Where the heck do you think ideas come from? They come from the hard work it takes to understand them: either by study of a previous work, or study of a textbook, or by extending the research of old ideas, or by exploring entirely new ideas based on observation, and sometimes based on random brain static. If you put in the hard work to understand an idea, then you own that idea, in exactly the same way that picking up acorns gives you ownership to those acorns, or improving land gives you ownership to that land–to give two of Locke’s own examples.

Now, once I own an idea, why shouldn’t it be my right to do what I would like with it? In particular, why should I have to pay royalties to someone else who patented it first, when I independently discovered that invention?

And why should we award a single patent to one person, when often something “big” is really the result of little increments made by several, and sometimes several hundred, people?

This is especially true with software patents, where, for example, where the determining of the order in which to re-calculate cells in a spreadsheet was covered by a patent that used the same algorithm in compilers. (Linux, and the open source model–which repudiates both patents and copyright–is what put me on the path of anti-IP in the first place. Reading AIP and “Against Intellectual Monopoly” only cemented my conclusions.)

If an idea is easy to copy, then you had better be prepared to find other ways to make a profit than by forcing copycats (deliberate or otherwise) to pay you. If an idea is not easy to copy (and a large number of them aren’t!), then you’re going to have a good lead-time selling your product while everyone else is trying to catch up to you.

Heck: you could teach others your idea, write books about your idea, publish those ideas for free on the internet, and, if the idea is complex enough, you still will have enough lead-time to make a lot of money!

To the person who gave “the guy who invented the wiper blades” as an example of the patent system working: I looked him up (Robert, or Bob, Kearns), and I read a couple of biographical pieces. (Hint: the best ones weren’t Wikipedia.) Bob Kearns is just another example of someone who became obsessed with one idea, patented it, and then destroyed his life trying to force big companies to pay him royalties for that idea.

And he didn’t even invent wiper blades! He just added the “intermittent” feature to them.

If, after working for a consultant to Ford for six years, he had just moved on to trying to come up with other ideas, and be a consultant for those as well, he would have been much better off. Instead, he spent all his time and effort in the court, and although he “won”, he couldn’t continue to fight the companies in court, because he couldn’t afford the court costs.

Which reminds me of a question I have: How much of a monopolist’s “profit advantage” is eaten up in court costs trying to enforce a given patent?

This is also not necessarily true. The only thing necessarily disturbed it you. If the copycat gets in soon after the original, there may have been no noticeable disturbance. Or if the factors are high tech, the prices may have fallen even if the demand has increased (see computer demand vs. computer price). Or if the factors in question are traded on speculative markets (i.e. futures) there will not necessarily be any discernable relationship between real demand for the physical commodity and prices. If you doubt this last assertion, overlay a chart of consumption over another chart of underlying prices. Pick your commodity.

“Yes, but that signal is NON-PHYSICAL. Radio signal are MERELY INFORMATION and information is NOT SCARCE, remember? Are you now saying that there can be rights in information, a NON-SCARCE good that can be copied ad infinitum?”

Personally, I don’t emphasize the physical requirement. I correctly emphasize rivalrousness. And I’ll do you one better. We own airspace, right? (exactly how much is to be determined by easements and Relevant Technological Units as laid out by Rothbard). And airspace is completely non-physical. It is merely a set of coordinates. BUT airspace IS rivalrous. No two people can occupy the exact same airspace at the same time. Well actually they can. I could put you and Sasha Radeta in a hydraulic press and voila, you are in the exact same space. Can you infer from this how ridiculous your argument is? Probably not.
And your attempt to equate radio signals with “information”, as if they were just like ideas existing in the brain and not measurable perturbations of the electromagnetic spectrum (which exists in the external world outside of your brain), is pretty lame. Embarrassing even.

“Are you saying you have proved that the concept is meaningless? That it’s inapplicable to the discussion? ”

Yes, I’m saying exactly that. As I showed in the very last post of the blog I linked above ( http://blog.mises.org/archives/005713.asp ) you have, with your brilliant wordsmithery, turned “scarce” into a NON-modifying adjective, literally rendering it useless and inapplicable.
I wish I could do a line-by-line refutation of all of your nonsense. And if I thought it would make you go away, I would. But it wouldn’t, so I won’t.

I am saying that the *additional* profit due to the innovation does not exist for the copycat, since by that point, factor and output prices have been disturbed. (This should have been clear from the first time if you bothered to read my posts in contexts instead of playing “gotcha”.) Yes, additional things contribute to total profitability. That does not change the fact that for entrepreneurs, the entrepreneurial profit due to using a business model has been competed away by the time the copycat enters.

Actually, under the scenario I outlined above, the innovation certainly would happen,

Yes, that was never in dispute. Read the post again: the question was whether this could be generalized to all goods, which it cannot be. As the market demand for the intellectual work increases (i.e., as it becomes more valuable) it gets harder to get an initial agreement that can cover your costs. That is, even when the total value to all people far exceeds the full opportunity cost, it doesn’t happen. Oops.

The patent system only serves to make one kind of production more profitable than it might otherwise be — R&D intensive products. On the other side of the coin it literally makes small modifications of existing products illegal.

What are you talking about? Of course it’s legal to modify existing products. If you mean it’s illegal to take a patented work and sell it with modifications, sure — so license it and make the mod.

And so what if some innovations don’t happen? If a given research project consumes an enourmous amount of resources, perhaps those resources would best be used somewhere else

No, they wouldn’t be. Remember, in an IP regime, you can do *both* the innovations that rely on IP to be profitable, AND the ones that don’t. For consumers to purchase the ones that they did, in preference to the ones that didn’t, means therefore that it was a pareto-impovement over the alternatives.

Actually, your use of the idea is NOT impeded if I use it as well. … This is not the case with the TRULY SCARCE things in the external (non-imaginary) world – like radio signals. The signal is literally destroyed when another is broadcast on the same wavelentgh in the same general area.

Yes, but that signal is NON-PHYSICAL. Radio signal are MERELY INFORMATION and information is NOT SCARCE, remember? Are you now saying that there can be rights in information, a NON-SCARCE good that can be copied ad infinitum?

Person’s definitions of “scarce” and “rivalrous” (when used in his “value scarcity” concept) are based solely on the will of the individual.

Yes, and as I explained to you before, in that very thread, that’s exactly the definition of scarce that Stephan uses when he grounds his justification for the homesteading theory. The problem is that he *changes* his definition later on. That is why I have to introduce new terminology to distinguish them — you know, the terminology I get cluelessly ridiculed for. (Like that moron who demanded that I define the terms, when I did so in the very post where I first used them.)

I have already completely destroyed Person’s concept of “value scarcity”.

You keep saying that. What does it mean to “destroy my concept of value scarcity”? Are you saying you have proved that the concept is meaningless? That it’s inapplicable to the discussion? I have explained what the term means and why it’s relevant.

Pier_Johnson: Physical property rights are monopoly grants too — just a heads-up.

So now you’ve gone from not profitable to “normal, lower profits”. Is this your final answer? Are you actually saying that the copycat entrepeneur can’t make more profit than the original entrepeneur? That would be amusing. There is soooo much more to consider when discussing the relative profits of two entrepeneurs than the prices of the factors of production.

“And for all the cases where you can’t (i.e., where the *initial* award doesn’t significantly exceed production costs), the innovation doesn’t happen.”

Actually, under the scenario I outlined above, the innovation certainly would happen, or would at least be pursued to the point where profitability comes into question. Please read and think more carefully. But anyway, the same can be said about innovation under the patent system. There are no guaranteed profits. The patent system only serves to make one kind of production more profitable than it might otherwise be — R&D intensive products. On the other side of the coin it literally makes small modifications of existing products illegal. And that’s just great.
And so what if some innovations don’t happen? If a given research project consumes an enourmous amount of resources, perhaps those resources would best be used somewhere else — perhaps a different kind of research, or perhaps the resources would best be used to increase production of physical goods which tends to lower prices across the board (thereby increasing general welfare). These are just some of the reasons why we need to stick to protecting private property (and the rationing system that arises naturally from it) … and that does NOT include IP. This has been demonstrated up one side and down the other. Perhaps you’d like to take your intellectually honest brain back to the other blogs where I debunked your scarcity arguments and see if you can respond. Here’s a snippet from last weeks “On the IP Question”:

Person writes:

Why is an “unclear transmission” an impedence of my use of a frequency, while “arbitrarily increasing the instantiations of my composition” is not an impedence of the use of my idea? (The idea, after all, is less useful to me if it can be copied without my authorization, just as the radio signal is less useful if it can be transmitted along as the same time as me.)

Actually, your use of the idea is NOT impeded if I use it as well. That’s the whole point. You can still print your copies, sing your songs, or perform your dance moves, AD INFINITUM, even if I am doing the same thing at the same time. This is not the case with the TRULY SCARCE things in the external (non-imaginary) world – like radio signals. The signal is literally destroyed when another is broadcast on the same wavelentgh in the same general area. I’m SURE you can tell the difference.

AND….

Person’s definitions of “scarce” and “rivalrous” (when used in his “value scarcity” concept) are based solely on the will of the individual. That is, one can unilaterally make something more or less scarce by claiming that a desire is or is not fulfilled. In other words, there is no tie to the external world. Of course, if we could will away the conditions of scarcity, we would not need property rights to begin with…
As always, Person is employing two entirely different definitions of “scarce” interchangeably. This is a no-no in the world of language and communication. Does this even need to be explained?
I have already completely destroyed Person’s concept of “value scarcity”. See here, for example: http://blog.mises.org/archives/005713.asp . You can just read the last few posts.

Enjoy.

In a system of socialized (read: wage earners who cannot shift an otherwise compulsory tax burden upon those who can) of deductible corporate expenses, R&D that leads to patents is fully paid for by taxpayers, yet the monopolist patent holder enjoys full privilege of governing granted monopoly.

To argue against this truth is either to reveal shill lying on behalf of corporatist oligopolists or to reveal foolishness of false beliefs.

Yeah … that seems to be a general problem for you.

In the real world, some entrepeneur comes up with a new product or service. His profit or sales volume signals other entrepeneurs to enter the field. At this point, factor prices have already been “disturbed”, but that does not mean there is no room left for profit. This is just really basic stuff.

Yes, but at that point, the profits are the normal, lower profits of ordinary business operations. They are not the profits that the first entrepreneur got, which were higher, since prices had not been disturbed yet. (This is just really basic stuff.) So, in that case, the person responsible for the innovation still captured the full excess profits resulting from his innovation.

I don’t recall seeing anyone make this argument.

It’s basically what people regularly claim: that drug development is “really” only expensive because of the FDA. I dispense with it here (July 9, 2007 9:01 AM), using an argument Stephan Kinsella endorses when applied in another perfectly analgous context.

But I don’t have time to rehash all of the real arguments.

Nor should you. I’ve addressed those arguments before. (If they were convincing, I wouldn’t be posting here.) My previous arguments beat your previous arguments. So there!

But anyway, since you’re the one who wants to employ aggression (freemarket copyrights can’t exist),

And you want to beg the question…

Again … if the good can be reproduced for NOTHING after its introduction, it doesn’t matter. If I have a contract to supply X units of something and am contractually guaranteed payment of $2 million, and I think I can develop and produce the product for $1.5 million, then I make money. Period.

And for all the cases where you can’t (i.e., where the *initial* award doesn’t significantly exceed production costs), the innovation doesn’t happen. Period. It’s up to you to, the advocate of removing the fundamental driving force behind much innovation, to prove that this would always be the case, that the initial award would suffice.

What would you say if a socailist claimed that absence of (Lockean) property rights was no big deal because the community could put together awards for people who produced goods?

Yes, but if I feel I have an excellent advertising plan, I may want to take that risk. And my confidence in my advertising abilities will directly impact the price gap, or lack thereof, that I find acceptable between my product and my competitors product. That is, if I think I can use my advertising skills to sell twice the amount of units as my competition, then I may be able to afford to have a very competitive price.

Yes, but the problem is, having produced the innovation does not give you an *advertising* advantage over competitors who can produce an identical good and did not pay R&D costs. So the success of this method depends on a less-funded advterising being able to out-advertise a greater-funded one while having the same product — not something normally successful.

Incidentally, I kind of have to take a step back here and question this line of argumentation. You’re basically admitting here that capitalists have the ability to dupe people into unnecessarily overspending for products. This is precisely the argument socialists make against capitalism, and you’re proudly endorsing it? If so, okay — but I’m not sure that’s where you wanted to go.

nick_gray: Coca-cola’s success is due more to branding, rather than the production of a specific intellectual work, so I don’t see how it establishes the profitability of producing unprotected intellectual works.

One reason to not patent is for another reason. How much good-will did Mercedes-Benz create when they gave away airbag technology? sometimes fame is just as good as an incentive as fortune.

And sometimes it’s not. The thing is, the non-fortune incentive exists whether or not there is IP. The fortune incentive, however, is strictly less with IP since you can give away the rights if you don’t want them. (despite what an uninformed lawyer here might tell you…) So that means avoiding a huge series of Pareto improvements.

What? We all know there are copycats for all kinds of goods and services. Are you denying this? I’m not sure what you’re getting at here. In the real world, some entrepeneur comes up with a new product or service. His profit or sales volume signals other entrepeneurs to enter the field. At this point, factor prices have already been “disturbed”, but that does not mean there is no room left for profit. This is just really basic stuff.
Anyway, these copycats did not come up with the good or service themselves, they merely observed a trend. Of course, there is some extrapolation being done on their part, and so the copycats are not operating risk-free, but they certainly didn’t sink the time and energy and money into developing the original good or service.

“You mean the “It’s *only* because of the FDA that drugs cost money to test AT ALL!”?”

I don’t recall seeing anyone make this argument. But I don’t have time to rehash all of the real arguments. Just type “Fred Mann” and IP into google if you want to read mine…. . But anyway, since you’re the one who wants to employ aggression (freemarket copyrights can’t exist), it is up to YOU to show that innovation X can only be arrived at through patents and not through organic methods (i.e. how complex theories are constructed on this very blog), consortiums, contracts, etc …. which leads me to my next point ….

” All of these prizes derive their value from exclusivity, or are a return to something other than the production of the intellectual work. For example, giving it to customer X first won’t be much of a benefit if it can be reproduced for a tenth of the price a month later. ”

Again … if the good can be reproduced for NOTHING after its introduction, it doesn’t matter. If I have a contract to supply X units of something and am contractually guaranteed payment of $2 million, and I think I can develop and produce the product for $1.5 million, then I make money. Period.

“And yes, advertising can dupe people into buying your more expensive one — but the people without your R&D costs can do the same thing!”

Yes, but if I feel I have an excellent advertising plan, I may want to take that risk. And my confidence in my advertising abilities will directly impact the price gap, or lack thereof, that I find acceptable between my product and my competitors product. That is, if I think I can use my advertising skills to sell twice the amount of units as my competition, then I may be able to afford to have a very competitive price.

I wouldn’t say that.

“Pig-headed” is a term that springs immediately to mind.

As for the rest:

1) Your original post was about the computer industry, not the software industry. Don’t pretend that examples from the latter vindicate your original claim.

2) Agreeing on standards is not the same as producing free intellectual works for all to use.

3) To my knowledge, chip makers do patent their chips. But even if not, all you’ve done is shown one instance where upfront capital make it a moot point. Replicating drugs is much, much cheaper. Look at what they actually charge for drugs to have any chance of recouping their R&D costs plus the risk. Remember, pharmas can *already* release their drugs without patents. Why don’t they, if the situation is precisely analogous to that of chip makers?

With drugs, it could be precisely the same: what a specific compound does to human patients is its interface. The ways to make that compound economically (and with good quality) and in a form allowing effective delivery is the information which does not have to be shared, because it is irrelevant to the doctors and patients – and you cannot tease it out by chemical analysis of the compound.

Besides, the participation in drug discovery yields less obvious benefits to the insurers – they get advance information on efficiency, which is directly relevant to their cost/benefit calculations – and thus goes directly into the guidelines to participating physicans and the coverage definitions (such as inclusion into the formularies).

The big mistake all utilitarian proponents of IP make is assuming that everything stands still. Which it pretty much does – in a socialist world controlled by the government bureaucrats, their patent examiners, and their slow-moving courts.

In the cut-throat capitalism of highly-competitive industries, priority access to information usually matters more than the information itself. You either participate in invention, or you’re already late to the market by the time you learn about its existence.

And do not forget the marketing angle – both doctors and patients will be a lot more receprive to dealing with an insurer which does participate in R&D – because that insurer could have a strong claim that they do have best interests of patients in mind, rather than being a greedy scum.

The claim that people wouldn’t produce “IP” if they don’t get monopoly rights to it is totally ridiculous. Go read some Homer and Aristotle. Listen to Grateful Dead. Read this thread, and pause to think why do you bother writing something which you then immediately put into the public domain. Hint: information is not something you create. Information is something which creates YOU.

No, because the copycat wouldn’t know if it was worth copying until the entrepreneur had disturbed factor prices — at which point it’s no longer profitable. Or he would join the entrepeneur in guessing consumer desires, at which point he’s taking the same risks and costs.

Also, your assumptions about how R&D must be done and how much it must cost have already been covered numerous times.

You mean the “Oh yeah! Here’s one instance of an intellectual work being produced without IP protections, which contradicted nothing you ever said!” ?

You mean the “It’s *only* because of the FDA that drugs cost money to test AT ALL!”?

Which numerous times are you talking about? Cause yeah, I’ve seen it covered before — very, very badly. Which is what makes it so hard for me to endorse the anti-IP position. Because I’m intellectually honest. Remember?

Also, there is always a prize for being first, and that prize can be enlarged through creative use of contracts with potential distributors AND with potential customers (i.e. pay us now and we’ll deliver you a cure, a piece of software, etc. by such and such a date, or your money back) and of course, advertising, etc.

All of these prizes derive their value from exclusivity, or are a return to something other than the production of the intellectual work. For example, giving it to customer X first won’t be much of a benefit if it can be reproduced for a tenth of the price a month later. And yes, advertising can dupe people into buying your more expensive one — but the people without your R&D costs can do the same thing!

And an entrepeneur could be put out of business by a copycat entrepeneur who didn’t spend all of his time and energy figuring out what consumers want.
Also, your assumptions about how R&D must be done and how much it must cost have already been covered numerous times.
Also, there is always a prize for being first, and that prize can be enlarged through creative use of contracts with potential distributors AND with potential customers (i.e. pay us now and we’ll deliver you a cure, a piece of software, etc. by such and such a date, or your money back) and of course, advertising, etc.

Health insurers exist to ensure that you can fund treatments. If they researched cures, they would be put out of business by someone who could enter the field of health insurance and not have paid their R&D costs.

And you really missed the point of the Lockean property rights reference, didn’t you? My point was this: claiming that people would “still produce intellectual works in the absence of patents” is precisely as helpful as saying that people would “still produce [physical] goods in the absence of [physical] property rights”. So what? Would you bury your head end the sand an endorse socialism on teleological grounds because of this? No? Then why hold IP to a higher standard?

mike: Most of the value of a chef is, for lack of a better term, socially constructed. People want to be seen at “that restaurant with the famous chef”. Transferring the recipe by itself typically doens’t transfer all of the benefit of that recipe, and furthermore, people are not bidding for that food output as if their lives depended on it. It’s the opposite for pharmaceuticals. In that case, you do transfer the full benefit of the drug merely by describing how to make it. So no, I don’t think the existence of copycat chefs proves your point.

Fred_Mann: It’s true that the patent system can be perverted by awarding patents for traditional remedies. Are you also willing to denounce all property rights because of how they have been historically misused?

Actually, this is a very simple question to answer – the ones which will benefit from it. Health insurance companies – for which finding cures and drugs which really prolong healthy life (and not just some overhyped stuff which is patentable but is not much better (and ofter worse, Vioxx, anyone?) than the old drugs) directly translates to less payouts and more years to collect premiums.

In the end, people pay for development of those drugs one way or another – through the insurance companies and taxes. However, in the current system the incentives for drug development are all screwed up. Instead of finding cheap and effective cures pharmas are looking for lifestyle drugs and drugs which do not cure but convert acute illnesses into chronic conditions requring expensive maintenance. No one is interested in development of new antibiotics, for example, – because doctors will be holding them back to treat resistant bacteria. No one is interested in checking unpatentable natural compounds from traditional medicines. And in the present patent-driven system no one is interested in looking for cheap drugs. There are also chilling effects of patents – a significant (and growing) portion of biomedical research is devoted to patent avoidance rather than to doing something useful.

Pharmas should not be doing drug discovery. They should do drug manufacturing – competing on cost and quality. If the patents are abolished, they will get out of discovery business pronto; so the pressure from patient groups and business sense will drive insurers into forming consortiums (oh, and these anti-trust regulations must go as well) and funding collaborative non-profit efforts for drug R&D.

This scheme is well-known in the electronics and computer industry which came to consider patents as a pesky nuance rather than a source of income. The open-standard technologies are being developed at the furious rate – in fact, the whole high-tech industry would be impossible without this voluntary collaboration of self-interested parties. Guess where prices go down (and the products are rapidly improving) and where they go up (and there are fewer and fewer new products on the horizon)?

The patents are bad for your health. So is assuming that competitors won’t collaborate in things which will benefit all of them. They will, and they do. Business people are not stupid, and they understand that doing things which benefit the entire market will benefit their business too.

And, no “intellectual property” is not property, so the Lockean rights have nothing to do with it.