WEBVTT NOTE 26. Is Intellectual Property the Key to Success? 1 00:00:00.000 --> 00:00:03.140 Chapter 26. 2 00:00:03.140 --> 00:00:06.600 Is Intellectual Property the Key to Success? 3 00:00:06.600 --> 00:00:10.340 July 5, 2007. 4 00:00:10.340 --> 00:00:15.560 One of the greatest tragedies of intellectual property law is how it generates intellectual 5 00:00:15.560 --> 00:00:19.500 confusion among successful business people. 6 00:00:19.500 --> 00:00:24.600 Many are under the impression, even when it is not true, that they owe their wealth to 7 00:00:24.600 --> 00:00:30.960 to Copyright, Trademarks and Patents, and not necessarily to their business savvy. 8 00:00:30.960 --> 00:00:35.680 For this reason, they defend intellectual property as if it were the very lifeblood 9 00:00:35.680 --> 00:00:37.900 of their business operations. 10 00:00:37.900 --> 00:00:43.680 They fail to give primary credit where it is due, to their own ingenuity, willingness 11 00:00:43.680 --> 00:00:48.740 to take a risk, and their market-based activities generally. 12 00:00:48.740 --> 00:00:53.360 This is often an empirically incorrect judgment on their part, and it carries with it the 13 00:00:53.360 --> 00:01:00.360 and the tragedy of crediting the state for the accomplishments that they are actually due to their own entrepreneurial activities. 14 00:01:00.360 --> 00:01:05.360 Certainly there is no shortage of narratives to back up this misimpression. 15 00:01:05.360 --> 00:01:14.360 Countless business histories of the US observe how profits come in the wake of patents and thereby assume a causal relationship. 16 00:01:14.360 --> 00:01:21.360 Under this assumption, the history of American enterprise is less a story of heroic risk and reward 17 00:01:21.360 --> 00:01:25.960 and more a story of the decision of patent clerks and copyright attorneys. 18 00:01:25.960 --> 00:01:32.840 As a result, many people think that the reason the United States grew so quickly in the 19th 19 00:01:32.840 --> 00:01:38.200 century was due to its intellectual property protection, and they assume that protecting 20 00:01:38.200 --> 00:01:44.280 ideas is no different from protecting real property, which, in fact, is completely different. 21 00:01:44.280 --> 00:01:51.340 A clue to the copyright fallacy should be obvious from wandering through a typical bookstore change. 22 00:01:51.340 --> 00:02:01.340 You will see racks and racks of classic books presented with beautiful covers, fancy binding, and in a variety of sizes and shapes. 23 00:02:01.340 --> 00:02:10.340 The texts therein are public domain, which isn't a legal category as such, it only means the absence of copyright protection. 24 00:02:10.340 --> 00:02:17.340 But they sell, they sell well, and no, the authors are not misidentified on them. 25 00:02:17.340 --> 00:02:24.260 on them. The Bronte sisters are still the authors of Jane Eyre and Wuthering Heights. 26 00:02:24.260 --> 00:02:31.100 Victor Hugo still wrote Les Miserables. Mark Twain wrote Tom Sawyer. The much predicted 27 00:02:31.100 --> 00:02:37.440 disaster of an anti-IP world is nowhere in evidence. There are still profits, gains from 28 00:02:37.440 --> 00:02:45.380 trade and credit is given where credit is due. Why is this? Quite simply, the bookstore 29 00:02:45.380 --> 00:02:50.420 has gone to the trouble of bringing the book to market. It paid the producer for the book 30 00:02:50.420 --> 00:02:56.340 and made an entrepreneurial decision to take a risk that people will buy it. Sure, anyone 31 00:02:56.340 --> 00:03:03.060 could have done it, but the fact is that not everyone has. The company made the good available 32 00:03:03.060 --> 00:03:10.540 in a manner that suits consumer tastes. In other words, with enterprise comes success. 33 00:03:10.540 --> 00:03:13.460 It is no more or less simple than that. 34 00:03:13.460 --> 00:03:17.260 IP has nothing to do with it. 35 00:03:17.260 --> 00:03:23.340 So it would be in a completely free market, which is to say a world without IP. 36 00:03:23.340 --> 00:03:27.300 But sometimes businessmen themselves get confused. 37 00:03:27.300 --> 00:03:34.540 Let's consider the case of an ice cream entrepreneur with the hypothetical brand name Georgia Cream. 38 00:03:34.540 --> 00:03:39.940 The company enjoys some degree of success and then decides to trademark its brand name, 39 00:03:39.940 --> 00:03:44.940 So, this company now has three monopolies all sewn up. 40 00:03:44.940 --> 00:03:51.940 The first one is that it now enjoys the monopoly on the use of the name Georgia Cream. 41 00:03:51.940 --> 00:03:57.940 And let's say that the company creates a flavor called Peach Pizzazz, which is a great success, 42 00:03:57.940 --> 00:04:03.940 so it copyrights the recipe so that no one can publish it without the company's permission. 43 00:04:03.940 --> 00:04:25.940 So this company now has three monopolies all sewn up. Is that enough to ensure success? Of course not. It must do good business, meaning that it must economize, innovate, distribute and advertise. The company does all these things, and then goes from success to success. 44 00:04:25.940 --> 00:04:33.940 If you suggest to the founder and CEO that we should get rid of intellectual property law, you will elicit a sense of panic. 45 00:04:33.940 --> 00:04:46.940 That would completely destroy my business. How so? Anyone could just come along and claim to be Georgia cream, steal our recipe for peach pizzazz, duplicate our mixing technique and then we'd be sunk. 46 00:04:46.940 --> 00:04:49.940 Do you see what is happening here? 47 00:04:49.940 --> 00:04:55.240 A small change that would not threaten the very life of the business is indirectly being 48 00:04:55.240 --> 00:05:01.000 credited by implication for being the very life of the business. 49 00:05:01.000 --> 00:05:06.400 If that were true, then it would not be business prowess that made this company, but government 50 00:05:06.400 --> 00:05:11.720 privilege, and that is emphatically not true in this case. 51 00:05:11.720 --> 00:05:16.480 The repeal of intellectual property legislation would do nothing to remove from the business 52 00:05:16.480 --> 00:05:28.680 The Reveal of IP might create for it an additional cost of doing business, namely efforts to 53 00:05:28.680 --> 00:05:35.200 ensure that customers are aware of the difference between the genuine product and impersonators. 54 00:05:35.200 --> 00:05:39.440 This is a cost of business that every enterprise has to bear. 55 00:05:39.440 --> 00:05:44.000 Patents and trademarks have done nothing to keep Gucci and Prada and Rolex impersonators 56 00:05:44.000 --> 00:05:50.020 at Bay, but neither have the impersonators killed the main business. If anything, they 57 00:05:50.020 --> 00:05:57.620 might have helped since imitation is the best form of flattery. In any case, the cost associated 58 00:05:57.620 --> 00:06:04.780 with keeping an eye on imitators exists whether IP is legally protected or not. To be sure, 59 00:06:04.780 --> 00:06:09.780 some businesses owe their existing profits to patents, which they then use to beat their 60 00:06:09.780 --> 00:06:15.700 Competition over the head. But there are costs involved in this process as well, such 61 00:06:15.700 --> 00:06:22.700 as millions in legal fees. Big companies spend millions building up war chests of patents 62 00:06:22.740 --> 00:06:28.340 that they use to fight off or forestall lawsuits from other companies. They agree to back down 63 00:06:28.340 --> 00:06:35.100 and cross license to each other after spending millions on attorneys. And no surprise, just 64 00:06:35.100 --> 00:06:40.740 Just as with minimum wage or pro-union legislation, the IP laws don't really hurt the larger 65 00:06:40.740 --> 00:06:46.180 companies but rather the smaller businesses who can't afford million dollar patent suit 66 00:06:46.180 --> 00:06:48.380 defenses. 67 00:06:48.380 --> 00:06:55.020 The internet age has taught that it is ultimately impossible to enforce IP. It is akin to attempting 68 00:06:55.020 --> 00:07:01.740 to ban alcohol or tobacco. It can't work. It only succeeds in creating criminality where 69 00:07:01.740 --> 00:07:07.780 For None Really Need Exist. By granting exclusive rights to the first firm to jump through the 70 00:07:07.780 --> 00:07:13.540 hoops, it ends up harming rather than promoting competition. 71 00:07:13.540 --> 00:07:19.540 But some may object that protecting IP is no different from protecting regular property. 72 00:07:19.540 --> 00:07:27.080 That is not so. Real property is scarce. The subjects of IP are not scarce, as Stephan 73 00:07:27.080 --> 00:07:34.080 Merchants are free to attempt to create artificial scarcity, and that is what happens when a 74 00:07:47.960 --> 00:07:54.960 company keeps its codes private or photographers put watermarks on their images online. Proprietary 75 00:07:54.960 --> 00:08:00.960 Prioritarian and open source products can live and prosper side by side, as we learn 76 00:08:00.960 --> 00:08:07.880 from any drug store that offers both branded and generic goods inches apart on the shelves. 77 00:08:07.880 --> 00:08:12.160 But what you are not permitted to do in a free market is use violence in an attempt 78 00:08:12.160 --> 00:08:19.040 to create an artificial scarcity, which is what all that IP legislation really does. 79 00:08:19.040 --> 00:08:25.040 Benjamin Tucker said in the 19th century that if you want your invention to yourself, the 80 00:08:25.040 --> 00:08:32.120 only way is to keep it off the market. That remains true today. So consider a world without 81 00:08:32.120 --> 00:08:38.280 trademark, copyright or patents. It would still be a world with innovation, perhaps 82 00:08:38.280 --> 00:08:45.560 far more of it. And yes, there would still be profits due to those who are entrepreneurial. 83 00:08:45.560 --> 00:08:52.560 This would be a bit less profit for litigators and IP lawyers, but is this a bad thing?