Ideas, free and unfree
The topic of intellectual property is hugely important in the world today, especially with
the growing digitization of so many of the goods and services we use every day.
For something to be digitized meant to take some portion of that good and transfer it
from the realm of scarcity to the realm of infinite reproducibility.
Under these conditions, the notion of intellectual property, that only one government-privileged
The topic rather snuck up on the Austrians, however.
It has always been in the background – Carl Menger wrote of the definition of goods and
and how their scarcity is a precondition for ownership and rationing.
Boehm-Bawerk wrote a long reflection on whether things like justice, love and other such values
could ever be considered goods in the normal sense in which we think of the term, and he
concluded that they cannot, because there was no inherent need for economizing them.
Hayek wrote extensively on the social benefit that comes from the free flow of knowing and
information.
Mises and Rothbard were more explicit on the matter of patents.
Both saw them as unneeded government monopolies.
Mocklop joined them in this view.
Rothbard rejected copyright as it exists in law in favor of common law standards of manuscript
ownership.
That's pretty much where matters stood until 1996, when Stephan Kinsella shucked everyone
and with a journal article calling for the complete repeal of intellectual property law.
The article stunned me, and I instinctively rejected the idea.
I figured that the idea could be ranked among the far-flung notions one bumps into within
the world of libertarianism, true perhaps in some trivial, abstract sense, but with
no serious application for the here and now.
Years went by, but I kept thinking of the topic and its meaning, mainly because the
The headlines were constantly bringing the topic back up.
Kids were being fined millions for illegal downloads.
Corporations were being looted in patent suits.
Drug prices were soaring due to patents.
And so on.
I had come to the point of actually embracing Kinsella's position, but without fiery conviction.
Then I read Against Intellectual Monopoly by Michel Baudrin and David Levine.
It was a mind-blowing experience and I ended up documenting the journey chapter by chapter
on the Mises blog.
I recall how I could hardly sleep at night as I thought about the thousands of examples
they gave that demonstrated that this topic is not just intellectual play.
The topic gets to the heart of the meaning of free competition itself.
How could I have neglected it so long?
The authors are not Austrian adherents and certainly Kinsella's own treatment is more
are theoretically robust, but they know the field so well and their endless stream of
real-life examples provides just what the consistent advocate of freedom needs to hear
about this topic.
It has been suggested that I put these live blogs of the book in a monograph form.
I enjoyed reading the proofs because they really do chronicle an exciting intellectual
journey.
It was a long haul, six years from the time I first started thinking about the topic,
But the payoff has been enormous for me.
This book helped me see the world more clearly and understand so much that had previously
remained cloudy.
This is just about the best thing that can ever be said of a book.
I hope this chronicle is of some help to you on the same journey.
What is your attitude toward IP?
As I think more about intellectual property in the form of patents and copyrights, it
It seems that the implications for social theory are profound.
The behaviour targeted and slaughtered by IP is one that provides a fuel for all social
and economic development, imitation or emulation.
In the German-speaking world of art in the 18th and 19th centuries, imitation by composers
was considered to be the greatest tribute.
When Bach would write an elaboration of Buxtehude, it was seen as a wonderful gift to Buxtehude's
When Mahler would turn a phrase by Brahms or re-orchestrate a Beethoven symphony, it was a tribute of one master to another.
So it is in literature and economics.
Imitation in economic affairs is essential for development, since nothing is ever perfect right out of the box, and society is constantly changing.
You need that imitative dynamism in order for technology to keep up with changing market conditions.
This is what IP shuts down in the name of rewarding creators.
How can creators make a buck in a world of fluid imitation?
The same way they always have, by having the best product at the right price to the market
first.
When others imitate them, they have to hustle again and innovate some more.
This is how societies and economies grow.
Think of the fashion world, where IP isn't in force.
It is fast-moving, innovative and remarkably profitable.
Designers have their ideas imitated nearly as soon as they are seen on the runway.
This imitative behavior is widely regarded as a ratification of a good idea.
It is something that people are socialized to look for as an indication of marketability.
It is the same with generic drugs, fonts, perfume and other sectors in which there is
is no IP.
Sadly, in sectors in which IP does apply, the opposite attitude applies.
Authors, artists and inventors sit and brood about the need to keep their wares to themselves
and hunt down anyone who would dare steal their ideas.
In these successful cases, they can end up rewarding themselves, but at the expense of
social development.
In the far more prevalent, unsuccessful cases, the obsession with being ripped off leads
to brooding, resentment and disgruntlement that the world has failed to provide them
a living.
A sector consisting of nothing but people like this, with an attitude encouraged in
law, is stagnant.
By way of illustration, compare the imitation-oriented jazz and rock sectors with the IP-obsessed
area of serious classical music.
Other sectors like advertising fall somewhere in between.
Several years ago, Apple ran a commercial for the iPod that looked incredibly similar
to one produced by Lugs Shoes.
Now, one might laugh and appreciate this.
Surely, it will benefit both companies, or one can regard it as theft.
Instead of celebrating a success, Lugs regarded it as a rip-off, which Apple denied.
This is really just pathetic and completely unnecessary.
It really all comes down to the attitude one takes toward one's influence on others.
The absence of IP creates a broad-mindedness that seeks to make a difference in the world
and looks for imitators as a sign that it is working.
The presence of IP subsidizes a kind of inwardness and bitterness that sees the whole world as
being populated by potential thieves to keep at bay.
You see the two ways of looking at the world in the way kids interact with each other.
I'm speaking of pre-teens and the way they deal with their emergent societies.
Let's say one kid has developed a certain phrase or gesture that is new to the social
group.
Another kid picks up on it and employs it.
Now, there are two ways to respond to this imitation.
The innovator child can see others doing and saying what he did and said, and realize that
he has made a difference in the world, put a dent in this little universe.
He has become a force for changing the world as he knows it.
He has made his mark, and the evidence is how others are doing the same thing.
He feels a sense of pride and joy, and works at coming up with other unique ways of dressing,
Speaking, or Behaving, that others similarly imitate.
Or the child can have another response.
He can accuse his imitators of stealing his words, ripping off his gestures, pilfering
his personality and plundering his special way.
He sees others who imitate as threats, forces that are reducing the value of his unique
personality.
He treats it as the equivalent of cheating on a test.
It is taking what is his.
It is the first stages of a very destructive IP-style mentality.
Parents be alert to signs of this among kids.
Explain to children that it is a good thing when others are influenced by you.
It means that you have made a difference in the world.
It is not something to complain about at all.
It is something to celebrate.
It means that you are an entrepreneur on the cutting edge, someone who does things that
Which Attitude Do You Take Toward Emulation?
Before you answer, consider that emulation is unavoidable.
There is no such thing as absolute originality.
Everything in a growing and healthy society is an elaboration on something else that already
exists.
This applies to technology, literature, music, art, language, everything.
A world in which the ethics of IP applied would be backward and stagnant, headed nowhere
but backward.
Children's movies cut both ways.
The movie called Ratatouille strikes me as the ultimate IP-supporting propaganda.
A rat with a gift for taste and smell is rescued from the gutter and put in a position to cook
Cook Food at a Fine Restaurant All his food is great.
He has imitators all over the place, but he alone remains the best.
But then he begins to seethe with resentment that he alone is not given credit and accolades.
Oddly, some people fear that customers will not like the idea that a rat is cooking all
the food.
The movie ends with his being discovered.
He feels great pride, and we are supposed to be happy about this.
The restaurant is destroyed, but the audience is supposed to figure out that it is worth
it.
A much better case is Horton hears a hoo.
Throughout the film, we see competitive pressure between the various animals to see which one
will have the dominant influence over others.
The kangaroo tries to prevent Horton from influencing people, but he does anyway, and eventually
everyone comes around.
We see it, too, in the lovely operation of Whoville, a place where emulation is king
and it is a vibrant and lovely society in which everyone is happy.
As web editor of Mises.org, hardly a week goes by when I don't see imitators of our
successful web presence.
It can be images, articles, design, feel, structure, everything.
Some years back I had the view that this had to be stopped.
Fortunately, no one here had time to bother with it, thank goodness.
The whole reason we exist is to influence the world.
Evidence of that is glorious and it keeps the fire under our staff to keep doing a better
job and stay on the cutting edge.
The Universals of IP Theorizing
Against intellectual monopoly might have begun with a story about the failed attempts to
to Stop Illegal Downloads or the Wicked Crackdowns on Teens for Filesharing.
Instead, the authors take us back to the Industrial Revolution, to explode the myth of the supposedly
great innovator James Watt and his steam engine.
Why?
Because as the introduction points out, this is a book of economics.
If you have something to add to the science, it can't just apply to now or last year,
In this place, or just that place, economics is a universal science.
Its laws and lessons apply to all times and places.
For this reason, a theoretical breakthrough is a massive event.
It means work for generations of scholars revising history, fine-tuning other aspects
of theory, and applying it to different fields.
This is one reason why this book is so important, and sensing that they are taking on more than
and just the problem of digital downloads, they put this ancient history up front.
They take the first crack at revisionist history with regard to a famous patent.
They show that most of Watts' energies were spent lobbying for and defending a government
patent on a technology that was quickly surpassed and could not come to market thanks to his
rent-seeking behaviour.
Or was this patent somehow necessary for his economically useful behavior?
It wasn't until the patent expired that steam engine technology really took off, but by
that time the Industrial Revolution had given up 10 to 15 years of what might have otherwise
been economic progress.
There we have it.
We are put on notice that this book is not merely about the digital age or life after
of the Internet written by a couple of geeks.
No, this is a revisionist treatment of the whole subject that applies not only now, but
to the whole modern history of intellectual property, which they insist on calling intellectual
monopoly.
Next they stake out their unique position, which is neither that patent and copyright
law has gone too far, nor that it hasn't gone far enough.
They take a third position that only a few dare take – the stuff needs to be abolished
altogether.
Their grounds for saying so aren't nearly as complicated as one might at first think.
First, grant that, quote, everyone wants a monopoly.
No one wants to compete against his own customers or against imitators.
Currently, patents and copyrights grant producers of certain ideas a monopoly.
Next, concede a point that everyone brings up first.
Certainly few people do something in exchange for nothing – creators of new goods are
not different from producers of old ones – they want to be compensated for their effort.
Now the core of the argument.
It is a long and dangerous jump from the assertion that innovators deserve compensation for their
efforts to the conclusion that patents and copyrights – that is, monopoly – are the
The best or the only way of providing that reward.
Creator's property rights can be well protected in the absence of intellectual property, and
that the latter does not increase either innovation or creation.
They are an unnecessary evil.
They continue to spell out precisely what they mean.
They favor the property rights of producers.
The property rights of innovators should be protected, and so should the property rights
of those who have a copy of the idea of the creator.
The first property right encourages innovation.
The second property right encourages diffusion, adoption and improvement of innovation.
The question is whether creators should have a right to dictate how purchasers use a creation.
To say that they should amounts to a claim not of property rights, but of intellectual
property.
It confers a privilege and restricts third parties in what they can do with property.
It is a grant of monopoly privilege.
Monopolies are not friends of innovation in any area of life.
They don't go into detail here, but we know this by looking at the postal service or the
public schools or the utility companies.
All of the sectors controlled by monopolists are characterized by high prices, low innovation
and stagnation generally.
How odd it is that we believe otherwise, this one kind of monopoly is something we can't
live without, with intellectual property.
The authors point out that this supposed incentive to create is a double-edged sword.
Someone pays the bill.
It's not as if the creator benefits and nothing else happens.
For example, they cite the case of a movie that cost $218 to make, but that cost $400,000
in music rights.
This is a serious social cost.
It is largely an unseen cost, too.
Think of the movies that are not made, the profits in publishing that are never seen,
the inventions that are delayed or never come to market, the alternative use of the billions
and billions that are spent by consumers on patented drugs.
The introduction also deals with the US Constitution's endorsement of copyright and trademark.
They say that it is outmoded, but no more than that.
For my own part, I'm somewhat curious about this.
Many parts of the Constitution are fundamentally anti-monarchical – only Republican governments
permitted in the States, for example.
The history of patent legislation in England prompts me to wonder if the purpose of this
clause is to say that government will not own and dispense mercantilist privileges – rather
individuals alone will possess such rights.
It was supposed to be a point against kingly privilege – still misguided, to be sure
– but one can make a bit more sense of it in this case.
The first chapter is highly provocative and puts the reader on notice that a wild ride
is coming.
The authors don't disappoint.
People sometimes ask me about ideas for research projects.
What the authors have done with the Watt case could be done for a thousand other cases.
There is so much work to do and so much rethinking to do.
Does monopoly create wealth?
How strange this intellectual property issue is.
In normal life, we tend to, or should, credit enterprise and markets for most innovations
that surround us.
I'm typing on a system that includes products from several dozens of different creative
companies, with hardware and software and applications of all sorts stitched together
through some miracle we call the coordinating power of the market.
No news in that, I suppose, ho, hum.
But let the subject of IP come up, and most people will say that we only have this stuff
thanks to IP.
Think of the shift here.
On the one hand, we credit markets.
On the other hand, we credit monopoly.
Both can't be true.
Or if both are true, we have a serious theoretical tangle to unravel.
So which is true?
This is the topic addressed in the second chapter of Voltrain and Levine's book.
They begin by observing that virtually none of the innovations in the digital industry
of computers took place with the protection of intellectual monopoly.
Before 1981, it was not possible to patent or copyright software.
The craze to patent every mouse click began only following the 1994 court ruling in Ré-Alepat.
Meanwhile the underlying guts of all that you see began long before.
As with all genuine economic revolutions, the foundation of end-user consumption was decades
in its preparation.
Compilers, assemblers, linked lists, databases, search algorithms, displays, languages, word
processing – they all began long before the age of software patents or copyrights.
Let's see how this works.
Property rights are protected.
Trade is free.
People made useful stuff.
People bought stuff and used it, they imitated and emulated each other and improved things
step by step through investment, profit and reinvestment.
That's all.
All development since this great age of innovation that preceded software IP has built on this
foundation of open source material.
Said Bill Gates, if people had understood how patents would be granted when most of
The authors comment on the Post-Hawk-Ergo-Propter-Hawk fallacy.
Intellectual monopoly is not a cause of innovation, but rather an unwelcome consequence of it.
How so?
Young industries do amazing things and get a foothold in the market.
Then even better folks come along with better ideas.
When the old guys panic and turn to government for protection, the industry freezes in place.
It is the oldest pattern.
Thus did Microsoft make no effort to protect its IP in the early days.
It begged for attention and encouraged widespread use and copying.
When it saw a threat from newcomers, matters changed.
There hasn't been that much innovation in operating systems since 1994.
There has been innovation in web browsing, but where did the web browser come from?
It was purchased from a creative company in 1993, before there were software patents.
Imagine how a patent in web browsing would have set back the entire industry, the losses
would have been incalculable.
We can see here that the authors are holding up the computer industry as a model for how
How Things Work in a Free Market
And a super strong case for their position is the open source software movement, which
is a main fuel behind the development we see today.
Firms relinquish monopoly to assure longevity in the industry.
Others can pick up their designs and develop them.
This helps build their market.
In any case, we all depend on open source software every day, if we use Google.
It runs Linux, an open source operating system.
There are many others.
Indeed, open source dominates the web completely.
Some 70% of servers online today run Apache.
But how can they make money?
The authors tell the story of Red Hat.
It is open source.
has plenty of competitors who offer the exact same product.
But because of brand name, Red Hat is still marketable and has more staying power.
As Portrain and Levine say, if you had a problem with software you bought and had to call the
seller for advice, who would you prefer to call?
The people who wrote the program or the people who copied it?
Thus does Red Hat profit and their many competitors come and go, come again and go again.
The authors effortlessly segue from software to books, and here is the part that especially
interests me.
They provide an alternative explanation for why British literature was so widely circulated
in the United States in the 19th century.
American publishers could publish without copyright.
There were no international copyright agreements, and there was massive competition.
It was so intense that American firms would pay authors directly for sending chapters
even before they appeared in Britain.
The amounts they would receive even exceed their British royalties over a period of years.
As a result, there was a huge dissemination of knowledge, and the prices were low.
Dickens' A Christmas Carol sold for six cents in the United States and $2.50 in England.
Banking technology improved, literacy improved, ideas spread.
Children and schools could have books, which in turn increased the demand for books and
spurred on new investment and technological improvements.
It was a dynamic and wild world of publishing, comparable to what we see with the web today.
But could it work in modern times?
Look at government documents, which are always and everywhere in the public domain, unless
they are secret.
The 9-11 report of 2004 was a huge bestseller, comparable to the first Harry Potter in sales
volume.
Norton even negotiated a deal with the government to release a paperback on the day of release,
and it was also available for free download.
Why would they do this?
The same reason all entrepreneurs do what they do – to be the first to market.
Meanwhile, anyone on the planet could publish it a day later.
Another fascinating section concerns the newspaper industry.
It began without patent protection.
Benjamin Day started the New York Sun and his technology was open source.
He collected advertising to pay the costs and recruited young boys to sell it.
Anyone could do it.
But the point is that he did it first and made lots of money.
He was first and he was innovative.
That's the key to success.
It was a massively costly undertaking.
Why wasn't he driven out of business by piracy?
The Recording Industry Association of America claims constantly that a free market can't
work, because pirates would go straight to the most profitable production ends and steal
them.
But the authors of Against Intellectual Monopoly ask us to think about this carefully.
How do we know what is profitable?
We have to let the market work, you can't know in advance.
And once the line of production is profitable, it is too late.
The player has market dominance and all of the advantages that come with that.
They ask us to try this yourself.
Try ruining a pop star by pirating songs only once you are certain they are big hits.
Back up and consider the history of IP.
It is a modern invention, whereas music and literature appeared at the dawn of civilization.
Music and literature and art thrived for many centuries before IP.
The authors don't go into it, but just imagine if the invention of the musical staff had
been copyrighted and patented by the monk Guido de Arezzo, who invented it.
Progress would have been set back by a century.
The first signs of IP appeared after the invention of the printing press.
Governments used it to suppress political dissent.
I suspect that the wars of religion had something to do with this.
It was a royal mercantilist privilege conferred on printers, the same as it was conferred
on tea, tin, cotton, banking or any other good.
In the day, it seemed reasonable.
The ruler wanted to control goods, and producers wanted guarantees.
Everyone wins, right?
Except that there was no competition, no market process, and hence there was stasis.
Mercantilism was refuted by economists, and the free market emerged, and history was changed.
What happened to IP in the age when mercantilism was being repealed?
It was not abolished, but transferred from kings to producers.
The exclusive right to produce was granted to private owners who became responsible for
enforcement under the cover of law.
This was a huge mistake in the liberal revolution of the 18th century, an inconsistency that
continues to haunt us.
Bertrand and Levine's section on IP history should be mandatory reading.
Next in the second chapter, a short section on the history of sheet music.
Did you know that the industry leader in sheet music, Francis Day and Hunter, got its start
through mass piracy?
Fascinating!
The war on cheap sheet music is comparable to the war on pirates today.
It didn't work, thank goodness.
The chapter concludes with a long and interesting section on the dynamic, hugely profitable industry
of porn.
You wince.
Of course, so does the State.
Protection is nearly unavailable here for reasons that are obvious.
It is a legitimate subject for investigation, from an economic perspective.
This open-source industry is massive and growing, orderly and profitable, and technologically
innovative.
How tragic that IP has created a situation in which we have to look to the seedier side
of life to see how truly free markets work.
Because innovation require property in ideas, against intellectual monopoly, dares step
out front on a topic very dear to our hearts to prove that, quote, the great role of patents
in giving us modern software is unadulterated fantasy.
And they show this by reviewing the history of software innovation and its present workings.
Neither Google nor YouTube nor any other driving force is using patents to retain competitive
The lesson, however, applies far more broadly.
Wealth in the Western world has been rising for a thousand years, and innovation along
with it, and patents have played virtually no role whatsoever.
The authors in chapter 3 go more fully into the history of the patent to show that they
originated out of kingly privilege associated with mercantilism, and that the legislation
of the 17th and 18th centuries were forms of liberalisation despite first appearances.
It wasn't until the 19th century that the laws tightened again.
Comprehensive intellectual property laws as they exist today didn't make an appearance
until the end of the 19th century and the beginning of the 20th century.
Taking the long view, we can see even with a superficial look that economic growth throughout
the world has been in process for 1,000 years, while patents are new and were mostly very
narrow until quite recently.
Why did patents enter the picture?
The rise of modern IP is due to the lobbying of incumbent firms threatened with competition.
It is a complete myth that patents give rise to innovation – the reverse has been true
– innovation gives rise to patents.
The authors offer this incredible challenge.
Can anyone mention even one single case of a new industry emerging as a result of the
protection of existing patent laws?
We cannot.
Strange coincidence, is it not?
Examples.
Services in the United States were not covered by patent until the 1990s.
In Italy, pharmaceutical products and processes were not covered until 1978.
In Switzerland, it was 1954.
Agricultural seeds and plants were not effectively patented until 1977, but the greatest progress
here occurred over the previous 100 years.
Basic sciences like math and physics cannot be patented.
The tendency in the biological and life sciences towards patents is a very grave sign for the
and the future of these sectors.
The authors cite George Stigler in pointing out that patents did not assist, quote, automobiles,
frozen foods, various electrical appliances and equipment, petroleum refining, incandescent
lamps, radio and uranium mining.
Stigler further cites the mail-order business, which revolutionized retail as a case of patent-free
development.
Shall we go on?
It helps to have the specifics that the authors provide.
Ray Kroc's fast food franchise, better known as McDonald's, the 24-hour convenience store,
home delivery of precooked food, the suburban shopping mall, franchise everything from coffee
to hairdressing, the various steps that make up the delivery business of UPS, Federal Express
and DHL, and, obviously, online commerce.
That is pretty much each and every innovation which during the last half century has had
any lasting impact in the retail and distribution sector was not spurred or protected by patents.
How did the inventor of the cotton gin, Eli Whitney, become rich?
Not through the cotton gin.
He and his business partner took out a patent and spent their energies crushing competition.
They were trying to charge farmers two-fifths of their profits paid in the form of cotton.
Farmers hated it and started to pirate the machine, and many competitive companies sprung
up.
Litigation followed and lasted from 1794 to 1807.
Nothing came of it but an expenditure of time and energy, not to mention lawyer's fees.
The growth of cotton ginning in the South ended up owing more to the pirates than Whitney.
So where did Whitney get his money?
How did he die rich?
In 1798, he invented a process to manufacture muskets by machine.
This time, he was smart, he sought no patent, he encouraged piracy – that is, imitation.
The industry took off, and he remained the leader through innovation.
What a blessed life to be rid of the stupid waste of using legal means to crush the competition,
and instead devote yourself to doing good for others and making money at the same time.
Here is the section in which the authors tell the story of agriculture.
Before 1930, there was no patent protection, the very period in which the United States
became so productive in agriculture that the entire population shifted in its main industrial
focus.
In 1930, law granted only patents for a narrow range of plants.
It wasn't until 1970 that the Plant Variety Protection Act extended protection to sexually
produced plants, and not until the 1980s, when protection was extended to biotechnology.
So we have a test case, and the authors measure innovation using total factor productivity.
They find no increases after patents and even some disturbing data oscillations.
In corn, in particular, the astounding increase in yields occurred before patents and has
nearly leveled off since patents.
Two splashing examples of amazing innovation are now introduced in the book.
The area of Almeria, Spain was an unusable desert from the beginning of time until 1963,
and an unpatented greenhouse was introduced into the area.
The greenhouse was copied and copied and spread all over the region.
The results can be seen from space with color photos reproduced in the book.
The entire region was transformed from desolate to rich in the course of two decades.
The same process took place in Treviso, Italy, where the ready-to-color sweater was introduced
by the Benetton family and the process was imitated and spread to change an entire region
in the absence of patent.
Other examples – financial services, no patents, fashion, no patents, and advertising,
no patents and copyrights are ineffective.
These are the leading examples of innovation in the modern age.
This section is so compelling that so far as I am concerned, the book could end here.
But if patents are really that irrelevant, why don't the captains of industry realize
it?
It turns out that they do.
Two surveys in Modern Times asked R&D heads what techniques are most effective in realizing
gains from innovation.
It turns out that they regard the patent as the least effective means.
The authors conclude this mind-blowing chapter with a long discussion of patent pools.
These are cases in which companies relinquish patents in order to establish sharing agreements.
It is a way of stepping sideways toward what the market would give us anyway.
Companies live and breathe by innovation.
Innovation and monopoly are not compatible.
We are back to an old lesson that remains true.
It is the market, and all that comes with it, not laws granting exclusive privileges
to produce, that gives rise to innovation.
I end with a statement from Mises himself.
The great monopoly problem mankind has to face today is not an outgrowth of the operation
of the market economy, it is a product of purposive action on the part of governments.
It is not one of the evils inherent in capitalism as the demagogue's trumpet.
It is, on the contrary, the fruit of policies hostile to capitalism and intent upon sabotaging
and destroying its operation.
Sometimes those most hostile to capitalism are the capitalists themselves.
Seen and Unseen Costs of Patents Drug patents took it on the chin a few years
Years ago, when major drug companies refused to sell cheap AIDS drugs in Africa, presuming
the drug's work countless lives might have been saved.
But the desire to protect the high price on the patented drug, despite the low marginal
costs 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.
Doctors of the drug companies say, well, sure, it is cheap to produce mass quantities of
drugs after they've 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.
Baudrin and Levine, in Chapter 4, 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
and 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 United States and Canada and be
sold at cheap prices, thereby undercutting the monopolistic price.
Why not just price-discriminate?
It's not so easy to price-discriminate in a global economy.
Rather than take that risk, companies settle for not selling at all.
This reflects a general principle articulated by Bertrand and Levine.
People or 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 individual consumers while reserving their better products for the more lucrative corporate
market.
This is why the versions of the 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 behaviour.
So yes, there are some benefits to patents, in the same way that there are benefits to
all monopolists.
The post office benefits from the prohibition against private delivery of letters.
Electric schools benefit from 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.
Beltrain 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 increases in prosperity and
innovation.
Meanwhile, there are huge costs, even for those who acquire and own the patents.
Oracle Corporation, for example, spends vast resources on what can be called defensive
patents.
They must get them before someone else does, or else risk having to pay huge fees to someone
else.
Pass 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 owns 12,000 patents, and Microsoft is adding 1,000 patents a month
to its arsenal.
Vintel's CEO spoke for money when he said he would be glad to cut the number of Vintel's
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 to enforce monopoly, preventing
people from developing similar but better and cheaper products, and to prevent lawsuits.
The authors describe the result of patents as not a competitive market for innovation,
What 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 RiceTech 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 the product, the patent emerges from the deep
as a method of blackmailing the company that has gone to market.
Baldrén 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 United States.
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 Association of Licensed Automobile
Manufacturers formed a cartel around the patent.
The author's comment, if you were wondering why the US automobile industry developed so
quickly into the oligopoly we know and hate, a fair share of the roots lie in bad intellectual
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 contribution to the technology being
so meager.
They were so aggressive in blasting all competitors that all serious innovation in airplane 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 business people and patents.
It is the most common thing in the world for a businessperson who uses 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 is 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 Baldwin and Levine.
Being a monopolist is apparently akin to going on drugs or joining some strange religious
sect.
It seems to lead to 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
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 bought 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 4 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
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 casts of patents, and they are incalculable.
The Book and Music Killers One theory of copyright is that it promotes
the production and distribution of literary works.
That myth is completely shattered in Chapter 5 of Against Intellectual Monopoly.
The chapter is pithy, thorough, dead-on in its practical analysis, and deeply radical.
It is the perfect illustration of why I think this is one of the most original and compelling
books on economics in a generation.
Copyright is a subject replete with mythology.
People toss around junk legalisms that they pick up on the street while knowing nothing
about the facts or the law.
They imagine that copyright is important for protecting rights, even though the practical
reality is that it is a killer of ideas and a rights violator on a massive scale.
Indeed, something must be done to crush this institution before it brings the creative
and literary arts to a grinding halt.
We must remember that the copyright law is just another bogus modern institution we can
do without, just like the income tax and central banking.
International copyright only came to exist in 1891.
It was the result of lobbying not by authors, but by publishers, and has steadily increased
over the century to the point of maniacal absurdity today.
Thanks to the U.S. Congress, an article you write today is under copyright protection
until 70 years after your death.
As was mentioned earlier, copyright originated as a kingly permission to publish what was
politically correct.
The privilege passed to individual writers in the 20th century, but didn't stay there
long.
The publishers inherited the right through contracts, and then I'll use that right
to rob writers, musicians, artists and consumers of what Jefferson considered to be inalienable.
Did the internationalization and institutionalization of copyright actually achieve its stated aim
of promoting literary work?
There was no increase in copyright registrations as a percentage of the population between
1900 and 1950, despite the double-lengthening of the copyright term.
So much for the great outpouring of creativity in literature and music.
In 1998, the Sonny Bono-Mickey Mouse Copyright Term Extension Act, the biggest land grab
in history, boosted copyright by 40%.
But with what effect on incentives to produce?
None so far as anyone knows, but the publishers and moguls who pushed for this nonsense are
surely happy that they don't have to work harder and can continue to live off the royalties
of their long-dead predecessors.
Baudrin and Levine find that the countries with no copyright legislation, German territories
in particular, had more composers per capita than countries like England, where copyright
had the effect of bringing the entire composition industry to a grinding halt.
Actually, what the 1998 legislation did was provide a massive boost for authors to find
ways out of the chains of copyright.
The development of Creative Commons and other tools followed, because it is ever more obvious
that copyright is at war with the digital age.
And thank goodness for that.
But in the meantime, copyright in the 20th century has accomplished horrible evil.
Large swaths of the literary output of the last 50 years, for example, now lies buried
in the vaults of large publishers, who neither print them nor permit them to be printed absent
some huge fee.
Nor will they return rights to the author, nor will the publishers allow them to be posted.
Getting them back in print is a very expensive and time-consuming operation.
In my own work at the Mises Institute, I've encountered a dozen such cases myself.
And while most individual cases offer some possibility of a fiduciary workaround, economic
considerations on the margin effectively drive these works off the market.
Meanwhile, the greatest thing that could ever happen to an author is for his or her works
to enter the public domain.
But that only happens if you wrote your book before 1963, and the copyright was mercifully
not renewed.
Here is a test case brilliantly conceived of by Baldwin and Levine.
The works of Edgar Rice Burroughs are right on the fence of the copyright law.
Some are out of copyright, some are in.
They compare the circulation between them.
The books out of copyright in the Mars series are A Princess of Mars, The Gods of Mars,
The Warlord of Mars, Thuvia, Maid of Mars and The Chessmen of Mars.
All of these are available on Amazon in illustrated HTML versions as electronic versions to buy
and see for free and in innumerable editions in stores.
Meanwhile, other books in the Mars series are under copyright, including Master of Mars,
A Fighting Man of Mars, Swords of Mars, Synthetic Men of Mars, and Lana of Gathol.
Every single one of the books under copyright is out of print.
This is not an accident.
In this way, copyright serves as a tax on production, so of course it results in less,
The same is true of innumerable authors, including many classically liberal authors.
The world is highly fortunate that they published with marginal firms that failed to renew
their copyrights after they expired, otherwise their works would be unavailable.
It is, in fact, tragic that Hayek himself had major publishers who renewed many copyrights
because that fact alone has caused them to be tethered to the point of limiting Hayek's
own influence.
What the 1998 act did was put tens of thousands of titles under copyright that would otherwise
have been open to the world.
All this was done to protect the work of one company, Disney, which ironically made its
It's Fortune by making movies based on public domain stories.
The authors here further point out that large companies have no incentive to bring back
into print the titles for which they own copyright, because they don't want them to compete with
their new hardback titles.
It really is a form of legal suppression of literary work going on here, made possible
only by the state's laws, and it is an outrage.
A vast swath of the literary output of the West of the last 50 years has been kidnapped
by private parties with the legal approval of the state.
Again, the beneficiaries of the law are not authors and not musicians and artists.
Musicians themselves typically earn far more from concerts than royalties.
So the conventional theory is wrong.
Copyright doesn't inspire creativity.
These musicians would work and create without it – in fact, no one has a greater incentive
for abolishing the current system than creators.
For two thousand years, the core of musical creativity was the emulation and elaboration
on existing musical forms, with composers both competing with each other and cooperating
in a communal way toward advancement.
They depend most heavily on sharing information.
If this is stopped, culturally significant creativity is seriously impeded.
Copyright shut the cooperative process down at the turn of the 19th century.
Today serious classical composers have to keep returning to public domain material like
folk songs to make variations on themes.
The music of the 20th century is largely off limits.
Meanwhile the search for originality has created bizarre forms of music within the conservatory
culture, none of which has sticking power in the culture at large because it is illegal
to imitate it.
This whole scenario represents a radical attack on the very essence of cultural advancement.
The repeal of copyright would result in a huge outpouring of great music that uses popular
music in a variety of different forms.
Lawyers would be unleashed to write, ensembles could perform and record, and musicians of
all sorts would produce with glorious new creativity.
As it is, they live in a caged world in which lawyers determine what they can write, play
and record.
If you understand this, you can see why musical forms have taken such a huge tumble in the
for the last 100 years, while creativity has taken place only in sectors that eschew copyright,
such as jazz and independent rock.
As for recording, the whole effort to prevent file sharing has been a disaster for artists.
Again, this resulted from special interest legislation.
The tethers are so tight now that many bands are reduced to refusing any recording contracts
at all, merely so that they can distribute their own music the way they want to.
This has been proven again and again to be compatible with huge sales.
The best-selling CDs of last year were also the ones available for free download.
Whenever this subject comes up, people unthinkingly toss around crazy bromides.
You mean you want to allow anyone to just steal anyone's work?
Why would anyone bother to write a book or write a song?
These kinds of questions reflect what happens to our thinking in a time of statism.
We can't imagine how freedom would work.
We do not, for example, ask similar questions about other services.
If you allow the private growing of vegetables, why would anyone bother to start commercial
These questions only sound stupid to us because we don't have existing laws covering these
topics.
Somehow, everything works out.
Because we have copyright, we can't even imagine how we could get along without it.
And yet, we see many examples around us.
Public domain works are hugely popular, and firms profit from selling them, and they are
more prevalent than copyrighted works.
What I find striking is that copyright operates today by state-authorized theft of creativity
by large firms.
Writers and composers and bands permit themselves to be looted of their own right to distribute
their own work.
Composers work years on a piece and then give up the results to some business corporation
in exchange for their right to publicly hum the tune they wrote.
It is astounding and wholly non-viable.
Fortunately the free market is finding a workaround to evil copyright laws in the form of creative
of Commons and other institutions.
In this way, at least there is a path to freedom for us, whereas the same can't be said of
patent laws.
One last note.
Do not write me with some smartypants remark about how, if we are serious, the Mises Institute
should allow anyone to publish our books.
All our new works, insofar as it is possible, will be published with a Creative Commons
As for this book, please quote, steal it.
That goes for anything I write.
If you can sell it and make a buck, good for you.
If you become a millionaire, shame on me for not thinking of it first.
Back to basics on property and competition.
Zeroing in on a topic like intellectual property offers a chance to clarify fundamental notions
in Economics Generally.
You think you understand something like property rights or the nature of competition, you have
studied the ideas for years, and then a challenge comes along that blows everything up.
It's an opportunity, time to think and think again.
Is there really property in ideas?
And if so, what rules should govern it?
Is it really necessary that such property be protected in order that competition be
be kept fair and just and efficient.
The authors of Against Intellectual Monopoly state at the outset of Chapter 6 that property
is a great and indispensable thing.
It allows people to own, develop, be creative, profit and build a prosperous society.
Societies without private property stagnate and die.
Property rights are necessary, too, when there is a limit on the number of things in question.
But owning a thing doesn't prevent others from owning other things, too.
For example, cars.
They must be allocated through property rights because there is a potential for conflict if
they are collectively owned.
But my owning a car doesn't prevent you from owning a car.
There is no coercion involved in the institution of ownership.
The authors make a very important point with regard to ideas.
If you have an idea, it is yours.
You can do with it what you want.
If you share it, sing, speak, broadcast, let others see the products of your ideas, others
then have copies of it.
They are entitled to do with their copies of the idea precisely what you can do with
your idea.
They can use it how they want, provided they don't prevent others from doing with it what
they want.
This is a simple application of the non-aggression principle that governs a free society.
Whether it is fashion, language, know-how or whatever, people are free to copy.
Ideas then are what Mises called free goods.
Copies are potentially limitless.
They do not need to be economized.
Professional Property is the completely wrong-headed idea that, in the words of the authors, someone
has the right to monopolize an idea by telling other people how they may, or more often may
not, use the copies they own.
This strikes at the heart of progress, because it means not improving what exists, but rather
prohibiting others from using and improving it.
In the same way that property is good – competition is also good – it inspires people to strive
for excellence and to measure their progress against what others are doing.
It allows people to try and fail or try and succeed.
It permits people to learn from each other, looking at what others do that is successful
and emulating them.
This is how society leaps forward from stage to stage, how we went from horses to engines,
How plumbing came indoors, how industry took over from agriculture, how the digital came
to be.
Competition is predicated on the ability to learn and copy.
If you think about it, this is the essence of daily life.
We watch how people do things and learn from them.
We get on the subway and hold the stabilizing strap a certain way.
We follow fashion sense.
We watch the food network.
We listen to our professors and talk to other students.
We read and absorb the ideas of articles on the Internet.
The newly taught person becomes a competitor, the student becomes a professor, for example.
The protégé is always a threat to the monopoly previously held by the mentor.
What can you copy?
Anything and everything.
This is not taking anything from anyone.
The owner of the original idea still has his.
Other people now have their copies and are free to improve them.
Commerce is part of this stream of life.
And in fact, learning through imitation and improvement is even more crucially important
if we want to sustain a rising population with ever better health and well-being at
their disposal.
Let's say I write a book and publish 1,000 copies.
They are all mine.
When I sell one, I now have 999 remaining, and the new owner of the one book in a free
society is free to do with his copy what he wants – use it as a placemat, throw it away,
deface it, photocopy and even republish it.
You can even republish it under your own name, though that would amount to the socially repudiated
vice of plagiarism – vice, not crime.
The new copies, which always involve some cost, compete with the old copies.
What are the advantages of living under intellectual freedom as described above?
The authors list three main ones.
One, the number of copies is more plentiful and their price is thereby lower, which helps
consumers.
I like this point because it underscores that IP is really what the old classical liberals
2.
The initial innovator still earns money, as in the perfume or fashion or recipe industry.
3.
The market functions whether there is one innovator or many, and socially beneficial
simultaneous innovation is possible.
The authors give the example of Mozart and Beethoven, who published without IP but did
very well by being the first to market.
This is the source of profits.
It's the same today with products such as the iPhone.
It was the first time market and Apple made a killing, enough of one to have inspired
and ratified the initial innovation.
Now they are attempting to prolong their period of monopoly profits by considering patent
suits against imitators.
Efficiency is certainly not better off under these conditions.
As the authors say, the goal of economic efficiency is not that of making monopolists as rich
as possible.
In fact, it is almost the opposite.
The goal of economic efficiency is that of making us all as well off as possible.
It's interesting how many people immediately object that no one would create things under
free market competition.
Look around!
A tiny fraction of what we use in experience every day is subjected to intellectual monopoly.
And look at your own life.
Do you trim the bushes in front of your house only because you then have copyright to your
new design?
Do you take a casserole to a potluck lunch only on the belief that no one is permitted
to copy your dish?
Do you wear a navy jacket with a yellow tie only on the condition that no co-worker is
permitted to do the same?
There was no IP at all for many centuries during the greatest period of modern economic
growth from the 15th century onward.
Others generate all kinds of arguments to show that competition doesn't work.
For example, we are told that very high costs are associated with some investments and so
monopoly is required in order for investors to make a profit and thereby have incentive
to invest and innovate.
The authors cite the case of shoes and gasoline.
Building a shoe factory or an oil refinery plant is a very expensive undertaking and
competition is everywhere, but somehow no one suggests that these must thereby be produced
under monopoly conditions.
I suggest that the reason is that we experience competitive conditions in these industries.
It is so difficult for people to even imagine freedom where it doesn't exist.
I recall a story told to me by an economist who was serving as an advisor to a former
Soviet satellite state.
He advised free labor markets and privatization.
Officials objected that this wouldn't work because people might build plants where there
are no workers.
He said that people would just move to the places where capital is most profitable for
labor.
The officials objected that they couldn't possibly allow the freedom for people to live
Wherever they wanted, this would amount to an intolerable kind of anarchy.
They just couldn't imagine how such a system could work.
There are advantages to being the first mover in markets,
and here is the main source of the innovator's profits.
But there is no reason to freeze the market process right there.
In many ways, IP represents the same fallacy that antitrust does.
It takes a snapshot of the economy in one stage
and evaluates it and manufactures a policy response.
Antitrust tries to break up what only temporarily appear to be monopolies.
IP attempts to create and sustain monopolies over time.
Competition, by contrast, lets the market work as an undirected and uncontrolled
and rivalrous process of discovery, emulation and creativity.
Will some firms suffer under competition?
Of course, competition is not a gala dinner, write Baldwin and Levine, and getting rid
of inefficient firms while allowing efficient ones to blossom is exactly what competition
is supposed to accomplish.
The chapter ends with a hymn to imitation as a social force.
These few paragraphs are so important, and what they imply is something that I believe
has been overlooked by classical liberals.
It is a foundation of social order, and that gives us three talked about in this chapter.
Property, which gives rise to exchange, competition, a species of cooperation, and imitation, learning
through emulation.
Fallacy Run a Mock
Fed up with the patent craze, The Economist magazine wrote the following in a main editorial.
The granting of patents inflames cupidity, excites fraud, stimulates men to run after
schemes that may enable them to levy attacks on the public, begets disputes and quarrels
betwixt inventors, provokes endless lawsuits.
The principle of the law from which such consequences flow cannot be just.
It's not in her current issue.
That was published in 1851, but every word of it remains true today.
It was once conventional wisdom among economists that state-granted monopolies were as bad
as mercantilism.
But in the meantime, sometime after the middle of the 20th century, the conventional wisdom
became confused.
The source of the problem was a mechanistic view of the market embodied in the idea of
general equilibrium theory.
It is a theoretical picture of what the macroeconomy looks like when all the dust is settled.
Product and Supply perfectly match.
The prices of all things have been competitively bid down to their cost, so there are no profits.
All prices are given and all markets are cleared.
There is perfect information, perfect rationality, no uncertainty and no transaction costs or
any other costs.
Indeed, there is no activity at all.
All the world is made of perfectly satisfied robots.
It's a mathematical notion only, but once it is embedded in your head as a picture of
a perfect economic world, it is a small step toward using it as a benchmark for the whole
of economic theorizing.
It turns out that the case for patents and copyright is bound up with this theoretical
National Notion, and Beltrain and Levine's seventh chapter of Against Intellectual Monopoly
has the authors grappling with this idea's problems.
Joseph Schumpeter was an advocate of patents precisely because he couldn't shake the
general equilibrium idea out of his head.
He sought to account for how change happens under general equilibrium, and settled on
and a theory of entrepreneurship that imagines an innovation that shakes up the dust before
it settles into a new pattern.
Rothbard called this breaking out of the Walrassian box.
With his benchmark, imitation would be as costless as any other activity, so it seemed
necessary for the innovator to have an exclusive right to produce for a period during which
profits could be earned.
Otherwise, the creative destruction necessary for social and economic advance can't take
place.
Well, the core problem here is that general equilibrium has nothing at all to do with
the way an economy works, as the Austrians have pointed out for half a century.
There are costs to every action, pervasive uncertainties in all aspects of life, entrepreneurship
is inherent in all action, and the clearing of markets takes place over time, and through
a process of ceaseless trial, error and change.
It is a fascinating idea that the core reason why economists have only recently begun to
look critically at the problem of IP is due to the triumph of the general equilibrium
from Construct, and the associated Mathematization of the Profession that excludes the possibility
of modeling central features of real-world markets.
We can chalk this up as yet another cast associated with the refusal of the profession to fully
absorb the ideas of Menger, Mises and Hayek.
This is the core theoretical problem with those who believe that innovation cannot occur
in the absence of IP law.
They assume a world in which all the hard stuff of life is a snap.
In fact, imitation is costly and takes time.
It requires effort.
Even if a process or product is perfectly imitated, getting the product to market is
a far more serious hurdle than simply copying something.
It took a hundred years for the process of silk-making to be imitated successfully.
Even to this day, most of the world cannot figure out how to make a decent cup of espresso.
And even the possibility of quick and easy imitation doesn't strip away the profits
associated with being first to market.
I'm pretty good at making ice cream, and I could probably replicate the Moose Tracks
recipe over the course of a weekend of experimenting.
But it isn't the Moose Tracks, trademarks, copyrights and patents that prevent me from
doing it.
It's because I have better things to do and bringing anything to market has huge opportunity
costs.
Even if competitive but nearly identical products make it to market, that doesn't necessarily
mean that the first mover cannot maintain a profit stream.
The authors cite the case of TravelPro, the suitcase with the handle that has thousands
of imitators.
Yet even now, TravelPro does a booming business through ceaseless innovation, marketing, brand
and recognition and competitive pricing.
If you take the arguments of the IP advocates seriously, you would never be able to figure
out how there could be a thriving market for pizzas.
There are high startup costs, buildings, employees, ovens, driver's technique, and yet there
is a very low marginal profit associated with selling each one, a product that can be imitated
by anyone.
Surely, there must be a recipe copyright, a patent on the pizza, a monopoly of providers
Another argument concerns the idea of overgrazing.
If you put ideas into the Commons, they will be overused and degraded the same as regular
property.
This is true with real property.
Public schools, public roads, public lands and the like are all overutilised and fall
into disrepair for a lack of any economising mechanisms that allows rational allocation.
What about intellectual property?
The Walt Disney Company says that its IP in Mickey Mouse is designed to prevent overgrazing,
that if he went into the public domain he would be drawn as cat food or placed in unseemly
settings its currency would be debased.
Of course, you can make the same argument about anything, such as pizzas or all food,
but there is no question that while an imaginary pizza and food monopolist would be worse off
under competitive conditions, society is most certainly better off because anyone can make
a pizza or make food.
The authors make a further telling point in passing.
When some good or service today is labelled as Mickey Mouse, it is certainly not intended
as a compliment.
So despite the monopoly, the cartoon figure has certainly been degraded.
Many pro-IP arguments boil down to beliefs that something is either going to be undersupplied
or oversupplied on a competitive market.
In other words, this is the same argument used for all forms of claims about market
failures.
I can recall that there was great controversy when the first books about medical information
and pharmaceutical drugs came on the market.
Shouldn't doctors and pharmacies hold the monopoly?
Somehow, however, everything worked out.
We buy books, look up medical information online and still go to see the doctor.
All providers are annoyed by competition.
College professors are not entirely thrilled about idiots and dummies guides, but sometimes
Sometimes a colleague breaks ranks and writes someone.
This is just part of the rough and tumble of life in the absence of a general equilibrium.
The Hoax of Invention History All popular business histories are replete
with lies.
Or to be more charitable, they are filled with untruths based on a stupid version of
cause and effect.
Assumptions happen because people take out a patent on them.
This assumption is hardly ever questioned in the mainline literature.
Writers look through patent records and assume that they are a record of technological advance.
The truth is far messier.
The patent records are a snapshot of those who filed a patent, and nothing more.
It is because of patent-based historiography that people believe that the Wright brothers
Invented the Airplane, when in fact they made only a tiny contribution of combining wing
warping with a rudder.
It was Sir George Cayley in Britain and Otto Lilienthal of Germany who did the bulk of the
work of inventing the airplane.
But it was the Wright brothers who applied for the patent and quickly used it against
Glenn Curtis, who improved wing warping with movable control surfaces.
So it was with the radio, which is conventionally attributed to Giulielmo Marconi, the Nobel
Prize winner in 1909.
What about the contribution of Oliver Lodge in the UK, or the forgotten genius Nikola Tesla,
or the Russian Alexander Popov, or the British naval engineer Henry B. Jackson?
All Marconi did was ground the antennae, and also managed to win the patent wars thanks
Thanks to the deep pockets of fellow aristocrat and partner Andrew Carnegie, fifty years after
the patent was granted, the Supreme Court conceded that it was unjustly given, but by
then the other claimants were dead.
Marconi was consistent, at least – he was a big supporter of fascism in Italy.
Then there is the famous myth about Alexander Bell, the displaced knowledge of the real
Inventor of the Telephone, Antonio Maucci But Maucci couldn't afford the fee to file
the patent.
This oversight was fixed in a 2002 declaration by the US Congress, but just a bit too late.
There is an unlimited number of such cases that lead to fundamental questioning of the
relationship between patents and innovation.
It turns out that there are very few great leaps forward in history that are the result
Most advances are the cooperative work of many factors alive in society, with individuals
improving things a bit at a time until all those improvements come together in a marketable
form.
The patent has essentially nothing to do with it.
And Baudrin and Levine are hardly the first to point this out.
You might be surprised to know that many academic economists have done empirical studies on the
relationship between patents and economic advance.
Of all those studies they reviewed – 23 in total – they found none that could establish
a strong relationship, and many that found negative relationships between patents and
and Development – that is, that patents actually impede progress.
What they've found further is that the main contribution of patents is to increase the
production of… patents.
But that is not the same as increasing invention, for the main use of the patent is to put a
stop to any similar innovation that builds upon and improves the patented thing.
The patent holder rides high for a time, but history is actually frozen in place.
The process of imitation and sharing that led to the innovation becomes formalized, centralized,
fixed and stagnant.
They examine the case of databases, which are patented in Europe, but not in the United
States.
The United States wins the competition easily.
The American dominance of database production runs 2.5 to 1 compared with Europe.
To me, this helps explain what many have noticed, namely, that Europe is seriously behind in
its digitalization and organization of information.
With most Europeans possessing oddly antiquated intellectual capital concerning even the most
basic databaseing skills, now we know.
It's not their fault.
It's the fault of their IP regimes Thus does Chapter 8 of Against Intellectual
Monopoly discuss all the existing literature that makes the case – on purpose or inadvertently
– against patents.
It is packed with empirical detail, but in particular I'm intrigued at their review
of the history of musical composition in England and Europe during the 18th and 19th centuries.
They find that the countries with no copyright legislation – German territories in particular
– had more composers per capita than countries like England.
And in England in particular, the 1750 copyright law, extended to music in 1777, had the effect
of bringing the entire composition industry to a grinding halt.
And later, when copyright was imposed on Italy and France, it led to a diminution of composer
This demonstration is intriguing beyond what most music historians can possibly imagine.
It solves a long-running mystery concerning how it came to be that the most musically
educated population in the world – one with a massive history of compositional genius
– would suddenly fail to participate in the progress that defined the age of Mozart
and Beethoven.
These historians just haven't known where to look for clues.
This chapter makes me sad for all the great innovators whose names are not in the history
books.
And even sadder for all of us who have been denied great innovations, because some fool
managed to make it to the patent office first, only to use that privilege to kill his competition
the next day.
Far from encouraging innovation, patent and copyright have managed to kill off so many
wonderful works of art and technologies that it boggles the mind.
In order to understand this, you have to look beyond the patent records.
You have to train yourself to look at the unseen costs of government regulation.
Do patents save our lives?
How essential are drug patents as a piece of the machinery of the modern pharmaceutical
industry?
Incredibly so.
Repealing them with no other changes would likely lead to a dismantling of a massive and
lucrative industry that saves lives every day.
To elaborate, without patents, compensation for the hundreds of millions of dollars necessary
for jumping through FDA hoops would not be forthcoming.
Our patents.
The huge manufacturers who face mandatory disclosure requirements would have their formulas taken
by others, and knockoffs would immediately drive the price to marginal cost.
The vast costs of redundant testing and retesting could not be absorbed by future revenue streams,
and these streams are themselves uncertain due to the arbitrariness of the FDA's process.
And thanks to wicked antitrust laws, companies face a legal minefield in combining efforts
cooperating on research, maintaining prices and sharing markets.
But notice that all the reasons why patents in pharmaceuticals seem necessary are themselves
due to some other form of government intervention – drug regulation, antitrust, government
funding and government mandates of all sorts.
Education has begotten regulation, with each step seemingly dependent on every other regulation.
The result is a massive rat's nest of laws that is buried deep within a much larger hairball
of the medical industry itself, which has been dominated by increasingly tight state
controls for nearly a century.
Then there is a further problem of liability confusion and court precedent that is woven
How can anyone begin to discuss only one aspect of the marketplace without thoroughly discussing
all the other aspects?
How can the authors of Against Intellectual Monopoly possibly sort through this thicket
to make a case for repealing patents on pharmaceuticals?
Because of the above complications, I dreaded this chapter most.
I was wrong to do so.
What they have produced is a masterpiece of exposition.
They have both the big picture and the small picture, with fascinating details in paragraph
after paragraph.
They take the reader through the logic and evidence at just the right pace and manage
the seemingly impossible.
The reader is wholly convinced that drug patents are not necessary, and in fact are doing great
Evil in the World Today.
It is the hardest case to make and they knew this going in.
Theirs is a virtuoso performance worthy of separate publication.
Some people love the farms and other people hate them.
The authors take a middle ground position.
They do great good for the world, but they are embedded deep within a regulatory regime
that is stultifying the industry, and drug patents play a big role in this.
Can we imagine a world without drug patents?
No need to dream.
In the sweep of history, patents like we have today are essentially a post-war phenomenon,
and prior to that, the industry developed faster in countries without patents than those
with them.
One way to show that is to examine 19th century chemical production.
They tell the story of the French patent on colouring dyes, granted to the La Fuchine
Company, a patent that pretty well destroyed all development in France, while the absence
of patent in Germany, Switzerland and Britain led to massive innovation and the beginnings
of the modern industry.
The United States was very behind here due to its strong patents, and even in the First
World War, the United States had to import dyes from Germany in violation of the British
Blockade.
This was how DuPont got its start.
In recent decades, there have been pockets of farm patent freedom.
Before 1978, it was Italy, where a thriving industry existed for a century, in the absence
of patents.
The patent accounted for the discovery of 10% of the new compounds between 1961 and
1980.
Some companies poured into Italy to imitate and develop, but this shut down after 1978,
when Italy introduced patents under pressure from foreign multinationals.
India then took the position of the free market country and its industry became a huge player
in the generic drug production market, until India too was forced into the WTO agreement
and shut down its dynamic market.
The whole world of pharmaceuticals is now engulfed in an incredible patent thicket, and people
praise all the innovation taking place, but rarely ask how much prior innovation really
owes to the patent, or how much innovation we might experience, or how low the prices
would be in absence of the patent.
Baudrin and Levine dare to ask the question about where the innovations of highest social
Medical Value over the centuries have come from.
They looked through medical journals and found several surveys.
What were the medical milestones most significant in history?
The list – penicillin, x-rays, tissue culture, anesthetic, chlorpromazine, public sanitation,
From Theory, evidence-based medicine, vaccines, the pill, computers, oral rehydration therapy,
DNS structure, monoclonal antibody technology, and the discovery of the health risks of smoking.
Only two of these were patented, or were due to some previous patent, or brought about
with a patent incentive.
A separate list of the top 10 public health achievements of the 20th century was put together
by the US Centers for Disease Control and Prevention.
It is striking that not a single one involved patents at any level.
Several people wrote in to complain that aspirin, Helicobacter pylori and Medline were not on
the list.
None owes anything to patents.
Even looking at a list of top pharmaceuticals does not produce a patent-favorable result.
Baudrin and Levine find that patents had nothing to do with aspirin, AZT, cyclosporine, digoxin,
ether, fluoride, insulin, isonazid, medical marijuana, methadone, morphine, oxytocin, penicillin,
phenobarbital, prontosal, quinine, ritalin, methylphenidate, salversan, vaccines, or vitamins.
Of the remaining products that owe their existence to patents, most were either discovered accidentally,
were discovered in university labs, or were simultaneous discoveries that led to expensive
battles over who would get the patent.
The authors turned to the problems of corruption in farms, and to their relationship with doctors,
and to the crazy requirements involved in redundant testing for patents and final FDA approval.
More than half of newly patented drugs are nothing other than repackaging of existing
drugs on the market.
It is not uncommon for a drug going out of patent to be repattented as something new,
but that requires massive new clinical trials and high costs.
The companies then have the incentive to market the patented over the out-of-patent product
and doctors have proven responsive to this tactic.
It is not surprising that even some studies sponsored by the pharmaceutical industry have
concluded that they would be better off without the patent, given the high cost of otherwise
adhering to the mandates, marketing and all the rest, and especially given that the length
of patent is comparatively short given the time required for FDA approval.
Despite all odds, the authors have made a very compelling case that a free market in
pharmaceuticals would lead to the development of innovative drugs, save dramatically in
all the associated costs of bringing drugs to market today, and save consumers a bundle.
Even if you are completely unconvinced by this cursory summary, I urge you to read their
Their entire case, it causes a mind shifting to take place, consistent with the overall
theme of the book, competition, not monopoly, is the source of innovation and development.
Life-saving drugs are too important to be left to government grants of monopoly.
The mercantilism of our time.
Someone handed me a book the other day, a cult classic among music geeks, and urged
me to read it, and when I had finished, signed my name in the front cover.
That way I could be added to the already long list of readers in the front cover, each of
whom had added his or her scrawl to the book after having read it.
How charming, except for one thing.
This is in complete violation of the spirit of intellectual property law.
All these readers were sharing the same book instead of buying a new copy.
Think of the revenue lost to the publisher and the royalties lost to the author.
Why if this gets out of hand, no one will ever write or publish again.
These readers are all pirates and thieves, and they should probably be subject to prosecution.
So goes the rationale behind intellectual property law.
It's what economists call a producer's policy, designed to create maximum revenue
for one side of the economic exchange, consumers be damned.
In that sense, it is exactly like trade protection, a short-sighted policy that stymies growth,
robs consumers and subsidizes inefficiency.
It's Bastiat's Petition of the Candlemakers Against the Sun, all over again.
Apply the IP principle consistently, and it's a wonder we tolerate public libraries, where
people are encouraged to share the same copy of a book, rather than buy a new copy.
Isn't this also an institutionalized form of piracy?
The defenders of IP would have to admit that it is.
They are often driven to crazy extremes in sticking to the claim that copying is a form
of theft.
I asked one emphatic correspondent about the ethics of the following case.
I see a guy in a blue shirt and like it, so I respond by wearing one too.
Is this immoral?
No, he said, because the color blue occurs in nature.
What if a person draws a yellow happy face on the blue shirt?
Can I copy that?
No, he said, this would be immoral.
I must ask his permission and gain his consent.
Actually, it's even worse than this case suggests.
If even one person had previously worn a blue shirt with a happy face, no one else on the
planet would be able to do that without seeking consent.
It should be obvious that if everyone were required to seek the permission for the use
of every infinitely reproducible thing that belongs to someone else – every word, phrase,
look, vocal inflection, chord progression, arrangement of letters, hairstyle, technique
or whatever – or if we were really to suppose that only one person may possess the unique
instance of any of these things, civilization would come to a grinding halt.
Sadly, this is where our laws are tending.
Right now, there are laws being considered that would step up IP enforcement to the point
of clear absurdity.
Just last week, YouTube removed the background music of countless videos for copyright reasons,
even though such videos helped popularize the music.
Even home performances of songs written in the 1930s, young kids playing piano and singing
People are talking about extending patents to sports moves, extending copyright to storylines,
imposing a central plan on computer design to comply with patents, forcing everyone on
the planet to obey US-style IP laws by means of military force.
Kids are going to jail, institutions are hiring internal police forces to watch for IP violations,
and an entire generation is growing up with a deeply cynical attitude toward the entire
business of law.
We are at a prohibition-style moment with regard to IP, just as with liquor in the 1920s.
The war on the banned things isn't working.
Those in power face the choice of stepping it up even further and thereby imposing a
Do you know why we celebrate Columbus Day instead of Cheng Ho Day?
Zhang Hou was a great Chinese explorer who, in the early 15th century, took his fleets
to Africa and the Middle East, but he was forced to stop when the elites in the home
country began to feel threatened by his discoveries.
The Chinese government won the war on exploration and became static and inward.
You can win a war on progress, but the gains over the long term are few.
In addition to relaying the above story, the authors of Against Intellectual Monopoly, in
the last chapter of their fantastic book, make a case for the complete dismantling of
the law.
Intellectual property is a cancer, they write.
The goal must be not merely to make the cancer more benign, but ultimately to get rid of
it entirely.
The authors do not leave it at that – they are intellectuals of the real world.
They first make a case against any further expansion of bad laws, and lay out some reform
proposals, shortening patent and copyright terms, changing burden of proof for originality,
eliminating ridiculous redundancy trials for drugs and the like.
The authors even volunteer their time to help craft legislation.
But the really hard work here is intellectual, since the pro-IP bias is so entrenched.
The authors take the pure abolitionist position as a way of shocking us out of our stupor.
Is change possible?
Of course.
It was thought in the Middle Ages that most all products required monopoly production.
The salt producer would enter into an agreement with the ruler.
The ruler would promise a monopoly in exchange for a share of the revenue.
It was thought that this would guarantee access to a valuable commodity.
How can anyone make a buck without a guarantee that his hard work would be compensated?
Well, it took time, but eventually people realized that competition and markets actually
do provide as implausible as it may seem.
As the centuries moved on, markets became ever freer, and we no longer believe that
the king must confer a special status on any producer.
They still do it, of course, but mostly for open reasons of political patronage.
And yet, in this one area of intellectual property, all the old, mechanicalist myths
survive.
People still believe that a state grant of monopoly privilege is necessary for the market
to work.
The myth has now been crushed with this book.
So now the laws can be beaten back, and they are being beaten back in the age of digital
media.
Realize that for young people today, the initials RIAA and MPAA are the most hated on the planet,
The equivalent of the IRS for a past generation.
The heck of it is that these are private entities.
Think what this means.
Capitalists of the world, please pay attention.
You have a serious problem when an entire generation is being raised to hate private
capitalistic institutions.
Now, you and I know that these institutions are doing something illegitimate, namely
enforcing intellectual property, which is really nothing but state coercion.
Still, this besmirches the reputation of free markets.
So too is a generation of socialists being raised to hate US foreign policy on the belief
that its export of IP is a form of capitalist imperialism.
For these reasons, no one has a stronger interest in abolishing intellectual property than supporters
of Capitalism.
I said at the beginning of this book that it took me fully six years to think through
these issues.
The book by Baldwin and Levine broke through the reservations I had that remained.
In the meantime, I've received hundreds of messages to the effect that other readers
have made the jump to.
Whatever is holding you back, I beg you to read this account.
I personally consider it to be one of the most mind-blowing books I've ever encountered.
And so now I join the armies of people who are demanding an end to a system that threatens
our way of life in the most fundamental way.
For this reason, this book is seminal, not only for our times, but for the entire history
of liberty.
It has clarified a point that has been a source of confusion for many years, and put it front
and center in the current debate.
It might need correcting in places, and I have my own knits to pick over their neoclassical
framework and talk of social costs and the like, but these are petty concerns as compared
with the overall framework.
What they have done is marvelous and extremely important.