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Source link: http://archive.mises.org/9301/does-innovation-require-property-in-ideas/

Does Innovation Require Property in Ideas?

January 24, 2009 by

[Live blog part 3, chapter 3]

Against Intellectual Monopoly dares step out front, on a topic very dear to our hearts, to prove that “the great role of patents in giving us modern software is unadulterated fantasy.” And they show this by reviewing the history of software innovation and its present workings. Neither Google nor Youtube nor any other driving force is using patents to retain competitive advantage, and those who do collect patents mostly do it in order to avoid patent trolls, e.g. those who would patent a technology already in use in order to possess and restrict its use.

The lesson, however, applies far more broadly. Wealth in the Western world has been rising for a thousand years, and innovation along with it, and patents have played virtually no role whatsoever. The authors, in chapter 3, go more fully into the history of the patent to show that they originated out of kingly privilege associated with mercantilism and that the legislation of the 17th and 18th centuries were forms of liberalization, despite first appearances. It wasn’t until the 19th century that the laws tightened again.

Comprehensive “intellectual property laws” as they are today didn’t make an appearance until the end of the 19th century and the beginning of the 20th century. Taking the long view here, we can see even with a superficial look that economic growth throughout the world has been in process for 1000 years, while patents are new and mostly very narrow until quite recently.

Why did patents enter the picture? The rise of modern IP is due to the lobbying of incumbent firms threatened with competition. It is a complete myth that patents give rise to innovation; the reverse has been true: innovation gives rise to patents. The authors offer this incredible challenge: “Can anyone mention even one single case of a new industry emerging as a result of the protection of exiting patent laws? We cannot… Strange coincidence, is it not?”

Examples. Services in the US were not covered by patent until the 1990s. In Italy, pharmaceutical products and processes were not covered until 1978. In Switzerland, it was 1954. Agricultural seeds and plans were not effectively patented until 1977 – but the greatest progress here occurred over the previous 100 years. Basic sciences like math and physics cannot be patented. The tendency in the biological and life sciences toward patents is a very grave sign for the future of these sectors.

The authors cite George Stigler in pointing out that patents did not assist “automobiles, frozen foods, various electrical appliances and equipment, petroleum refining, incandescent lamps, radio, and uranium mining.” Stigler further cites the mail order business, which revolutionized retailer, as a case of patent-free development.

Shall we go on? It helps to have the specifics that the authors provide. “Ray Kroc’s fastfood franchise (better known as McDonalds), the 24-hour convenience store, home delivery of pre-cooked food, the suburban shopping mall, franchise-everything (from coffee to hairdressing), the various steps that make up the delivery business of UPS, Federal Express, and DHL, and, obviously, online commerce. That is: pretty much each and every innovation which, during the last half century, has had any lasting impact in the retail and distribution sector was not spurred or protected by patents.”

How did the inventor of the cotton gin–Eli Whitney–become rich? Not through the cotton gin! He and his business partner took out a patent and spent their energies crushing competition. They were trying to charge farmers two-fifths of their profits, paid in the form of cotton. Farmers hated it, and started to pirate the machine, and many competitive companies sprung up. Litigation followed and last from 1794 to 1807. Nothing came of it but a expense of time and energy, not to mention lawyer fees. The growth of cotton ginning in the South ended up owing more to the pirates than Whitney.

So where did Whitney get his money? How did he die rich? In 1798, he invented a process to manufacture muskets by machine. This time he was smart: he sought no patent. He encouraged “piracy,” that is, imitation. The industry took off, and he remained the leader through innovation. What a blessed life to be rid of the stupid waste of using legal means to crush the competition and instead devote yourself to do good for others and making money at the same time!

Here is the section in which the authors tell the story of agriculture. Before 1930, there was no patent protection–the very period in which the US became so productive in agriculture that the entire population shifted in its main industrial focus. After 1930, law granted only patents for a narrow range of plants. It wasn’t until 1970 that the Plant Variety Protection Act extended protection to sexually produced plants, and not until the 1980s when protection was extended to biotechnology. So we have a test case, and the authors measure innovation using total factor productivity. They find no increase after patents, and even some disturbing data oscillations. In corn in particular, the astounding increase in yields occurred before patents and have nearly leveled off since patents.

Two splashing examples of amazing innovation are now introduced in the book. The area of Almeria, Spain was an unusable dessert from the beginning of time until 1963, when an unpatented greenhouse was introduced into the area. The greenhouse was copied and copied and spread all over the region. The results can be seen from space with color photos reproduced in the book. The entire region was transformed from desolate to rich in the course of two decades. The same process took place in Treviso, Italy, where the read-to-color sweater was introduced by the Benetton family, and the process was imitated and spread to change an entire region in the absence of patent.

Other examples: financial services (no patents), fashion (no patents), and advertising (not patents and copyrights are ineffective). These are the leading examples of innovation in the modern age. This section is so compelling that so far as I am concerned, the book could end here.

But if patents really are that irrelevant, why don’t the captains of industry realize it? It turns out that they do. Two surveys in modern times asked R&D heads what techniques are most effective in realizing gains from innovation. It turns out that they regard the patent as the least effective means. The authors conclude this mind-blowing chapter with a long discussion of patent pools: these are cases in which companies relinquish patents in order to establish sharing agreements. It is a way of stepping sideways toward what the market would give us anyway.

Companies live and breathe by innovation. Innovation and monopoly are not compatible. We are back to an old lesson that remains true: it is the market and all that comes with it–not laws granting exclusive privileges to produce–that gives rise to innovation.

I end with a statement from Mises himself: “The great monopoly problem mankind has to face today is not an outgrowth of the operation of the market economy. It is a product of purposive action on the part of governments. It is not one of the evils inherent in capitalism as the demagogues trumpet. It is, on the contrary, the fruit of policies hostile to capitalism and intent upon sabotaging and destroying its operation.”

Sometimes those most hostile to capitalism are the capitalists themselves!

{ 59 comments }

newson January 26, 2009 at 12:07 am

doesn’t it strike some as strange that the government disallows private knowledge to be used for profit (insider trading), and yet protects other information from wide dissemination in order to safeguard private profits (ip)?

and all with a straight face?

ktibuk January 26, 2009 at 7:51 am

Peter,

You keep misrepresenting my position and I ope this is due to my own lack of clarity.

“> A property, is something that is a part of this
> universe
This is a tautology, things that are not part of this universe do not exist (for the purposes of our discussion).”

Unfortunately there are some on this blog that deny the existence of IP, so I needed to emphasise on that. But if you find it tautologic you may disregard it.

“> and this action is called homesteading.
No. There are plenty of cases where your action cause changes in “something” and isn’t homesteading. Especially in the immaterial realm.”

You just assumed your conclusion here. Why can’t we homestead in the immaterial realm? Because we can’t isn’t an argument. “Ideas are abstract reflections of tangible matter all around us in a pattern that can be expressed by humans” and there as much as if not more different variations that can be created in the immaterial realm, as in the material realm. Nothing abstract can be created totally divorced or isolated from reality but that is also true for tangible things. You can not create something out of nothing, but we can easily call rearrangement of natural things as creations, or production.

“> A teacher could ask for and receive something he
> values in exchange of the ideas he would give to a
> student.
This is a bad example, it doesn’t have anything to do with ideas being a property or not. This could be a service contract.”

No it is a perfect example. What service do you think a teacher gives? Entertainment? No. He passes on knowledge. He sells ideas. And a student pays for it expecting to “gain ownership of knowledge”.

“> … copying without the consent of the owner …
You have not defined what “copying” is. Why are patent infringements not copying, but copyright infringements are? Is paraphrasing copying? Is translation copying? Is format change (e.g. between written and spoken text) copying? What if I do a pantomime of written text, is that copying?”

I am sorry I didn’t realize copying needed definition. Copying is copying. Independent discovery is not copying, so most patent infringements are not usually copying. Changing something on the other hand is also not copying. Copying songs, movies, software, novels as it is and downloading is copying. This isn’t that hard really. A 6 year old would know this, but then again a 6 year old wouldn’t have an agenda based on socializing property.

And another thing. Aggression doesn’t have to be only about the integrity of a tangible object at an atomic level. Who cares about physical integrity. Ethics is about humans and the only meaningful thing about humans is free will and consent. Aggression is about consent. If you copy something of someone with out his consent you are aggressing against him.

The best way of analyzing for this is creating a mental construct of isolated beings. If two persons are isolated on different islands and if there can not interaction between them, there can not be possibly any aggression. No aggression regarding physical integrity of tangible stuff, or copying which is also aggression. Can they independently homestead different tangible goods and make them property? Yes. Can they independently homestead ideas and make them property? Yes.

“> As stated many times todays patent laws for
> example claim that only one person can
> homestead an idea, and if someone else in fact
> homesteads a similar idea he is accused of
> copying, which is coercion.
I think this is a good example of what I just said. What is the difference between being similar and being a copy? I have come to the conclusion that the difference is quantitative rather than qualitative. Which makes the definition of intellectual property as a natural right very dubious.”

This has nothing to to with being similar or the same. This is about copying. You can not copy if you don’t have any access. And either you have copied something or you didn’t. If you did you committed aggression if you didn’t copy you haven’t.

I guess you are stuck at the enforcement issue and getting all confused. You are wondering how you can establish the truth where parties accuse each other and truthful? Enforcement is a technical issue and you can not foresee every possible scenario when you are dealing with ethics and rules. In some cases the judgment would be easy. In some it would be hard, and believe it or not in some cases there would be wrong decisions. That is life.

“> Artists and writers would justly own their work.
Distortion. In order for someone to “own their work”, IP laws are not necessary.”

Nonsense. This is just like saying in order for someone to own anything there has to be property laws. Property rights are not positive rights that are legislated. It is a natural phenomenon.

“> Looking from a utilitarian point of view …
From a utilitarian point of view, IP laws create costs by the requirement to track IP. Due to the lack of scarcity, the costs grow exponentially. Obviously, it is more a problem for patents than copyrights, but still.”

More nonsense. I am not talking about IP laws, or basing my property rights theory on any laws that were or that are. You seem to be having a hard time grasping natural rights. You are fixated on legislation. Please get yourself acquainted with natural law theory first.

“How many bytes for example are necessary for a text to be property? For any number you say, I can create a program that can generate all possible combination of characters of that length, therefore making all future texts written by anyone my property (because any text shorter than this is not protected by copyright, and any text longer must contain what my program can also generate).”

You gotta be kidding me. If after all that I have said, if you can still write these I must question your intellectual honesty.

You can only own what you create. Can I get any clearer than this I don’t know. You can not own all possible ideas because you were first. First comer has nothing to do with IP.

ktibuk January 26, 2009 at 7:56 am

Newson,

“doesn’t it strike some as strange that the government disallows private knowledge to be used for profit (insider trading), and yet protects other information from wide dissemination in order to safeguard private profits (ip)?

and all with a straight face?”

Newson do you think the state handles tangible property (the only legitimate property according to you) rights as they should? And if they have problems, bad legislation, is this a reason to abolish all property?

Peter Surda January 26, 2009 at 9:27 am

@ktibuk:
> You keep misrepresenting my position and I ope this is
> due to my own lack of clarity.
Indeed, clarity is what your posts lack.

> Unfortunately there are some on this blog that deny the
> existence of IP, so I needed to emphasise on that.
Unfortunately, so far you have failed to define what IP is, and keep using it in a confusing manner. Without the definition any reasonable discussion is impossible. I would like to stress that definitions have nothing to do with whether something is real, justified or economic.

> But if you find it tautologic you may disregard it.
If you consider it important for 2/3 of a definition to be a tautology, I really wonder if you understand what you are talking about.

> You just assumed your conclusion here. Why can’t we
> homestead in the immaterial realm?
That’s not what I said. I said your definition is incorrect because it lacks precision.

> What service do you think a teacher gives? Entertainment?
Some teachers do :-).

> He passes on knowledge. He sells ideas. And a student
> pays for it expecting to “gain ownership of knowledge”.
None of this requires copyright, therefore you cannot use it as a proof of the existence of IP.

> I am sorry I didn’t realize copying needed definition.
What? It’s the core concept of your argument. Obviously it requires a definition.

> This isn’t that hard really. A 6 year old would know this,
> but then again a 6 year old wouldn’t have an agenda
> based on socializing property.
It only indicates that you actually haven’t thought about this, and have no idea what copying is. Please answer the questions.

> This has nothing to to with being similar or the same.
> This is about copying.
Ditto.

> I guess you are stuck at the enforcement issue and
> getting all confused.
I guess you are stuck at the enforcement issue. Before we investigate whether a right was violated, we need to define the right (or the violation thereof) first. If you cannot define it, all the further steps are arbitrary.

> You are wondering how you can establish the truth
> where parties accuse each other and truthful?
No. I wonder how do you objectively define IP, because this needs to happen before we can evaluate if it was violated in a specific case.

> This is just like saying in order for someone to own
> anything there has to be property laws. Property rights
> are not positive rights that are legislated. It is a natural
> phenomenon.
Copyright is not about “owning”. It is perfectly possible to “own IP” without any copyright. Hence your claims about “socialising” go out of the window.

> Property rights are not positive rights that are legislated.
> It is a natural phenomenon.
I’m not sure I’m a natural rights proponent, but let’s say I agree with you on this. However, copyright is not a natural right, but arbitrary crap, as I demonstrated several times.

> You seem to be having a hard time grasping natural
> rights.
I don’t think I have. I’m just trying to react to your claims. It was you who brought up utilitarian aspects.

> You are fixated on legislation. Please get yourself
> acquainted with natural law theory first.
And you are fixated on a very unique theory of rights, which:
- you have not sufficiently explained
- you most likely have not thought through

> You gotta be kidding me. If after all that I have said, if
> you can still write these I must question your intellectual
> honesty.
After all you have said, I really doubt you have thought about the issue at all. My point is that you cannot objectively define copyright, especially not on a natural law basis.

> You can only own what you create.
Again, this has nothing to do with IP.

> Can I get any clearer than this I don’t know.
Maybe then you can try to objectively define the difference between “creation” and “copying”.

> You can not own all possible ideas because you were
> first. First comer has nothing to do with IP.
You are contradicting yourself. You can’t at the same time own what you create and not be the first to do so.

Maybe if we split the potential meaning of property into two parts we can move our discussion forward a little:
- (positive) the right to use ones property to ones own liking
- (negative) the right to exclude others from using it without the owner’s consent

Now, for rivalrous goods, these definitions are identical. For non-rivalrous, they could represent different things. The first definition is a prerequisite for trade, whereas the second one isn’t. Copyright does not deal with using your own property, but only with the ability to exclude others, therefore it is not a prerequisite for trade.

Let us assume that we want people to “own their IP”. What does that mean? If we subscribe to the the positive definition, then no IP concepts, or laws, are required to accomplish this, they are only required if you adhere to the negative definition.

So, lets try it again. Please define the terms you are using: property, idea, creation, copying. Without them, argumentation is impossible. Stop using phenomena which can be explained without copyright as a proof that copyright is a natural right, this is not a valid argument. And stop asserting that without copyright there can be no possession or trade with regards to intellectual works, because there is sufficient theoretical backing and empirical evidence that it’s not the case.

Cheers,
Peter

ktibuk January 26, 2009 at 10:34 am

Peter your problem is that you have a bogey man in your head and although I claim no such things you put words in my mouth and argue against that.

Copyrights for example. Do you see any reference to copyrights in my writings? I guess you are talking about the actual copyright laws when you go on your phantom crusade while I am talking about ethical concepts.

If own an idea I may keep it to my self. I may also let you copy it. I am not talking about a specific contract here, I am talking about an action. This may be hard for you since you can not differentiate between copying something and creating it yourself but there is a distinction. Like there is a big distinction between shooting your own movie and downloading a copy of someone else’s. Or composing your own song or copying a song of Metallica’s. You may be so deluded that when Enter Sandman plays you may be in doubt to whether you composed it or not but the rest of us know that it is Metallica’s.

I have made every attempt to clarify my position but it doesn’t work on you because you are fixated on these things. You take todays legislation as an ethical statement and keep attacking that, while asking me to put my position in the context you are used to. I am proposing an ethical stance and I don’t have to make my position fit to todays legislation.

If you try a little and get rid of your fixations you may begin to understand my points, which you still would have the right to reject.

But I am sorry to say I am done with you since I see no hope of communication.

Peter Surda January 26, 2009 at 10:54 am

> Peter your problem is that you have a bogey man in
> your head and although I claim no such things you put
> words in my mouth and argue against that.
Kindly stop confusing everything. You have yet to explain what IP, or any of the parts of your theory, are. You are making a lot of claims which are plainly false.

A discussion in indeed hopeless, but only because lack of common ground. I have given you many opportunities to create that common ground and explained specifically, what and why.

Cheers,
Peter

Silas Barta January 26, 2009 at 12:10 pm

@Peter_Surda: Again you are confused by the word “property” in the phrase “intellectual property”.

Not at all, I understand the issues perfectly; it’s getting others to do the same that’s the problem.

You need to define it first. As I tried to explain before, in the colloquial use “intellectual property” is used for many unrelated concepts, some of which actually overlap with non-intellectual property.

I need to do no such thing and I warn other posters not to play along with your pedantry here. Everyone here knows what “intellectual property” refers to. It’s simply the exclusive legal right to instantiate a specific pattern in some specific way. Currently, within state and common law, that takes the form of patents, copyrights, trademarks, and some other institutions.

There’s no point to rehashing this assumed definition before discussing the issue, for the same reason there’s no point to defining the word “the” at the beginning of each discussion. Everyone assumes a certain common understanding before talking about any given topic. If and when you believe that the definition you are using differs from that that others are using, AND such difference noticeably affects this discussion, it is your responsibility — not mine — to point it out and explain the significance of that difference in assumption.

If you can’t do that, then please just get over yourself and move on to the important part of the discussion.

So let’s get to the specific IP laws that I object to: copyrights and patents. Selling your writings does not require copyright, selling a drug recepture does not require patents. But selling material goods (let’s say a loaf of bread) and services (let’s say a haircut) requires property. Why? Because the consumption of the latter is rivalrous. In order to achieve possession, you need to exclude others from it using it. In the areas covered by copyright and patents, there is no necessity to exclude others from consumption in order to possess the goods. You can if you want, even without copyrights and patents, but it is not a prerequisite to trading them.

Now you’re the one playing fast and loose with your definitions. I can’t tell what definition you’re using of “selling” throughout. If you’re selling the *right* to instantiate your writings, then yes, that does require a property right in the the writings. But in your comment you discuss the prerequisites to “possessing” a physical object, which are in fact not prerequisites. People have long “possessed” things without any kind of legal “property right” in them.

Your attempt to differentiate the scarcity condition in both cases is also a result of changing definitions midway. As I’ve argued ~6 trillion times with Stephan_Kinsella, scarcity simply means a condition where not everybody’s wants — however ridiculous, over whatever state of affairs — can be satsified. That’s not my choice of definition, that’s what the term must mean in order to ground any property theory, and what Stephan_Kinsella, Rothbard, Hoppe, etc. use the term to mean before they change it later on.

And there quite clearly IS a scarcity in the case of writings: I want restrictions on the instantiation of my writings; you do not. Ergo, both of our wants cannot be satisfied. In order to say that we can both “possess” the writings without exclusion of others ignores what the conflict is actually about. It forces you define a way a kind of conflict as “not counting”.

> In fact property laws are market regulation, they
> allow to shift the price above and supply below the
> equilibrium.
That is certainly completely untrue. Property rights in a market economy do not allow either decreasing of supply below or raising the price above equilibrium. For the simple reason that without them, either market or equilibrium have no meaning.

Sure, and that also holds when the good in question is information, which was the point of my satire. (You did realize it was satire, right?)

The market is a method to deal with scarcity, i.e. to attempt to solve the economic calculation problem. It requires scarcity, but does not require rivalry.

Rivalry and scarcity are equivalent. Even Stephan_Kinsella concedes this point.

And by the way, could you answer my long-time challenge to show how there is economic calculation in intellectual works without IP? If you price-control IP (the legal right to instantiate an idea) to zero, which deletes all information contained in the market’s demand for that kind of intellectual work, how does an entrepreneur decide the relative merit of producing a given intellectual work vs. other kinds of goods or activity?

But anyway:

IP laws (patents and copyrights) have no influence on scarcity, but they create rivalry. That makes them at best unnecessary.

You could just as easily say the same thing about physical goods. “Hey, if there were no property laws, everyone could just take the output of this farm or factory, no more scarcity, w00t! Unless we want to eat next year or something ridiculous like that…”

Peter Surda January 26, 2009 at 1:09 pm

> I need to do no such thing and I warn other posters not
> to play along with your pedantry here. Everyone here
> knows what “intellectual property” refers to.
Almost everyone uses it to describe something different. A discussion without proper definitions is impossible.

> It’s simply the exclusive legal right to instantiate a
> specific pattern in some specific way.
This means two different things: the right to use something, and the right to exclude others from using it. Be denying this you are confusing the issue.

> Currently, within state and common law, that takes the
> form of patents, copyrights, trademarks, and some
> other institutions.
Except for example, in order for trademarks and trade secrets to work, it is not necessary to create new category of rights, whereas for copyrights and patents it is. Hence the confusion and my insisting on pedantry. Ktibuk for example does not agree with any of those definitions. I am glad that at least you seem to, so that’s why I’ll be using this definition in communication with you.

> I can’t tell what definition you’re using of “selling”
> throughout. If you’re selling the *right* to instantiate your
> writings, then yes, that does require a property right in
> the the writings.
Again, confusion. It requires the right of owner to use it (which I don’t deny, I just claim that this is no new right and does not require IP laws). It on the other hand does not require the right to exclude others from using it. Which is what IP (meaning copyrights, patents, trademarks, trade secrets) is.

> But in your comment you discuss the prerequisites
> to “possessing” a physical object, which are in fact not
> prerequisites …
Maybe I was not clear. I mean the “positive” definition of rights as declared above. It does not need to be material. I hope I clarified that now.

> Your attempt to differentiate the scarcity condition in
> both cases is also a result of changing definitions
> midway.
I apologise for the confusion. I hope it’s clear now.

> scarcity simply means a condition where not
> everybody’s wants — however ridiculous, over whatever
> state of affairs — can be satsified
Indeed, I agree with this definition.

> And there quite clearly IS a scarcity in the case of
> writings: I want restrictions on the instantiation of my
> writings; you do not.
This is confusing again. Some sort of restrictions exist regardless of whether the IP laws exist or not. They do not create it. They may influence it by creating rivalry though.

> In order to say that we can both “possess” the writings
> without exclusion of others ignores what the conflict is
> actually about.
It challenges the opinion that ownership requires exclusion of others. It’s just like if I insult someone. Does that create a conflict? Maybe. Does it mean someone’s rights have been violated? Only if you accept that there is a right to exclude others from insulting you.

> Sure, and that also holds when the good in question is
> information, which was the point of my satire. (You did
> realize it was satire, right?)
I was obviously aware it’s a satire, but that does not invalidate my argument. Let’s come back to the two definitions of property. The market value arises from the ability to use something (the first definition). Without it, there is no value. The ability to exclude others does not create value, it just changes it.

> Rivalry and scarcity are equivalent. Even
> Stephan_Kinsella concedes this point.
Then either you are misinterpreting him or you are both wrong.

> could you answer my long-time challenge to show how
> there is economic calculation in intellectual works
> without IP?
There have been, and still are, plentiful of vibrant markets with immaterial goods which do not rely on intellectual property laws. Just open your eyes.

I have been a software engineer my whole career (around 13 years) and rarely, if ever, did my income depend on the existence of IP, even if you follow couple of transactions down the link. In fact I have my own company.

What other evidence do you need? Do you deny that I exist?

> If you price-control IP (the legal right to instantiate an
> idea) to zero.
Non-zero price of “IP” does not require IP laws. As I said before, the price is created by the ability to use something (which IP laws aren’t about) rather than the ability to exclude others from usage (which IP laws are). The latter just shifts the price.

> You could just as easily say the same thing about
> physical goods.
Rivalry in physical goods exists regardless of whether property laws exist. It is a simple matter of fact that if I eat a loaf of bread, you can’t eat it at the same time.

Cheers,
Peter

Peter Surda January 26, 2009 at 3:49 pm

One more thing.

> It’s simply the exclusive legal right to instantiate a
> specific pattern in some specific way.
Current IP laws are not defined like this. They do not apply at the time of “instantiating”, rather they kick in when you try to distribute it. Current IP law for example does not make downloading copyrighted music, texts or anything else illegal. You can also make a patented drug in your garage. You just can’t sell them on the market or give them away for free.

So, you either disagree with the current form of IP laws, or you do not understand them.

Cheers,
Peter

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