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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 }

Stephan Kinsella July 20, 2006 at 9:37 am

Great article. For further discussion of how patents distort the innovative process see n. 44 and accompanying text of my Against Intellectual Property. In particular, see Arnold Plant, The Economic Theory Concerning Patents for Inventions, sections 16, 19, 20, 24:

The patent system may, on the one hand, be expected to affect the making of inventions in two ways. The first is to divert inventive activity into those fields in which the monopoly grant will be expected to prove most remunerative. It may, secondly, affect the total amount of inventive activity.

… the utilitarians assumed that the patent system was responsible for the greater part of inventing activity. The question which they one and all failed to ask themselves, however, is what these people would otherwise be doing if the patent system were not diverting their attention by the offer of monopolistic profits to the task of inventing. By what system of economic calculus were they enabled to conclude so definitely that the gain of any inventions that they might make would not be offset by the loss of other output? By no stretch of the imagination can the inventing class be assumed to be otherwise unemployable. Other product which is foregone when scarce factors are diverted in this way completely escaped their attention.

… at the beginning of this century Professor J. B. Clark was still writing: “If the patented article is something which society without a patent system would not have secured at all – the inventor’s monopoly hurts nobody… His gains consist in something which no one loses, even while he enjoys them.” No inkling here that the patent inducement to invent diverts scarce human effort from other production, and that the subsequent exploitation of patents again interferes with the disposition of scarce factors which would obtain under competitive conditions.

… It seems unquestionable not only that a very considerable volume of inventive activity must definitely be induced by price conditions, but also that that activity is diverted by price movements from other types of endeavour as well as from other fields of invention. Entrepreneurs faced with new difficulties or with new opportunities will divert not only their own attention, but that of every technician who can be spared, from the business of routine production to that of urgent innovation. They will not rely exclusively upon those types of professional inventors whose autonomous output pours out in a stream of unvarying size, and some of whom may be prepared, in return for the inducements which the entrepreneurs can offer, to transfer their spontaneous activity to their service. It cannot be assumed that all who are capable of innovation spend their whole lives in inventing. Many of them are also able administrators and production controllers; some in the past have been clergymen and barbers, and in our own time there is a steady flow of technicians from the research laboratories of pure science into those of industrial invention and out again. … The patent system … enables those who “have the monopoly of the right to use a patented invention to raise the price of using it … and in that way to derive a larger profit from the invention than they could otherwise obtain. The effect must surely be to induce a considerable volume of activity to be diverted from other spheres to the attempt to make inventions of a patentable type. [emphasis added]

See also Rothbard, Man, Economy, and State, ch. 10, sec. 7:

It is by no means self-evident that patents encourage an increased absolute quantity of research expenditures. But certainly patents distort the type of research expenditure being conducted. . . . Research expenditures are therefore overstimulated in the early stages before anyone has a patent, and they are unduly restricted in the period after the patent is received. In addition, some inventions are considered patentable, while others are not. The patent system then has the further effect of artificially stimulating research expenditures in the patentable areas, while artificially restricting research in the nonpatentable areas.

George Giles July 20, 2006 at 9:47 am

Patents are just another form of protectionism and the arguments for their existence bear no merit. What would happen if Isaac Newton had patented the calculus and owned all the rights and recouped license fees for everything derived from it. He had priority and we certainly cannot do without his technology.

Companies should win in the marketplace, not by getting a 10 cent pill priced as $10 (lamisil comes to mind), but by efficiency and economy of scale.

The high cost R&D is a specious argument since any large firm regularly incurs high costs for product development (automobiles and airplanes are good examples) yet receive no protection from patent law.

Those that seek intellectual property protection from the government just want a legalistic facade for the justification reaching into every consumer’s pocket via the mechanism of an artificially high price.

Patent Law and the Patent Office should be closed, I am pretty sure they were not in the original Constitution.

doinkicarus July 20, 2006 at 10:04 am

But I don’t think the same holds true for an “idea” like a novel, or a musical score. I know the old adage, “an infinite number of monkeys typing on an infinite number of keyboards – one of them would eventually reproduce the Gutenberg bible…”

Certainly there is a difference between this sort of IP and the sort of IP embodied in patenting an idea about how best to organize the shop’s various tools and machines, no?

Nick Snow July 20, 2006 at 10:24 am

doinkcarus,

Bastiat thought so. For him ideas protected by copyrights should be protected because they are property. However, I think this is the error in his thinking. He is consistent if you grant him the property but I find fault in that. A patented idea is not property for Bastiat because it was more of a discovery of a natural law then a creation of the mind. But a copyright is a creation of the mind and is thus property. This assumes that property is soley determined by labor, however, it should be determined by scarcity (wheter it is rivalrious or not). Thus there is little difference between a copyright and patent. As Adam Smith said the incentive for the author of a book is to be the first to print and sell it (although he was a supporter of both patents and copyrights, at least he saw it for what it really was, a temporary monopoly).

Person July 20, 2006 at 10:27 am

Each and every time I see intellectual property discussed on this site, my blood pressure doubles.

George Giles wrote: “Companies should win in the marketplace, not by getting a 10 cent pill priced as $10 (lamisil comes to mind), but by efficiency and economy of scale.” Stephan Kinsella made a smiliar comment on another thread about the inventor of a drug being able to rest on his laurels.

Guys: inventing something, and finding how to efficiently construct that invention are TWO DIFFERENT SERVICES. I thought the people here, more than at any other site would understand the concept of division of labor and how it’s a Good ThingTM that one person needn’t be good at each stage in a productive process.

I supposed you also think it’s unfortunate that someone can buy commodities, not to use himself, but to, God forbid, SELL TO SOMEONE ELSE AT A PROFIT!!!!11 After all, farmers shouldn’t be allowed to get rich just from growing food well. They should only be allowed to get rich to the extent that they can efficiently bring the products to market, inform others of them, and make small cash transactions. I mean, it’s unfair, right, how a farmer can grow something and then just rest on his laurels. Who does he think he is charging people who take the food? He’s not stocking the shelves in the supermarket. He’s not driving a truck. He’s not spraying them with water all day to keep them fresh. How dare he charge $10000 a truckload, when it only costs $100 to transport to market?

And George, I think the Constitution *may* say something about patents, but I’ll have to check.

Roger M July 20, 2006 at 10:35 am

Bastiat is one of my favorite writers and I think the article is interesting and provides food for thought, but I think the author makes a few mistakes. Several of us have been wrestling with this issue on another thread, so I’ll just summarize:

1. Patents don’t protect ideas, never have, and never will. Ideas must be instantiated in a working model. The patent gives the inventor a chance to make an ROI on his invention before someone else copies it and benefits from his investment of his personal property in the R&D process. It doesn’t guarantee him an ROI, because the invention may not sell.

2. Monopoly doesn’t apply to a single product, but to markets. Electric utilities have monopolies because no one else can sell electricity in their market and no suitable substitute exists. I can hook up a gasoline powered generator to my own home, but I can’t sell the electricity from that generator to neighbors. But if I invent a completely new kind of pain reliever and get a patent on it, I don’t have a monopoly because many other substitute pain relievers exist. So Bastiat’s statements against monopolies and protectionism don’t apply to patents, because they’re neither. It’s more accurate to view patents as a law against theft, because copiers are stealing the results of many hours of labor and dollars of capital spent transforming an idea into a product.

Actually, I think Bastiat might have favored patents, based on his analogy of the inventor of a wood plane. He was relating the concept of inventing a plane to the justification for charging interest on loans. In his analogy, he describes a carpenter who invented a plane that saved him many hours of labor, but after he made such a plane, a neighbor asked to borrow it for a year. Bastiat asked if it was just for the neighbor to borrow the plane for a year without compensating the carpenter for its use, since the carpenter would be without its use for that year. Bastiat argued that it was not just and that the neighbor should compensate the carpenter. He then applied the principle to charging interest on loans.

It would be a stretch to make this analogy apply to patents, though possibly no more of a stretch than the author’s attempt to make his writings on monopoly apply. Say that the carpenter decided to sell the plane to other carpenters instead of using it himself. The plane would still benefit mankind because it reduces the labor required, and therefore the cost of planning a piece of wood. The carpenter could not patent his idea for a plane, but he could patent the plane itself.

As Bastiat would recognize, the carpenter would have spent many hours of labor and capital on multiple failures before he arrived at his successful plane. I think Bastiat would have recognized the right of that carpenter to earn a return on his investment in producing the first plane, and the only way he could do so is with a patent on the plane, not the idea of a plane. Others could take the carpenter’s idea and invent their own planes as long as they didn’t copy the carpenter’s plane exactly; they would have to incorporate at least a few innovations of their own. But those too lazy to do the R&D could not steal the results of the carpenter’s labor and investment in making the plane by earning a profit on the carpenter’s R&D investment. They could purchase the rights to the plane from the carpenter and maybe even produce them cheaper than the carpenter did originally.

Patents are nothing more than an extension of property rights to a slightly more abstract form of property.

David Spellman July 20, 2006 at 10:36 am

Yes, George and and Person, the original constitution had a provision for granting patents. It also had a provision concerning slavery. The constitution is still the greatest governing document, even if it had a couple of errors.

ron July 20, 2006 at 10:36 am

I would agree limited to the fact that today’s patent office has become much to liberal in giving patients for less than unique creative ideas such as business plans or phases, Ready to Rumble, from wrestling, and threepeat (sic), basketball, are patented terms. However, unique ideas or inventions do deserve patent protection. For example, I have an idea for a new drug that will save millions of lives world wide, the development and clinical trials will cost $800 millions dollars, average current cost, over several years, but each pill in production will cost $1. How do I recoup my investment if anyone can copy and sell it for $1+ a small profit as well without the $800 Million dollar research, even without the onerous FDA process drugs will have a high development cost. Without some level of protection or method to recoup my initial cost why should I invest in drug research? Your claim that patents stop competition is inaccurate, nothing prevents a competitor from designing a better way to produce the new product, that is building the knowledge base, the role and benefit of competition is about finding a new or lower cost method of producing a product, not merely copying someone else’s method.

You are inaccurate as well when you characterize ideas as a non-scarce resource. You are right in that ideas are plentiful, however good ideas are not and people with the ability to put their good ideas into practice are indeed a scarce resource. Economist error when they focus solely on the producer but also when they focus solely on the consumer it is a dynamic interactive process. Patents benefit both parties by encouraging producers to invent/develop goods with long cost recovery times, consumers gain by having products that otherwise would not be produced. A rational patent system is good for both producer and consumers that is not to say that our current system does not need extensive work.

If there is a right of imitation, I would argue there is not, as Bastiat argued, what responsibilities are attached. Rights do not exist in a vacuum they always come with responsibilities, such as paying the originator a fee. If all imitators lived up to their responsibilities Bastiat would have a better argument. Thus imitate while ignoring responsibilities’ is theft.

Roger M July 20, 2006 at 10:38 am

PS, Another reason the term monopoly doesn’t apply to patents is that a patent does not prevent another inventor from inventing a suitable substitute, part of the definition of monopolies. In the plane example, a patent would not prevent another inventor from creating a plane that worked in a different way. Also, the old method of planing still existed, so there is not way that monopoly could apply to patents in any common usage of the term.

Roger M July 20, 2006 at 10:38 am

PS, Another reason the term monopoly doesn’t apply to patents is that a patent does not prevent another inventor from inventing a suitable substitute, part of the definition of monopolies. In the plane example, a patent would not prevent another inventor from creating a plane that worked in a different way. Also, the old method of planing still existed, so there is not way that monopoly could apply to patents in any common usage of the term. Certainly not the way Bastiat used it.

Roger M July 20, 2006 at 10:47 am

Rothbard has an interesting comment on patents and copyrights: “Part of the patent protection now obtained by an inventor could be achieved on the free market by a type of “copyright” protection. Thus, inventors must now mark their machines as being patented. The mark puts the buyers on notice that the in­vention is patented and that they cannot sell that article. But the same could be done to extend the copyright system, and without patent. In the purely free market, the inventor could mark his machine copyright, and then anyone who buys the machine buys it on the condition that he will not reproduce and sell such a machine for profit. Any violation of this contract would consti­tute implicit theft and be prosecuted accordingly on the free market.

The patent is incompatible with the free market precisely to the extent that it goes beyond the copyright. The man who has not bought a machine and who arrives at the same invention in­dependently, will, on the free market, be perfectly able to use and sell his invention. Patents prevent a man from using his in­vention even though all the property is his and he has not stolen the invention, either explicitly or implicitly, from the first in­ventor. Patents, therefore, are grants of exclusive monopoly priv­ilege by the State and are invasive of property rights on the mar­ket.” Rothbard, Man, Economy, and State, ch. 10, sec. 7.

I think the distinction is a minor one, but I would be willing to accept the extension of copyright to cover new inventions. I still think Rothbard misuses the term monopoly, though.

David Spellman July 20, 2006 at 11:00 am

Under a free market with no patents, there is a simple solution to the problem of “How do you recoup the $800 million dollar cost of developing a drug that can be manufactured for $1?” First of all, the baseline answer is that all those millions of people in ron’s scenario can expect to die, and that is the starting situation. For example, milliions of people die of malaria in real-life. Without a patent, it is true that there will be no financial incentive for anyone to create the drug.

So how would it be created? One possiblitity is that a person with the personal financial means would do so at their own expense out for personal reasons (such as a desire to help or a feeling of guilt at so many deaths they could prevent). Let’s skip the other possibility that the government could provide financing by taxation since this is Mises.org (even though this turns out to be the preferred route for many cases). Both of these solutions are socialogical and not free-market, but there is a free-market approach that would, in fact, work.

The natural free market approach would be for the beneficiaries of the drug to finance its developement and creation. This already happens to a degree through organizations such as the March of Dimes, American Cancer Society, and other organziations that solicit donations to fund research for cures that their constituents care about. Any interested party, particularly suffers of the disease in question, can fund research and production of drugs or any other product they deem important.

After development, everyone benefits from a low-cost solution, whether they paid to create it or noot. Is it bad that research costs will not be recouped? If you are one of the millions who would otherwise die, you can consider the costs amortized over the years of life you have gained. If that isn’t sufficient motivation, you can take your chances on dying in hopes that someone else will decide to pay the costs for you.

Patent law is not necessary for human progress. Not even for life-saving drugs. Solutions will naturally arise when their value outweighs the costs to the consumer of not having the solution. It is the consumer that drives the market, not the inventor. When the consumer says “I will pay whatever it costs because I don’t want to die,” inventions will be funded.

If this sounds callous about human life, the reality is that people are dying every day that could be saved if sufficient resources were brought to bear. I believe in the free market enough to risk my life and pay my own way as long as I live. The last thing I want is someone else intervening to decide whether I live or die.

David Spellman July 20, 2006 at 11:06 am

Just in case there is any misunderstanding, when I said that government funding is the preferred route in many cases, I meant that the public believes the government should fund research for the public good in many cases. I personally do not believe the government should ever fund any research for any purpose. My comment was poorly phrased and sounds like I approve when I would have preferred to ridicule. Alas, blogging is forever…

David Spellman July 20, 2006 at 11:10 am

And I apologize for my horrifying spelling errors.

doinkicarus July 20, 2006 at 11:18 am

Nick –

I would lean more towards Bastiat’s belief that patents and copyrights are two different animals. As far as property is regarded, there is certainly a psychic aspect to it, so mental labor helps create it. This idea of scarcity determining property, well, I think it’s foolish to assert that just because something is (basically) infinitely replicable, like a Book or an MP3, that it in essence, belongs to anyone who wants to copy it.

The precise combination of chemical compounds and their interaction with living organisms is a fact of nature to be discovered. It could be said that this is part of discovery – of the relationships in biology, etc. The combination of machinery, electronics, computing, and human capital requisite to produce a bible or a boeing more efficiently might be seen as a similar relational discovery with regards to the pre-existing laws of physics, metallurgy, ergonomics, etc. The above represent natural relationships, the discovery of which (I think) is ultimately inevitable.

But I think it’s ridiculous to posit that Rand’s “Fountainhead,” or Atreyu’s “Ex’s and Oh’s” represents a similar relationship awaiting discovery. On the contrary, I think they are wholly the product of one’s intellect.

So I’d agree with Rothbard’s idea of the copyright, representing an explicit contract – and in fact I’ve put forth that argument before, that a free market would deal with the issue that way. Even still, recent events suggest that they ahve a very hard time dealing with broadly disbursed copyright infringement. Sure, if Geffen records was copying old Metallica CDs, it would be pretty easy for Elektra to haul them into court. But when a thousand people on computers in a thousand houses are copying and distributing the stuff – it becomes almost impossible to police.

Nick Snow July 20, 2006 at 11:27 am

Roger, please define property. I am guessing you support a perpetual patent? I am having trouble understanding why you believe them to be property at all? (this part is not a criticism, I am just curious).

As for a monopoly, please define that more clearly as well. Maybe under your definition you are right (but even then they are still a form of protectionism). But the way I (and I believe Bastiat as well) defined it is it is the blocking of others from entering the market. What if the invention created a whole new industry only with one product? Then no one could enter the market because to do so would “steal” that companies R&D research? As for substitutes, so what. Are cable companies not monopolies because you could buy a satilite dish?

Ron,

Why don’t you have the right to imitate? I would hate to live in your world where we would have to pay the originator for everything we did. As bastiat asked, if I was the first to put shoes on my feet, does this mean I am the only one with the right to cover my feet as I place them on the ground. Or a little girl can’t put her hair in a ponytail without paying the first girl to put hers in a ponytail? Without the right to imiate Bastiat is right, you would have the monopolization of the most common practices.

Vince Daliessio July 20, 2006 at 11:28 am

David’s points are spot-on. Even if patents encourage innovation that (arguably) saves lives, it discourages investment in other unpatentable areas that might ultimately create MORE social value to the exact invese extent.

There is more than one way to earn a premium on a product. A patent monopoly is one, a high-quality or high-feature product another, a niche or custom product another, and so on. I am sure there are others.

All that the elimination of patents (I have yet to come around on copyrights Stephan, keep trying though) will do is flatten out the capital investment landscape, which, I would contend, while possibly a bad thing for a few big organizations and “BIG” ideas, will turn out to be neutral or even beneficial for r&d by small entrepreneurs working on smaller problems.

As a side effect, SOME complex products might have their commercialization delayed, again, BFD. While fuel cells might have some commercial application, they are a long way from mass consumer use, and might never get there, patents or no, since they involve so many technical hurdles.

I’ll give another example. Nuclear fusion is the holy grail of power generation, because an economic, commercial technology will mean cheap (Remember the talk in the early Atomic Energy era about producing electricity “too cheap to meter”), non-greenhouse-gas-emitting energy. But where is nuclear fusion research being directed – toward large-scale applications that will be favored (and ultimately controlled) by a few gigantic utility companies, or toward small micro or nano-scale applications (which, say, I would favor)?

Favoring a particular innovation, or class or line of innovation involves a value judgement, period. It does not give rise to a property right that should be backed by government force.

Nick Snow July 20, 2006 at 11:39 am

doinkicarus,

I agree that copyright differ from patents in that they are a product of ones intellect. As Bastiat asked about patents though, do you have the compent of property and the capibility of application? this can be applied to copyrights. I disagree that they are property and as you pointed out it is nearly impossible to enforce. Take it back a little as Adam Smith did. In lectures on jurisprudence he says that one could purchase a book and sell that book to B, then be can loan the book to C. If C copys the book and sells that newly copied book to D. Smith saw nothing wrong with that. And most people would. Smith then says that the same principle should be applied to printing. Very few would argue that if you have a tape and lend that tape to a friend to copy that there is anything wrong with that. So, sending music by mp3 or books through the internet should be no different. Thus copyrights are similar to patents in that they protect and restrict others from copying.

Nick Snow July 20, 2006 at 11:47 am

Also I forgot to point out that Bastiat was indeed against patents. He states this in a letter to a M Jobard. Althought sadly it is only in french that I know of. (and yes I read it).

Stephan Kinsella July 20, 2006 at 12:04 pm

I think there is a lot of confusion here about the nature of patent rights.

First, as to whether patents are monopoly grants–hell, even the feds admit this: “Section 154 and related provisions [e.g. Sec. 271] obviously are intended to grant a patentee a monopoly only over the United States market….” U.S. Supreme Court, Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518 (1972). See also: King Instr. v. Perego, by the Court of Appeals for the Federal Circuit (“Congress made the policy choice that the “carrot” of an exclusive market for the patented goods would encourage patentees to commercialize the protected inventions so that the public would enjoy the benefits of the new technology during the patent term in exchange for granting a limited patent monopoly. In other words, the public expected benefits during “‘the embarrassment of an exclusive patent as Jefferson put it.’” Graham v. John Deere Co., 383 U.S. 1, 10-11 (1966).)

See also Engel Ind. v. Lockformer Co. (“We hold that the disputed royalties provisions do not inappropriately extend the patent monopoly to unpatented parts of the patented system”); Carborundum Co. v. Molten Metal Eq. Co. (“A patentee, in demanding and receiving full compensation for the wrongful use of his invention in devices made and sold by a manufacturer adopts the sales as though made by himself, and therefore, necessarily licenses the use of the devices, and frees them from the monopoly of the patent.”).

Now you can argue that patent holders do not necessarily have “monopoly power” (see he Importance of Patents for Economic Development – 1999, by Prof. William Hennessey), but as Rothbard et al. have pointed out, the government’s concept of monopoly is flawed; the only issue that matters is whether there is a legal monopoly granted. See, e.g., Hoppe, A Theory of Socialism and Capitalism, ch. 9, pp. 185-86:

The monopoly problem as a special problem of markets requiring state action to be resolved does not exist. In fact, only when the state enters the scene does a real, nonillusory problem of monopoly and monopoly prices emerge. The state is the only enterprise whose prices and business practices can be conceptually distinguished from all other prices and practices, and whose prices and practices can be called “too high” or “exploitative” in a completely objective, nonarbitrary way. These are prices and practices which consumers are not voluntarily willing to pay and accept, but which instead are forced upon them through threats of violence.

See also Rothbard, Man, Economy, and State (with Power and Market): “The only viable definition of monopoly is a grant of privilege from the government.”

Now it is, indeed, clear that a patent is a monopoly grant to someone that permits them to charge above-market prices; this is exactly the goal of the patent law: to provide this monopoly profit to inventors so as to incentivize them to innovate and file for patents. And it is why, for example, Blackberry paid over $600 million to NTP in a recent patent suit; and it is why consumers will have to pay more for Blackberry services than they otherwise would, etc. Did NTP have “monopoly power” as defined by the government’s antitrust scheme? I don’t know. Probably not. But did they extort RIM/Blackberry by use of the government-granted patent monopoly? Of course.

Now, on to some particular comments:

George: “Patent Law and the Patent Office should be closed, I am pretty sure they were not in the original Constitution.”

While your former contention is correct, unfortunately, the latter is not. See Art. I, Sec. 8.

Person:

Guys: inventing something, and finding how to efficiently construct that invention are TWO DIFFERENT SERVICES.

I think you are confused about how patent law really works. You can patent a useful, new, and non-obvious invention. Your distinction above is imprecise and fanciful.

Roger M:

1. Patents don’t protect ideas, never have, and never will. Ideas must be instantiated in a working model. The patent gives the inventor a chance to make an ROI on his invention before someone else copies it and benefits from his investment of his personal property in the R&D process.

You people are very confused about the nature of the patent system that you think you are in favor of.

What do you mean, ideas “must be” instantiated in working model? This is not true at all. I can think of something while at the urinal, go to my desk, write it down, file and obtain a patent. The filing is said to be a “constructive reduction to practice”. I never have to have made a working model, and I don’t even have to be sure how to make it; I might not even have the skill to make it. I might have no idea of the final details–that can be worked out by my licensees. All I have to do is describe my idea in writing in a way sufficient to enable someone skilled in the art to make it or use it without “undue experimentation” (yet another breathtakingly objective and magnificent concept given to us by the positivistic statutory monopoly-granting engine known as Congress).

if I invent a completely new kind of pain reliever and get a patent on it, I don’t have a monopoly because many other substitute pain relievers exist

You can charge a monopoly price–a price higher than you could without the patent monopoly.

As Bastiat would recognize, the carpenter would have spent many hours of labor and capital on multiple failures before he arrived at his successful plane. I think Bastiat would have recognized the right of that carpenter to earn a return on his investment in producing the first plane, and the only way he could do so is with a patent on the plane, not the idea of a plane.

Ah. So patents are now a reward for hard work. What if the monopoly profit he gets is not enough reward? Do we need a government commission to give out extra genius awards?

Besides, the “sweat of the brow” doctrine was rejected in the field of copyright long ago (see the Feist case).

Others could take the carpenter’s idea and invent their own planes as long as they didn’t copy the carpenter’s plane exactly; they would have to incorporate at least a few innovations of their own.

This is an utter confusion. The carpenter’s patent would prohibit others from making or using the claimed invention, whether or not they had “other innovations”. Even if the other guy comes up with his own innovation, it is still patent infringement so long as it contains the elements of the claims of the carpenter’s patent. What are you people talking about. Do you even realize how terrible–how arbitrary, bizarre, unfair, non-sensical–is the system you are defending?

But those too lazy to do the R&D could not steal the results of the carpenter’s labor and investment in making the plane by earning a profit on the carpenter’s R&D investment.

Well, copyight requires that an infringer actually have copied the original work. But the patent law has no “copying” requirement. You don’t have to show that the infringer “stole” “your” invention, at all. In fact, the infringer could be someone who (a) independently invented the same thing; (b)never heard of your invention or your patent; (c) in fact, who invented and used it for years before you re-invented on your own.

Are you saying you think independent invention, or prior use, is some kind of defense under patent law. It’s not. Are you saying it ought to be? Okay, then do you realize how much this would denude the patent system and make it a flimsy thing–and therefore most proponents of IP would strongly oppose doing this? And let me ask you, what other aspects of today’s patent system would you change or excise to make it just?–that is, what exactly is the system you favor? LEt me guess–you don’t know. Wonderful. You people favor the current system, and defend it from its critics; you crawfish out of any defect we point out, and say, “Why, of course, I don’t favor THAT”, and then when asked, what in the hell, then, DO you favor, the response is, “Why, I’m no IP expert, how do I know?” Unbelievable. It’s like cavemen playing with matches.

Patents are nothing more than an extension of property rights to a slightly more abstract form of property.

They are no extension of property rights. They are an invasion of property rights. By means of obtaining a patent from the state, you gain a right to tell others how to use their already-owned property. You can stop me from using my own car in a certain way, for example; or even my own body. This is a transfer of rights from the original owner to late-comer third parties, solely by decree of the state, since it wants to reward the innovators by patting them on the head, and by tossing them a piece of others’ property.

Ron:

I would agree limited to the fact that today’s patent office has become much to liberal in giving patients for less than unique creative ideas such as business plans or phases, Ready to Rumble, from wrestling, and threepeat (sic), basketball, are patented terms. However, unique ideas or inventions do deserve patent protection.

As Mises wrote: “No socialist author ever gave a thought to the possibility that the abstract entity which he wants to vest with unlimited power—whether it is called humanity, society, nation, state, or government—could act in a way of which he himself disapproves.

For example, I have an idea for a new drug that will save millions of lives world wide, the development and clinical trials will cost $800 millions dollars, average current cost, over several years, but each pill in production will cost $1. How do I recoup my investment if anyone can copy and sell it for $1+ a small profit as well without the $800 Million dollar research, even without the onerous FDA process drugs will have a high development cost.

Hey, I know–let’s trust the same government who set up the FDA costs and roadblocks to set up a patent office, and give you partial ownership of others’ property to incentivize you just enough to overcome the costs they imposed on you with the FDA and taxes and regulations. Beautiful! And if that’s not “enough” incentive, establish a government panel of “experts” to give you “enough” of a reward paid by taxpayers. Beautiful! I like it!

You are inaccurate as well when you characterize ideas as a non-scarce resource.

They are non-rivalrous. HOw elementary do we need to get here?

PS, Another reason the term monopoly doesn’t apply to patents is that a patent does not prevent another inventor from inventing a suitable substitute, part of the definition of monopolies. In the plane example, a patent would not prevent another inventor from creating a plane that worked in a different way.

Some patents are very broad and cover fundamental elemtns that have to be an any competing product. No, wait, no government bureaucrat could ever make a mistake and grant an overbroad patent, especially not with the crystal-clear and objective standards like “non-obviousness” that they have to guide their god-like decisions.

Rothbard has an interesting comment on patents and copyrights: “Part of the patent protection now obtained by an inventor could be achieved on the free market by a type of “copyright” protection. Thus, inventors must now mark their machines as being patented. The mark puts the buyers on notice that the in­vention is patented and that they cannot sell that article. But the same could be done to extend the copyright system, and without patent. In the purely free market, the inventor could mark his machine copyright, and then anyone who buys the machine buys it on the condition that he will not reproduce and sell such a machine for profit. Any violation of this contract would consti­tute implicit theft and be prosecuted accordingly on the free market.

The patent is incompatible with the free market precisely to the extent that it goes beyond the copyright. The man who has not bought a machine and who arrives at the same invention in­dependently, will, on the free market, be perfectly able to use and sell his invention. Patents prevent a man from using his in­vention even though all the property is his and he has not stolen the invention, either explicitly or implicitly, from the first in­ventor. Patents, therefore, are grants of exclusive monopoly priv­ilege by the State and are invasive of property rights on the mar­ket.” Rothbard, Man, Economy, and State, ch. 10, sec. 7.

I think the distinction is a minor one, but I would be willing to accept the extension of copyright to cover new inventions.

You and Rothbard are confused–copyright covers inventions now? Do you have any idea of how unworkable this is? It makes no sense. You can’t just “stamp” “copyright” on a machine you make and expect that to somehow, by some miracle, and some bizarre chain of contracts, give you anything remotely resembling what the patent system does now for inventions. I.e., it is utterly ridiculous to think you could have any protection of inventive innovations whatsoever by means of some private/contractual “copyright” idea. Why do people have opinions about things they know nothing about?

Stephan Kinsella July 20, 2006 at 12:09 pm

Vince: “All that the elimination of patents (I have yet to come around on copyrights Stephan, keep trying though)”

Vince, if you mean you might be in favor of copyright in a way that could also cover invention, as I just noted, this is utterly ridiculous.

If you mean, you are not opposed to copyright in original works of authorship (novels, etc.), that is less problematic, in a sense, because at least, independent creation is a defense. However, copyright can last over a hundred years; in this sense it is even worse than patent. If you would favor a more reasonable term, say 10 years, that would be more, um, reasonable.

Also, are you aware of what copyright is? It is more than the right to copy, or reproduce, some work. It is a bundle of rights including the right to make translations, derivative works, etc. I fail to see you can justify copyight covering derivative works. So would you take this out of the statute? What else would you take out, and leave in?

Person July 20, 2006 at 12:37 pm

Stephan:

I think you are confused about how patent law really works. You can patent a useful, new, and non-obvious invention. Your distinction above is imprecise and fanciful.

Good job on conveniently shortening your attention span so that you completely missed the point of what I was saying. Despite your attempt to fit everyone I say into the mold of “this gadfly is an idiot”, I wasn’t trying to claim that patents cover a design for how to efficiently construct a predefined invention, or whatever it was you’re trying to say here. I was simply pointing out how there’s nothing “good” about how an inventor, in a non-IP regime, would also have to be good at producing his invention, since the skill sets for the activities are different. Now, try again, and this time, for the first time in your life, try to actually read what I post. ALL of it.

doinkicarus July 20, 2006 at 12:41 pm

Nick – I’ve taken 9 years or so of french, have you got a URL or a copy of that letter I could get my hands on?

As far as copying of tapes or mp3s is concerned – there is a difference between borrowing and copying, and this certainly becomes clear when we’re appraising it from Rothbard’s copyright POV. It’s a pretty well established legal principle, that mere conveyance of title does not magically turn a bad title into good title. Consider, I let you house-sit for me while I vacation in Paris. You can’t sell my house while I’m gone, even if I tell you that you can – unless I execute a power of attorney conferring this right to you. Still, though, the proceeds of the sale go to me, as my attorney in fact you were acting as “me” by proxy. But even then, you can’t sell my house unless I’ve acquired marketable title thereto, which I have not. Nor has the purchaser of a book or CD acquired the right to reproduce it. You can’t sell my house and profit from the sale unless and until I’ve properly conveyed the property to you, and even then, deed restrictions might prevent you from excercising total control over the property.

That’s how I look at copyrights, as they ought to be, like a deed restriction. Patents, well, they’re something else. Metallica’s copyright on “Enter Sandman” does nothing to prevent other bands from developing their own original songs. It simply prevents them from profiting from the wholly intellectual pursuits and accomplishments of others.

Believe me, I’ve been struggling with this idea for some time, I mean, the arguments against me are at least palatable, but I just think it’s, you know, wrong. Trying to elucidate that, however, is more difficult than I thought it would be.

Artisan July 20, 2006 at 12:54 pm

Nick Snow: „Define property”

I would love to jump in for my friend Roger M, here, since I believe we share the same views, if not on patents, at least on copyright.

Property is the set of exclusive economical rights to use some goods, that can be “homesteaded” or “transmitted”.

Many IP opponents don’t understand the flaw in the “Lockean Proviso” however, that limits the possibility of homesteading something like intellectual property. Rothbard proves this restriction disallows all private property in fact!

The explanation is at http://mises.org/daily/1662

To explain property through its “purpose of limiting conflict over scarce resource” is a later concept that Hoppe (inspired by Rothbard) mentioned in order to show why slavery is unethical… however, such explanation is not really a definition as it … runs in circle.

In order to define the “scarcity of some good” you use its “ability to generate ownership conflicts”, yet ownership you define as being acquired only over ” what is not scarce”. A vicious circle.
… and it fails to integrate the idea of homesteading (Locke revised by Rothbard).

Stephan Kinsella July 20, 2006 at 1:13 pm

Artisan: “Many IP opponents don’t understand the flaw in the “Lockean Proviso” however, that limits the possibility of homesteading something like intellectual property. Rothbard proves this restriction disallows all private property in fact!”

I and Hoppe clearly understand the flaw in the Lockean proviso. We have both written on and rejected it (and we both oppose IP). See, e.g., my review of de Jasay, at pp. 91 et seq.; and Hoppe, see Four Critical Replies, p. 246.

To explain property through its “purpose of limiting conflict over scarce resource” is a later concept that Hoppe (inspired by Rothbard) mentioned in order to show why slavery is unethical… however, such explanation is not really a definition as it … runs in circle.

Wrong. Hoppe does not just introduce it to discuss slavery. It is a bedrock concept of his economic and ethical system. See, e.g., Hoppe, A Theory of Socialism and Capitalism, chapters 1 and 2 (esp. pp. 5-6 & 8-18), discussing notions of scarcity, aggression, property, norms, and justification.

In order to define the “scarcity of some good” you use its “ability to generate ownership conflicts”, yet ownership you define as being acquired only over ” what is not scarce”. A vicious circle. … and it fails to integrate the idea of homesteading (Locke revised by Rothbard).

It is not a circle at all. In fact, everyone seems to recognize that property rights applies only to rivalrous resources; and to be in favor of *some* system of allocating property rights. The question is, which rule to you favor? Socialists want rights to control scarce goods to vest in teh people, via the state. Liberals want 65% of it to vest in the democratic body politick, via votes of their government, to be distributed to the needy. A criminal wants your purse or body to belong to him. And so on.

The libertarian believes that the owner should be the one with the best connection to the resource in qeustion, and that this is the one who possessed it first (ceteris paribus). See on this my Defending Argumentation Ethics. Rothbard like Hoppe believed in this basic Lockean homesteading rule. They also believe we live by rihgt not by permission. You don’t have to find permission–or a right–to do every little thing you do. You can do anything you want, with your property, so long as you don’t invade others’ property rights. This is why Rothbard rejected the idea that there is a right to free speech: it is merely derivative of the right to property. This is why R & H woudl view ownership *of a resource* that you homestead as *complete*. It’s not as if I homestead a plot of land “except for the right to build a solar house on it”, if no one has yet invented solar houses. It’s not as if I have only partial ownership of the land, and that you can stll homestead its “right to build a solar house” if you invent it first (thereby “homesteading) that right. To maintain this is to adopt the permission view of living: that nothing can be done except that which is permitted (that for which we can find a right). Bah. We can do anything other than violating others’ rights.

Roger M July 20, 2006 at 1:30 pm

Nick, I like the “The ‘Lectric Law Library’s Lexicon” definition—”PROPERTY – Not only money and other tangible things of value, but also includes any intangible right considered as a source or element of income or wealth. The right and interest which a man has in lands and chattels to the exclusion of others. It is the right to enjoy and to dispose of certain things in the most absolute manner as he pleases, provided he makes no use of them prohibited by law.” http://www.lectlaw.com/def2/p100.htm

I’ll accept Rothbard’s definition—”The only viable definition of monopoly is a grant of privilege from the government,” which is similar to #3 above. In that case, patents and copyrights are monopolies. The interesting thing about Rothbard’s definition is that if you get rid of patents and extend copyrights to cover inventions, then you no longer have a monopoly. It seems to me that copyrights are just as much a monopoly, according to his definition, as are patents, but he has no problem with copyrights.

If we accept Rothbard’s definition of monopoly, then no one can call Microsoft a monopoly, as have anti-trust judges. Boeing is not a monopoly even though it controls 100% of the commercial aircraft market in the US with no competition or substitutes. Also, monopoly doesn’t mean the absence of competition. In common usage, especially in economics, monopoly means that no competition or substitutes exist, enabling the monopolist to charge whatever price he wants.

Stephan:” I can think of something while at the urinal, go to my desk, write it down, file and obtain a patent.” You’re the expert so I’ll defer to you on this. But when I researched patenting some software a few years ago, it seemed a lot harder that you describe. I could get a patent “pending” very quickly on just an idea, but a lot more was required to get an actual patent.

But I don’t mind surrendering patents in exchange for Rothbard’s idea of extending copyright over inventions. It accomplishes what I think patents were intended for.

“You can charge a monopoly price–a price higher than you could without the patent monopoly.” Bastiat saw no problem with that. Snow wrote “In the first stage the inventor is the only one with the knowledge of how the invention works. So the inventor is the only one who can produce it (or work with others to initially produce it). The inventor is rewarded in that he can now charge a higher price than his labor would normally warrant under competition.” But keep in mind that every inventor faces competition from older products and from substitutes, so he can’t just charge any price he wants.

“Ah. So patents are now a reward for hard work.” I never wrote that. I wrote “I think Bastiat would have recognized the right of that carpenter to earn a return on his investment…” But that applies only if there is a demand for his invention. If I invest my private property in the form of capital in inventing something, am I not entitled to whatever income that invention may generate, small or large, just as if I invested in a bond I’m entitled to the interest from it? Is anyone else entitled to it?

As I wrote, I would be happy with extending copyrights to inventions if patents offend everyone so much, but I don’t see a significant difference between them.

Nick Snow July 20, 2006 at 1:40 pm

doinkicarus,

Sadly no I do not have a URL, I don’t believe it is online. I can however point you in the direction to find it. It maybe hard though because it is out of print and I think the books it is contained with are something like 8,000 dollars. It is in Oeuvres Completes de Frederic Bastiat, Tome Septieme — Essais- Ebauches – Correspondance. 1864. Paris:Guillaumin. the copy I used is at the Mises Institute. Here is a link to volume 7 online, most of it including the letter to M Jobard is there:

http://bastiat.net/fr/oeuvres/index.html#tome7

But the writings on copyright is so here you go:

http://bastiat.net/fr/oeuvres/discours_cercle_librairie.html

Stephan Kinsella July 20, 2006 at 1:43 pm

Roger:

Stephan:” I can think of something while at the urinal, go to my desk, write it down, file and obtain a patent.” You’re the expert so I’ll defer to you on this. But when I researched patenting some software a few years ago, it seemed a lot harder that you describe. I could get a patent “pending” very quickly on just an idea, but a lot more was required to get an actual patent.

No, not in principle, not at all. No working model is needed. Look up “constructive reduction to practice.”

But I don’t mind surrendering patents in exchange for Rothbard’s idea of extending copyright over inventions. It accomplishes what I think patents were intended for.

No, it does not; it would accomplish literally nothing. The patent system is meant to give you a reward or protection, to induce you to (a) DIVULGE the idea publicly (in a patent filing); and (b) to innovate in hopes of getting the monopoly profit.

The very very limited way R’s idea could even possibly work would only protect, at most, you from having your customers make exact duplicates of your machine. It would not protect methods. It would not prevent third parties from duplicating the idea once they heard about it. It would not force you to divulge its secrets. It woudl have no standards of novelty or nonobviousness of patentable subject matter of utility. It makes no sense whatever, and would come to nothing.

But hey, if you would gladly replace patent with Rothard’s nutty “invention copyight stamp” idea, okay with me, this bascially means abolition of patent.

“You can charge a monopoly price–a price higher than you could without the patent monopoly.” Bastiat saw no problem with that. Snow wrote “In the first stage the inventor is the only one with the knowledge of how the invention works. So the inventor is the only one who can produce it (or work with others to initially produce it). The inventor is rewarded in that he can now charge a higher price than his labor would normally warrant under competition.”

I have no idea what “normally warrant under competition” means. THe first to market can charge a higher price, but it is not a monopoly price.

But keep in mind that every inventor faces competition from older products and from substitutes, so he can’t just charge any price he wants.

Right. Which is why NTP didn’t demand seventy five trillion dollars from RIM. it could only get $600M. Hey even a kidnapper of a billionare’s wife can only wring so much ransom out of him for her.

“Ah. So patents are now a reward for hard work.” I never wrote that. I wrote “I think Bastiat would have recognized the right of that carpenter to earn a return on his investment…”

Same idea. if I invest work, or labor, or money, I deserve to get it back.

No, you don’t. There is no such right. There is no right to earn a return on an investment.

As I wrote, I would be happy with extending copyrights to inventions if patents offend everyone so much, but I don’t see a significant difference between them.

Between what?

JR July 20, 2006 at 1:53 pm

The Constitution clearly grants Congress the right to provide for the issuance of patents and copyrights under Article I Section 8. Whether that is a good policy is another question. I struggle with this issue because government grants of monopoly limit liberty. However, I have heard no reason that the product of the mind should not be considered property with all that implies. If a company creates a pill that cures cancer, the first bottle may cost hundreds of millions of dollars, and each subsequent pill costs 10 cents. The upfront cost must be amortized over many millions of pills to be practicle. I can think of no way to accomplish that with out patents.

doinkicarus July 20, 2006 at 2:01 pm

thanks nick, I’ll be there next week actually so if I get a chance, I’ll take a look for it. In the meantime, I think it might be available on the website for the Libraire Nationale de France. I might’ve seen it last semester when I was looking up info on A.A. Cournot…

Roger M July 20, 2006 at 2:22 pm

Here’s a good economic definition of monopoly that disagrees with Rothbard’s: “Most IP does not create a monopoly in the economic sense. If I copyright a movie, I don’t have a monopoly in the market for motion picutres. This is because of cross elasticity of demand. If I try to raise the price for my movie, consumers will shift to other movies. Even if the owner of a copyright or patent does not license to others, there is still no monopoly in the standard economic sense, unless the product is so differentiated that there consumers will not shift to alternative products. This may occur with a revolutionary new drug.” http://www.thebestlinks.com/Talk__3A__Intellectual_property.html

Stephan, I’m a little suspicious of your description of the patent process. I spent weeks on the patent office web site trying to understand the rules and process. The web site makes it clear that you can’t copyright an idea and tries to warn people from doing so. Your description doesn’t match what I read on the web site at all.

“Same idea. if I invest work, or labor, or money, I deserve to get it back.” No it’s not the same thing. You’re putting words in my mouth. I gave the example of a bond in order to make myself clear, but you persist in deliberately misconstruing what I wrote. I never wrote that inventors deserve to get their money back. But if any income can be derived from that invention, the inventor has the right to it as much as the investor in a bond has a right to any interest that might come from the bond. That in now way guarantees the inventor or the bond holder a ROI, but no one else has the right o claim any income from either investment.

Stephan Kinsella July 20, 2006 at 2:39 pm

Roger:

Here’s a good economic definition of monopoly that disagrees with Rothbard’s: “Most IP does not create a monopoly in the economic sense. If I copyright a movie, I don’t have a monopoly in the market for motion picutres. This is because of cross elasticity of demand. If I try to raise the price for my movie, consumers will shift to other movies. Even if the owner of a copyright or patent does not license to others, there is still no monopoly in the standard economic sense, unless the product is so differentiated that there consumers will not shift to alternative products. This may occur with a revolutionary new drug.” http://www.thebestlinks.com/Talk__3A__Intellectual_property.html

Right. By the *government’s* definition, private companies are guilty of it; while the holder of a legal monopoly (a patent; the post office; the state itself) is not. But by an objective definition of monopoly, it’s simply a legal monopoly.

Stephan, I’m a little suspicious of your description of the patent process. I spent weeks on the patent office web site trying to understand the rules and process. The web site makes it clear that you can’t copyright an idea and tries to warn people from doing so. Your description doesn’t match what I read on the web site at all.

What are you talking about? Of course you can’t copyright an idea. Copyrihgt covers expression of an idea.

You may have spent weeks on a website but I have, you know, like taken the patent bar, and prosecuted hundreds of patent applications for companies like Intel, Lucent, General Electric. So if you can ask a coherent question or make a coherent claim about the actual patent process, I’m pretty comfortable I can address it accurately.

“Same idea. if I invest work, or labor, or money, I deserve to get it back.” No it’s not the same thing. You’re putting words in my mouth. I gave the example of a bond in order to make myself clear, but you persist in deliberately misconstruing what I wrote.

Just to force you to write precisely. that way you can’t get me to agree to it one way then later try to subtly switch it. Whether intentionally or not. See?

I never wrote that inventors deserve to get their money back.

Good!

But if any income can be derived from that invention, the inventor has the right to it as much as the investor in a bond has a right to any interest that might come from the bond.

Why? What does it mean to “derive” money from an invention?

That in now way guarantees the inventor or the bond holder a ROI, but no one else has the right o claim any income from either investment.

Great!

Daniel J. D'Amico July 20, 2006 at 2:54 pm

Whenever debating the IP issue, it is clear that those who favor IP rely upon one central argument that temporary patents are needed to secure temporary profits to instigate the spending of r&d dollars that otherwise wouldn’t be spent.

My response has a few parts to it. First, always ask at what cost? These temporary profit returns have structural effects (like Cantillion effects), they benefit some at the cost of others. Thus the granting of patents requires a value judgement that some r&d is better than others. How do we know this money is being spent well, how do we know the whole process doesn’t take place at far lower levels of production than would otherwise take place. Maybe the whole thing is a loss. The point being that the slection mechanism of which R&D venture is arbitrary rather than competitive and thus fails to benefit from entreprenuerial discovery and in stead is characterized by the dissipation of rent, rent seeking, and capture.

The second part of my response is to insist Ip advocates to explain why IP is so special. In theory all profits are temporary as they get bid down to zero in the face of competition. So why do intellectual endeavors require and arbitrary time frame allocated as a life span?

Roger M July 20, 2006 at 3:03 pm

Stephan, The emphasis in the economic definition is the ability of the monopolist to charge what he wants to without regard for competition. It often includes the power to restrict entry into the market either by copying the monopolist’s product or by introducing a different product that can be a substitute. Economic monopoly is harmful to the market and consumers.

On the other hand, Rothbard’s monopoly doesn’t do any of the above. For example, the government has granted “monopolies” on a lot of products that compete against each other in the computer, auto, and aircraft industries. So where’s the harm?

“What does it mean to “derive” money from an invention?” It means the owner can sell licenses to produce it or can produce and sell it himself, but only if a demand exists for it in the marketplace. If no demand exists, he loses his money.

Jello is a good example. Paul Harvey gave the “Rest of the Story” yesterday. The inventor tried to sell it for 50 years and went broke. Finally, he sold the rights to his recipe. The new owner nearly went broke, too, but around the turn of the 20th century, it caught on. I don’t think the inventor had a patent; he just kept the recipe secret.

Copyrighting inventions as Rothbard suggests gives up some protection to inventors, but I think it’s a good idea, especially if you extend the copyright for inventions for ever.

Vince Daliessio July 20, 2006 at 3:18 pm

Stephan sez;

“Vince: “All that the elimination of patents (I have yet to come around on copyrights Stephan, keep trying though)”

Vince, if you mean you might be in favor of copyright in a way that could also cover invention, as I just noted, this is utterly ridiculous.

Actually I am looking for a way out of the copyright jungle similar to the one you have shown us RE: patents.

“If you mean, you are not opposed to copyright in original works of authorship (novels, etc.), that is less problematic, in a sense, because at least, independent creation is a defense. However, copyright can last over a hundred years; in this sense it is even worse than patent. If you would favor a more reasonable term, say 10 years, that would be more, um, reasonable.”

Exactly. I favor a copyright regime that covers a long enough period of time that the authorship of the work is firmly established. This extension of copyright to a century or more happened in our lifetimes and is solely a sop to big entertainment companies, and has no or even negative effects on authors.

I like the alternative model put together by the folks at Creative Commons as well;

http://creativecommons.org/

…which allows the author to license individual rights to the work, or the entire “bundle”, without involving government(though I am sure many proponents of CC wish to involve it). Control remains with the author for the entire period of copyright (I do not recall what period of time that might be) and the granting of the various rights is a private, contractual matter.

Stephan Kinsella July 20, 2006 at 3:28 pm

Roger,

Stephan, The emphasis in the economic definition is the ability of the monopolist to charge what he wants to without regard for competition. It often includes the power to restrict entry into the market either by copying the monopolist’s product or by introducing a different product that can be a substitute. Economic monopoly is harmful to the market and consumers.

Umm, no it isn’t, and moreover, it cannot be coherently identified. See on this Rothbard and Hoppe.

On the other hand, Rothbard’s monopoly doesn’t do any of the above. For example, the government has granted “monopolies” on a lot of products that compete against each other in the computer, auto, and aircraft industries. So where’s the harm?

Ask RIM’s shareholders.

The Post Office has to compete against FedEx. Does that mean it’s not a monopoly?

“What does it mean to “derive” money from an invention?” It means the owner can sell licenses to produce it or can produce and sell it himself, but only if a demand exists for it in the marketplace. If no demand exists, he loses his money.

But by this definition you don’t need a patent to “derive” profit from it. You just sell products based on or embodying the invention.

Jello is a good example. Paul Harvey gave the “Rest of the Story” yesterday. The inventor tried to sell it for 50 years and went broke. Finally, he sold the rights to his recipe. The new owner nearly went broke, too, but around the turn of the 20th century, it caught on. I don’t think the inventor had a patent; he just kept the recipe secret.

Right. And I defend trade secret in my Against Intellectual Property article.

Copyrighting inventions as Rothbard suggests gives up some protection to inventors, but I think it’s a good idea, especially if you extend the copyright for inventions for ever.

What in the world do you think it means to copyright an invention? I have no idea what R was talking about. In Ethics of Liberty, he wrote:

Violation of (common law) copyright is an equivalent violation of contract and theft of property. For suppose that Brown builds a better mousetrap and sells it widely, but stamps each mousetrap “copyright Mr. Brown.” What he is then doing is selling not the entire property right in each mousetrap, but the right to do anything with the mousetrap except to sell it or an identical copy to someone else. The right to sell the Brown mousetrap is retained in perpetuity by Brown. Hence, for a mousetrap buyer, Green, to go ahead and sell identical mousetraps is a violation of his contract and of the property right of Brown, and therefore prosecutable as theft. Hence, our theory of property rights includes the inviolability of contractual copyright.

Okay. First, you have to realize that at most this system would prevent the buyer from making identical copies. But this could be done with private contract, and/or something similar with trade secret law. So this is not something new. And the “copyright stamp” notion is just ridiculous. You’d need a contract specifying this. And it would need to specify exactly what the buyer is prohibited from doing. Can he make an improvement, for example, a new invention based on this one? Etc. Can he show the device to others, or is he bound to secrecy? Can he tell others of the principle behind the invention, or is he bound to secrecy? And what exactly is the invention? And how many are there embodied in the device? And how would this apply to methods?

And how would it stop third parties from making duplicates? Suppose Brown sells a million of these mousetraps, and it has an ingenious new design–say, it has a teflon coated spring so that mouse guts don’t stick to it. Well soon competitors add teflon to their own mousetraps since this is obviously a popular feature with customers. Nothing in the fact that Brown stamped his devices “copyright” when he sold them to Green and other customers prevents Brown’s competitors from making identical products. (I have explained why Rothbard’s attempt to extend this to third parties by a “reservation of rights” approach makes no sense; see. p. 37 et seq. of my Against Intellectual Property.)

And let me tell you, this is what patents are for: to stop competitors. It is not to stop your damned customer from making copies of it! Most customers would be totally unable to make a fricking mousetrap, THAT’S WHY THEY BOUGHT ONE FROM BROWN!!! No inventor gives a real damn that a few weirdo customers might tinker with and even try to duplicate the product. That is not a threat to their market. The threat COMES FROM COMPETITORS who will make similar products unless they are prohibited from doing so. And please tell me how Brown’s contract with Green prevents Acme Mousetraps from putting teflon on its on traps??? Are you aware that this ridiculous notion of copyight on inventions is utterly unworkable and does nothing?

So I think you need to choose. You are trying to have it both ways: you want to avoid favoring patent law, but under the pretense that you can get a similar system using contract law. But you can’t. If you don’t have patent law, you don’t have patents, period (even in the form of “copyight on inventions”). If all you are willing to grant is the ability to stamp copyright on a product you sell, then you are basically saying you agree that all patents can be abolished, and there is no protection to inventors. This is the position of anti-patent types. Why not just admit it, rather than trying to cloak your anti-invention-protection view as being just some moderate stance.

Stephan Kinsella July 20, 2006 at 3:33 pm

Vince:

Actually I am looking for a way out of the copyright jungle similar to the one you have shown us RE: patents.

It’s the same. The problem with both pat and copyr is that they give some third party partial ownership over already-owned things owned by others.

Exactly. I favor a copyright regime that covers a long enough period of time that the authorship of the work is firmly established. This extension of copyright to a century or more happened in our lifetimes and is solely a sop to big entertainment companies, and has no or even negative effects on authors.

Yes, but let’s be real: the only way to have any copyight is to endorse the principle that the legislature should get in the game here, and that they have the right to ulimately decide. But once you say that, you can’t complain about what they do. It’s entirely predictable.

I like the alternative model put together by the folks at Creative Commons as well

Their model rests, if I am not mistaken, on copyright. It relies on the right to block from copying, because this is what it means go grant a license: it’s a grant of permission. Permission is only needed if you have a right to exclude or block. They do not favor making everything public domain as far as i know. They want to erect a private contractual licensing regime based on the right to license, which is based on copyright. They are not against copyright at all, to my knowledge.

…which allows the author to license individual rights to the work, or the entire “bundle”, without involving government

A license implies there is a copyright, which is granted by the state. You cannot have IP licenses in this form without the state.

Som July 20, 2006 at 4:03 pm

Great article! I never thought patents were libertarian (because they violate the freeedom of expression and the right to employ one’s own physical private property in any way they want) so i never supported them. However, I haven’t read too much on the mises.org site about patents but i do remember someone mentioning that mises the great supported patents because of the utilitarian reasons which are that they give incentives for inventors to acutally invent things people want.

Now i disagree with Mises on that point. I can actually argue a completely utilitarian case against patents, and here it is.

First, I think mises made the mistake where he assumed that just because a product is not patented, there is no profit into bringing it into the market. Mises never proved this (as far as I know), but i think it would not make sense because if it were true, the second and third sellers of patented products would make no profit either.

but anyway, onward.

I think it can be safely argued, other things being equal, that an unpatented product would show less long term profits for the inventor than the same product with the patent would show, since any competitors would be blocked out for the duration of the patent and the inventor would take the total market share of the profits, where as a nonpatented product would face all the effects of competition in that same time period.

Because of the long term profits that are higher for patented products, the inventor has less incentive to innovate or even invest in inventing new things for duration of the patented product, and lay back with the profits and comfort he would not enjoy under with an unpatented product. But would inventors have no incentive to invent with lower profit margins? Nonsense! in the long term profits decline but the promise of large sums of profits in the short run after his product goes public will ensure inventors to invent, other things being equal.

Therefore, the public not only loses on higher prices and lower quality inventions for the duration of patent, but possibly on inventions that the inventor(s) could have invented during the time of the patent. If profits stay high, inventors dont need to move, or innovate. With lower and declining profits in the face of competition, inventors would have to invent and sell new marketable inventions that would benefit the public and themselves.

So without a patent system ever in the U.S., the industrial revolution could have been over by 1900, and we could all be in our personal flying machines colonizing the moon by now (a little out there but not impossible). So there’s a purely utilitartian case against patents.

Any Thoughts?

Artisan July 20, 2006 at 4:10 pm

Thanks very much Dr Kinsella for the quick and detailed answer. By the way I didn’t really think one second you, as (one of the) most prominent libertarian IP-opponent, or even less Hans-Hermann Hoppe would ignore of Lockes proviso, of course.

But maybe you’ll admit with me that some concepts of property, as developed especially the last days on your Mises’ blogs by IP-opponents clearly build on that flawed proviso… (I’m thinking about David C’s first comment on this topic for instance and his argumentation that nobody really cared to refute even though it just seems to mock libertarian homesteading).

Moreover I read in Hoppe’s “Four Critical Replies”, p244, that you just quoted:
“property right [is] the absolute right of self-ownership, and the absolute right to homestead unowned resources, of employing them for whatever purpose one sees fit, so long as this does not affect the physical INTEGRITY (*please note this important word that connects to the concept of IDENTITY, which might be threatened by copyright denial!*) of others’ likewise appropriated resources,…”

Still I fail to see here Hoppe’s direct opposition to the ethic of copyright. Of course I cannot doubt the fact that you know better what Prof. Hoppe’s views are than most of us (since you may know him personally too).

But even though I know some of his writing on scarcity not to be at all in conflict with your own position thus Dr Kinsella, I would love so much to be able to read his thoughts on the subject myself, in the form of “copyright is unethical because, it prevents somebody to use his property (publishing press) with the eventual consequence of “diluting” somebody else’s identity (putting another name for the Author, or editing in a derogatory manner the Author’s thoughts) , this “identity” is not to be counted by any mean to the physical integrity of any author property …”

Needless to say, if Prof Hoppe was to clearly confirm this, I promise as a punishment for my failure to reason carefully, to make a donation to the LvM Institute equivalent to two bottles of Champagne!

By the way: You mention Dr. Kinsella “The question is, which rule to you favor?” I know my opinion is not important for this case, but for better understanding of my posts I beg to note I favor the Rothbardian rule of property.

Stephan Kinsella July 20, 2006 at 4:32 pm

Artison:

maybe you’ll admit with me that some concepts of property, as developed especially the last days on your Mises’ blogs by IP-opponents clearly build on that flawed proviso… (I’m thinking about David C’s first comment on this topic for instance and his argumentation that nobody really cared to refute even though it just seems to mock libertarian homesteading).

Dunno, maybe you are right. My point was that it’s compatible to criticize the proviso and IP.

Moreover I read in Hoppe’s “Four Critical Replies”, p244, that you just quoted:
“property right [is] the absolute right of self-ownership, and the absolute right to homestead unowned resources, of employing them for whatever purpose one sees fit, so long as this does not affect the physical INTEGRITY (*please note this important word that connects to the concept of IDENTITY, which might be threatened by copyright denial!*) of others’ likewise appropriated resources,…”

Yes, to me this is compatible with my views. Granting someone copyright allows him to threaten the physical integrity of my control of my property.

Still I fail to see here Hoppe’s direct opposition to the ethic of copyright. Of course I cannot doubt the fact that you know better what Prof. Hoppe’s views are than most of us (since you may know him personally too).

Well… hmm I am not sure. I believe we have discussed it but I am not 100% sure. His property concepts are so in step with mine that I can’t see how he wouldn’t. And he was very enthusiastic about my article (even picked the title) and he chose it as the best JLS article in 2 years, and really likes so, so I have assumed he agreed with it. I guess I need to ask him. Mayhap he does agree w/ Rothbard on copyright but I would be very surprised.

But even though I know some of his writing on scarcity not to be at all in conflict with your own position thus Dr Kinsella, I would love so much to be able to read his thoughts on the subject myself, in the form of “copyright is unethical because, it prevents somebody to use his property (publishing press) with the eventual consequence of “diluting” somebody else’s identity (putting another name for the Author, or editing in a derogatory manner the Author’s thoughts) , this “identity” is not to be counted by any mean to the physical integrity of any author property …”

? I am not sure… what is this quote? Who is it from?

Needless to say, if Prof Hoppe was to clearly confirm this, I promise as a punishment for my failure to reason carefully, to make a donation to the LvM Institute equivalent to two bottles of Champagne!

Ha! I’ll try to get him to do so!

By the way: You mention Dr. Kinsella “The question is, which rule to you favor?” I know my opinion is not important for this case, but for better understanding of my posts I beg to note I favor the Rothbardian rule of property.

good man. The most consistent interpretation of that rules out copyright and patent.

Roger M July 20, 2006 at 4:49 pm

So I’ll ask a question again that I asked on the other thread and never got an answer for it: If I invent a new product, say an engine, how do I earn an ROI without some type of copyright/patent protection. Assume demand exists for the engine, otherwise the question is moot. Keep in mind that I’m an entrepreneur motivated by profit, not a philanthropist, and I invested my own money, not the government’s or that of another philathropist.

The economics of the situation is pretty cut and dried, if the rights arent’. Here’s what I assume will happen: I won’t be able to sell licenses to the engine, because a competent engineer can reverse engineer it for very little cost, so why would he pay for something he can get for almost free.

If I have the money to build a plant to produce the engine myself, I won’t be able to charge more than my competitors who copied my design, so my profits won’t be any greater than theirs. I’ll earn just enough for a decent return on my investment in the manufacturing plant, but none for my enormous R&D investment.

You guys have obviously spent more time thinking about this than I have. So enlighten me. How will I get an ROI on my R&D without something like copyright/patent protection?

Stephan Kinsella July 20, 2006 at 5:08 pm

Roger M:

So I’ll ask a question again that I asked on the other thread and never got an answer for it: If I invent a new product, say an engine, how do I earn an ROI without some type of copyright/patent protection.

Who knows? Who cares? What’s the *relevance* of this question?

You guys have obviously spent more time thinking about this than I have. So enlighten me. How will I get an ROI on my R&D without something like copyright/patent protection?

The truth is, there are many answers; and some of them are unknown (what kinds of toothpaste will be developed under a freemarket, a commie might ask). But look: there is trade secret. That is widely used even today. That helps in some cases. There is being first to market. that helps. there is development of in-house expertise. That helps. And the reputation effects. And there is non-profit research, e.g. done by scientists in research labs of universities.

Why do you think some people buy Tylenol when it is twice as much as the generic acetomenophin right next to it on the shelf?

Anyway the reason I am reluctant to answre this is it seems to give in to your implicit challenge that any system has to provide such ways to make an ROI.

Look: what if even with a patent system there is not enough ROI to get your investment back? Then don’t make the investment if you can’t find a way to do it profitably. Sometimes costs of exclusion are jsut too high. That’s life.

David Spellman July 20, 2006 at 5:20 pm

The copyright alternative to patents is completely ephemeral. It presupposes that the crucial protection needed is the actual production of a product. The purpose of patents is to (at least in some cases) protect the process and ideas that lead to being able to produce a product.

I may not agree with protecting intellectual property, per se, but I do not see a copyright providing appropriate rights or protections in place of what a patent does for an inventor. Copyright merely says “You can’t copy the final product.” It doesn’t prevent you from using the inventor’s process or ideas to make similar or different products. Patents do control that regime of intellectual property. So I reject Rothbard’s proposal as missing the point entirely.

On the other hand, I am willing to entertain the concept of copyright as a homesteading of a incarnation of ideas. The first person to produce a song has homesteaded that musical work. The first person to write a book has homesteaded that combination of words. The first person to produce a picture has homesteaded the image.

Congress has extended the copyright protections to be decades (at the behest of Disney for protecting Mickey Mouse). Some people think that is bad, but frankly I see no problem granting infinite copyrights. After all, what if the government decided that home ownership would end after 30 years and your house was subject to squatting? I believe that limiting copyrights is the travesty of government interference.

Conceptually, we could argue that by issuing patents we are granting (at least temporarily) the homesteading of a process of doing things to the first person to discover how to do them. This differs subtly from a copyright. Copyright allows for everyone to use processes to produce a variety of end results, but grants them exclusive rights to their unique version. Patents grant a person control over the process of producing end results (i.e. property, intellectual or otherwise).

Given that an inventor has fundamentally discovered a process for creating property rather than created property, I would not grant a title (patent) to the process because there is no property to protect and in actuality the patent merely serves to prevent others from using their property to produce end results.

In the end I have come around full circle to Rothbard’s proposal: if you invent a process for creating something, you can copyright the actual property you create (intellectual or tangible), but you cannot claim title to the process for making it (because a process is not substantial, and a patent is attempting to violate others right to use their property).

Artisan July 20, 2006 at 5:41 pm

Dr Kinsella: Whose quote is it? “copyright is unethical because, it prevents somebody to use his property (publishing press) though with the eventual consequence of “diluting” somebody else’s identity (putting another name for the author, or editing in a derogatory manner the author’s thoughts), yet this “identity” is not to be counted by any mean to the physical integrity of any author property …”

I’m not quoting anyone but this is what is at stakes don’t you agree?

If identity could be considered a part of the integrity of someone’s property, then it would be unethical to damage this identity by any mean… according to the definition Prof. Hoppe makes above, thus plagiarism would be unethical on the contrary.

To know Prof. Hoppe’s precise opinion also would certainly be worth the bottles to me! So I’ll be patient.

David Spellman July 20, 2006 at 5:48 pm

Roger M:

In all politeness, you are presupposing a right to a return on your investment. What if you spend huge amounts of money developing a new product, build an expensive factory, and even do market research to find that there is demand for your product–and then someone comes up with a better version and puts you out of business from the start?

There is no guarantee of a return on investment. In a free market with no patents, you would only invest money in something whose sales price would justify that investment. And your investment would be limited to what you were certain of recouping without the force of government to protect you from competition.

Look at it this way: if a patent protecting a new invention is a virtue, then why not grant exclusive licenses to produce and sell existing products? What is it about a new product that makes it worthy of government sanctions versus an older product that is not? Older products also require investment to produce (building and aintaining factors, developing distribution channels, advertising, etc.). Of course, the answer is that older products do get government protections–in the form of tariffs and regulations.

Under the mercantilist model, the government grants monopolies to favored producers and prohibits competition. Unless you plan to be one of the favored producers, I would hazard to guess you would not like such a model. Patents are merely an extension of the larger Mercantilist plan. Protectionist models use tariffs and regulations to obtain fundamentally the same results.

All that differs with patenting a new product is when we decide that it is old enough to transition from patent protection to tariff/regulatory protection. In the end, it is all government granted monopoly and favoritism of one citizen over another. In a free country, the government should not favor a particular group, including inventors.

Part of the inventive process in the free market is to gauge the value of bothering to develop something. If the market won’t bear the costs, we shouldn’t ask the government to make everyone play along. That is just one more stepping stone to tyranny. I would rather live free in a cave than enjoy flush toilets in prison. But I perceive from looking at society that I am rather unique :).

Chris Meisenzahl July 20, 2006 at 7:04 pm

What would be an appropriate response to the argument that without patent protections, innovators would have much less incetive to innovate? The issue of prescription drugs comes to mind.

I assume that this would not apply to an actual work, like a book?

Thanks in advance.

David C July 20, 2006 at 8:06 pm

FYI: Disproving patents beyond a shadow of a doubt is very easy to do. Anywhere you see the word ‘patent’ in an argument, just substitute the word ‘slavery’ and adjust the circumstances. This is becasue patents, like slavery, are a way for restricting peoples liberty and then labeling it as a property right. I have never found an argument for or against patents that couldn’t be restated as a slavery argument.

EG. I have no incentive to do R&D without patents -> I have no incentive to grow cotton without slaves on the plantation.

Disproving coipyrights is a little harder, but most of the basic copyright justifications can also be tested like above. That will at least get rid of the most annoying ones like … I have no incentive, I put effort/costs into it … public wealth and commerce rest on it ….

BTW, the fact that the pro-copyright arguments that are the most easy to disprove are also the ones being shoved down our throats the hardest – should be telling. In addition, the fact that copyrights clash time and time again with other liberties and privacy rights just as society enters the information age should be telling too.

Stephan Kinsella July 20, 2006 at 8:46 pm

Spellman:

Congress has extended the copyright protections to be decades (at the behest of Disney for protecting Mickey Mouse). Some people think that is bad, but frankly I see no problem granting infinite copyrights. After all, what if the government decided that home ownership would end after 30 years and your house was subject to squatting? I believe that limiting copyrights is the travesty of government interference.

But it’s not a limitation; it’s just a non-infinite grant. The grant itself is at issue. If they were to stay out of it, there would be no copyright statute in the first plac.e Can you really imagine copyright as understood now developing in the common law?

Conceptually, we could argue that by issuing patents we are granting (at least temporarily) the homesteading of a process of doing things to the first person to discover how to do them.

Not true. You don’t have to be the first. That is not a requirement. NOt the first to file, nor the first to invent. Who, then? It’s complicated. But it ain’t natural.

This differs subtly from a copyright. Copyright allows for everyone to use processes to produce a variety of end results, but grants them exclusive rights to their unique version.

And more; to a bundle of rights related to it. The right to reproduce that work; as well as derivative rights.

Patents grant a person control over the process of producing end results (i.e. property, intellectual or otherwise).

It covers both devices, and processes. Not just processes.

In the end I have come around full circle to Rothbard’s proposal: if you invent a process for creating something, you can copyright the actual property you create (intellectual or tangible), but you cannot claim title to the process for making it (because a process is not substantial, and a patent is attempting to violate others right to use their property).

I think you are confused. R’s idea was you could stamp a device that was based on your invention, copyright, and this prevents the buyer from copying that idea. Or maybe not. His reasoning was skimpy.

RogerM July 20, 2006 at 10:36 pm

Stephan:”Anyway the reason I am reluctant to answer this is it seems to give in to your implicit challenge that any system has to provide such ways to make an ROI.”

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.

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, so we probably don’t have to worry about people coming up with new ones. But the investment in R&D for new cancer drugs and fuel cells is enormous, requiring a great deal of cost/benefit calculation.

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.

The reason I bring up the problem is that if an entrepreneur can’t earn an ROI on his R&D, even though a strong demand for his invention exists, then something is wrong with the laws that should be protecting property rights. It’s more likely than not, especially in cases requiring very high expenditures on R&D, that the methods you mention will be insufficient to provide an ROI on R&D, even in the face of strong demand for his invention. In those cases, we will be left to the mercy of philanthropists and the government to do the heavy lifting in research. That describes the world before IP laws. Kings and nobility subsidized artwork and inventions. Leonardo Da Vinci and Michaelangelo weren’t entrepreneurs; they were courtiers. Only with the advent of capitalism and IP laws did entrepreneurs take the lead in buying artwork and financing inventions.

If the lack of IP laws results in an entrepreneur being unable to earn an ROI on his invention in the face of strong demand for his product, then maybe there is something wrong in the logic of the anti-IP movement.

Win July 20, 2006 at 11:31 pm

Like Person at the beginning of the thread, discussions about abolishing IP make my blood boil.

I read a certain book once. I think it was called “Atlas Shrugged”. The central character invented a revolutionary motor that used the static electricity in the air as the energy to make it work. He decided to keep it from the world rather than let his idea be stolen from him and used without his permission.

It seems to me that maybe that whole book was about the importance of enforcing property rights of the mind as well as physical resources.

Hmmmmm…

I really don’t understand how anyone who believes in the importance of assigning and enforcing property rights can be so communistic on this subject.

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

Sounds like a bad dream to me. Count me out.

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