By Simon Grey, on July 26th, 2011
Similarly, the kinds of innovation activities and intellectual property rights that make sense depend on available institutions and technologies. I’m happy to admit that today intellectual property (IP) is not obviously a good idea. Such property can create large “anti-commons” transaction and enforcement costs that greatly raise the cost of combining old ideas into valuable new ideas. Such costs often outweigh the social benefits of the incentives to create IP, in order to sell it. Today, it is often better to rely on other social incentives to innovate, incentives that don’t require such expensive support.
But if true, this is a sad fact about our limited abilities, not a fundamental natural law or right. You have no fundamental right to enjoy the innovations produced by others without compensating them. You owe them, at least your gratitude. Yes for now it may be best to let you take innovations freely without paying, since the alternative seems too expensive. But you have no right to expect that situation to last forever, any more than ranchers had a right to expect they could forever let their animals trample nearby farms.
The problem with Hanson’s comparison of IP rights to real property rights is that intellectual production is not tangible whereas real property is, and one can adapt another’s idea without in any way diminishing its usage by its originator. As Jefferson aptly observed centuries ago, as it is possible to use another’s candle to light one’s own without diminishing the other’s flame, so too can one use another’s idea as one’s own without diminishing the other’s usage of their idea. Taking another person’s ideas and using them does not any way prevent him from using his own ideas in whatever way he sees fit. Since using another’s ideas does not trample upon his rights, it is absurd to compare this to cows trampling a neighbor’s fields. Using an idea is not inherently deprivatory in the way that using property is, and so the comparison is false.
At any rate, since ideas are not tangible, there is no conceivable limit to their spread save for demand. Basically, demand, not supply, is the limiting factor for the production of any given idea and, as such, there is no need for prices or any other limitation of ideas. Prices indicate scarcity relative to demand, and attempting to attach prices to ideas is essentially an attempt to attach scarcity to ideas. Since there are an infinite number of ideas and production costs of ideas are close to nil (or at least so close to infinity and nil respectively that the upper bound makes a price schedule impossible), the only effect that bringing costs to ideas would be to limit something that is naturally unlimited.
Also, note that Hanson’s claims that “you have no fundamental right to enjoy the innovations produced by others without compensating them” and “you owe them, at least your gratitude” are both spurious. The first is false, but only because of how he qualifies it. He is correct in saying that no one has the right to enjoy the innovations of others. No one has the right to anything save for life, liberty, the pursuit of property, and any derivatives thereof. But it does not stand to reason that anyone deserves to be paid for what they produce, whether it be an idea or a physical object. Quite simply, no one has a right to an income of any sort. If you wish to be paid, convince consumers that you deserve it, whether it be on the technical merits of your product or whether it be on the ease of purchase relative to the cost of piracy. In keeping with this, if one does not have a right to income for producing something, then one certainly does not deserve gratitude either. Again, if a producer wants something from consumers, he must make or do something that causes consumers to respond favorably.
As can be seen, Hanson’s argument is riddled with plenty of intellectual errors, leading to erroneous conclusions. He would do well to simply acknowledge that IP is a myth, and that no one is inherently deserving of anything just because they happened to produce something.
By Simon Grey, on July 25th, 2011
We are richer than our ancestors mostly because of innovation. But most of the innovation benefits we receive are externalities – we only pay our ancestors (or those to whom they transferred their property rights) for a small fraction of that benefit. If we instead had better property rights for innovation, we’d pay a large fraction of our income as compensation for past innovation. That would increase incentives to innovate, the rate of innovation, and the fraction of the economy devoted to innovation. With good institutions, I could imagine more than half of all income being paid to the innovation industry.
There are several problems with this paragraph. First, as net-based pirates have shown, there are plenty of people who try to avoid paying for rights to use IP,* which invalidates his claim that “we’d pay a large fraction of our income for past innovation.” We’d likely pay more, to be sure, but given man’s tendency to avoid paying these sort of things, it foolish to say with any degree of certainty that we would pay a lot.
Second, there is absolutely no basis for saying that there would be more incentive to innovate. Since we have tried IP rights, we cannot tell what the rate of innovation would be in their absence, and cannot therefore properly compare the rate innovation under a system of IP to a system with no IP rights. Any attempt to do so is pure conjecture. Furthermore, all innovation is derivative, so even if people were more inclined to innovate more, IP law would more than likely prevent them from doing so since they would either have to license the product being innovated or be forcibly prevented from innovating.
Third, the stifling nature of IP enforcement, as noted before, would (and has) actually stifled innovation. Patent jumpers have forced people to redesign improvements because their proposed solution would infringe on their patent. This hardly encourages innovation, and it is hard to see how more of this would do so.
Alas, it is devilishly hard to design good innovation property rights. Patents are supposedly the best we have now, and they are often terrible. But over the next few centuries, we might just create better institutions (e.g., futarchy) to better encourage institution design, and within those institutions, folks may well come up with better designs for institutions to encourage innovation. Optimist that I am, my best guess is that we will succeed at this.
Perhaps the reason it is so difficult to design good innovation property rights is due to the fact that innovation is not actually property, and thus cannot be protected with rights. It is hard to see how copying someone or something diminishes them in any way. Some might argue foregone income, but this argument is riddled with errors (for one, there is no guarantee that a given consumer would have purchased from the innovator anyway, and no one has a “right” to be paid anyway).
Of course, it is possible that “society” will create institutions that actually incentivize innovation. I would bet that said institutions will consist mostly of educating people how IP is a myth, and does not deserve any form of monopoly or protection from the government.
Of course in the long run innovation must run out, and then we’ll have a long stable future with little innovation. But I expect the innovation era to last a few more centuries at least, with the best innovation yet to come.
I will deal with this in a separate post.
* Note: it is assumed that Hanson’s call for property rights on innovation either largely resembles patent and possibly some forms of copyright, at least in principle.
By Simon Grey, on July 12th, 2011
Sarah Palin has trademarked her name. The former Alaskan governor turned Fox News commentator, Going Rogue author, TLC reality star and SarahPAC founder – wait, do I really have to tell you who Sarah Palin is? – submitted an application to the U.S. Patent and Trademark Office that is due to be approved within the next few weeks. When it is, Palin’s name will be trademarked for “educational and entertainment services” as well as “motivational speaking services in the field of politics, culture, business and values,” according to her patent applications. Her daughter Bristol, 20, has also trademarked her name for motivational speaking, but in the field of “life choices.”
“Essentially what they are doing is trying to commercialize themselves,” says Neil Friedman, a New York trademark attorney. It’s rare for politicians to trademark their names, but Palin left office in 2009 and has since become a successful media and entertainment figure. She has trademarked her name the way someone like Calvin Klein might trademark his.
Though trademark is part of IP, I generally tend to ignore it because it has very little in common with patent and copyright. Patent and trademark are concerned with ideas while trademark is primarily concerned with identification.
Incidentally, trademark is more useful for corporations than individuals because a corporate entity is abstract and contextual whereas an individual entity is concrete and absolute. As such, the need for trademark is mostly due to the market distortion of the corporate entity, which occurs because corporations are not generally identified with specific individuals. The theory behind trademark is that brands need to be able to distinguish themselves from their rivals, and their ability to distinguish themselves is essential to ensuring the market performs efficiently. This sounds good, but it is predicated on a fallacy: namely, it is assumed that people “own” their reputation. The idea is that businesses must be able to protect their reputation in order to serve consumers properly. Businesses must, then, be able to prevent others from claiming to be them when they really aren’t, especially when fakers are offering shoddy products.
But this assumption is false because one’s reputation consists of what other people think. To own one’s reputation requires one to police other people’s thoughts and/or actions. This presents a conflict of rights that cannot be resolved. This, in turn, indicates that one cannot own one’s reputation, and cannot therefore use the law to force others to think a certain way.
This further means, getting back to the topic at hand, that Sarah Palin’s attempt to trademark her name is nothing short of ludicrous. In the first place, the trademark system as a whole is predicated on a fallacy, and so any action attempting to make use of the system is likewise predicated on the same fallacy. (And isn’t it interesting that Sarah Palin is attempting to make use of a system that allows her to exercise some measure of control over what people say about her?)
In the second place, Sarah doesn’t really need to trademark her name. Unlike a corporation, she is a concrete entity, which means that consumers will be able to tell quite easily whether it is, in fact, Sarah Palin that is speaking at a conference (this is the relevant metric since her trademark is to be used in the context of public speaking and appearances). As such, she really has no need to trademark herself since she is already easily and unmistakably identifiable.
By Simon Grey, on June 1st, 2011
So John Nolte has a post at Big Hollywood that attempts to explain why DVD sales have declined.
Blu-Ray sales have cannibalized some DVD sales, as has the rise of RedBox, Netflix, and Hulu. But Nolte posits that this is not enough to explain the decline. He argues that the reason for the decline in sales is because Hollywood makes crappy product. This reason seems shallow and highly limited. For one, Hollywood has always made crappy product. It used to be referred to as “b-movies.” Of course, Hollywood has turned pretentious as of late, so b-movies no longer exist, at least nominally.
Additionally, alternative media has had an impact of DVD sales. Google has pushed YouTube as a platform for feature length movies, which undoubtedly reduces the demand for movies in the theater or on DVD. People’s viewing time is limited, so if they watch things on YouTube, they won’t be able to watch other stuff.
Finally, Nolte fails to account for pirating. This isn’t a major oversight on his part, seeing as how there is not much data on the effect of pirating on DVD sales. Still, the popularity of torrent sharing sites would suggest that people are still watching a decent amount of movies, only now they are not paying for them.
Nolte is right in saying that Hollywood faces a revenue problem, but the issue isn’t necessarily a lack of quality films. It may simply be that Hollywood hasn’t figured out an effective business model for the age of the internet.
By Simon Grey, on May 25th, 2011
What would evidence-driven copyright law look like? (I won’t discuss patents here, although this argument should roughly apply to patents as well as copyright.) The length should be determined by looking at earnings distributions for things like music and books, and cut the copyright protection period to only include, say, the first nine-tenths of the average distribution. Most copyrighted productions follow a power law – the bulk of their earnings from a novel or movie will usually be earned in the first couple of years (see diagram above). It’s the initial high earnings that IP should be aiming to protect, not the “long tail” that comes afterward. This would reduce the stifling effects that copyright has, without reducing much of the innovation incentive, since most profits would still be protected.
Let’s say, for sake of argument, that 90% of all revenue earned by copyrighted material is earned within ten years of creation. Let’s also say that, as a result, all copyright protections expire within ten years of creation date. And let’s also say that this system is currently in place.
How would this impact, say, J. K. Rowling’s income right now? Keep in mind that the first four books were released prior to 2001, so they would no longer be protected under copyright law. How much income would Ms. Rowling forego as a result?
It is, of course, impossible to say. Obviously, Ms. Rowling is still selling books. It is likely, then, that bootleggers could cannibalize some sails, depriving Ms. Rowling of income. However, Ms. Rowling’s publisher could compete with bootleggers on price by offering competing product and dropping the price of their books. And Ms. Rowling could voluntarily drop the amount of royalties she received in order to make her book more competitive with bootlegged copies.
Thus, Ms. Rowling would lose out on some money. However, the bulk of her sales have already occurred, at least in regards to books, so she wouldn’t lose that money. Furthermore, lower costs of her books in bootleg form would spur an increase in overall sales, which might spur sales of tie-in products (keep in mind that Ms. Rowling has written a decent number of tie-in books), which would improve her bottom line. As it stands, then, it appears that while Ms. Rowling would miss out on some income, it is not likely that she would miss out on a sizable amount of income, relatively speaking.
Therefore, the proposal to base copyright expirations on earnings distributions is quite reasonable. A shorter duration of copyright does not appear to place a significant cost on creators, whom it is presumably designed to protect. And a shorter copyright duration will better enable derivative works, which will only foster innovation. Frankly, the tradeoff appears worth it.
While this will not be utopia for the anti-IP crowd, it is still an improvement on the current system and is definitely a step in the direction. Significantly, this won’t impose major costs on creators, which should help to incentivize creation and innovation, which is the ostensible purpose of IP in the first place. Why not take a chance on it?
By Simon Grey, on May 20th, 2011
I’ve often criticized IP from both philosophical and utilitarian grounds, but I haven’t often addressed some of the specific benefits that would come from abolishing IP. Anyhow, here’s a story that offers a glimpse of a future without IP: As companies compete to digitize the textbook market, there is one approach that shakes the traditional publishing business model: open source textbooks, whose proponents believe online educational tomes should be free.
Many universities, including MIT and Carnegie Mellon, post course lectures online for free use. A New York Times article last year explained some of the barriers to applying the same approach to textbooks.
For one thing, the textbook authors must agree to have them distributed online without charging royalties — something that may work well in the software world, where engineers often work on projects while keeping a day job, but typically avoided by writers who put their sweat equity into one book at a time. Also, books for K-12 classrooms must meet state standards, and most states don’t have procedures in place for approving open source textbooks.
Open source textbooks are a step in the right direction. If you follow the link, you will see that there are serious savings offered by the open source book model. If IP were abolished, these effects would be even greater, for students could buy cheap bootlegs or “pirate” digital copies for free which, as anyone currently in college knows, would offer extremely serious savings.
Basically, publishers and authors would not be able to artificially restrict supply; their monopoly would effectively be ended. Competing publishers could copy the text and produce it cheaply, forcing the original publisher to either update the books every quarter/semester/trimester or drive down the price of their own books to be competitive. Of course, it’s a hassle for professors to change books every quarter, so students would, more likely than not, be able to get their books on the cheap. Therefore, those currently in college should support the abolition of IP as it will help them save money.
By Simon Grey, on April 25th, 2011
Just to clarify from an earlier post, my stance on protecting IP is that is wrong for the government to do so, but I have no issue if a private business wants to protect its intellectual creation. Furthermore, I am not a piracy positivist. I do not believe that people have a “right” to IP for free. If they can capture another’s idea for free, more power to them. If they have to pay, so be it. No one has a right to information. In keeping with the above, I would recommend reading this article at Cracked. To me, this seems like the perfect way to handle IP protection. Obviously, the government isn’t cracking down like it used to, so businesses have built designed their own protections to ensure that they actually paid when people use their product. This seems to be the optimal way of handling this issue, especially since IP law has devolved into a massive redistributionist scheme for big business (cf. Apple’s recent lawsuit, Microsoft’s recent lawsuit, Google’s recent lawsuit, etc.) Why not let people protect their own intellectual “property,” and stop this headache of a legal system? This system does not seem to make any difference to the big companies and has a tendency to screw over the small time inventers and innovators (ever heard if patent trolls?)
By Thersites, on February 3rd, 2010
It’s not every evening that you are able to pack a room full of a hundred libertarians on the Upper West Side of Manhattan, let alone at the bastion of leftism that is Columbia University. But tonight was different, as Loyola Professor and Columbia alum Walter Block was on campus, leading a spirited lecture on all things Austrian.
During the first part of his discussion, he spoke to his encounters with a variety of notable economists including Milton Friedman, Murray Rothbard, Ludwig von Mises and Gary Becker amongst others. With his characteristic Brooklyn sense of humor, Block had the audience laughing as he recounted stories like that of his defense of his dissertation on rent control against one of his judges, a rent control commissioner, and his meeting with Nathaniel Branden and Ayn Rand back when he was a rabid young socialist and subsequent conversion to libertarianism.
He then dealt with more substantive issues across the spectrum of political economy with aplomb. Block tackled the mainstream economists’ failures in their dealing with welfare economics, in which as Block argues there is a lack of recognition of each individual’s unique subjective utility with regard to various products proving amongst other reasons why marginal utility as justification for wealth redistribution fails, and in dealing with the absurdity of antitrust laws that are either used to prosecute companies for evil price gouging, ruthless undercutting or dastardly collusion.
Block also tackled fractional-reserve banking. Now we can all agree that fractional-reserve banking is an evil and fraudulent system that is the principle mechanism for inflating the money supply. However, my view had been that if two parties agreed to a contract that allowed demand deposits to be lent out, this was fine as both parties did so at their own risk. Block argues that two parties agreeing to a contract based upon fractional reserve proves illegitimate because a contract has to be consonant with property rights. In Block’s view, fractional reserve creates a system where multiple titles are given to a single piece of property (money); the obligations to the parties are greater than the assets involved, so the system is thus not Kosher.
Block also tackled social issues such as immigration, where he made a couple of interesting arguments. First, he rightly pointed out that those who wish to restrict immigration because of the belief that immigrants would take advantage of the welfare state were dealing with the symptoms rather than the root cause of the problem which is the welfare state. Second, he argued that being against immigration meant being against babies, since they both represent new additions to the population. I would differ with Block in that I don’t believe babies born into a certain society are equivalent in their socialization to those coming from societies with differing values. This is not to say I am against legal immigration, but that I do not believe newborns and immigrants are necessarily equivalent in terms of their effect on society. I also have not sufficiently examined my immigration views with respect to defense. If a certain group clearly poses an existential threat to your society, then should you invite them over the border and deal with them only when mass murder has been committed? This may be dealing with a symptom of immigration rather than a root cause of the militancy of a foreigner or group of foreigners, but nevertheless these issues amongst many others must be reconciled.
He also argued against intellectual property, as in Block’s eyes ideas are not scarce and can’t be owned. The argument goes that if ideas were property, then one would not be able to speak because someone else would have laid claim to each word. Again, IP is an issue which I have yet to study enough to firmly pick a side on, but at face value to me the issue seems to deal on the one hand with incentivizing people to produce things (by granting them a monopoly right to that product for a limited time), and on the other trying to ensure a free market in which competition amongst producers is robust, driving down costs while increasing quality for the consumer. I know the Boldrin book addresses a variety of discoveries that occurred without the incentive of a patent or copyright, but again I have not settled on this issue.
Block also put forth the view that man is not naturally predisposed towards liberty because while he initially developed explicit cooperation in helping out his fellow hunter-gatherers, he was never hardwired for implicit cooperation through the price system of the market. The argument goes that this spontaneous system coordinating the wants of individuals is foreign to us inherently because back in the days of hunting and gathering, we were not dealing with voluntary transactions with people from all over the world. We simply worked together in small traveling groups. To this argument, he also added that the ruling class has brainwashed the people and quashed perceived “radical” voices like that of Ron Paul. I don’t believe these reasons are sufficient to explain why collective tyranny continues to trump individual liberty, especially when many people support legalized plunder because they benefit from it, and because there are certain Judeo-Christian values some construe as supporting socialism, amongst many other reasons.
Finally, Block addressed one of my questions on the private provision of defense. Since I find the defense as private insurance companies argument interesting, I asked Block what happens if one’s enemies buy out their defense company. Block admitted there would be a problem here, but made the case that a government military could be bought out by enemies as well. This was a fair though in my view somewhat tenuous response, and there are numerous other arguments as a practical matter that can be made against private defense. Briefly, in my view, defense is not about economic efficiency, but defending a group of people with common values. And too, in our society we have allowed for the proliferation of private defense forces to assist our public defense — in other words we allow our military to yield the benefits of free market institutions. I believe that defense and the courts are the proper realms of government, problem-riddled as they may be. I believe in our Constitution when read in its plain language. To expound upon this debate will be left for another occasion.
Overall, Block’s arguments were welcome banter for this writer so infrequently exposed to anarcho-capitalist ideas promulgated by a real person in the flesh. The evening made for great entertainment and deep reflection on a plethora of issues. It was a pleasure to hear Professor Block’s unique perspective on the world. To be exposed to radical arguments on either side of the issues certainly helps one to check one’s principles and grow intellectually. Without challenges to our beliefs and constant intellectual criticism, we become complacent. Luckily, as I have found on my intellectual journey of the past few years, the libertarian community keeps its members constantly on their toes.
By G.L.C., on July 9th, 2008
The term intellectual property reflects the idea that its subject matter is the product of the mind or the intellect. It could be in the form of patents, trademarks, and copyright. The law protects intellectual property like any other form of property. It can be owned, bequeathed, sold, or bought. Unlike other forms of property, the main distinguishing feature of intellectual property is its intangibility and non-exhaustion by consumption.
Patents grant ownership rights to inventions and other technical improvements. Copyright confers ownership rights to authors, artists, and composers. Trademark establishes rights in distinctive commercial marks or symbols.
Intellectual property rights are the foundation of knowledge-based economies. It pervades all sectors of the economy and is fast becoming important for ensuring competitiveness of business enterprises.
In a free market economy, the state is concerned with improving consumer welfare by constraining the behavior of firms with market power. Intellectual property rights confer a certain degree of monopoly power on the owner of the intellectual property. Both have a common goal of enhancing consumer welfare.
From an economist’s point of view, there are two broad classes of goods:
1. Private goods which are rival in consumption.
2. Public goods which are non-rival in consumption.
Private goods can be publicly owned and public goods can be privately owned. Public goods are non-exclusive. People cannot be excluded from using them. It can be used simultaneously by many people; its use by one application does not make it harder for other people to use the same good. Private goods cannot be used simultaneously by more than one person.
The necessity to promote competition and protect intellectual property rights is embodied in the guidelines and regulations issued by the Department of Justice and the Federal Trade Commission in 1995.
Granting exclusive property rights to the creator of an idea provides an incentive to create ideas, and excluding others from using an idea enables the creator to determine the price above marginal cost and impedes their dissemination and application.
Once a good has been discovered, the cost of producing a non-rival good is zero. The marginal cost of such good is zero. When prices are equated to marginal costs, resources are allocated efficiently. Efficiency is lost if the price of a non-rival good is above zero. If the price cannot be more than zero, there can be no motivation for development. By acquiring an intellectual property right in a non-rival good, it is possible to make it excludable and prevent it’s use by others.
To give people an incentive to produce socially desirable new innovations, the law allows the creators of a non-rival good to appropriate the returns of their innovation for themselves alone through intellectual property rights. But since intellectual property rights make a non-rival good excludable, it constitutes an inefficiency – the price of the good will be above the marginal cost of producing the good. Conferring ownership of intellectual property rights is tantamount to conferring a monopoly.
Unlimited protection of intellectual property gives rise to two problems:
1. Discouraging dissemination of inventions and ideas, i.e. under-utilization.
2. Encouraging a race among inventors, i.e. over investment in research and development.
As such economists have to adjudicate as to the desirability of using intellectual property rights as a spur to innovation and as an instigator of monopolistic inefficiency.
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