan Kinsella July 21, 2006 at 7:37 am

Roger:

The issue is very important, because if the methods you mentioned, trade secrets, first mover, etc., are insufficient to persuade entrepreneurs (profit seekers) to invent new products, then we are left with charity from philanthropists and government spending as sources of funds for research. Governmental power will increase.

A few replies. First, you are implicitly saying rights are defined in terms of consequences. Second, you seem to assume it’s “either-or”–that either there is, or is not, “invention of new products.” Of course, there will always be innovation no matter what IP laws exist. Your argument then is reallly, there will be MORE innovation with patnet laws, and this EXTRA amount of innovation is worth the cost of the system. But you don’t show this to be the case.

It’s interesting to me that anti-IP people use examples like toothepaste in discussing new inventions, while pro-IP people use pharmaceuticals and high tech. The distinction isn’t trivial. The investment in R&D for most consumer products is relatively small,

Do you think the research in toothpaste is trivial? Are you kidding?

Being the first mover, developing internal expertise, keeping trade secrets, reputation, etc., might be fine for jello, but I doubt it would be sufficient protection for someone spending $1 billion on a new cancer drug or a jet engine.

Oh. Well if you doubt it, I guess that means patent laws are justified. Vas?

David C:

This is nonsense. The IT industry in particluar is defined by blatent disrespect for copyrights and patents. People only use the toothpate examples to dumb it down for others who clearly don’t get it.

Ha ha ha ha ha.

Yes and I also used it because someone asked how will there be an ROI. My answer is that we cannot konw what market mechanisms will develop if we have freedom. This frightens some people who want some certainty for some reason. I remember a long time ago seeing a documentary, some commie person was shown a western style supermarket and was baffled at all the types of toothpaste available. So my point was, if there was one reliable toothpaset made under communismand you proposed to abolish it, then soem commie might say, “but but what toothpaste will there be under this free market system?” the answer would be, who knows, let’s try it and see–it can’t be predicted ahead of time.

averros:

Anyone who was around in the high-tech industry for a while knows that if all patent rights were enforced THERE WOULDN’T BE ANY HIGH-TECH INDUSTRY to speak of.

This could well be right. It’s sort of like communism/socialism: it was never done 100%, because if it was, everyone would die. Same with patents: they are enforced to a degree, and it causes a big drag on technology and innovation and efficiency, but if they were really enforced 100%, my God it would be terrible. THe IP advocates get away with advocating IP because it’s not enforced 100% and the costs are kind of hidden.

I do know there are lots of high-tech startups who never make it because they can’t get funding because of the danger of patent lawsuits in some crowded field.

So nobody bothers. The patent litigation risk is simply treated as a cost of doing business.

Right; so of course, at the margin, some companies that would have made it, don’t. Thanks.

Small companies are generally below the radar, the large ones acquire patent portfolios they use as a deterrent (in a “mutual assured destruction” fashion). What is in those patents is completely irrelevant.

Er… right, so you have tons of wasted resources going towards defensive innovation and patenting… what’s the point?

Patents are for losers. I have yet to meet an actual engineer who made his fortune because of his patents. Does anyone know one personally?

Sure, there are a few.

Roger M July 21, 2006 at 9:10 am

I’m a slow learner sometimes, so forgive me if what I’m about to say has been obvious to many of you for a while. It occurred to me that the long debates about the minutae of patent law, innovation, and monopolies was all a smokescreen on the part the anti-IP mob. They really don’t care about those issues; they care about promoting anarchism. They don’t care about innovation at all. Kinsella has made that very clear. If within the rules of the game for an anarchist state, someone could invent a method to accomplish exactly what government patents and copyrights do, they would have no problem with that method. The only issue they care about is getting rid of the government.

Kinsella admits he doesn’t know how innovation might take place in anarchism, but he has enormous faith that it would be better than under the current system. This illustrates a disadvantage that we capitalists face in discussing any subject with anarchists. We are constrained by reality; anarchist are constrained only by their imagination and faith in anarchism.

Stephan Kinsella July 21, 2006 at 9:17 am

Roger:

I’m a slow learner sometimes, so forgive me if what I’m about to say has been obvious to many of you for a while. It occurred to me that the long debates about the minutae of patent law, innovation, and monopolies was all a smokescreen on the part the anti-IP mob. They really don’t care about those issues; they care about promoting anarchism. They don’t care about innovation at all.

This is untrue. Qua libertarian we are in favor of protecting individual rights–property rights. Whether we are anarcho or minarchist libertarians. Sure we “care” about innovation, but not qua libertarian; and we are not utilitarians so we do not start wtih the question of: waht rights do we have to implement to make sure there is enough innovation. Surely you are at the least aware that there are some principled libertarians out there who are not pragmatic, unprincipled utilitarian compromisers and tinkerers, right?

Kinsella has made that very clear. If within the rules of the game for an anarchist state, someone could invent a method to accomplish exactly what government patents and copyrights do, they would have no problem with that method. The only issue they care about is getting rid of the government.

Why, no; the IP debate is about what property rights there are, not about who is going to enforce them. A minarchist libertarian should, in my view, recognize *that* IP is not a genuine property right, and that *therefore* the state’s job, which is to enforce genuine property rights, should not enforce IP rights.

Kinsella admits he doesn’t know how innovation might take place in anarchism, but he has enormous faith that it would be better than under the current system.

Actually, no; and this is why I resisted your questions about ROI. Because then you people turn around and want to assume we are all a bunch of ends-justify-the-means, utilitarian pragmatists.

This illustrates a disadvantage that we capitalists face in discussing any subject with anarchists. We are constrained by reality; anarchist are constrained only by their imagination and faith in anarchism.

Anarcho-capitalists are of course capitalists.

Nick Bradley July 21, 2006 at 11:39 am

Roger M:

In response to your question of how you would collect ROI on your invention without patent or copyright. You mentioned that there is nothing preventing the engineer you sold a licence to make your product from copying it. Well, YES THERE IS. In such a situation, it could easily be stipulated in the contract that he is not allowed to do so. It’s sort of like a non-disclosure agreement (NDA).

TGGP July 21, 2006 at 12:05 pm

I’m a consequentialist minarchist (an-caps might call me a “criminalist”), and I still think Kinsella is right. People innovate all the time whether or not their innovation is patentable (this site had an example with Coldstone, and there are other business practices and methods of the type that allowed Wal-Mart to get rich that are not patentable). Nobody has actually proven the utilitarian case for patents, they just assume that without them nothing would get invented. There is basically an assumption that government intervention through grants of privilege will nudge the economy in the “right” direction. Pardon me if I’m skeptical.

J D July 22, 2006 at 3:14 pm

Rothbard wrote – he liked copyrights.

If he were an inventor I expect he would have liked patents.

averros July 22, 2006 at 8:21 pm

Rothbard wrote – he liked copyrights.

Yep, but in a completely different form from what is called “copyrights” today – he was totally against any enforement of copyrights paid for by the taxpayers.

The contractual obligation not to share the contents of a book/movie/etc made at the time (and as a condition) of sale of that book/dvd/etc is perfectly compatible with libertarian principles. So are technological copy controls – if they’re not rammed down consumers’ throats by the force of law.

The modern copyrights are nothing like voluntary contracts. They are imposed automatically by the law, even on parties which didn’t agree to anything. And the costs of enforcement are bourne not by “owners” of content, but by everyone, including people who had nothing to do with each particular piece of “IP”.

Thus, saying “Rothbard liked copyrights” presuming that he meant present-day definition of the term is simply bending the truth beyond any recognition.

If he were an inventor I expect he would have liked patents.

Most real-life inventors hate patents. Here’s one of the well-known inventors (practically anyone in US uses his inventions) wrote:

http://people.qualcomm.com/karn/patents/patents.html

Oh, and I do have patents in my name (obtained for the sake of keeping venture capitalists happy, never enforced) – and I can sign under every word of what he wrote.

Brett Celinski July 22, 2006 at 10:18 pm

Win, IP laws are not voluntary, and are imposed on everyone. As averros has said, if they were completely enforced, innovation would completely become static, more or less.

Did Galt need to impose his law upon all people whether they agreed to or not? Sounds too authoritarian to me.

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