Patent Nonsense

Originally Posted At The American Conservative
By Sheldon Richman
January 18, 2012

Staunch advocates of private property might be expected to support “intellectual property rights”—patents and copyrights—but these days that expectation is more than likely to be wrong. IP has come in for a thrashing from libertarians, among others, in the last few years, and it may be all over but the funeral.

The issue can be viewed from three vantage points: moral, economic, and political. The pro-IP lobby tends to conflate the first two, moving back and forth between assertions about justice and economic incentives. Their case is something of a moving target, so let’s break it down.

The moral claim is that an inventor has an exclusive, enforceable right to his useful, novel application of an idea, while an author or composer has such a right to his original work or expression. IP specialists insist that what is owned is not an idea per se, but it’s hard to make sense of that assertion since an application or expression of an idea is itself an idea. IP really is about the ownership of ideas, and therein lies the problem.

Why should an inventor or author have an exclusive right, whether in perpetuity or for a finite period? Ayn Rand, the late novelist-philosopher who vigorously defended intellectual property, replied, “Patents and copyrights are the legal implementation of the base of all property rights: a man’s right to the product of his mind. Every type of productive work involves a combination of mental and physical effort…” Patent and copyright laws “protect the mind’s contribution in its purest form.” In this view, all property is ultimately intellectual property. As the 19th-century free-market anarchist Lysander Spooner wrote, an individual’s “right of property, in ideas, is intrinsically the same as, and stands on identically the same grounds with his right of property in material things … no distinction of principle, exists between the two cases.” (Not all 19th- and 20th-century libertarians agreed—a notable counterexample being the individualist anarchist Benjamin Tucker, who thought patents were a pillar of plutocracy.)

But contrary to Rand and Spooner, there is a distinction between physical objects and ideas that is crucial to the property question. Two or more people cannot use the same pair of socks at the same time and in the same respect, but they can use the same idea—or if not the same idea, ideas with the same content. That tangible objects are scarce and finite accounts for the emergence of property rights in civilization. Considering the nature of human beings and the physical world they inhabit, if individuals are to flourish in society they need rules regarding thine and mine. But “ideal objects” are not bound by the same restrictions. Ideas can be multiplied infinitely and almost costlessly; they can be used nonrivalrously.

If I articulate an idea in front other people, each now has his own “copy.” Yet I retain mine. However the others use their copies, it is hard to see how they have committed an injustice.

Contrary to Rand, ideas, while inherent in purposeful human action, have no role in establishing ownership. If I own the inputs of productive effort, that suffices to establish that I own the output. If I build a model airplane out of wood and glue, I own it not because of any idea in my head, but because I owned the wood, the glue, and myself. On the other hand, if Howard Roark’s evil twin trespasses on your land and, using your materials, builds the most original house ever imagined, he would not be the rightful owner. You would be, and—bad law notwithstanding—you would have the objective moral right to use the design.

In practical terms, when one acquires a copyright or a patent, what one really acquires is the power to ask the government stop other people from doing harmless things with their own property. IP is thus inconsistent with the right to property.

An IP advocate might challenge the proposition that two or more people can use the “same” idea at the same time by noting that the originator’s economic return from exploiting the idea will likely be smaller if unauthorized imitators are free to enter the market. That is true, but this confuses property with economic value. In traditional property-rights theory, one owns objects not economic values. If someone’s otherwise unobjectionable activities lower the market value of my property, my rights have not been violated.

This objection exposes what is at stake in IP: monopoly power granted by the state. In fact, patents originated as royal grants of privilege, while copyright originated in the power to censor. This in itself doesn’t prove these practices clash with liberty, but their pedigrees are indeed tainted.

Property rights arose to grapple with natural scarcity; “intellectual property” rights were invented to create scarcity where it does not naturally exist.

Don’t patents encourage innovation and therefore bestow incalculable benefits on all us? This crosses the boundary from justice to utilitarian considerations. The concern here is not with rewards to the innovator but with the good of society. What does the IP opponent say?

First, as libertarian legal theorist Stephan Kinsella points out, the implied cost-benefit analysis is a sham. Defenders tout IP’s hypothesized benefits while presuming the costs are virtually zero. Ignored are the costs in innovation never ventured for fear of legal reprisal, in resources consumed during litigation, in talent diverted to protecting IP rather than producing useful goods, and so on.

“Anyone who argues that patents yield a net gain is obliged to estimate the total cost (including suppressed innovation) as well as the value of any innovation thereby stimulated. But IP proponents never provide these estimates,” writes Kinsella, an IP lawyer himself. “They say we have more innovation at a low price. Yet virtually every empirical study I’ve seen on this matter is either inconclusive or finds a net cost and/or a suppression of innovation.”

Second, IP proponents are guilty of doing a priori history. Real history undermines the utilitarian case for patents and copyright. In their book, Against Intellectual Monopoly, pro-market economists Michele Boldrin and David K. Levine show that IP impedes innovation. For example, James Watt’s steam engine improved very little while his patents were in effect—he was too busy suing anyone he could for patent infringement. Only once the patents expired in 1800 did improvements in the steam engine accelerate.

The IP defender might counter that without patents there might not have been a steam engine at all. Boldrin and Levine’s historical analysis shows this to be implausible. People invented things long before patents. Innovators have understood the advantages of being first to market even without the prospect of monopoly privilege. (Shakespeare created without copyright, as did Charles Dickens in the U.S. market.) The first company to put wheels on luggage, Travelpro, had no patent, and the idea was soon copied. But the company is still a player in the industry.

Perhaps wheeled luggage is a bad example because it is so simple. What about products that require more substantial research and development—software, perhaps? Of course, we are in the midst of a booming open-source software industry in which complex programs are given away and open to modification and commercial exploitation. (See the Linux operating system, for example.) Are the programmers altruists who have renounced worldly goods for the purity of their craft? Hardly. Their free programs establish their reputations, which in turn yield handsome returns for consulting and other services. There are more business models than the one that depends on state-bestowed monopoly.

No less a personage than Bill Gates has acknowledged what IP would have meant at the dawn of the PC age: “If people had understood how patents would be granted when most of today’s ideas were invented, and had taken out patents, the industry would be at a complete standstill today.”

Boldrin and Levine devote an entire chapter to the toughest nut, pharmaceuticals, which we supposedly would have to do without but for the protection of intellectual property. The high fixed cost of research, development, and testing, and the low marginal cost of production are said to preclude any significant innovation without the monopoly protection afforded by patents. Who would sink so much money into a product only to face copycat competitors with no development costs? Here IP is thought to be literally a matter of life and death.

Things are not what they seem. Write Boldrin and Levine:

Historically, intellectual monopoly in pharmaceuticals has varied enormously over time and space. The summary story: the modern pharmaceutical industry developed faster in those countries where patents were fewer and weaker… .  [I]f patents were a necessary  requirement for pharmaceutical innovation, as claimed by their supporters,  the large historical and cross-country variations in the patent protection  of medical products should have had a dramatic impact on national pharmaceutical industries. In particular, at least between 1850 and 1980, most drugs and medical products should have been invented and produced in the United States and the United Kingdom, and very little if anything produced in continental Europe. Further, countries such as Italy, Switzerland, and, to a lesser extent, Germany, should have been the poor, sick laggards of the pharmaceutical industry until recently. Instead, the opposite was true for longer than a century.

There is clear value in being first to market with a product, especially a drug. Moreover, copying successes is not the low-cost piece of cake it’s assumed to be. For one thing, the imitator has to wait to see which product is worth copying, but all that time the originator will be reaping market-monopoly returns and securing his reputation for innovation and trustworthiness.

We mustn’t overlook the wasteful costs of the current system, in particular the incentive to tweak existing drugs whose patent terms are nearing expiration in order to extend the monopoly. What other drugs might have been invented in that socially wasted time?

Underlying the IP defense is the faulty assumption that imitation produces little value when in fact it is critical to competitive markets and progress, most of which comes through incremental improvements to existing ideas rather than big dramatic breakthroughs. Copying combined with product differentiation equals rising living standards. Had imitation been forbidden earlier in human history, stagnation would have been mankind’s lot. Attempts in that direction today concentrate economic power and increase the cost of living for the rest of us.

The IP regime helps entrenched interests prevent the competition made possible by the high-tech revolution. In the industrial age, physical capital was expensive and irreplaceable, while workers were interchangeable. Think of Henry Ford’s assembly line. Today in information-based industries, the reverse is true. The cost of physical capital—computers and software—is falling while the cost of human capital—know-how—is rising. In Ford’s day, there was little danger that a worker would quit and open a rival automaker. But today the chief assets of many firms aren’t on a factory floor but in the minds of the staff. The danger of competition from breakaway firms is omnipresent.

“In this environment,” social theorist Kevin A. Carson writes,

the only thing standing between the old information and media dinosaurs and their total collapse is their so-called intellectual property rights—at least to the extent they’re still enforceable. Ownership of intellectual property becomes the new basis for the power of institutional hierarchies and the primary buttress for corporate boundaries… . Without intellectual property, in any industry where the basic production equipment is widely affordable, and bottom-up networking renders management obsolete, it is likely that self-managed, cooperative production will replace the old managerial hierarchies.

Carson says the development of low-cost small-scale CNC—computer numerical control—machine tools promises to bring similar changes to more traditional manufacturing: “production as such has become far less capital-intensive over the past three decades, with the old mass-production core outsourcing increasing shares of total production to flexible manufacturing networks and job-shops.”

The powers that be won’t give up without a fight, which is why imposition of a strict IP regime is the centerpiece of every bilateral and multilateral “free trade” agreement with the developing world. Yet despite their best efforts, cheaper technology and the increasing unenforceability of IP may be ushering in a full-fledged economic revolution marked by smaller, flatter, even nonhierarchical worker-owned firms in a newly decentralized competitive marketplace. In other words, the postcapitalist world could look like a genuinely free market.

Sheldon Richman is the author of Tethered Citizens: Time to Repeal the Welfare State.

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