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Source link: http://archive.mises.org/9334/seen-and-unseen-cost-of-patents/

Seen and Unseen Cost of Patents

January 29, 2009 by

[This is part 4 of an ongoing live blog of Against Intellectual Monopoly]

Drugs patents took it on the chin a few years ago, when major drug companies refused to sell cheap AIDS drugs in Africa. Presuming the drugs work, countless lives might have been saved. But the desire to protect the high price on the patented drug–despite the low marginal cost for producing additional units–trumped the humanitarian impulse to save lives. The large drug companies refused to budge, despite protests from all over the world.

Defenders of the drug companies say: well, sure it is cheap to produce mass quantities of drugs after they have been developed. But the costs of getting there are sky high. If companies can’t charge high prices, they won’t develop the drugs in the first place.

Boldine and Levine, in chapter four, offer an interesting response to this claim but it requires a bit of thought. They point out that the drugs can still be sold profitably at vastly lower prices, in the same way that many other products can be sold profitably at low prices. Items of super high cost–think of passenger airlines or cruise ships–recoup those costs through volume sales over time. It is the same with drugs, or could be.

So why wouldn’t the pharmaceutical companies budge in the African case? It is due to the fear of re-importation, that is, that the drugs would make their way back to the US and Canada and be sold at cheap prices, thereby undercutting the monopolistic price. Why not just price discriminate? It not so easy to price discriminate in a global economy. Rather than take that risk, companies settled for not selling at all. This reflects a general principle articulated by Boldine and Levine: “Intellectual monopolists often fail to price discriminate because doing so would generate competition from their own consumers.”

Think about this principle. It helps explain why large software manufacturers routinely degrade their products available to consumers while reserving their better products for the more lucrative corporate market. This is why the versions of operating systems and end-user software are dumbed down on the consumer market. The companies don’t want to permit cross selling between markets, even though the costs of selling better products across markets are virtually identical. Only IP allows them to get away with this sort of behavior.

So, yes, there are some benefits to patents in the same way there are benefits to all monopolists. The Post Office benefits from the prohibition against private delivery on letters. Public school benefit by regulations on private education and mandatory funding. The electric company benefits from its statutory guarantee against competitive intrusion.

But that is not the same as saying that all groups benefit. Boldrine and Levine examine data from Total Factor Productivity in cross-national studies and show that the astounding increase in patents in the 1990s–rising more than three-fold from a stable rate in previous decades–has had no effect on increase prosperity and innovation.

Meanwhile, there are huge costs, even for those who acquire and own the patents. Oracle software, for example, spends vast resources on what can be called defensive patents. They must get them before someone else does else risk having to pay huge fees to someone else. Cross-licensing is the only way to develop software now, so the patent route has been forced on everyone. The word “thicket” is the one everyone uses. What it really amounts to is a cold war between patent holders–a patent race that is very much like an arms race. This is why Nokia own 12,000 patents and Microsoft is adding 1,000 patents a month to its arsenal. Intel’s CEO spoke for many when he said he would be glad to cut patents to a tenth of its current rate provided that others did the same.

Conventional patent theory says they are necessary for generating revenue to fund research and development, and to inspire innovation. This is supposedly the economically valuable contribution of patents. Then there is the real world. A Carnegie Endowment survey of firms shows that businesses themselves report that this function of patents is mentioned as important only 6% of the time. The main reason businesses say that they want patents is enforce monopoly–preventing people from developing similar but better and cheaper products–and to prevent lawsuits.

They authors describe the result of patents as not a competitive market for innovation but an oligopolistic market structure around patent-pool mechanisms. This affects every industry, as patent battles hinder economic development. A good example is the ongoing battle over who and what can lay claim to the title “basmati” rice. A Texas company called RiceTec won a patent in 1997, infuriating Indian and Pakistani companies that have been making Basmati for hundreds of years. These companies have been fighting back with their own attempts to register patents on the rice. What this has to do with the consumer and the dinner table and the need for cheap and delicious food being made widely available is the unanswered question.

A peculiar form of patent abuse comes in the form of the submarine patent. This is a patent taken out early while the production of the product itself is delayed as long as possible. When someone else finally goes to market with a product, the patent emerges from the deep as a method of blackmailing the company that has gone to market.

Boldine and Levine explain that this tactic dates to George Seldon’s patent on the “road engine” in 1895. It commanded 1.25% on the sale of every car in the US. He sold his patent for $10,000 and 20% of royalties to a syndicate in 1899. As the car actually started to make it to market, the Associated of Licensed Automobile dealers formed a cartel around the patent. The authors comment: “if you were wondering why the U.S. automobile industry developed so quickly into the oligopoly we know and hate, a fair share of the roots lie in bad ‘intellectual property’ legislation and the intellectual monopoly it created.”

Personally, I find that revelation remarkable. More than a hundred years later, we are still paying the price for this car-cartel-creating patent. Something similar happened to airplanes, when the Wright Brothers managed to get a patent on anything resembling an airplane, despite their own meager contribution to the technology. They were so aggressive in blasting all competitors that all serious innovation in airline technology ended up taking place overseas in France.

The authors make a statement that I wish could be made more prominent, since it comports with everything I know about businesspeople and patents. It is the most common thing in the world for a businessperson who use every market-oriented skill to get a product to market: a good product at a good price that becomes the market leader. At this point, and for some odd reason, the businessperson gets confused. He thinks that it his IP that is the key to his success and ends up fighting for it with all his might, even at his own expense.

Here is the statement by Boldrine and Levine: ” “Being a monopolist” is, apparently, akin to going on drugs or joining some strange religious sect. It seems to lead to a complete loss of any sense of what profitable opportunities are and of how free markets function. Monopolists, apparently, can conceive of only one way of making money, that is bullying consumers and competitors to put up or shut up. Furthermore, it also appears to mean that past mistakes have to be repeated at a larger, and ever more egregious, scale.”

A clear case in point concerns the Recording Industry Association of America, which managed to make itself appear as the devil incarnate in the eyes of an entire generation of music downloaders. Another example concerns Google Print. This work of genius would have brought all the world’s libraries to one central location so that users could search the books and purchase them. Wonderful! But the Authors Guild sued, and the suit has gutted Google Print as a useful tool. The dream of all educated people from the ancient world to the present–a single accessible repository of all the world’s wisdom–was stopped for no good reason.

The authors conclude chapter four with a restatement of the theme: the benefits of patents are small and narrow, while the costs are large and broad. The biggest costs are the unseen ones that Bastiat speaks of. These are innovations we don’t see, the products that don’t come to market, the efficiencies that we never experience, the companies that don’t come into existence, and the investment that would have taken place with the resources that are expended on patent acquisition and enforcement. Here are the real costs of patents, and they are incalculable.


Jeffrey Tucker January 30, 2009 at 1:01 pm

Mises didn’t think too much about the topic. But his own model shows that the external economies are only in the long run following the dissipation of internal economies – the same as with other entrepreneurial profits.

Andras January 30, 2009 at 1:44 pm

@Jeffrey Tucker,
“Mises didn’t think too much about the topic.”

I don’t know why did you say this! He thought much enough to see that catallactics could not answer it.
He said the same for predicting the future including foretelling marketmovements. Is that a reason to say he had not thought about that?
Could you elaborate on your second sentence? I could not cacth it.

Stephan Kinsella January 30, 2009 at 4:18 pm

Silas: “@Stephan_Kinsella: Give it up with that poll already. It’s no different from going up to a bunch of bums and asking them, “Would you give up all of your property rights if it meant you could loot people with impunity?” No **** people who haven’t produced anything aren’t going to value the rights in what they’ve produced! Is this what passes for insight here?”

Like, say, Intel? (“Intel’s CEO spoke for many when he said he would be glad to cut patents to a tenth of its current rate provided that others did the same.”)

Stephan Kinsella January 31, 2009 at 12:20 am

As I noted in Against Intellectual Property (n. 38), “Mises expressed no opinion on the issue, merely drawing the economic implications from the presence or absence of such laws.”

Here are Mises’s words:

The External Economies of Intellectual Creation

The extreme case of external economies is shown in the “production” of the intellectual groundwork of every kind of processing and constructing. The characteristic mark of formulas, i.e., the mental devices directing the technological procedures, is the inexhaustibility of the services they render. These services are consequently not scarce, and there is no need to economize their employment. Those considerations that resulted in the establishment of the institution of private ownership of economic goods did not refer to them. They remained outside the sphere of private property not because they are immaterial, intangible, and impalpable, but because their serviceableness cannot be exhausted.

People began to realize only later that this state of affairs has its drawbacks too. It places the producers of such formulas–especially the inventors of technological procedures and authors and composers–in a peculiar position. They are burdened with the cost of production, while the services of the product they have created can be gratuitously enjoyed by everybody. What they produce is for them entirely or almost entirely external economies.

If there are neither copyrights nor patents, the inventors and authors are in the position of an entrepreneur. They have a temporary advantage as against other people. As they start sooner in utilizing their invention or their manuscript themselves or in making it available for use to other people (manufacturers or publishers), they have the chance to earn profits in the time interval until everybody can likewise utilize it. As soon as the invention or the content of the book are publicly known, they become “free goods” and the inventor or author has only his glory.

The problem involved has nothing to do with the activities of the creative genius. These pioneers and originators of things unheard of do not produce and work in the sense in which these terms are employed in dealing with the affairs of other people. They do not let themselves be influenced by the response their work meets on the part of their contemporaries. They do not wait for encouragement.[13]

It is different with the broad class of professional intellectuals whose services society cannot do without. We may disregard the problem of second-rate authors of poems, fiction, and plays and second-rate composers and need not inquire whether it would be a serious disadvantage for mankind to lack the products of their efforts. But it is obvious that handing down knowledge to the rising generation and [p. 662] familiarizing the acting individuals with the amount of knowledge they need for the realization of their plans require textbooks, manuals, handbooks, and other nonfiction works. It is unlikely that people would undertake the laborious task of writing such publications if everyone were free to reproduce them. This is still more manifest in the field of technological invention and discovery. The extensive experimentation necessary for such achievements is often very expensive. It is very probable that technological progress would be seriously retarded if, for the inventor and for those who defray the expenses incurred by his experimentation, the results obtained were nothing but external economies.

Patents and copyrights are results of the legal evolution of the last centuries. Their place in the traditional body of property rights is still controversial. People look askance at them and deem them irregular. They are considered privileges, a vestige of the rudimentary period of their evolution when legal protection was accorded to authors and investors only by virtue of an exceptional privilege granted by the authorities. They are suspect, as they are lucrative only if they make it possible to sell at monopoly prices. [14]. Moreover, the fairness of patent laws is contested on the ground that they reward only those who put the finishing touch leading to practical utilization of achievements of many predecessors. these precursors go empty-handed although their main contribution to the final result was often much more weighty than that of the patentee.

It is beyond the scope of catallactics to enter into an examination of the arguments brought forward for and against the institution of copyrights and patents. It has merely to stress the point that this is a problem of delimitation of property rights and that with the abolition of patents and copyrights authors and inventors would for the most part be producers of external economies.

and here:

The Creative Genius

Far above the millions that come and pass away tower the pioneers, the men whose deeds and ideas cut out new paths for mankind. For the pioneering genius [12] to create is the essence of life. To live means for him to create.

The activities of these prodigious men cannot be fully subsumed under the praxeological concept of labor. They are not labor because they are for the genius not means, but ends in themselves. He lives in creating and inventing. For him there is not leisure, only intermissions of temporary sterility and frustration. His incentive is not the desire to bring about a result, but the act of producing it. The accomplishment gratifies him neither mediately nor immediately. It does not gratify him mediately because his fellow men at best are unconcerned about it, more often even greet it with taunts, sneers, and persecution. Many a genius could have used his gifts to render his life agreeable and joyful; he did not even consider such a possibility and chose the thorny path without hesitation. The genius wants to accomplish what he considers his mission, even if he knows that he moves toward his own disaster.

Neither does the genius derive immediate gratification from his creative activities. Creating is for him agony and torment, a ceaseless excruciating struggle against internal and external obstacles; it consumes and crushes him. The Austrian poet Grillparzer has depicted this in a touching poem “Farewell to Gastein.” [13] We may assume that in writing it he thought not only of his own sorrows and tribulations but also of the greater sufferings of a much greater man, of Beethoven, whose fate resembled his own and whom he understood, through devoted affection and sympathetic appreciation, better than any other of his contemporaries. Nietzsche compared himself to the flame that insatiably consumes and destroys itself.[14] Such agonies are phenomena which have nothing in common with the connotations generally attached to the notions of work and labor, production and success, breadwinning and enjoyment of life.

The achievements of the creative innovator, his thoughts and theories, his poems, paintings, and compositions, cannot be classified praxeologically as products of labor. They are not the outcome of [p. 140] the employment of labor which could have been devoted to the production of other amenities for the “production” of a masterpiece of philosophy, art, or literature. Thinkers, poets, and artists are sometimes unfit to accomplish any other work. At any rate, the time and toil which they devote to creative activities are not withheld from employment for other purposes. Conditions may sometimes doom to sterility a man who would have had the power to bring forth things unheard of; they may leave him no alternative other than to die from starvation or to use all his forces in the struggle for mere physical survival. But if the genius succeeds in achieving his goals, nobody but himself pays the “costs” incurred. Goethe was perhaps in some respects hampered by his functions at the court of Weimar. But certainly he would not have accomplished more in his official duties as minister of state, theater manager, and administrator of mines if he had not written his plays, poems, and novels.

and here:

The special conditions and circumstances required for the emergence of monopoly prices and their catallactic features are:

11. The monopolized good by whose partial withholding from the market the monopoly prices are made to prevail can be either a good of the lowest order or a good of a higher order, a factor of production. It may consist in the control of the technological knowledge required for production, the “recipe.” Such recipes are as a rule free goods as their ability to produce definite effects is unlimited. They can become economic goods only if they are monopolized and their use is restricted. Any price paid for the services rendered by a recipe is always a monopoly price. It is immaterial whether the restriction of a recipe’s use is made possible by institutional conditions–such as patents and copyright laws–or by the fact that a formula is kept secret and other people fail to guess it.

The complementary factor of production the monopolization of which can result in the establishment of monopoly prices may also consist in a man’s opportunity to make his cooperation in the production of a good known to consumers who attribute to this cooperation a special significance. This opportunity may be given either by the nature of the commodities or services in question or by institutional provisions such as protection of trademarks. The reasons why the consumers value the contribution of a man or a firm so highly are manifold. They may be: special confidence placed on the individual or firm concerned on account of previous experience[15]; merely baseless prejudice or error; snobbishness; magic or metaphysical prepossessions whose groundlessness is ridiculed by more reasonable people. A drug marked by a trademark may not differ in its chemical structure and its physiological efficacy from other compounds not marked with the same label. However, if the buyers attach a special significance to this label and are ready to pay higher prices for the [p. 365] product marked with it, the seller can, provided the configuration of demand is propitious, reap monopoly prices.

The monopoly which enables the monopolist to restrict the amount offered without counteraction on the part of other people can consist in the greater productivity of a factor which he has at his disposal as against the lower productivity of the corresponding factor at the disposal of his potential competitors. If the margin between the higher productivity of his supply of the monopolized factor and that of his potential competitors is broad enough for the emergence of a monopoly price, a situation results which we may call margin monopoly[16].

In the long run such a national cartel cannot preserve its monopolistic position if entrance into its branch of production is free to newcomers. The monopolized factor the services of which the cartel restricts (as far as the domestic market is concerned) for the sake of monopoly prices is a geographical condition which can easily be duplicated by every new investor who establishes a new plant within the borders of Atlantis. Under modern industrial conditions, the characteristic feature of which is steady technological progress, the latest plant will as a rule be more efficient than the older plants and produce at lower average costs. The incentive to prospective newcomers is therefore twofold. It consists not only in the monopoly gain of the cartel members, but also in the possibility of outstripping them by lower costs of production.

Here again institutions come to the aid of the old firms that form the cartel. The patents give them a legal monopoly which nobody may infringe. Of course, only some of their production processes may be protected by patents. But a competitor who is prevented from resorting to these processes and to the production of the articles concerned may be handicapped in such a serious way that he cannot consider entrance into the field of the cartelized industry.

The owner of a patent enjoys a legal monopoly which, other conditions being propitious, can be used for the attainment of monopoly prices. Beyond the field covered by the patent itself a patent may render auxiliary services in the establishment and preservation of margin monopoly where the primary institutional conditions for the emergence of such a monopoly prevail.

and here:

Another popular fallacy refers to the alleged suppression of useful patents. A patent is a legal monopoly granted for a limited number of years to the inventor of a new contrivance. At this point we are not concerned with the question whether or not it is a good policy to grant such exclusive privileges to inventors.[14] We have to deal only with the assertion that “big business” misuses the patent system to withhold from the public benefits it could derive from technological improvement.

In granting a patent to an inventor the authorities do not investigate the invention’s economic significance. They are concerned merely with the priority of the idea and limit their examination to technological problems. They deal with the same impartial scrupulousness with an invention which revolutionizes a whole industry and with some trifling gadget, the uselessness of which is obvious. Thus patent protection is provided to a vast number of quite worthless inventions. Their authors are ready to overrate the importance of their contribution to the progress of technological knowledge and build exaggerated hopes upon the material gain it could bring them. Disappointed, they grumble about the absurdity of an economic system that deprives the people of the benefit of technological progress.

and here:

The convincing power of the productivity argument is in fact so irresistible that the advocates of socialism were forced to abandon their old tactics and to resort to new methods. They are eager to divert attention from the productivity issue by throwing into relief the monopoly problem. All contemporary socialist manifestoes expatiate on monopoly power. Statesmen and professors try to outdo one another in depicting the evils of monopoly. Our age is called the age of monopoly capitalism. The foremost argument advanced today in favor of socialism is the reference to monopoly.

Now, it is true that the emergence of monopoly prices (not of monopoly as such without monopoly prices) creates a discrepancy between the interests of the monopolist and those of the consumers. The monopolist does not employ the monopolized good according to the wishes of the consumers. As far as there are monopoly prices, the interests of the monopolists take precedence over those of the public and the democracy of the market is restricted. with regard to monopoly prices there is not harmony, but conflict of interests.

It is possible to contest these statements with regard to the monopoly prices received in the sale of articles under patents and copyrights. One may argue that in the absence of patent and copyright legislation these books, compositions, and technological innovations would never have come into existence. The public pays monopoly prices for things it would not have enjoyed at all under competitive prices. However, we may fairly disregard this issue. It has little to do with the great monopoly controversy of our day. When people deal with the evils of monopoly, they imply that there prevails within the unhampered [p. 681] market economy a general and inevitable tendency toward the substitution of monopoly prices for competitive prices. This is, they say, a characteristic mark of “mature” or “late” capitalism. Whatever conditions may have been in the earlier stages of capitalist evolution and whatever one may think about the validity of the classical economists’ statements concerning the harmony of the rightly understood interests, today there is no longer any question of such a harmony.

ktibuk January 31, 2009 at 7:09 am

Kinsella said,

“As I noted in Against Intellectual Property (n. 38), “Mises expressed no opinion on the issue, merely drawing the economic implications from the presence or absence of such laws.”

This is a misrepresentation. You are implying that Mises handled tangible property and IP differently. Which is wrong. Mises expressed lots of opinions about property (including IP) and they are all about economics implications.

ktibuk January 31, 2009 at 7:19 am


“1. All else being equal, authors want to make more, rather than less, money.”


“2. This will lead them to write things that can be sold for more, rather than less, money.”

Now hold right there. This is the crux of the matter as I am desperately trying to explain. This wouldnt be true in a IPless world, because the only differences between many books would be their physical quality not the content. The content would be free.

Even if the author would get paid initially this is actually an advance and no price signals are involved. Since there is no connection left between the author and his work, authors wouldn’t care if their works are sold or not. They will never ever get paid again on that work.

The only people that would care about the content is the publishers. But their cost for content is zero. They don’t need to pay the author, they can just copy the work. They dont have to pay the author relaying information regarding market demand.

So the chain of price signals is broken. And there lies the problem.

Jeffrey Tucker January 31, 2009 at 7:24 am

this is just wrong. and obviously.

Authors want their books to sell so they can enjoy a larger up front payment on their next book.

This was common in the 19th century. British authors made more from selling their manuscripts into the public domain in U.S. markets than they made from Royalties in Britain. This is a documented fact. Indeed, the US market provided a main inspiration for them to write. It also led to huge speaking fees in the US.

Markets really do work. Down with stupid central plans!

ktibuk January 31, 2009 at 7:59 am


There was no piracy back then because copying wasn’t this easy. And if there was a natural way to protect IP. there wouldn’t be any need to personally protect property.

This is like owning a house on a remote mountain that no one would go and claim you never needed actual property rights.

And in an age where copying is this easy the advance that any publisher would extend would only be for a very short ahead time, and this wouldn’t relay public demand information on the content.

Joe B January 31, 2009 at 10:04 am

So does the Mises store make any profits on the books that are also available for free download?

Do some of these books sell better than others?

Do the less successful books tend to have their prices lowered over time?

Is there any correlation between number of downloads and sales quantities for given books?

When I download a book and print it myself on A4, it is a different good than a binded book sold in the store. Rothbard’s “For a New Liberty” in book form is a different good than Marx’s “Das Kapital”.

While the end served by the downloaded and binded books may be the same, they are different means with different costs to me and to the producer. It’s the difference between buying an axe and spending time to make one myself, assuming the resources are available.

The download costs me almost nothing, and also costs Mises.org almost nothing. Mises.org has an end in this transaction along the lines of promoting their cause, just as I have an end in learning about it. While obviously not every author would have this end in mind, there are additional non-financial ends to be met from these transactions.

Technologies such as e-ink and OLED displays will probably make traditional publishers obsolete within the next couple of decades. This will give authors more direct control over their content, enabling them to choose what sort of DRM or copyright agreement, if any, they want to use. They won’t get payments from publishers, so they will have to find new ways of leveraging their writing into sellable goods.

Maybe the profits generated from a writing would not be directly correlated to the quantity of copies sold (or copied). This could provide a different means of valuing the idea itself, like a software designer who is contracted to create a specific application for one customer’s particular need. But this is just speculation about possible business models – only time and the market would reveal which models work.

Maybe you guys are right and new content will become so scarce that consumers would voluntarily agree to an IP protection scheme to promote new content creation. This would likely be a less expensive way for creators to protect their ideas, even if people who haven’t agreed to this scheme can still access and pirate their ideas.

Property rights are regarded as ethical because they are a less expensive way of allocating scarce resources than constant battles. But there are plenty of people out there who don’t agree with the Austrian definition of property rights. I personally regard these other views such as socialism as ethically wrong because they inevitably result in unsustainable systems and are often logically self-contradictory. If socialism could deliver on its promises then I might consider it – but I know that it can’t.

I think that Austrians tend to take for granted that unallocated land belongs to nobody. Socialists would say that it belongs to everybody, statists would say it belongs to the state, and environmentalists would probably say that the land owns itself. The ethics of each of these views could be deduced accordingly, and would be radically different from each other even if all of the other components of property rights were the same.

I obviously agree with the Austrian view, but this is mainly because the alternatives are either ridiculous, unworkable, or conflict with my strongest held belief in personal liberty. If this makes me some sort of utilitarian, then so be it. I don’t see any of the views mentioned above as self-evident, so this means that an external set of ethics is needed to choose the right one. I choose whatever results in continually increasing prosperity and personal liberty.

I see physical property rights as necessary for a successful civilization, therefore they are just. I don’t yet see the need for specific IP rights, but if I ever got sick of Seinfeld reruns I might consider paying into some system to promote new content creation – either with financial donations or by voluntarily giving up certain liberties.

But I thought this post was about patents? I guess copyright is a trickier bastard than patents due to the ease of copying content – so it always becomes the primary battlefield.

Drake January 31, 2009 at 10:31 am


Your argument rests on the assumption that the producer of an “intellectual creation” (to use Mises’ phrase) does not possess a competitive advantage sufficient to justify their investment. However, Mises has already addressed this issue:

“[Inventors and authors] have a temporary advantage as against other people. As they start sooner in utilizing their invention or their manuscript themselves or in making it available for use to other people (manufacturers or publishers), they have the chance to earn profits in the time interval until everybody can likewise utilize it. As soon as the invention or the content of the book are publicly known, they become ‘free goods’ and the inventor or author has only his glory.”

Conspicuously absent from the above quote was any mention of the impossibility of economic calculation without copyright. To the contrary:

Mises stated that the services rendered by intellectual creations are “not scarce, and [therefore] there is no need to economize their employment. Those considerations that resulted in the establishment of the institution of private ownership of economic goods did not refer to them. They remained outside the sphere of private property not because they are immaterial, intangible, and impalpable, but because their serviceableness cannot be exhausted.”

[My thanks to Mr. Kinsella for providing the original quotes.]

Drake January 31, 2009 at 11:17 am

@Joe B

“I guess copyright is a trickier bastard than patents due to the ease of copying content”

It’s tricky, but not insurmountable. Consider the points of control held by the producer of an original work. They can control:

1) IF they will produce or not,

2) WHAT they will produce,

3) WHEN production will begin and end,

4) WHERE, HOW, and WITH WHOM they will produce,

5) and WHEN and in WHAT MANNER they will release their product.

These five points of control are incontestably held by producers of original works. They are clearly not susceptible to the affects of copying, but have yet to be widely exploited in business models. The key is for the producer of original works to sell control of the above five points to the consumers of their works.

1) Raise a minimum in pledges before agreeing to produce something.

2) Have a bidding war to decide what exactly to produce.

3) The production schedule can also be determined by the amount of money coming in at any given time.

4) The specifics of production (location, contributors, collaborators, etc.) can also be chosen through bidding.

5) Once the product has been completed samples may be released for free. Then the full product may be withheld until a minimum number of pledges is received. In addition, a premium could be paid by those who wish to be the first to receive the product. This could be accompanied by scarce goods or services (memorabilia, private visits with the producer, etc.).

Happily, some of these points of control are already part of successful business models:


Martin OB January 31, 2009 at 1:37 pm

Very nice initiative, only a quibble:

“Here at artistShare it is our goal to put the “art” back into the word artist. Our PATENT PENDING PROCESS allows fans to experience an artist’s project from its conception to its fruition. Through ArtistShare, artist projects become a unique and rewarding experience for the fan.”

So much for promoting non-IP-based business models :/

Drake January 31, 2009 at 8:01 pm

It’s not perfect, but it’s a good start. The main point I take from it is that they are selling something non-copyable: direct access to the artist’s creative process. For example:

“Welcome to the Haydn and Dvorak Project on ArtistShare. As a participant in this project you will have a front row seat as we explore the creative process behind the St Lawrence String Quartet and the making of this exciting new recording. The Haydn and Dvorak project also provides the unique opportunity for fans to play a vital role in the creation of new music by the [Quartet]. Premium participant offers include credit listing on the final album!”

Attending recordings, participating in the creative process, and being listed in the credits of the album are all non-copyable which makes them crucial aspects of a 21st century business model.

Octobox August 5, 2011 at 3:07 pm

You guys are making this too complex.

All of us believe in the simple tenants of free-markets.

A free-market has no authority governing the transactions of consumers and producers.

Producers being a subset of consumption — one must consume before he can produce.

We consume: knowledge, nutrients, training, tools, resources, fuel, energy, sunlight, air (etc)

Consumption: To Use, To Transform, and to Diminish (waste or use-up).

There are no human identifiers that come before “consumer” — After the Big Bang or God’s Creative All-Spark Moment (in either case the ONLY real “production moment”) everything was an act of consumption. A planet is consumed (transformed, used, diminished) star dust and stars are born from star implosions (consumption).

Therefore it’s the Consumer (Mises Consumer-Sovereignty) who is the Individual and who must be “protected” — However, in a free-society (where all markets are “free”) the consumer must protect himself — because one consumer cannot be granted monopoly advantage over another.

Only by the creation of a “superior” human — a Preter-Consumer or God (or God-Church certified Incarnation of God or God’s representative) can userp the natural order; these Priests or Churches who certify such power over-to individuals can ONLY do so because the masses of consumers (humans) abdicate “self-rule” (self-defense) by way of voting-lobbying or silent consent.

A Consumer-Sovereign is the one with “rights” — However, he does not need to make mention of that fact because a right is a thing we argue to justify past actions or to justify re-dress both in the presence of an “authority” who has force-agency power (theft or murder).

We submit lamblike instead of realising we are the top of the food chain as men and individuals.

Question #1: Does IP Laws / Rights increase the size and scope of Gov’t or does it diminish it?

Question #2: How much do IP Laws in nominal and real terms cost the American Consumer?
—99.9% of which goes taxed without notice
—Cost: Direct (known and observable) and Indirect (infaltionary – difficult to calculate – lost opportunity)

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