WEBVTT

NOTE 40. Ideas, Free and Unfree

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Ideas, free and unfree

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The topic of intellectual property is hugely important in the world today, especially with

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the growing digitization of so many of the goods and services we use every day.

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For something to be digitized meant to take some portion of that good and transfer it

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from the realm of scarcity to the realm of infinite reproducibility.

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Under these conditions, the notion of intellectual property, that only one government-privileged

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The topic rather snuck up on the Austrians, however.

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It has always been in the background – Carl Menger wrote of the definition of goods and

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and how their scarcity is a precondition for ownership and rationing.

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Boehm-Bawerk wrote a long reflection on whether things like justice, love and other such values

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could ever be considered goods in the normal sense in which we think of the term, and he

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concluded that they cannot, because there was no inherent need for economizing them.

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Hayek wrote extensively on the social benefit that comes from the free flow of knowing and

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information.

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Mises and Rothbard were more explicit on the matter of patents.

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Both saw them as unneeded government monopolies.

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Mocklop joined them in this view.

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Rothbard rejected copyright as it exists in law in favor of common law standards of manuscript

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ownership.

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That's pretty much where matters stood until 1996, when Stephan Kinsella shucked everyone

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and with a journal article calling for the complete repeal of intellectual property law.

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The article stunned me, and I instinctively rejected the idea.

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I figured that the idea could be ranked among the far-flung notions one bumps into within

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the world of libertarianism, true perhaps in some trivial, abstract sense, but with

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no serious application for the here and now.

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Years went by, but I kept thinking of the topic and its meaning, mainly because the

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The headlines were constantly bringing the topic back up.

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Kids were being fined millions for illegal downloads.

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Corporations were being looted in patent suits.

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Drug prices were soaring due to patents.

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And so on.

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I had come to the point of actually embracing Kinsella's position, but without fiery conviction.

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Then I read Against Intellectual Monopoly by Michel Baudrin and David Levine.

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It was a mind-blowing experience and I ended up documenting the journey chapter by chapter

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on the Mises blog.

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I recall how I could hardly sleep at night as I thought about the thousands of examples

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they gave that demonstrated that this topic is not just intellectual play.

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The topic gets to the heart of the meaning of free competition itself.

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How could I have neglected it so long?

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The authors are not Austrian adherents and certainly Kinsella's own treatment is more

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are theoretically robust, but they know the field so well and their endless stream of

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real-life examples provides just what the consistent advocate of freedom needs to hear

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about this topic.

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It has been suggested that I put these live blogs of the book in a monograph form.

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I enjoyed reading the proofs because they really do chronicle an exciting intellectual

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journey.

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It was a long haul, six years from the time I first started thinking about the topic,

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But the payoff has been enormous for me.

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This book helped me see the world more clearly and understand so much that had previously

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remained cloudy.

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This is just about the best thing that can ever be said of a book.

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I hope this chronicle is of some help to you on the same journey.

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What is your attitude toward IP?

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As I think more about intellectual property in the form of patents and copyrights, it

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It seems that the implications for social theory are profound.

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The behaviour targeted and slaughtered by IP is one that provides a fuel for all social

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and economic development, imitation or emulation.

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In the German-speaking world of art in the 18th and 19th centuries, imitation by composers

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was considered to be the greatest tribute.

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When Bach would write an elaboration of Buxtehude, it was seen as a wonderful gift to Buxtehude's

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When Mahler would turn a phrase by Brahms or re-orchestrate a Beethoven symphony, it was a tribute of one master to another.

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So it is in literature and economics.

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Imitation in economic affairs is essential for development, since nothing is ever perfect right out of the box, and society is constantly changing.

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You need that imitative dynamism in order for technology to keep up with changing market conditions.

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This is what IP shuts down in the name of rewarding creators.

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How can creators make a buck in a world of fluid imitation?

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The same way they always have, by having the best product at the right price to the market

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first.

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When others imitate them, they have to hustle again and innovate some more.

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This is how societies and economies grow.

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Think of the fashion world, where IP isn't in force.

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It is fast-moving, innovative and remarkably profitable.

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Designers have their ideas imitated nearly as soon as they are seen on the runway.

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This imitative behavior is widely regarded as a ratification of a good idea.

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It is something that people are socialized to look for as an indication of marketability.

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It is the same with generic drugs, fonts, perfume and other sectors in which there is

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is no IP.

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Sadly, in sectors in which IP does apply, the opposite attitude applies.

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Authors, artists and inventors sit and brood about the need to keep their wares to themselves

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and hunt down anyone who would dare steal their ideas.

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In these successful cases, they can end up rewarding themselves, but at the expense of

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social development.

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In the far more prevalent, unsuccessful cases, the obsession with being ripped off leads

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to brooding, resentment and disgruntlement that the world has failed to provide them

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a living.

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A sector consisting of nothing but people like this, with an attitude encouraged in

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law, is stagnant.

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By way of illustration, compare the imitation-oriented jazz and rock sectors with the IP-obsessed

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area of serious classical music.

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Other sectors like advertising fall somewhere in between.

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Several years ago, Apple ran a commercial for the iPod that looked incredibly similar

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to one produced by Lugs Shoes.

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Now, one might laugh and appreciate this.

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Surely, it will benefit both companies, or one can regard it as theft.

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Instead of celebrating a success, Lugs regarded it as a rip-off, which Apple denied.

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This is really just pathetic and completely unnecessary.

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It really all comes down to the attitude one takes toward one's influence on others.

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The absence of IP creates a broad-mindedness that seeks to make a difference in the world

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and looks for imitators as a sign that it is working.

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The presence of IP subsidizes a kind of inwardness and bitterness that sees the whole world as

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being populated by potential thieves to keep at bay.

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You see the two ways of looking at the world in the way kids interact with each other.

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I'm speaking of pre-teens and the way they deal with their emergent societies.

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Let's say one kid has developed a certain phrase or gesture that is new to the social

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group.

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Another kid picks up on it and employs it.

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Now, there are two ways to respond to this imitation.

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The innovator child can see others doing and saying what he did and said, and realize that

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he has made a difference in the world, put a dent in this little universe.

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He has become a force for changing the world as he knows it.

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He has made his mark, and the evidence is how others are doing the same thing.

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He feels a sense of pride and joy, and works at coming up with other unique ways of dressing,

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Speaking, or Behaving, that others similarly imitate.

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Or the child can have another response.

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He can accuse his imitators of stealing his words, ripping off his gestures, pilfering

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his personality and plundering his special way.

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He sees others who imitate as threats, forces that are reducing the value of his unique

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personality.

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He treats it as the equivalent of cheating on a test.

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It is taking what is his.

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It is the first stages of a very destructive IP-style mentality.

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Parents be alert to signs of this among kids.

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Explain to children that it is a good thing when others are influenced by you.

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It means that you have made a difference in the world.

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It is not something to complain about at all.

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It is something to celebrate.

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It means that you are an entrepreneur on the cutting edge, someone who does things that

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Which Attitude Do You Take Toward Emulation?

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Before you answer, consider that emulation is unavoidable.

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There is no such thing as absolute originality.

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Everything in a growing and healthy society is an elaboration on something else that already

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exists.

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This applies to technology, literature, music, art, language, everything.

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A world in which the ethics of IP applied would be backward and stagnant, headed nowhere

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but backward.

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Children's movies cut both ways.

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The movie called Ratatouille strikes me as the ultimate IP-supporting propaganda.

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A rat with a gift for taste and smell is rescued from the gutter and put in a position to cook

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Cook Food at a Fine Restaurant All his food is great.

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He has imitators all over the place, but he alone remains the best.

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But then he begins to seethe with resentment that he alone is not given credit and accolades.

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Oddly, some people fear that customers will not like the idea that a rat is cooking all

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the food.

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The movie ends with his being discovered.

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He feels great pride, and we are supposed to be happy about this.

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The restaurant is destroyed, but the audience is supposed to figure out that it is worth

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it.

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A much better case is Horton hears a hoo.

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Throughout the film, we see competitive pressure between the various animals to see which one

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will have the dominant influence over others.

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The kangaroo tries to prevent Horton from influencing people, but he does anyway, and eventually

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everyone comes around.

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We see it, too, in the lovely operation of Whoville, a place where emulation is king

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and it is a vibrant and lovely society in which everyone is happy.

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As web editor of Mises.org, hardly a week goes by when I don't see imitators of our

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successful web presence.

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It can be images, articles, design, feel, structure, everything.

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Some years back I had the view that this had to be stopped.

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Fortunately, no one here had time to bother with it, thank goodness.

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The whole reason we exist is to influence the world.

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Evidence of that is glorious and it keeps the fire under our staff to keep doing a better

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job and stay on the cutting edge.

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The Universals of IP Theorizing

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Against intellectual monopoly might have begun with a story about the failed attempts to

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to Stop Illegal Downloads or the Wicked Crackdowns on Teens for Filesharing.

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Instead, the authors take us back to the Industrial Revolution, to explode the myth of the supposedly

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great innovator James Watt and his steam engine.

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Why?

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Because as the introduction points out, this is a book of economics.

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If you have something to add to the science, it can't just apply to now or last year,

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In this place, or just that place, economics is a universal science.

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Its laws and lessons apply to all times and places.

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For this reason, a theoretical breakthrough is a massive event.

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It means work for generations of scholars revising history, fine-tuning other aspects

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of theory, and applying it to different fields.

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This is one reason why this book is so important, and sensing that they are taking on more than

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and just the problem of digital downloads, they put this ancient history up front.

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They take the first crack at revisionist history with regard to a famous patent.

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They show that most of Watts' energies were spent lobbying for and defending a government

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patent on a technology that was quickly surpassed and could not come to market thanks to his

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rent-seeking behaviour.

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Or was this patent somehow necessary for his economically useful behavior?

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It wasn't until the patent expired that steam engine technology really took off, but by

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that time the Industrial Revolution had given up 10 to 15 years of what might have otherwise

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been economic progress.

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There we have it.

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We are put on notice that this book is not merely about the digital age or life after

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of the Internet written by a couple of geeks.

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No, this is a revisionist treatment of the whole subject that applies not only now, but

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to the whole modern history of intellectual property, which they insist on calling intellectual

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monopoly.

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Next they stake out their unique position, which is neither that patent and copyright

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law has gone too far, nor that it hasn't gone far enough.

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They take a third position that only a few dare take – the stuff needs to be abolished

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altogether.

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Their grounds for saying so aren't nearly as complicated as one might at first think.

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First, grant that, quote, everyone wants a monopoly.

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No one wants to compete against his own customers or against imitators.

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Currently, patents and copyrights grant producers of certain ideas a monopoly.

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Next, concede a point that everyone brings up first.

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Certainly few people do something in exchange for nothing – creators of new goods are

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not different from producers of old ones – they want to be compensated for their effort.

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Now the core of the argument.

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It is a long and dangerous jump from the assertion that innovators deserve compensation for their

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efforts to the conclusion that patents and copyrights – that is, monopoly – are the

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The best or the only way of providing that reward.

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Creator's property rights can be well protected in the absence of intellectual property, and

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that the latter does not increase either innovation or creation.

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They are an unnecessary evil.

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They continue to spell out precisely what they mean.

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They favor the property rights of producers.

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The property rights of innovators should be protected, and so should the property rights

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of those who have a copy of the idea of the creator.

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The first property right encourages innovation.

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The second property right encourages diffusion, adoption and improvement of innovation.

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The question is whether creators should have a right to dictate how purchasers use a creation.

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To say that they should amounts to a claim not of property rights, but of intellectual

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property.

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It confers a privilege and restricts third parties in what they can do with property.

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It is a grant of monopoly privilege.

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Monopolies are not friends of innovation in any area of life.

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They don't go into detail here, but we know this by looking at the postal service or the

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public schools or the utility companies.

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All of the sectors controlled by monopolists are characterized by high prices, low innovation

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and stagnation generally.

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How odd it is that we believe otherwise, this one kind of monopoly is something we can't

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live without, with intellectual property.

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The authors point out that this supposed incentive to create is a double-edged sword.

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Someone pays the bill.

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It's not as if the creator benefits and nothing else happens.

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For example, they cite the case of a movie that cost $218 to make, but that cost $400,000

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in music rights.

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This is a serious social cost.

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It is largely an unseen cost, too.

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Think of the movies that are not made, the profits in publishing that are never seen,

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the inventions that are delayed or never come to market, the alternative use of the billions

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and billions that are spent by consumers on patented drugs.

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The introduction also deals with the US Constitution's endorsement of copyright and trademark.

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They say that it is outmoded, but no more than that.

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For my own part, I'm somewhat curious about this.

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Many parts of the Constitution are fundamentally anti-monarchical – only Republican governments

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permitted in the States, for example.

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The history of patent legislation in England prompts me to wonder if the purpose of this

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clause is to say that government will not own and dispense mercantilist privileges – rather

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individuals alone will possess such rights.

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It was supposed to be a point against kingly privilege – still misguided, to be sure

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– but one can make a bit more sense of it in this case.

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The first chapter is highly provocative and puts the reader on notice that a wild ride

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is coming.

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The authors don't disappoint.

251
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People sometimes ask me about ideas for research projects.

252
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What the authors have done with the Watt case could be done for a thousand other cases.

253
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There is so much work to do and so much rethinking to do.

254
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Does monopoly create wealth?

255
00:19:18.980 --> 00:19:23.220
How strange this intellectual property issue is.

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In normal life, we tend to, or should, credit enterprise and markets for most innovations

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that surround us.

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I'm typing on a system that includes products from several dozens of different creative

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companies, with hardware and software and applications of all sorts stitched together

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through some miracle we call the coordinating power of the market.

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No news in that, I suppose, ho, hum.

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But let the subject of IP come up, and most people will say that we only have this stuff

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thanks to IP.

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Think of the shift here.

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On the one hand, we credit markets.

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On the other hand, we credit monopoly.

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Both can't be true.

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Or if both are true, we have a serious theoretical tangle to unravel.

269
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So which is true?

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This is the topic addressed in the second chapter of Voltrain and Levine's book.

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They begin by observing that virtually none of the innovations in the digital industry

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of computers took place with the protection of intellectual monopoly.

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Before 1981, it was not possible to patent or copyright software.

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The craze to patent every mouse click began only following the 1994 court ruling in Ré-Alepat.

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Meanwhile the underlying guts of all that you see began long before.

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As with all genuine economic revolutions, the foundation of end-user consumption was decades

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in its preparation.

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Compilers, assemblers, linked lists, databases, search algorithms, displays, languages, word

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processing – they all began long before the age of software patents or copyrights.

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Let's see how this works.

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Property rights are protected.

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Trade is free.

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People made useful stuff.

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People bought stuff and used it, they imitated and emulated each other and improved things

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step by step through investment, profit and reinvestment.

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That's all.

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All development since this great age of innovation that preceded software IP has built on this

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foundation of open source material.

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Said Bill Gates, if people had understood how patents would be granted when most of

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The authors comment on the Post-Hawk-Ergo-Propter-Hawk fallacy.

291
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Intellectual monopoly is not a cause of innovation, but rather an unwelcome consequence of it.

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How so?

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Young industries do amazing things and get a foothold in the market.

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Then even better folks come along with better ideas.

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When the old guys panic and turn to government for protection, the industry freezes in place.

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It is the oldest pattern.

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Thus did Microsoft make no effort to protect its IP in the early days.

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It begged for attention and encouraged widespread use and copying.

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When it saw a threat from newcomers, matters changed.

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There hasn't been that much innovation in operating systems since 1994.

301
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There has been innovation in web browsing, but where did the web browser come from?

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It was purchased from a creative company in 1993, before there were software patents.

303
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Imagine how a patent in web browsing would have set back the entire industry, the losses

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would have been incalculable.

305
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We can see here that the authors are holding up the computer industry as a model for how

306
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How Things Work in a Free Market

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00:23:06.280 --> 00:23:11.480
And a super strong case for their position is the open source software movement, which

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is a main fuel behind the development we see today.

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Firms relinquish monopoly to assure longevity in the industry.

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Others can pick up their designs and develop them.

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This helps build their market.

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In any case, we all depend on open source software every day, if we use Google.

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It runs Linux, an open source operating system.

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There are many others.

315
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Indeed, open source dominates the web completely.

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Some 70% of servers online today run Apache.

317
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But how can they make money?

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The authors tell the story of Red Hat.

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It is open source.

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has plenty of competitors who offer the exact same product.

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00:24:01.680 --> 00:24:07.760
But because of brand name, Red Hat is still marketable and has more staying power.

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As Portrain and Levine say, if you had a problem with software you bought and had to call the

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seller for advice, who would you prefer to call?

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The people who wrote the program or the people who copied it?

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00:24:18.840 --> 00:24:25.520
Thus does Red Hat profit and their many competitors come and go, come again and go again.

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00:24:25.520 --> 00:24:30.640
The authors effortlessly segue from software to books, and here is the part that especially

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00:24:30.640 --> 00:24:32.920
interests me.

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00:24:32.920 --> 00:24:38.720
They provide an alternative explanation for why British literature was so widely circulated

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00:24:38.720 --> 00:24:42.480
in the United States in the 19th century.

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00:24:42.480 --> 00:24:46.480
American publishers could publish without copyright.

331
00:24:46.480 --> 00:24:52.120
There were no international copyright agreements, and there was massive competition.

332
00:24:52.120 --> 00:24:56.380
It was so intense that American firms would pay authors directly for sending chapters

333
00:24:56.380 --> 00:24:59.000
even before they appeared in Britain.

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00:24:59.000 --> 00:25:04.180
The amounts they would receive even exceed their British royalties over a period of years.

335
00:25:04.180 --> 00:25:11.100
As a result, there was a huge dissemination of knowledge, and the prices were low.

336
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Dickens' A Christmas Carol sold for six cents in the United States and $2.50 in England.

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Banking technology improved, literacy improved, ideas spread.

338
00:25:25.120 --> 00:25:29.000
Children and schools could have books, which in turn increased the demand for books and

339
00:25:29.000 --> 00:25:32.300
spurred on new investment and technological improvements.

340
00:25:32.300 --> 00:25:39.000
It was a dynamic and wild world of publishing, comparable to what we see with the web today.

341
00:25:39.000 --> 00:25:43.260
But could it work in modern times?

342
00:25:43.260 --> 00:25:47.680
Look at government documents, which are always and everywhere in the public domain, unless

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00:25:47.680 --> 00:25:49.880
they are secret.

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00:25:49.880 --> 00:25:56.200
The 9-11 report of 2004 was a huge bestseller, comparable to the first Harry Potter in sales

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00:25:56.200 --> 00:25:58.160
volume.

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00:25:58.160 --> 00:26:02.880
Norton even negotiated a deal with the government to release a paperback on the day of release,

347
00:26:02.880 --> 00:26:05.920
and it was also available for free download.

348
00:26:05.920 --> 00:26:07.640
Why would they do this?

349
00:26:07.640 --> 00:26:13.480
The same reason all entrepreneurs do what they do – to be the first to market.

350
00:26:13.480 --> 00:26:17.160
Meanwhile, anyone on the planet could publish it a day later.

351
00:26:17.160 --> 00:26:24.760
Another fascinating section concerns the newspaper industry.

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00:26:24.760 --> 00:26:28.520
It began without patent protection.

353
00:26:28.520 --> 00:26:32.400
Benjamin Day started the New York Sun and his technology was open source.

354
00:26:32.400 --> 00:26:36.680
He collected advertising to pay the costs and recruited young boys to sell it.

355
00:26:36.680 --> 00:26:38.960
Anyone could do it.

356
00:26:38.960 --> 00:26:43.600
But the point is that he did it first and made lots of money.

357
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He was first and he was innovative.

358
00:26:46.440 --> 00:26:48.200
That's the key to success.

359
00:26:48.200 --> 00:26:52.080
It was a massively costly undertaking.

360
00:26:52.080 --> 00:26:55.480
Why wasn't he driven out of business by piracy?

361
00:26:55.480 --> 00:26:59.920
The Recording Industry Association of America claims constantly that a free market can't

362
00:26:59.920 --> 00:27:04.440
work, because pirates would go straight to the most profitable production ends and steal

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00:27:04.440 --> 00:27:06.180
them.

364
00:27:06.180 --> 00:27:12.960
But the authors of Against Intellectual Monopoly ask us to think about this carefully.

365
00:27:12.960 --> 00:27:15.720
How do we know what is profitable?

366
00:27:15.720 --> 00:27:20.320
We have to let the market work, you can't know in advance.

367
00:27:20.320 --> 00:27:23.320
And once the line of production is profitable, it is too late.

368
00:27:23.320 --> 00:27:28.760
The player has market dominance and all of the advantages that come with that.

369
00:27:28.760 --> 00:27:31.880
They ask us to try this yourself.

370
00:27:31.880 --> 00:27:38.440
Try ruining a pop star by pirating songs only once you are certain they are big hits.

371
00:27:38.440 --> 00:27:42.280
Back up and consider the history of IP.

372
00:27:42.280 --> 00:27:49.620
It is a modern invention, whereas music and literature appeared at the dawn of civilization.

373
00:27:49.620 --> 00:27:54.700
Music and literature and art thrived for many centuries before IP.

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00:27:54.700 --> 00:27:59.560
The authors don't go into it, but just imagine if the invention of the musical staff had

375
00:27:59.560 --> 00:28:05.660
been copyrighted and patented by the monk Guido de Arezzo, who invented it.

376
00:28:05.660 --> 00:28:09.380
Progress would have been set back by a century.

377
00:28:09.380 --> 00:28:14.540
The first signs of IP appeared after the invention of the printing press.

378
00:28:14.540 --> 00:28:17.580
Governments used it to suppress political dissent.

379
00:28:17.580 --> 00:28:21.780
I suspect that the wars of religion had something to do with this.

380
00:28:21.780 --> 00:28:27.000
It was a royal mercantilist privilege conferred on printers, the same as it was conferred

381
00:28:27.000 --> 00:28:31.940
on tea, tin, cotton, banking or any other good.

382
00:28:31.940 --> 00:28:34.900
In the day, it seemed reasonable.

383
00:28:34.900 --> 00:28:39.020
The ruler wanted to control goods, and producers wanted guarantees.

384
00:28:39.020 --> 00:28:41.260
Everyone wins, right?

385
00:28:41.260 --> 00:28:49.260
Except that there was no competition, no market process, and hence there was stasis.

386
00:28:49.260 --> 00:28:55.260
Mercantilism was refuted by economists, and the free market emerged, and history was changed.

387
00:28:55.260 --> 00:29:00.900
What happened to IP in the age when mercantilism was being repealed?

388
00:29:00.900 --> 00:29:05.340
It was not abolished, but transferred from kings to producers.

389
00:29:05.340 --> 00:29:09.740
The exclusive right to produce was granted to private owners who became responsible for

390
00:29:09.740 --> 00:29:14.400
enforcement under the cover of law.

391
00:29:14.400 --> 00:29:20.420
This was a huge mistake in the liberal revolution of the 18th century, an inconsistency that

392
00:29:20.420 --> 00:29:22.540
continues to haunt us.

393
00:29:22.540 --> 00:29:28.980
Bertrand and Levine's section on IP history should be mandatory reading.

394
00:29:28.980 --> 00:29:33.620
Next in the second chapter, a short section on the history of sheet music.

395
00:29:33.620 --> 00:29:38.540
Did you know that the industry leader in sheet music, Francis Day and Hunter, got its start

396
00:29:38.540 --> 00:29:40.460
through mass piracy?

397
00:29:40.460 --> 00:29:42.180
Fascinating!

398
00:29:42.180 --> 00:29:46.580
The war on cheap sheet music is comparable to the war on pirates today.

399
00:29:46.580 --> 00:29:49.980
It didn't work, thank goodness.

400
00:29:49.980 --> 00:29:56.380
The chapter concludes with a long and interesting section on the dynamic, hugely profitable industry

401
00:29:56.380 --> 00:29:58.140
of porn.

402
00:29:58.140 --> 00:29:59.140
You wince.

403
00:29:59.140 --> 00:30:02.460
Of course, so does the State.

404
00:30:02.460 --> 00:30:06.900
Protection is nearly unavailable here for reasons that are obvious.

405
00:30:06.900 --> 00:30:12.500
It is a legitimate subject for investigation, from an economic perspective.

406
00:30:12.500 --> 00:30:17.460
This open-source industry is massive and growing, orderly and profitable, and technologically

407
00:30:17.460 --> 00:30:20.220
innovative.

408
00:30:20.220 --> 00:30:25.660
How tragic that IP has created a situation in which we have to look to the seedier side

409
00:30:25.660 --> 00:30:32.020
of life to see how truly free markets work.

410
00:30:32.020 --> 00:30:38.060
Because innovation require property in ideas, against intellectual monopoly, dares step

411
00:30:38.060 --> 00:30:43.940
out front on a topic very dear to our hearts to prove that, quote, the great role of patents

412
00:30:43.940 --> 00:30:49.380
in giving us modern software is unadulterated fantasy.

413
00:30:49.380 --> 00:30:54.060
And they show this by reviewing the history of software innovation and its present workings.

414
00:30:54.060 --> 00:30:59.380
Neither Google nor YouTube nor any other driving force is using patents to retain competitive

415
00:30:59.380 --> 00:31:16.180
The lesson, however, applies far more broadly.

416
00:31:16.180 --> 00:31:20.420
Wealth in the Western world has been rising for a thousand years, and innovation along

417
00:31:20.420 --> 00:31:25.820
with it, and patents have played virtually no role whatsoever.

418
00:31:25.820 --> 00:31:30.780
The authors in chapter 3 go more fully into the history of the patent to show that they

419
00:31:30.780 --> 00:31:36.340
originated out of kingly privilege associated with mercantilism, and that the legislation

420
00:31:36.340 --> 00:31:42.420
of the 17th and 18th centuries were forms of liberalisation despite first appearances.

421
00:31:42.420 --> 00:31:47.860
It wasn't until the 19th century that the laws tightened again.

422
00:31:47.860 --> 00:31:52.060
Comprehensive intellectual property laws as they exist today didn't make an appearance

423
00:31:52.060 --> 00:31:56.940
until the end of the 19th century and the beginning of the 20th century.

424
00:31:56.940 --> 00:32:01.740
Taking the long view, we can see even with a superficial look that economic growth throughout

425
00:32:01.740 --> 00:32:07.720
the world has been in process for 1,000 years, while patents are new and were mostly very

426
00:32:07.720 --> 00:32:10.780
narrow until quite recently.

427
00:32:10.780 --> 00:32:13.620
Why did patents enter the picture?

428
00:32:13.620 --> 00:32:20.240
The rise of modern IP is due to the lobbying of incumbent firms threatened with competition.

429
00:32:20.240 --> 00:32:23.840
It is a complete myth that patents give rise to innovation – the reverse has been true

430
00:32:23.840 --> 00:32:27.720
– innovation gives rise to patents.

431
00:32:27.720 --> 00:32:30.680
The authors offer this incredible challenge.

432
00:32:30.680 --> 00:32:35.480
Can anyone mention even one single case of a new industry emerging as a result of the

433
00:32:35.480 --> 00:32:38.000
protection of existing patent laws?

434
00:32:38.000 --> 00:32:39.520
We cannot.

435
00:32:39.520 --> 00:32:43.200
Strange coincidence, is it not?

436
00:32:43.200 --> 00:32:45.200
Examples.

437
00:32:45.200 --> 00:32:49.680
Services in the United States were not covered by patent until the 1990s.

438
00:32:49.680 --> 00:32:54.440
In Italy, pharmaceutical products and processes were not covered until 1978.

439
00:32:54.440 --> 00:32:57.880
In Switzerland, it was 1954.

440
00:32:57.880 --> 00:33:02.920
Agricultural seeds and plants were not effectively patented until 1977, but the greatest progress

441
00:33:02.920 --> 00:33:07.280
here occurred over the previous 100 years.

442
00:33:07.280 --> 00:33:12.200
Basic sciences like math and physics cannot be patented.

443
00:33:12.200 --> 00:33:17.240
The tendency in the biological and life sciences towards patents is a very grave sign for the

444
00:33:17.240 --> 00:33:19.960
and the future of these sectors.

445
00:33:19.960 --> 00:33:25.880
The authors cite George Stigler in pointing out that patents did not assist, quote, automobiles,

446
00:33:25.880 --> 00:33:31.040
frozen foods, various electrical appliances and equipment, petroleum refining, incandescent

447
00:33:31.040 --> 00:33:34.600
lamps, radio and uranium mining.

448
00:33:34.600 --> 00:33:39.800
Stigler further cites the mail-order business, which revolutionized retail as a case of patent-free

449
00:33:39.800 --> 00:33:40.800
development.

450
00:33:40.800 --> 00:33:43.760
Shall we go on?

451
00:33:43.760 --> 00:33:47.520
It helps to have the specifics that the authors provide.

452
00:33:47.520 --> 00:33:54.400
Ray Kroc's fast food franchise, better known as McDonald's, the 24-hour convenience store,

453
00:33:54.400 --> 00:34:00.740
home delivery of precooked food, the suburban shopping mall, franchise everything from coffee

454
00:34:00.740 --> 00:34:06.500
to hairdressing, the various steps that make up the delivery business of UPS, Federal Express

455
00:34:06.500 --> 00:34:11.780
and DHL, and, obviously, online commerce.

456
00:34:11.780 --> 00:34:16.500
That is pretty much each and every innovation which during the last half century has had

457
00:34:16.500 --> 00:34:25.100
any lasting impact in the retail and distribution sector was not spurred or protected by patents.

458
00:34:25.100 --> 00:34:29.940
How did the inventor of the cotton gin, Eli Whitney, become rich?

459
00:34:29.940 --> 00:34:31.860
Not through the cotton gin.

460
00:34:31.860 --> 00:34:37.480
He and his business partner took out a patent and spent their energies crushing competition.

461
00:34:37.480 --> 00:34:42.860
They were trying to charge farmers two-fifths of their profits paid in the form of cotton.

462
00:34:42.860 --> 00:34:46.560
Farmers hated it and started to pirate the machine, and many competitive companies sprung

463
00:34:46.560 --> 00:34:48.560
up.

464
00:34:48.560 --> 00:34:54.840
Litigation followed and lasted from 1794 to 1807.

465
00:34:54.840 --> 00:35:00.360
Nothing came of it but an expenditure of time and energy, not to mention lawyer's fees.

466
00:35:00.360 --> 00:35:06.300
The growth of cotton ginning in the South ended up owing more to the pirates than Whitney.

467
00:35:06.300 --> 00:35:08.540
So where did Whitney get his money?

468
00:35:08.540 --> 00:35:10.900
How did he die rich?

469
00:35:10.900 --> 00:35:15.980
In 1798, he invented a process to manufacture muskets by machine.

470
00:35:15.980 --> 00:35:23.260
This time, he was smart, he sought no patent, he encouraged piracy – that is, imitation.

471
00:35:23.260 --> 00:35:27.540
The industry took off, and he remained the leader through innovation.

472
00:35:27.540 --> 00:35:33.140
What a blessed life to be rid of the stupid waste of using legal means to crush the competition,

473
00:35:33.140 --> 00:35:39.260
and instead devote yourself to doing good for others and making money at the same time.

474
00:35:39.260 --> 00:35:44.500
Here is the section in which the authors tell the story of agriculture.

475
00:35:44.500 --> 00:35:50.500
Before 1930, there was no patent protection, the very period in which the United States

476
00:35:50.500 --> 00:35:55.940
became so productive in agriculture that the entire population shifted in its main industrial

477
00:35:55.940 --> 00:35:57.940
focus.

478
00:35:57.940 --> 00:36:03.160
In 1930, law granted only patents for a narrow range of plants.

479
00:36:03.160 --> 00:36:09.600
It wasn't until 1970 that the Plant Variety Protection Act extended protection to sexually

480
00:36:09.600 --> 00:36:16.840
produced plants, and not until the 1980s, when protection was extended to biotechnology.

481
00:36:16.840 --> 00:36:23.760
So we have a test case, and the authors measure innovation using total factor productivity.

482
00:36:23.760 --> 00:36:30.760
They find no increases after patents and even some disturbing data oscillations.

483
00:36:30.760 --> 00:36:36.200
In corn, in particular, the astounding increase in yields occurred before patents and has

484
00:36:36.200 --> 00:36:40.560
nearly leveled off since patents.

485
00:36:40.560 --> 00:36:45.880
Two splashing examples of amazing innovation are now introduced in the book.

486
00:36:45.880 --> 00:36:52.840
The area of Almeria, Spain was an unusable desert from the beginning of time until 1963,

487
00:36:52.840 --> 00:36:56.920
and an unpatented greenhouse was introduced into the area.

488
00:36:56.920 --> 00:37:00.720
The greenhouse was copied and copied and spread all over the region.

489
00:37:00.720 --> 00:37:05.960
The results can be seen from space with color photos reproduced in the book.

490
00:37:05.960 --> 00:37:13.840
The entire region was transformed from desolate to rich in the course of two decades.

491
00:37:13.840 --> 00:37:19.240
The same process took place in Treviso, Italy, where the ready-to-color sweater was introduced

492
00:37:19.240 --> 00:37:25.480
by the Benetton family and the process was imitated and spread to change an entire region

493
00:37:25.480 --> 00:37:29.240
in the absence of patent.

494
00:37:29.240 --> 00:37:36.600
Other examples – financial services, no patents, fashion, no patents, and advertising,

495
00:37:36.600 --> 00:37:39.700
no patents and copyrights are ineffective.

496
00:37:39.700 --> 00:37:43.640
These are the leading examples of innovation in the modern age.

497
00:37:43.640 --> 00:37:49.940
This section is so compelling that so far as I am concerned, the book could end here.

498
00:37:49.940 --> 00:37:55.040
But if patents are really that irrelevant, why don't the captains of industry realize

499
00:37:55.040 --> 00:37:56.320
it?

500
00:37:56.320 --> 00:37:59.880
It turns out that they do.

501
00:37:59.880 --> 00:38:04.980
Two surveys in Modern Times asked R&D heads what techniques are most effective in realizing

502
00:38:04.980 --> 00:38:06.940
gains from innovation.

503
00:38:06.940 --> 00:38:11.940
It turns out that they regard the patent as the least effective means.

504
00:38:11.940 --> 00:38:17.260
The authors conclude this mind-blowing chapter with a long discussion of patent pools.

505
00:38:17.260 --> 00:38:22.700
These are cases in which companies relinquish patents in order to establish sharing agreements.

506
00:38:22.700 --> 00:38:29.060
It is a way of stepping sideways toward what the market would give us anyway.

507
00:38:29.060 --> 00:38:32.840
Companies live and breathe by innovation.

508
00:38:32.840 --> 00:38:36.740
Innovation and monopoly are not compatible.

509
00:38:36.740 --> 00:38:39.300
We are back to an old lesson that remains true.

510
00:38:39.300 --> 00:38:44.780
It is the market, and all that comes with it, not laws granting exclusive privileges

511
00:38:44.780 --> 00:38:49.580
to produce, that gives rise to innovation.

512
00:38:49.580 --> 00:38:53.880
I end with a statement from Mises himself.

513
00:38:53.880 --> 00:38:59.060
The great monopoly problem mankind has to face today is not an outgrowth of the operation

514
00:38:59.060 --> 00:39:05.280
of the market economy, it is a product of purposive action on the part of governments.

515
00:39:05.280 --> 00:39:09.840
It is not one of the evils inherent in capitalism as the demagogue's trumpet.

516
00:39:09.840 --> 00:39:15.980
It is, on the contrary, the fruit of policies hostile to capitalism and intent upon sabotaging

517
00:39:15.980 --> 00:39:20.160
and destroying its operation.

518
00:39:20.160 --> 00:39:26.480
Sometimes those most hostile to capitalism are the capitalists themselves.

519
00:39:26.480 --> 00:39:32.040
Seen and Unseen Costs of Patents Drug patents took it on the chin a few years

520
00:39:32.040 --> 00:39:38.160
Years ago, when major drug companies refused to sell cheap AIDS drugs in Africa, presuming

521
00:39:38.160 --> 00:39:42.080
the drug's work countless lives might have been saved.

522
00:39:42.080 --> 00:39:46.560
But the desire to protect the high price on the patented drug, despite the low marginal

523
00:39:46.560 --> 00:39:52.640
costs for producing additional units, trumped the humanitarian impulse to save lives.

524
00:39:52.640 --> 00:39:59.240
The large drug companies refused to budge, despite protests from all over the world.

525
00:39:59.240 --> 00:40:03.160
Doctors of the drug companies say, well, sure, it is cheap to produce mass quantities of

526
00:40:03.160 --> 00:40:07.140
drugs after they've been developed, but the costs of getting there are sky high.

527
00:40:07.140 --> 00:40:12.000
If companies can't charge high prices, they won't develop the drugs in the first place.

528
00:40:12.000 --> 00:40:17.400
Baudrin and Levine, in Chapter 4, offer an interesting response to this claim, but it

529
00:40:17.400 --> 00:40:20.080
requires a bit of thought.

530
00:40:20.080 --> 00:40:25.600
They point out that the drugs can still be sold profitably at vastly lower prices, in

531
00:40:25.600 --> 00:40:31.120
and the same way that many other products can be sold profitably at low prices.

532
00:40:31.120 --> 00:40:36.240
Items of super-high cost – think of passenger airlines or cruise ships – recoup those

533
00:40:36.240 --> 00:40:39.000
costs through volume sales over time.

534
00:40:39.000 --> 00:40:44.140
It is the same with drugs – or could be.

535
00:40:44.140 --> 00:40:48.440
So why wouldn't the pharmaceutical companies budge in the African case?

536
00:40:48.440 --> 00:40:52.280
It is due to the fear of re-importation.

537
00:40:52.280 --> 00:40:56.200
That is, that the drugs would make their way back to the United States and Canada and be

538
00:40:56.200 --> 00:41:02.200
sold at cheap prices, thereby undercutting the monopolistic price.

539
00:41:02.200 --> 00:41:04.560
Why not just price-discriminate?

540
00:41:04.560 --> 00:41:09.200
It's not so easy to price-discriminate in a global economy.

541
00:41:09.200 --> 00:41:13.340
Rather than take that risk, companies settle for not selling at all.

542
00:41:13.340 --> 00:41:18.640
This reflects a general principle articulated by Bertrand and Levine.

543
00:41:18.640 --> 00:41:22.960
People or monopolists often fail to price discriminate because doing so would generate

544
00:41:22.960 --> 00:41:27.160
competition from their own consumers.

545
00:41:27.160 --> 00:41:29.860
Think about this principle.

546
00:41:29.860 --> 00:41:35.040
It helps explain why large software manufacturers routinely degrade their products available

547
00:41:35.040 --> 00:41:39.340
to individual consumers while reserving their better products for the more lucrative corporate

548
00:41:39.340 --> 00:41:41.340
market.

549
00:41:41.340 --> 00:41:46.160
This is why the versions of the operating systems and end-user software are dumbed down

550
00:41:46.160 --> 00:41:48.760
on the Consumer Market.

551
00:41:48.760 --> 00:41:52.820
The companies don't want to permit cross-selling between markets, even though the costs of

552
00:41:52.820 --> 00:41:57.160
selling better products across markets are virtually identical.

553
00:41:57.160 --> 00:42:01.720
Only IP allows them to get away with this sort of behaviour.

554
00:42:01.720 --> 00:42:06.480
So yes, there are some benefits to patents, in the same way that there are benefits to

555
00:42:06.480 --> 00:42:08.300
all monopolists.

556
00:42:08.300 --> 00:42:13.420
The post office benefits from the prohibition against private delivery of letters.

557
00:42:13.420 --> 00:42:18.460
Electric schools benefit from regulations on private education and mandatory funding.

558
00:42:18.460 --> 00:42:24.360
The electric company benefits from its statutory guarantee against competitive intrusion.

559
00:42:24.360 --> 00:42:28.880
But that is not the same as saying that all groups benefit.

560
00:42:28.880 --> 00:42:36.080
Beltrain and Levine examine data from total factor productivity in cross-national studies

561
00:42:36.080 --> 00:42:42.360
and show that the astounding increase in patents in the 1990s, rising more than three-fold

562
00:42:42.360 --> 00:42:50.200
from a stable rate in previous decades has had no effect on increases in prosperity and

563
00:42:50.200 --> 00:42:51.520
innovation.

564
00:42:51.520 --> 00:42:58.560
Meanwhile, there are huge costs, even for those who acquire and own the patents.

565
00:42:58.560 --> 00:43:03.080
Oracle Corporation, for example, spends vast resources on what can be called defensive

566
00:43:03.080 --> 00:43:04.080
patents.

567
00:43:04.080 --> 00:43:08.960
They must get them before someone else does, or else risk having to pay huge fees to someone

568
00:43:08.960 --> 00:43:10.680
else.

569
00:43:10.680 --> 00:43:14.680
Pass licensing is the only way to develop software now, so the patent route has been

570
00:43:14.680 --> 00:43:16.600
forced on everyone.

571
00:43:16.600 --> 00:43:21.380
The word thicket is the one everyone uses.

572
00:43:21.380 --> 00:43:27.860
What it really amounts to is a cold war between patent holders, a patent race that is very

573
00:43:27.860 --> 00:43:30.780
much like an arms race.

574
00:43:30.780 --> 00:43:35.840
This is why Nokia owns 12,000 patents, and Microsoft is adding 1,000 patents a month

575
00:43:35.840 --> 00:43:37.920
to its arsenal.

576
00:43:37.920 --> 00:43:41.840
Vintel's CEO spoke for money when he said he would be glad to cut the number of Vintel's

577
00:43:41.840 --> 00:43:47.600
patents to a tenth of its current rate, provided that others did the same.

578
00:43:47.600 --> 00:43:51.920
Conventional patent theory says they are necessary for generating revenue to fund research and

579
00:43:51.920 --> 00:43:55.760
development and to inspire innovation.

580
00:43:55.760 --> 00:44:01.060
This is supposedly the economically valuable contribution of patents.

581
00:44:01.060 --> 00:44:04.280
Then there is the real world.

582
00:44:04.280 --> 00:44:08.880
A Carnegie Endowment survey of firms shows that businesses themselves report that this

583
00:44:08.880 --> 00:44:15.720
function of patents is mentioned as important only 6% of the time.

584
00:44:15.720 --> 00:44:20.540
The main reason businesses say that they want patents is to enforce monopoly, preventing

585
00:44:20.540 --> 00:44:27.480
people from developing similar but better and cheaper products, and to prevent lawsuits.

586
00:44:27.480 --> 00:44:33.360
The authors describe the result of patents as not a competitive market for innovation,

587
00:44:33.360 --> 00:44:40.040
What an oligopolistic market structure around patent pool mechanisms.

588
00:44:40.040 --> 00:44:44.440
This affects every industry as patent battles hinder economic development.

589
00:44:44.440 --> 00:44:51.080
A good example is the ongoing battle over who and what can lay claim to the title Basmati

590
00:44:51.080 --> 00:44:53.640
Rice.

591
00:44:53.640 --> 00:45:00.400
A Texas company called RiceTech won a patent in 1997, infuriating Indian and Pakistani companies

592
00:45:00.400 --> 00:45:04.320
that have been making Basmati for hundreds of years.

593
00:45:04.320 --> 00:45:07.720
These companies have been fighting back with their own attempts to register patents on

594
00:45:07.720 --> 00:45:09.400
the rice.

595
00:45:09.400 --> 00:45:12.920
What this has to do with the consumer and the dinner table and the need for cheap and

596
00:45:12.920 --> 00:45:19.480
delicious food being made widely available is the unanswered question.

597
00:45:19.480 --> 00:45:25.600
A peculiar form of patent abuse comes in the form of the submarine patent.

598
00:45:25.600 --> 00:45:29.960
This is a patent taken out early, while the production of the product itself is delayed

599
00:45:29.960 --> 00:45:32.420
as long as possible.

600
00:45:32.420 --> 00:45:36.720
When someone else finally goes to market with the product, the patent emerges from the deep

601
00:45:36.720 --> 00:45:41.160
as a method of blackmailing the company that has gone to market.

602
00:45:41.160 --> 00:45:47.100
Baldrén and Levine explain that this tactic dates to George Seldon's patent on the road

603
00:45:47.100 --> 00:45:49.920
engine in 1895.

604
00:45:49.920 --> 00:45:56.860
It commanded 1.25% on the sale of every car in the United States.

605
00:45:56.860 --> 00:46:03.900
He sold his patent for $10,000 and 20% of royalties to a syndicate in 1899.

606
00:46:03.900 --> 00:46:09.140
As the car actually started to make it to market, the Association of Licensed Automobile

607
00:46:09.140 --> 00:46:13.620
Manufacturers formed a cartel around the patent.

608
00:46:13.620 --> 00:46:18.680
The author's comment, if you were wondering why the US automobile industry developed so

609
00:46:18.680 --> 00:46:25.100
quickly into the oligopoly we know and hate, a fair share of the roots lie in bad intellectual

610
00:46:25.100 --> 00:46:30.300
Intellectual Property Legislation and the Intellectual Monopoly it created.

611
00:46:30.300 --> 00:46:35.900
Personally, I find that revelation remarkable.

612
00:46:35.900 --> 00:46:41.440
More than a hundred years later, we are still paying the price for this car-cartel-creating

613
00:46:41.440 --> 00:46:43.620
patent.

614
00:46:43.620 --> 00:46:46.940
Something similar happened to airplanes when the Wright brothers managed to get a patent

615
00:46:46.940 --> 00:46:51.860
on anything resembling an airplane, despite their own contribution to the technology being

616
00:46:51.860 --> 00:46:53.920
so meager.

617
00:46:53.920 --> 00:46:59.160
They were so aggressive in blasting all competitors that all serious innovation in airplane technology

618
00:46:59.160 --> 00:47:03.800
ended up taking place overseas, in France.

619
00:47:03.800 --> 00:47:08.260
The authors make a statement that I wish could be made more prominent, since it comports

620
00:47:08.260 --> 00:47:13.360
with everything I know about business people and patents.

621
00:47:13.360 --> 00:47:18.940
It is the most common thing in the world for a businessperson who uses every market-oriented

622
00:47:18.940 --> 00:47:26.380
skill to get a product to market, a good product at a good price that becomes the market leader.

623
00:47:26.380 --> 00:47:31.500
At this point, and for some odd reason, the businessperson gets confused.

624
00:47:31.500 --> 00:47:36.820
He thinks that it is his IP that is the key to his success, and ends up fighting for it

625
00:47:36.820 --> 00:47:41.900
with all his might, even at his own expense.

626
00:47:41.900 --> 00:47:46.940
Here is the statement by Baldwin and Levine.

627
00:47:46.940 --> 00:47:52.380
Being a monopolist is apparently akin to going on drugs or joining some strange religious

628
00:47:52.380 --> 00:47:54.020
sect.

629
00:47:54.020 --> 00:47:59.940
It seems to lead to complete loss of any sense of what profitable opportunities are and of

630
00:47:59.940 --> 00:48:03.660
how free markets function.

631
00:48:03.660 --> 00:48:08.380
Monopolists apparently can conceive of only one way of making money, that is bullying

632
00:48:08.380 --> 00:48:29.540
A clear case in point concerns the Recording Industry Association of America, which managed

633
00:48:29.540 --> 00:48:34.460
to make itself appear as the devil incarnate in the eyes of an entire generation of music

634
00:48:34.460 --> 00:48:36.980
downloaders.

635
00:48:36.980 --> 00:48:40.380
Another example concerns Google Print.

636
00:48:40.380 --> 00:48:46.020
This work of genius would have bought all the world's libraries to one central location,

637
00:48:46.020 --> 00:48:50.500
so that users could search the books and purchase them.

638
00:48:50.500 --> 00:48:52.500
Wonderful!

639
00:48:52.500 --> 00:48:59.820
But the Authors Guild sued, and the suit has gutted Google Print as a useful tool.

640
00:48:59.820 --> 00:49:05.440
The dream of all educated people from the ancient world to the present, a single accessible

641
00:49:05.440 --> 00:49:12.640
repository of all the world's wisdom was stopped for no good reason.

642
00:49:12.640 --> 00:49:15.960
The authors conclude Chapter 4 with a restatement of the theme.

643
00:49:15.960 --> 00:49:22.940
The benefits of patents are small and narrow, while the costs are large and broad.

644
00:49:22.940 --> 00:49:27.180
The biggest costs are the unseen ones that Bastiat speaks of.

645
00:49:27.180 --> 00:49:30.000
These are innovations we don't see.

646
00:49:30.000 --> 00:49:34.080
The products that don't come to market, the efficiencies that we never experience, the

647
00:49:34.080 --> 00:49:39.600
The companies that don't come into existence, and the investment that would have taken place

648
00:49:39.600 --> 00:49:45.360
with the resources that are expended on patent acquisition and enforcement, here are the

649
00:49:45.360 --> 00:49:51.500
real casts of patents, and they are incalculable.

650
00:49:51.500 --> 00:49:56.760
The Book and Music Killers One theory of copyright is that it promotes

651
00:49:56.760 --> 00:50:01.280
the production and distribution of literary works.

652
00:50:01.280 --> 00:50:08.000
That myth is completely shattered in Chapter 5 of Against Intellectual Monopoly.

653
00:50:08.000 --> 00:50:15.320
The chapter is pithy, thorough, dead-on in its practical analysis, and deeply radical.

654
00:50:15.320 --> 00:50:19.560
It is the perfect illustration of why I think this is one of the most original and compelling

655
00:50:19.560 --> 00:50:23.560
books on economics in a generation.

656
00:50:23.560 --> 00:50:27.600
Copyright is a subject replete with mythology.

657
00:50:27.600 --> 00:50:32.560
People toss around junk legalisms that they pick up on the street while knowing nothing

658
00:50:32.560 --> 00:50:35.400
about the facts or the law.

659
00:50:35.400 --> 00:50:39.560
They imagine that copyright is important for protecting rights, even though the practical

660
00:50:39.560 --> 00:50:45.600
reality is that it is a killer of ideas and a rights violator on a massive scale.

661
00:50:45.600 --> 00:50:50.100
Indeed, something must be done to crush this institution before it brings the creative

662
00:50:50.100 --> 00:50:54.160
and literary arts to a grinding halt.

663
00:50:54.160 --> 00:51:00.060
We must remember that the copyright law is just another bogus modern institution we can

664
00:51:00.060 --> 00:51:05.500
do without, just like the income tax and central banking.

665
00:51:05.500 --> 00:51:09.100
International copyright only came to exist in 1891.

666
00:51:09.100 --> 00:51:15.420
It was the result of lobbying not by authors, but by publishers, and has steadily increased

667
00:51:15.420 --> 00:51:20.260
over the century to the point of maniacal absurdity today.

668
00:51:20.260 --> 00:51:25.340
Thanks to the U.S. Congress, an article you write today is under copyright protection

669
00:51:25.340 --> 00:51:31.020
until 70 years after your death.

670
00:51:31.020 --> 00:51:36.380
As was mentioned earlier, copyright originated as a kingly permission to publish what was

671
00:51:36.380 --> 00:51:39.300
politically correct.

672
00:51:39.300 --> 00:51:43.820
The privilege passed to individual writers in the 20th century, but didn't stay there

673
00:51:43.820 --> 00:51:44.860
long.

674
00:51:44.860 --> 00:51:49.240
The publishers inherited the right through contracts, and then I'll use that right

675
00:51:49.240 --> 00:51:58.720
to rob writers, musicians, artists and consumers of what Jefferson considered to be inalienable.

676
00:51:58.720 --> 00:52:05.180
Did the internationalization and institutionalization of copyright actually achieve its stated aim

677
00:52:05.180 --> 00:52:08.140
of promoting literary work?

678
00:52:08.140 --> 00:52:13.860
There was no increase in copyright registrations as a percentage of the population between

679
00:52:13.860 --> 00:52:21.400
1900 and 1950, despite the double-lengthening of the copyright term.

680
00:52:21.400 --> 00:52:26.960
So much for the great outpouring of creativity in literature and music.

681
00:52:26.960 --> 00:52:34.560
In 1998, the Sonny Bono-Mickey Mouse Copyright Term Extension Act, the biggest land grab

682
00:52:34.560 --> 00:52:39.440
in history, boosted copyright by 40%.

683
00:52:39.440 --> 00:52:42.880
But with what effect on incentives to produce?

684
00:52:42.880 --> 00:52:50.160
None so far as anyone knows, but the publishers and moguls who pushed for this nonsense are

685
00:52:50.160 --> 00:52:55.440
surely happy that they don't have to work harder and can continue to live off the royalties

686
00:52:55.440 --> 00:52:59.040
of their long-dead predecessors.

687
00:52:59.040 --> 00:53:04.800
Baudrin and Levine find that the countries with no copyright legislation, German territories

688
00:53:04.800 --> 00:53:09.960
in particular, had more composers per capita than countries like England, where copyright

689
00:53:09.960 --> 00:53:15.840
had the effect of bringing the entire composition industry to a grinding halt.

690
00:53:15.840 --> 00:53:22.280
Actually, what the 1998 legislation did was provide a massive boost for authors to find

691
00:53:22.280 --> 00:53:26.500
ways out of the chains of copyright.

692
00:53:26.500 --> 00:53:31.860
The development of Creative Commons and other tools followed, because it is ever more obvious

693
00:53:31.860 --> 00:53:36.180
that copyright is at war with the digital age.

694
00:53:36.180 --> 00:53:38.660
And thank goodness for that.

695
00:53:38.660 --> 00:53:45.460
But in the meantime, copyright in the 20th century has accomplished horrible evil.

696
00:53:45.460 --> 00:53:50.860
Large swaths of the literary output of the last 50 years, for example, now lies buried

697
00:53:50.860 --> 00:53:56.140
in the vaults of large publishers, who neither print them nor permit them to be printed absent

698
00:53:56.140 --> 00:53:58.460
some huge fee.

699
00:53:58.460 --> 00:54:04.500
Nor will they return rights to the author, nor will the publishers allow them to be posted.

700
00:54:04.500 --> 00:54:10.720
Getting them back in print is a very expensive and time-consuming operation.

701
00:54:10.720 --> 00:54:15.920
In my own work at the Mises Institute, I've encountered a dozen such cases myself.

702
00:54:15.920 --> 00:54:22.100
And while most individual cases offer some possibility of a fiduciary workaround, economic

703
00:54:22.100 --> 00:54:27.020
considerations on the margin effectively drive these works off the market.

704
00:54:27.020 --> 00:54:32.620
Meanwhile, the greatest thing that could ever happen to an author is for his or her works

705
00:54:32.620 --> 00:54:34.720
to enter the public domain.

706
00:54:34.720 --> 00:54:40.960
But that only happens if you wrote your book before 1963, and the copyright was mercifully

707
00:54:40.960 --> 00:54:44.200
not renewed.

708
00:54:44.200 --> 00:54:49.680
Here is a test case brilliantly conceived of by Baldwin and Levine.

709
00:54:49.680 --> 00:54:55.600
The works of Edgar Rice Burroughs are right on the fence of the copyright law.

710
00:54:55.600 --> 00:54:58.800
Some are out of copyright, some are in.

711
00:54:58.800 --> 00:55:01.760
They compare the circulation between them.

712
00:55:01.760 --> 00:55:09.120
The books out of copyright in the Mars series are A Princess of Mars, The Gods of Mars,

713
00:55:09.120 --> 00:55:16.400
The Warlord of Mars, Thuvia, Maid of Mars and The Chessmen of Mars.

714
00:55:16.400 --> 00:55:22.640
All of these are available on Amazon in illustrated HTML versions as electronic versions to buy

715
00:55:22.640 --> 00:55:28.440
and see for free and in innumerable editions in stores.

716
00:55:28.440 --> 00:55:34.520
Meanwhile, other books in the Mars series are under copyright, including Master of Mars,

717
00:55:34.520 --> 00:55:44.120
A Fighting Man of Mars, Swords of Mars, Synthetic Men of Mars, and Lana of Gathol.

718
00:55:44.120 --> 00:55:48.920
Every single one of the books under copyright is out of print.

719
00:55:48.920 --> 00:55:50.560
This is not an accident.

720
00:55:50.560 --> 00:55:57.000
In this way, copyright serves as a tax on production, so of course it results in less,

721
00:55:57.000 --> 00:56:06.400
The same is true of innumerable authors, including many classically liberal authors.

722
00:56:06.400 --> 00:56:10.900
The world is highly fortunate that they published with marginal firms that failed to renew

723
00:56:10.900 --> 00:56:17.200
their copyrights after they expired, otherwise their works would be unavailable.

724
00:56:17.200 --> 00:56:22.080
It is, in fact, tragic that Hayek himself had major publishers who renewed many copyrights

725
00:56:22.080 --> 00:56:27.340
because that fact alone has caused them to be tethered to the point of limiting Hayek's

726
00:56:27.340 --> 00:56:29.840
own influence.

727
00:56:29.840 --> 00:56:36.540
What the 1998 act did was put tens of thousands of titles under copyright that would otherwise

728
00:56:36.540 --> 00:56:40.100
have been open to the world.

729
00:56:40.100 --> 00:56:45.820
All this was done to protect the work of one company, Disney, which ironically made its

730
00:56:45.820 --> 00:56:52.940
It's Fortune by making movies based on public domain stories.

731
00:56:52.940 --> 00:56:56.940
The authors here further point out that large companies have no incentive to bring back

732
00:56:56.940 --> 00:57:01.700
into print the titles for which they own copyright, because they don't want them to compete with

733
00:57:01.700 --> 00:57:04.480
their new hardback titles.

734
00:57:04.480 --> 00:57:08.660
It really is a form of legal suppression of literary work going on here, made possible

735
00:57:08.660 --> 00:57:13.860
only by the state's laws, and it is an outrage.

736
00:57:13.860 --> 00:57:19.120
A vast swath of the literary output of the West of the last 50 years has been kidnapped

737
00:57:19.120 --> 00:57:24.420
by private parties with the legal approval of the state.

738
00:57:24.420 --> 00:57:32.060
Again, the beneficiaries of the law are not authors and not musicians and artists.

739
00:57:32.060 --> 00:57:36.620
Musicians themselves typically earn far more from concerts than royalties.

740
00:57:36.620 --> 00:57:39.340
So the conventional theory is wrong.

741
00:57:39.340 --> 00:57:42.600
Copyright doesn't inspire creativity.

742
00:57:42.600 --> 00:57:47.300
These musicians would work and create without it – in fact, no one has a greater incentive

743
00:57:47.300 --> 00:57:50.640
for abolishing the current system than creators.

744
00:57:50.640 --> 00:57:59.320
For two thousand years, the core of musical creativity was the emulation and elaboration

745
00:57:59.320 --> 00:58:05.160
on existing musical forms, with composers both competing with each other and cooperating

746
00:58:05.160 --> 00:58:09.260
in a communal way toward advancement.

747
00:58:09.260 --> 00:58:13.020
They depend most heavily on sharing information.

748
00:58:13.020 --> 00:58:19.620
If this is stopped, culturally significant creativity is seriously impeded.

749
00:58:19.620 --> 00:58:25.700
Copyright shut the cooperative process down at the turn of the 19th century.

750
00:58:25.700 --> 00:58:30.100
Today serious classical composers have to keep returning to public domain material like

751
00:58:30.100 --> 00:58:33.500
folk songs to make variations on themes.

752
00:58:33.500 --> 00:58:38.180
The music of the 20th century is largely off limits.

753
00:58:38.180 --> 00:58:43.380
Meanwhile the search for originality has created bizarre forms of music within the conservatory

754
00:58:43.380 --> 00:58:48.280
culture, none of which has sticking power in the culture at large because it is illegal

755
00:58:48.280 --> 00:58:50.660
to imitate it.

756
00:58:50.660 --> 00:58:57.980
This whole scenario represents a radical attack on the very essence of cultural advancement.

757
00:58:57.980 --> 00:59:03.240
The repeal of copyright would result in a huge outpouring of great music that uses popular

758
00:59:03.240 --> 00:59:07.220
music in a variety of different forms.

759
00:59:07.220 --> 00:59:13.100
Lawyers would be unleashed to write, ensembles could perform and record, and musicians of

760
00:59:13.100 --> 00:59:18.500
all sorts would produce with glorious new creativity.

761
00:59:18.500 --> 00:59:25.380
As it is, they live in a caged world in which lawyers determine what they can write, play

762
00:59:25.380 --> 00:59:27.740
and record.

763
00:59:27.740 --> 00:59:32.300
If you understand this, you can see why musical forms have taken such a huge tumble in the

764
00:59:32.300 --> 00:59:39.540
for the last 100 years, while creativity has taken place only in sectors that eschew copyright,

765
00:59:39.540 --> 00:59:43.980
such as jazz and independent rock.

766
00:59:43.980 --> 00:59:50.340
As for recording, the whole effort to prevent file sharing has been a disaster for artists.

767
00:59:50.340 --> 00:59:55.300
Again, this resulted from special interest legislation.

768
00:59:55.300 --> 01:00:01.760
The tethers are so tight now that many bands are reduced to refusing any recording contracts

769
01:00:01.760 --> 01:00:07.580
at all, merely so that they can distribute their own music the way they want to.

770
01:00:07.580 --> 01:00:13.500
This has been proven again and again to be compatible with huge sales.

771
01:00:13.500 --> 01:00:20.600
The best-selling CDs of last year were also the ones available for free download.

772
01:00:20.600 --> 01:00:24.960
Whenever this subject comes up, people unthinkingly toss around crazy bromides.

773
01:00:24.960 --> 01:00:30.680
You mean you want to allow anyone to just steal anyone's work?

774
01:00:30.680 --> 01:00:35.520
Why would anyone bother to write a book or write a song?

775
01:00:35.520 --> 01:00:40.480
These kinds of questions reflect what happens to our thinking in a time of statism.

776
01:00:40.480 --> 01:00:44.560
We can't imagine how freedom would work.

777
01:00:44.560 --> 01:00:48.960
We do not, for example, ask similar questions about other services.

778
01:00:48.960 --> 01:00:53.020
If you allow the private growing of vegetables, why would anyone bother to start commercial

779
01:00:53.020 --> 01:01:16.940
These questions only sound stupid to us because we don't have existing laws covering these

780
01:01:16.940 --> 01:01:17.940
topics.

781
01:01:17.940 --> 01:01:22.380
Somehow, everything works out.

782
01:01:22.380 --> 01:01:27.340
Because we have copyright, we can't even imagine how we could get along without it.

783
01:01:27.340 --> 01:01:31.500
And yet, we see many examples around us.

784
01:01:31.500 --> 01:01:35.620
Public domain works are hugely popular, and firms profit from selling them, and they are

785
01:01:35.620 --> 01:01:39.100
more prevalent than copyrighted works.

786
01:01:39.100 --> 01:01:45.500
What I find striking is that copyright operates today by state-authorized theft of creativity

787
01:01:45.500 --> 01:01:47.860
by large firms.

788
01:01:47.860 --> 01:01:53.740
Writers and composers and bands permit themselves to be looted of their own right to distribute

789
01:01:53.740 --> 01:01:56.580
their own work.

790
01:01:56.580 --> 01:02:01.140
Composers work years on a piece and then give up the results to some business corporation

791
01:02:01.140 --> 01:02:04.700
in exchange for their right to publicly hum the tune they wrote.

792
01:02:04.700 --> 01:02:10.980
It is astounding and wholly non-viable.

793
01:02:10.980 --> 01:02:16.220
Fortunately the free market is finding a workaround to evil copyright laws in the form of creative

794
01:02:16.220 --> 01:02:19.700
of Commons and other institutions.

795
01:02:19.700 --> 01:02:25.700
In this way, at least there is a path to freedom for us, whereas the same can't be said of

796
01:02:25.700 --> 01:02:28.500
patent laws.

797
01:02:28.500 --> 01:02:30.220
One last note.

798
01:02:30.220 --> 01:02:36.140
Do not write me with some smartypants remark about how, if we are serious, the Mises Institute

799
01:02:36.140 --> 01:02:39.100
should allow anyone to publish our books.

800
01:02:39.100 --> 01:02:43.540
All our new works, insofar as it is possible, will be published with a Creative Commons

801
01:02:43.540 --> 01:02:52.180
As for this book, please quote, steal it.

802
01:02:52.180 --> 01:02:54.060
That goes for anything I write.

803
01:02:54.060 --> 01:02:56.500
If you can sell it and make a buck, good for you.

804
01:02:56.500 --> 01:03:01.660
If you become a millionaire, shame on me for not thinking of it first.

805
01:03:01.660 --> 01:03:06.540
Back to basics on property and competition.

806
01:03:06.540 --> 01:03:12.580
Zeroing in on a topic like intellectual property offers a chance to clarify fundamental notions

807
01:03:12.580 --> 01:03:14.980
in Economics Generally.

808
01:03:14.980 --> 01:03:18.600
You think you understand something like property rights or the nature of competition, you have

809
01:03:18.600 --> 01:03:24.060
studied the ideas for years, and then a challenge comes along that blows everything up.

810
01:03:24.060 --> 01:03:29.060
It's an opportunity, time to think and think again.

811
01:03:29.060 --> 01:03:32.340
Is there really property in ideas?

812
01:03:32.340 --> 01:03:36.020
And if so, what rules should govern it?

813
01:03:36.020 --> 01:03:40.660
Is it really necessary that such property be protected in order that competition be

814
01:03:40.660 --> 01:03:44.940
be kept fair and just and efficient.

815
01:03:44.940 --> 01:03:50.460
The authors of Against Intellectual Monopoly state at the outset of Chapter 6 that property

816
01:03:50.460 --> 01:03:53.100
is a great and indispensable thing.

817
01:03:53.100 --> 01:04:00.100
It allows people to own, develop, be creative, profit and build a prosperous society.

818
01:04:00.100 --> 01:04:04.740
Societies without private property stagnate and die.

819
01:04:04.740 --> 01:04:09.460
Property rights are necessary, too, when there is a limit on the number of things in question.

820
01:04:09.460 --> 01:04:13.940
But owning a thing doesn't prevent others from owning other things, too.

821
01:04:13.940 --> 01:04:16.460
For example, cars.

822
01:04:16.460 --> 01:04:20.140
They must be allocated through property rights because there is a potential for conflict if

823
01:04:20.140 --> 01:04:22.620
they are collectively owned.

824
01:04:22.620 --> 01:04:27.240
But my owning a car doesn't prevent you from owning a car.

825
01:04:27.240 --> 01:04:32.780
There is no coercion involved in the institution of ownership.

826
01:04:32.780 --> 01:04:36.940
The authors make a very important point with regard to ideas.

827
01:04:36.940 --> 01:04:40.060
If you have an idea, it is yours.

828
01:04:40.060 --> 01:04:42.980
You can do with it what you want.

829
01:04:42.980 --> 01:04:49.360
If you share it, sing, speak, broadcast, let others see the products of your ideas, others

830
01:04:49.360 --> 01:04:52.240
then have copies of it.

831
01:04:52.240 --> 01:04:56.980
They are entitled to do with their copies of the idea precisely what you can do with

832
01:04:56.980 --> 01:04:59.100
your idea.

833
01:04:59.100 --> 01:05:03.700
They can use it how they want, provided they don't prevent others from doing with it what

834
01:05:03.700 --> 01:05:05.260
they want.

835
01:05:05.260 --> 01:05:11.040
This is a simple application of the non-aggression principle that governs a free society.

836
01:05:11.040 --> 01:05:19.820
Whether it is fashion, language, know-how or whatever, people are free to copy.

837
01:05:19.820 --> 01:05:24.580
Ideas then are what Mises called free goods.

838
01:05:24.580 --> 01:05:26.800
Copies are potentially limitless.

839
01:05:26.800 --> 01:05:31.740
They do not need to be economized.

840
01:05:31.740 --> 01:05:37.620
Professional Property is the completely wrong-headed idea that, in the words of the authors, someone

841
01:05:37.620 --> 01:05:44.060
has the right to monopolize an idea by telling other people how they may, or more often may

842
01:05:44.060 --> 01:05:47.900
not, use the copies they own.

843
01:05:47.900 --> 01:05:53.580
This strikes at the heart of progress, because it means not improving what exists, but rather

844
01:05:53.580 --> 01:05:57.220
prohibiting others from using and improving it.

845
01:05:57.220 --> 01:06:03.420
In the same way that property is good – competition is also good – it inspires people to strive

846
01:06:03.420 --> 01:06:08.160
for excellence and to measure their progress against what others are doing.

847
01:06:08.160 --> 01:06:12.700
It allows people to try and fail or try and succeed.

848
01:06:12.700 --> 01:06:17.660
It permits people to learn from each other, looking at what others do that is successful

849
01:06:17.660 --> 01:06:20.240
and emulating them.

850
01:06:20.240 --> 01:06:25.220
This is how society leaps forward from stage to stage, how we went from horses to engines,

851
01:06:25.220 --> 01:06:31.480
How plumbing came indoors, how industry took over from agriculture, how the digital came

852
01:06:31.480 --> 01:06:34.060
to be.

853
01:06:34.060 --> 01:06:38.460
Competition is predicated on the ability to learn and copy.

854
01:06:38.460 --> 01:06:42.400
If you think about it, this is the essence of daily life.

855
01:06:42.400 --> 01:06:46.400
We watch how people do things and learn from them.

856
01:06:46.400 --> 01:06:50.760
We get on the subway and hold the stabilizing strap a certain way.

857
01:06:50.760 --> 01:06:52.700
We follow fashion sense.

858
01:06:52.700 --> 01:06:54.600
We watch the food network.

859
01:06:54.600 --> 01:06:57.260
We listen to our professors and talk to other students.

860
01:06:57.260 --> 01:07:01.400
We read and absorb the ideas of articles on the Internet.

861
01:07:01.400 --> 01:07:07.060
The newly taught person becomes a competitor, the student becomes a professor, for example.

862
01:07:07.060 --> 01:07:13.680
The protégé is always a threat to the monopoly previously held by the mentor.

863
01:07:13.680 --> 01:07:15.800
What can you copy?

864
01:07:15.800 --> 01:07:18.320
Anything and everything.

865
01:07:18.320 --> 01:07:22.080
This is not taking anything from anyone.

866
01:07:22.080 --> 01:07:25.260
The owner of the original idea still has his.

867
01:07:25.260 --> 01:07:29.400
Other people now have their copies and are free to improve them.

868
01:07:29.400 --> 01:07:33.460
Commerce is part of this stream of life.

869
01:07:33.460 --> 01:07:37.620
And in fact, learning through imitation and improvement is even more crucially important

870
01:07:37.620 --> 01:07:42.180
if we want to sustain a rising population with ever better health and well-being at

871
01:07:42.180 --> 01:07:44.580
their disposal.

872
01:07:44.580 --> 01:07:49.340
Let's say I write a book and publish 1,000 copies.

873
01:07:49.340 --> 01:07:52.180
They are all mine.

874
01:07:52.180 --> 01:07:58.060
When I sell one, I now have 999 remaining, and the new owner of the one book in a free

875
01:07:58.060 --> 01:08:03.580
society is free to do with his copy what he wants – use it as a placemat, throw it away,

876
01:08:03.580 --> 01:08:08.020
deface it, photocopy and even republish it.

877
01:08:08.020 --> 01:08:12.540
You can even republish it under your own name, though that would amount to the socially repudiated

878
01:08:12.540 --> 01:08:18.100
vice of plagiarism – vice, not crime.

879
01:08:18.100 --> 01:08:23.500
The new copies, which always involve some cost, compete with the old copies.

880
01:08:23.500 --> 01:08:28.920
What are the advantages of living under intellectual freedom as described above?

881
01:08:28.920 --> 01:08:31.700
The authors list three main ones.

882
01:08:31.700 --> 01:08:37.540
One, the number of copies is more plentiful and their price is thereby lower, which helps

883
01:08:37.540 --> 01:08:38.540
consumers.

884
01:08:38.540 --> 01:08:43.820
I like this point because it underscores that IP is really what the old classical liberals

885
01:08:43.820 --> 01:08:56.460
2.

886
01:08:56.460 --> 01:09:02.500
The initial innovator still earns money, as in the perfume or fashion or recipe industry.

887
01:09:02.500 --> 01:09:04.180
3.

888
01:09:04.180 --> 01:09:09.220
The market functions whether there is one innovator or many, and socially beneficial

889
01:09:09.220 --> 01:09:13.320
simultaneous innovation is possible.

890
01:09:13.320 --> 01:09:17.580
The authors give the example of Mozart and Beethoven, who published without IP but did

891
01:09:17.580 --> 01:09:20.760
very well by being the first to market.

892
01:09:20.760 --> 01:09:23.560
This is the source of profits.

893
01:09:23.560 --> 01:09:27.520
It's the same today with products such as the iPhone.

894
01:09:27.520 --> 01:09:31.580
It was the first time market and Apple made a killing, enough of one to have inspired

895
01:09:31.580 --> 01:09:35.160
and ratified the initial innovation.

896
01:09:35.160 --> 01:09:38.800
Now they are attempting to prolong their period of monopoly profits by considering patent

897
01:09:38.800 --> 01:09:41.720
suits against imitators.

898
01:09:41.720 --> 01:09:45.840
Efficiency is certainly not better off under these conditions.

899
01:09:45.840 --> 01:09:52.000
As the authors say, the goal of economic efficiency is not that of making monopolists as rich

900
01:09:52.000 --> 01:09:53.000
as possible.

901
01:09:53.000 --> 01:09:56.240
In fact, it is almost the opposite.

902
01:09:56.240 --> 01:10:02.560
The goal of economic efficiency is that of making us all as well off as possible.

903
01:10:02.560 --> 01:10:06.480
It's interesting how many people immediately object that no one would create things under

904
01:10:06.480 --> 01:10:08.880
free market competition.

905
01:10:08.880 --> 01:10:09.880
Look around!

906
01:10:09.880 --> 01:10:16.060
A tiny fraction of what we use in experience every day is subjected to intellectual monopoly.

907
01:10:16.060 --> 01:10:17.260
And look at your own life.

908
01:10:17.260 --> 01:10:21.480
Do you trim the bushes in front of your house only because you then have copyright to your

909
01:10:21.480 --> 01:10:23.300
new design?

910
01:10:23.300 --> 01:10:27.520
Do you take a casserole to a potluck lunch only on the belief that no one is permitted

911
01:10:27.520 --> 01:10:29.660
to copy your dish?

912
01:10:29.660 --> 01:10:33.400
Do you wear a navy jacket with a yellow tie only on the condition that no co-worker is

913
01:10:33.400 --> 01:10:35.540
permitted to do the same?

914
01:10:35.540 --> 01:10:40.780
There was no IP at all for many centuries during the greatest period of modern economic

915
01:10:40.780 --> 01:10:45.500
growth from the 15th century onward.

916
01:10:45.500 --> 01:10:50.200
Others generate all kinds of arguments to show that competition doesn't work.

917
01:10:50.200 --> 01:10:54.060
For example, we are told that very high costs are associated with some investments and so

918
01:10:54.060 --> 01:10:58.940
monopoly is required in order for investors to make a profit and thereby have incentive

919
01:10:58.940 --> 01:11:02.140
to invest and innovate.

920
01:11:02.140 --> 01:11:06.900
The authors cite the case of shoes and gasoline.

921
01:11:06.900 --> 01:11:11.540
Building a shoe factory or an oil refinery plant is a very expensive undertaking and

922
01:11:11.540 --> 01:11:16.740
competition is everywhere, but somehow no one suggests that these must thereby be produced

923
01:11:16.740 --> 01:11:19.180
under monopoly conditions.

924
01:11:19.180 --> 01:11:24.460
I suggest that the reason is that we experience competitive conditions in these industries.

925
01:11:24.460 --> 01:11:30.180
It is so difficult for people to even imagine freedom where it doesn't exist.

926
01:11:30.180 --> 01:11:35.140
I recall a story told to me by an economist who was serving as an advisor to a former

927
01:11:35.140 --> 01:11:37.660
Soviet satellite state.

928
01:11:37.660 --> 01:11:42.300
He advised free labor markets and privatization.

929
01:11:42.300 --> 01:11:45.640
Officials objected that this wouldn't work because people might build plants where there

930
01:11:45.640 --> 01:11:47.520
are no workers.

931
01:11:47.520 --> 01:11:51.660
He said that people would just move to the places where capital is most profitable for

932
01:11:51.660 --> 01:11:52.960
labor.

933
01:11:52.960 --> 01:11:56.780
The officials objected that they couldn't possibly allow the freedom for people to live

934
01:11:56.780 --> 01:12:01.060
Wherever they wanted, this would amount to an intolerable kind of anarchy.

935
01:12:01.060 --> 01:12:04.580
They just couldn't imagine how such a system could work.

936
01:12:04.580 --> 01:12:08.380
There are advantages to being the first mover in markets,

937
01:12:08.380 --> 01:12:12.620
and here is the main source of the innovator's profits.

938
01:12:12.620 --> 01:12:17.660
But there is no reason to freeze the market process right there.

939
01:12:17.660 --> 01:12:22.460
In many ways, IP represents the same fallacy that antitrust does.

940
01:12:22.460 --> 01:12:25.540
It takes a snapshot of the economy in one stage

941
01:12:25.540 --> 01:12:28.540
and evaluates it and manufactures a policy response.

942
01:12:29.940 --> 01:12:34.700
Antitrust tries to break up what only temporarily appear to be monopolies.

943
01:12:35.380 --> 01:12:39.380
IP attempts to create and sustain monopolies over time.

944
01:12:40.660 --> 01:12:45.940
Competition, by contrast, lets the market work as an undirected and uncontrolled

945
01:12:45.980 --> 01:12:51.220
and rivalrous process of discovery, emulation and creativity.

946
01:12:52.580 --> 01:12:55.140
Will some firms suffer under competition?

947
01:12:55.540 --> 01:13:01.980
Of course, competition is not a gala dinner, write Baldwin and Levine, and getting rid

948
01:13:01.980 --> 01:13:06.320
of inefficient firms while allowing efficient ones to blossom is exactly what competition

949
01:13:06.320 --> 01:13:09.000
is supposed to accomplish.

950
01:13:09.000 --> 01:13:14.920
The chapter ends with a hymn to imitation as a social force.

951
01:13:14.920 --> 01:13:18.600
These few paragraphs are so important, and what they imply is something that I believe

952
01:13:18.600 --> 01:13:21.800
has been overlooked by classical liberals.

953
01:13:21.800 --> 01:13:29.840
It is a foundation of social order, and that gives us three talked about in this chapter.

954
01:13:29.840 --> 01:13:38.720
Property, which gives rise to exchange, competition, a species of cooperation, and imitation, learning

955
01:13:38.720 --> 01:13:41.080
through emulation.

956
01:13:41.080 --> 01:13:44.560
Fallacy Run a Mock

957
01:13:44.560 --> 01:13:50.080
Fed up with the patent craze, The Economist magazine wrote the following in a main editorial.

958
01:13:50.080 --> 01:13:56.300
The granting of patents inflames cupidity, excites fraud, stimulates men to run after

959
01:13:56.300 --> 01:14:00.940
schemes that may enable them to levy attacks on the public, begets disputes and quarrels

960
01:14:00.940 --> 01:14:05.020
betwixt inventors, provokes endless lawsuits.

961
01:14:05.020 --> 01:14:11.300
The principle of the law from which such consequences flow cannot be just.

962
01:14:11.300 --> 01:14:13.060
It's not in her current issue.

963
01:14:13.060 --> 01:14:18.840
That was published in 1851, but every word of it remains true today.

964
01:14:18.840 --> 01:14:23.860
It was once conventional wisdom among economists that state-granted monopolies were as bad

965
01:14:23.860 --> 01:14:26.020
as mercantilism.

966
01:14:26.020 --> 01:14:31.580
But in the meantime, sometime after the middle of the 20th century, the conventional wisdom

967
01:14:31.580 --> 01:14:34.160
became confused.

968
01:14:34.160 --> 01:14:39.040
The source of the problem was a mechanistic view of the market embodied in the idea of

969
01:14:39.040 --> 01:14:41.260
general equilibrium theory.

970
01:14:41.260 --> 01:14:48.440
It is a theoretical picture of what the macroeconomy looks like when all the dust is settled.

971
01:14:48.440 --> 01:14:51.980
Product and Supply perfectly match.

972
01:14:51.980 --> 01:14:57.960
The prices of all things have been competitively bid down to their cost, so there are no profits.

973
01:14:57.960 --> 01:15:02.220
All prices are given and all markets are cleared.

974
01:15:02.220 --> 01:15:08.180
There is perfect information, perfect rationality, no uncertainty and no transaction costs or

975
01:15:08.180 --> 01:15:09.980
any other costs.

976
01:15:09.980 --> 01:15:13.520
Indeed, there is no activity at all.

977
01:15:13.520 --> 01:15:20.480
All the world is made of perfectly satisfied robots.

978
01:15:20.480 --> 01:15:24.620
It's a mathematical notion only, but once it is embedded in your head as a picture of

979
01:15:24.620 --> 01:15:30.240
a perfect economic world, it is a small step toward using it as a benchmark for the whole

980
01:15:30.240 --> 01:15:32.720
of economic theorizing.

981
01:15:32.720 --> 01:15:37.800
It turns out that the case for patents and copyright is bound up with this theoretical

982
01:15:37.800 --> 01:15:43.560
National Notion, and Beltrain and Levine's seventh chapter of Against Intellectual Monopoly

983
01:15:43.560 --> 01:15:49.920
has the authors grappling with this idea's problems.

984
01:15:49.920 --> 01:15:54.800
Joseph Schumpeter was an advocate of patents precisely because he couldn't shake the

985
01:15:54.800 --> 01:15:58.640
general equilibrium idea out of his head.

986
01:15:58.640 --> 01:16:04.280
He sought to account for how change happens under general equilibrium, and settled on

987
01:16:04.280 --> 01:16:08.980
and a theory of entrepreneurship that imagines an innovation that shakes up the dust before

988
01:16:08.980 --> 01:16:11.960
it settles into a new pattern.

989
01:16:11.960 --> 01:16:17.180
Rothbard called this breaking out of the Walrassian box.

990
01:16:17.180 --> 01:16:22.420
With his benchmark, imitation would be as costless as any other activity, so it seemed

991
01:16:22.420 --> 01:16:27.640
necessary for the innovator to have an exclusive right to produce for a period during which

992
01:16:27.640 --> 01:16:29.240
profits could be earned.

993
01:16:29.240 --> 01:16:35.040
Otherwise, the creative destruction necessary for social and economic advance can't take

994
01:16:35.040 --> 01:16:36.360
place.

995
01:16:36.360 --> 01:16:43.960
Well, the core problem here is that general equilibrium has nothing at all to do with

996
01:16:43.960 --> 01:16:50.680
the way an economy works, as the Austrians have pointed out for half a century.

997
01:16:50.680 --> 01:16:56.700
There are costs to every action, pervasive uncertainties in all aspects of life, entrepreneurship

998
01:16:56.700 --> 01:17:02.080
is inherent in all action, and the clearing of markets takes place over time, and through

999
01:17:02.080 --> 01:17:08.580
a process of ceaseless trial, error and change.

1000
01:17:08.580 --> 01:17:13.940
It is a fascinating idea that the core reason why economists have only recently begun to

1001
01:17:13.940 --> 01:17:19.420
look critically at the problem of IP is due to the triumph of the general equilibrium

1002
01:17:19.420 --> 01:17:26.500
from Construct, and the associated Mathematization of the Profession that excludes the possibility

1003
01:17:26.500 --> 01:17:31.260
of modeling central features of real-world markets.

1004
01:17:31.260 --> 01:17:36.500
We can chalk this up as yet another cast associated with the refusal of the profession to fully

1005
01:17:36.500 --> 01:17:42.300
absorb the ideas of Menger, Mises and Hayek.

1006
01:17:42.300 --> 01:17:47.540
This is the core theoretical problem with those who believe that innovation cannot occur

1007
01:17:47.540 --> 01:17:50.180
in the absence of IP law.

1008
01:17:50.180 --> 01:17:55.900
They assume a world in which all the hard stuff of life is a snap.

1009
01:17:55.900 --> 01:17:59.100
In fact, imitation is costly and takes time.

1010
01:17:59.100 --> 01:18:02.380
It requires effort.

1011
01:18:02.380 --> 01:18:07.100
Even if a process or product is perfectly imitated, getting the product to market is

1012
01:18:07.100 --> 01:18:11.420
a far more serious hurdle than simply copying something.

1013
01:18:11.420 --> 01:18:16.880
It took a hundred years for the process of silk-making to be imitated successfully.

1014
01:18:16.880 --> 01:18:23.640
Even to this day, most of the world cannot figure out how to make a decent cup of espresso.

1015
01:18:23.640 --> 01:18:27.480
And even the possibility of quick and easy imitation doesn't strip away the profits

1016
01:18:27.480 --> 01:18:31.080
associated with being first to market.

1017
01:18:31.080 --> 01:18:34.760
I'm pretty good at making ice cream, and I could probably replicate the Moose Tracks

1018
01:18:34.760 --> 01:18:38.160
recipe over the course of a weekend of experimenting.

1019
01:18:38.160 --> 01:18:42.300
But it isn't the Moose Tracks, trademarks, copyrights and patents that prevent me from

1020
01:18:42.300 --> 01:18:43.300
doing it.

1021
01:18:43.300 --> 01:18:47.940
It's because I have better things to do and bringing anything to market has huge opportunity

1022
01:18:47.940 --> 01:18:50.560
costs.

1023
01:18:50.560 --> 01:18:55.820
Even if competitive but nearly identical products make it to market, that doesn't necessarily

1024
01:18:55.820 --> 01:19:00.820
mean that the first mover cannot maintain a profit stream.

1025
01:19:00.820 --> 01:19:05.420
The authors cite the case of TravelPro, the suitcase with the handle that has thousands

1026
01:19:05.420 --> 01:19:07.260
of imitators.

1027
01:19:07.260 --> 01:19:13.220
Yet even now, TravelPro does a booming business through ceaseless innovation, marketing, brand

1028
01:19:13.220 --> 01:19:16.840
and recognition and competitive pricing.

1029
01:19:16.840 --> 01:19:22.580
If you take the arguments of the IP advocates seriously, you would never be able to figure

1030
01:19:22.580 --> 01:19:26.600
out how there could be a thriving market for pizzas.

1031
01:19:26.600 --> 01:19:31.860
There are high startup costs, buildings, employees, ovens, driver's technique, and yet there

1032
01:19:31.860 --> 01:19:37.180
is a very low marginal profit associated with selling each one, a product that can be imitated

1033
01:19:37.180 --> 01:19:38.180
by anyone.

1034
01:19:38.180 --> 01:19:43.180
Surely, there must be a recipe copyright, a patent on the pizza, a monopoly of providers

1035
01:19:43.180 --> 01:20:00.020
Another argument concerns the idea of overgrazing.

1036
01:20:00.020 --> 01:20:05.100
If you put ideas into the Commons, they will be overused and degraded the same as regular

1037
01:20:05.100 --> 01:20:07.020
property.

1038
01:20:07.020 --> 01:20:10.020
This is true with real property.

1039
01:20:10.020 --> 01:20:14.640
Public schools, public roads, public lands and the like are all overutilised and fall

1040
01:20:14.640 --> 01:20:21.780
into disrepair for a lack of any economising mechanisms that allows rational allocation.

1041
01:20:21.780 --> 01:20:24.780
What about intellectual property?

1042
01:20:24.780 --> 01:20:30.120
The Walt Disney Company says that its IP in Mickey Mouse is designed to prevent overgrazing,

1043
01:20:30.120 --> 01:20:34.060
that if he went into the public domain he would be drawn as cat food or placed in unseemly

1044
01:20:34.060 --> 01:20:37.220
settings its currency would be debased.

1045
01:20:37.220 --> 01:20:43.100
Of course, you can make the same argument about anything, such as pizzas or all food,

1046
01:20:43.100 --> 01:20:48.540
but there is no question that while an imaginary pizza and food monopolist would be worse off

1047
01:20:48.540 --> 01:20:53.600
under competitive conditions, society is most certainly better off because anyone can make

1048
01:20:53.600 --> 01:20:57.520
a pizza or make food.

1049
01:20:57.520 --> 01:21:00.900
The authors make a further telling point in passing.

1050
01:21:00.900 --> 01:21:06.840
When some good or service today is labelled as Mickey Mouse, it is certainly not intended

1051
01:21:06.840 --> 01:21:08.560
as a compliment.

1052
01:21:08.560 --> 01:21:14.820
So despite the monopoly, the cartoon figure has certainly been degraded.

1053
01:21:14.820 --> 01:21:21.260
Many pro-IP arguments boil down to beliefs that something is either going to be undersupplied

1054
01:21:21.260 --> 01:21:24.980
or oversupplied on a competitive market.

1055
01:21:24.980 --> 01:21:30.520
In other words, this is the same argument used for all forms of claims about market

1056
01:21:30.520 --> 01:21:34.060
failures.

1057
01:21:34.060 --> 01:21:38.380
I can recall that there was great controversy when the first books about medical information

1058
01:21:38.380 --> 01:21:41.140
and pharmaceutical drugs came on the market.

1059
01:21:41.140 --> 01:21:45.140
Shouldn't doctors and pharmacies hold the monopoly?

1060
01:21:45.140 --> 01:21:48.740
Somehow, however, everything worked out.

1061
01:21:48.740 --> 01:21:54.780
We buy books, look up medical information online and still go to see the doctor.

1062
01:21:54.780 --> 01:21:58.680
All providers are annoyed by competition.

1063
01:21:58.680 --> 01:22:03.400
College professors are not entirely thrilled about idiots and dummies guides, but sometimes

1064
01:22:03.400 --> 01:22:06.300
Sometimes a colleague breaks ranks and writes someone.

1065
01:22:06.300 --> 01:22:12.680
This is just part of the rough and tumble of life in the absence of a general equilibrium.

1066
01:22:12.680 --> 01:22:19.360
The Hoax of Invention History All popular business histories are replete

1067
01:22:19.360 --> 01:22:22.160
with lies.

1068
01:22:22.160 --> 01:22:27.980
Or to be more charitable, they are filled with untruths based on a stupid version of

1069
01:22:27.980 --> 01:22:30.000
cause and effect.

1070
01:22:30.000 --> 01:22:34.040
Assumptions happen because people take out a patent on them.

1071
01:22:34.040 --> 01:22:37.900
This assumption is hardly ever questioned in the mainline literature.

1072
01:22:37.900 --> 01:22:44.400
Writers look through patent records and assume that they are a record of technological advance.

1073
01:22:44.400 --> 01:22:47.320
The truth is far messier.

1074
01:22:47.320 --> 01:22:54.560
The patent records are a snapshot of those who filed a patent, and nothing more.

1075
01:22:54.560 --> 01:22:59.000
It is because of patent-based historiography that people believe that the Wright brothers

1076
01:22:59.000 --> 01:23:03.920
Invented the Airplane, when in fact they made only a tiny contribution of combining wing

1077
01:23:03.920 --> 01:23:06.680
warping with a rudder.

1078
01:23:06.680 --> 01:23:12.160
It was Sir George Cayley in Britain and Otto Lilienthal of Germany who did the bulk of the

1079
01:23:12.160 --> 01:23:14.600
work of inventing the airplane.

1080
01:23:14.600 --> 01:23:19.080
But it was the Wright brothers who applied for the patent and quickly used it against

1081
01:23:19.080 --> 01:23:24.940
Glenn Curtis, who improved wing warping with movable control surfaces.

1082
01:23:24.940 --> 01:23:30.800
So it was with the radio, which is conventionally attributed to Giulielmo Marconi, the Nobel

1083
01:23:30.800 --> 01:23:33.380
Prize winner in 1909.

1084
01:23:33.380 --> 01:23:39.660
What about the contribution of Oliver Lodge in the UK, or the forgotten genius Nikola Tesla,

1085
01:23:39.660 --> 01:23:46.460
or the Russian Alexander Popov, or the British naval engineer Henry B. Jackson?

1086
01:23:46.460 --> 01:23:52.020
All Marconi did was ground the antennae, and also managed to win the patent wars thanks

1087
01:23:52.020 --> 01:23:59.140
Thanks to the deep pockets of fellow aristocrat and partner Andrew Carnegie, fifty years after

1088
01:23:59.140 --> 01:24:03.960
the patent was granted, the Supreme Court conceded that it was unjustly given, but by

1089
01:24:03.960 --> 01:24:06.540
then the other claimants were dead.

1090
01:24:06.540 --> 01:24:12.560
Marconi was consistent, at least – he was a big supporter of fascism in Italy.

1091
01:24:12.560 --> 01:24:18.360
Then there is the famous myth about Alexander Bell, the displaced knowledge of the real

1092
01:24:18.360 --> 01:24:24.820
Inventor of the Telephone, Antonio Maucci But Maucci couldn't afford the fee to file

1093
01:24:24.820 --> 01:24:26.340
the patent.

1094
01:24:26.340 --> 01:24:33.880
This oversight was fixed in a 2002 declaration by the US Congress, but just a bit too late.

1095
01:24:33.880 --> 01:24:38.980
There is an unlimited number of such cases that lead to fundamental questioning of the

1096
01:24:38.980 --> 01:24:43.220
relationship between patents and innovation.

1097
01:24:43.220 --> 01:24:47.340
It turns out that there are very few great leaps forward in history that are the result

1098
01:24:47.340 --> 01:24:56.080
Most advances are the cooperative work of many factors alive in society, with individuals

1099
01:24:56.080 --> 01:25:02.040
improving things a bit at a time until all those improvements come together in a marketable

1100
01:25:02.040 --> 01:25:03.680
form.

1101
01:25:03.680 --> 01:25:09.920
The patent has essentially nothing to do with it.

1102
01:25:09.920 --> 01:25:13.240
And Baudrin and Levine are hardly the first to point this out.

1103
01:25:13.240 --> 01:25:18.520
You might be surprised to know that many academic economists have done empirical studies on the

1104
01:25:18.520 --> 01:25:22.400
relationship between patents and economic advance.

1105
01:25:22.400 --> 01:25:30.500
Of all those studies they reviewed – 23 in total – they found none that could establish

1106
01:25:30.500 --> 01:25:35.560
a strong relationship, and many that found negative relationships between patents and

1107
01:25:35.560 --> 01:25:43.260
and Development – that is, that patents actually impede progress.

1108
01:25:43.260 --> 01:25:46.920
What they've found further is that the main contribution of patents is to increase the

1109
01:25:46.920 --> 01:25:50.260
production of… patents.

1110
01:25:50.260 --> 01:25:55.100
But that is not the same as increasing invention, for the main use of the patent is to put a

1111
01:25:55.100 --> 01:26:01.160
stop to any similar innovation that builds upon and improves the patented thing.

1112
01:26:01.160 --> 01:26:07.980
The patent holder rides high for a time, but history is actually frozen in place.

1113
01:26:07.980 --> 01:26:15.440
The process of imitation and sharing that led to the innovation becomes formalized, centralized,

1114
01:26:15.440 --> 01:26:19.000
fixed and stagnant.

1115
01:26:19.000 --> 01:26:23.740
They examine the case of databases, which are patented in Europe, but not in the United

1116
01:26:23.740 --> 01:26:25.520
States.

1117
01:26:25.520 --> 01:26:29.880
The United States wins the competition easily.

1118
01:26:29.880 --> 01:26:36.560
The American dominance of database production runs 2.5 to 1 compared with Europe.

1119
01:26:36.560 --> 01:26:42.100
To me, this helps explain what many have noticed, namely, that Europe is seriously behind in

1120
01:26:42.100 --> 01:26:45.660
its digitalization and organization of information.

1121
01:26:45.660 --> 01:26:50.900
With most Europeans possessing oddly antiquated intellectual capital concerning even the most

1122
01:26:50.900 --> 01:26:54.480
basic databaseing skills, now we know.

1123
01:26:54.480 --> 01:26:56.200
It's not their fault.

1124
01:26:56.200 --> 01:27:03.160
It's the fault of their IP regimes Thus does Chapter 8 of Against Intellectual

1125
01:27:03.160 --> 01:27:09.000
Monopoly discuss all the existing literature that makes the case – on purpose or inadvertently

1126
01:27:09.000 --> 01:27:12.640
– against patents.

1127
01:27:12.640 --> 01:27:16.180
It is packed with empirical detail, but in particular I'm intrigued at their review

1128
01:27:16.180 --> 01:27:22.800
of the history of musical composition in England and Europe during the 18th and 19th centuries.

1129
01:27:22.800 --> 01:27:27.600
They find that the countries with no copyright legislation – German territories in particular

1130
01:27:27.600 --> 01:27:32.660
– had more composers per capita than countries like England.

1131
01:27:32.660 --> 01:27:40.240
And in England in particular, the 1750 copyright law, extended to music in 1777, had the effect

1132
01:27:40.240 --> 01:27:46.060
of bringing the entire composition industry to a grinding halt.

1133
01:27:46.060 --> 01:27:52.040
And later, when copyright was imposed on Italy and France, it led to a diminution of composer

1134
01:27:52.040 --> 01:28:02.140
This demonstration is intriguing beyond what most music historians can possibly imagine.

1135
01:28:02.140 --> 01:28:07.320
It solves a long-running mystery concerning how it came to be that the most musically

1136
01:28:07.320 --> 01:28:12.940
educated population in the world – one with a massive history of compositional genius

1137
01:28:12.940 --> 01:28:19.380
– would suddenly fail to participate in the progress that defined the age of Mozart

1138
01:28:19.380 --> 01:28:21.480
and Beethoven.

1139
01:28:21.480 --> 01:28:27.080
These historians just haven't known where to look for clues.

1140
01:28:27.080 --> 01:28:34.680
This chapter makes me sad for all the great innovators whose names are not in the history

1141
01:28:34.680 --> 01:28:35.880
books.

1142
01:28:35.880 --> 01:28:41.400
And even sadder for all of us who have been denied great innovations, because some fool

1143
01:28:41.400 --> 01:28:46.360
managed to make it to the patent office first, only to use that privilege to kill his competition

1144
01:28:46.360 --> 01:28:48.800
the next day.

1145
01:28:48.800 --> 01:28:54.440
Far from encouraging innovation, patent and copyright have managed to kill off so many

1146
01:28:54.440 --> 01:29:00.080
wonderful works of art and technologies that it boggles the mind.

1147
01:29:00.080 --> 01:29:03.940
In order to understand this, you have to look beyond the patent records.

1148
01:29:03.940 --> 01:29:11.240
You have to train yourself to look at the unseen costs of government regulation.

1149
01:29:11.240 --> 01:29:14.840
Do patents save our lives?

1150
01:29:14.840 --> 01:29:19.440
How essential are drug patents as a piece of the machinery of the modern pharmaceutical

1151
01:29:19.440 --> 01:29:22.440
industry?

1152
01:29:22.440 --> 01:29:24.440
Incredibly so.

1153
01:29:24.440 --> 01:29:28.880
Repealing them with no other changes would likely lead to a dismantling of a massive and

1154
01:29:28.880 --> 01:29:33.400
lucrative industry that saves lives every day.

1155
01:29:33.400 --> 01:29:38.580
To elaborate, without patents, compensation for the hundreds of millions of dollars necessary

1156
01:29:38.580 --> 01:29:44.040
for jumping through FDA hoops would not be forthcoming.

1157
01:29:44.040 --> 01:29:45.040
Our patents.

1158
01:29:45.040 --> 01:29:50.520
The huge manufacturers who face mandatory disclosure requirements would have their formulas taken

1159
01:29:50.520 --> 01:29:55.760
by others, and knockoffs would immediately drive the price to marginal cost.

1160
01:29:55.760 --> 01:30:01.640
The vast costs of redundant testing and retesting could not be absorbed by future revenue streams,

1161
01:30:01.640 --> 01:30:07.580
and these streams are themselves uncertain due to the arbitrariness of the FDA's process.

1162
01:30:07.580 --> 01:30:12.840
And thanks to wicked antitrust laws, companies face a legal minefield in combining efforts

1163
01:30:12.840 --> 01:30:18.880
cooperating on research, maintaining prices and sharing markets.

1164
01:30:18.880 --> 01:30:25.840
But notice that all the reasons why patents in pharmaceuticals seem necessary are themselves

1165
01:30:25.840 --> 01:30:31.720
due to some other form of government intervention – drug regulation, antitrust, government

1166
01:30:31.720 --> 01:30:35.600
funding and government mandates of all sorts.

1167
01:30:35.600 --> 01:30:44.400
Education has begotten regulation, with each step seemingly dependent on every other regulation.

1168
01:30:44.400 --> 01:30:50.920
The result is a massive rat's nest of laws that is buried deep within a much larger hairball

1169
01:30:50.920 --> 01:30:55.520
of the medical industry itself, which has been dominated by increasingly tight state

1170
01:30:55.520 --> 01:30:58.740
controls for nearly a century.

1171
01:30:58.740 --> 01:31:02.980
Then there is a further problem of liability confusion and court precedent that is woven

1172
01:31:02.980 --> 01:31:14.020
How can anyone begin to discuss only one aspect of the marketplace without thoroughly discussing

1173
01:31:14.020 --> 01:31:16.580
all the other aspects?

1174
01:31:16.580 --> 01:31:21.240
How can the authors of Against Intellectual Monopoly possibly sort through this thicket

1175
01:31:21.240 --> 01:31:26.440
to make a case for repealing patents on pharmaceuticals?

1176
01:31:26.440 --> 01:31:32.260
Because of the above complications, I dreaded this chapter most.

1177
01:31:32.260 --> 01:31:34.700
I was wrong to do so.

1178
01:31:34.700 --> 01:31:40.140
What they have produced is a masterpiece of exposition.

1179
01:31:40.140 --> 01:31:45.780
They have both the big picture and the small picture, with fascinating details in paragraph

1180
01:31:45.780 --> 01:31:48.380
after paragraph.

1181
01:31:48.380 --> 01:31:51.980
They take the reader through the logic and evidence at just the right pace and manage

1182
01:31:51.980 --> 01:31:54.700
the seemingly impossible.

1183
01:31:54.700 --> 01:32:01.020
The reader is wholly convinced that drug patents are not necessary, and in fact are doing great

1184
01:32:01.020 --> 01:32:04.300
Evil in the World Today.

1185
01:32:04.300 --> 01:32:08.600
It is the hardest case to make and they knew this going in.

1186
01:32:08.600 --> 01:32:15.580
Theirs is a virtuoso performance worthy of separate publication.

1187
01:32:15.580 --> 01:32:19.900
Some people love the farms and other people hate them.

1188
01:32:19.900 --> 01:32:23.040
The authors take a middle ground position.

1189
01:32:23.040 --> 01:32:28.820
They do great good for the world, but they are embedded deep within a regulatory regime

1190
01:32:28.820 --> 01:32:34.620
that is stultifying the industry, and drug patents play a big role in this.

1191
01:32:34.620 --> 01:32:39.580
Can we imagine a world without drug patents?

1192
01:32:39.580 --> 01:32:40.580
No need to dream.

1193
01:32:40.580 --> 01:32:45.920
In the sweep of history, patents like we have today are essentially a post-war phenomenon,

1194
01:32:45.920 --> 01:32:50.240
and prior to that, the industry developed faster in countries without patents than those

1195
01:32:50.240 --> 01:32:52.320
with them.

1196
01:32:52.320 --> 01:32:57.900
One way to show that is to examine 19th century chemical production.

1197
01:32:57.900 --> 01:33:02.700
They tell the story of the French patent on colouring dyes, granted to the La Fuchine

1198
01:33:02.700 --> 01:33:08.680
Company, a patent that pretty well destroyed all development in France, while the absence

1199
01:33:08.680 --> 01:33:14.900
of patent in Germany, Switzerland and Britain led to massive innovation and the beginnings

1200
01:33:14.900 --> 01:33:17.500
of the modern industry.

1201
01:33:17.500 --> 01:33:21.860
The United States was very behind here due to its strong patents, and even in the First

1202
01:33:21.860 --> 01:33:26.780
World War, the United States had to import dyes from Germany in violation of the British

1203
01:33:26.780 --> 01:33:28.540
Blockade.

1204
01:33:28.540 --> 01:33:32.780
This was how DuPont got its start.

1205
01:33:32.780 --> 01:33:38.300
In recent decades, there have been pockets of farm patent freedom.

1206
01:33:38.300 --> 01:33:43.720
Before 1978, it was Italy, where a thriving industry existed for a century, in the absence

1207
01:33:43.720 --> 01:33:45.640
of patents.

1208
01:33:45.640 --> 01:33:51.460
The patent accounted for the discovery of 10% of the new compounds between 1961 and

1209
01:33:51.460 --> 01:33:53.340
1980.

1210
01:33:53.340 --> 01:34:00.860
Some companies poured into Italy to imitate and develop, but this shut down after 1978,

1211
01:34:00.860 --> 01:34:06.620
when Italy introduced patents under pressure from foreign multinationals.

1212
01:34:06.620 --> 01:34:11.540
India then took the position of the free market country and its industry became a huge player

1213
01:34:11.540 --> 01:34:18.460
in the generic drug production market, until India too was forced into the WTO agreement

1214
01:34:18.460 --> 01:34:22.380
and shut down its dynamic market.

1215
01:34:22.380 --> 01:34:30.360
The whole world of pharmaceuticals is now engulfed in an incredible patent thicket, and people

1216
01:34:30.360 --> 01:34:35.380
praise all the innovation taking place, but rarely ask how much prior innovation really

1217
01:34:35.380 --> 01:34:40.320
owes to the patent, or how much innovation we might experience, or how low the prices

1218
01:34:40.320 --> 01:34:44.980
would be in absence of the patent.

1219
01:34:44.980 --> 01:34:51.380
Baudrin and Levine dare to ask the question about where the innovations of highest social

1220
01:34:51.380 --> 01:34:55.200
Medical Value over the centuries have come from.

1221
01:34:55.200 --> 01:34:59.400
They looked through medical journals and found several surveys.

1222
01:34:59.400 --> 01:35:05.140
What were the medical milestones most significant in history?

1223
01:35:05.140 --> 01:35:16.020
The list – penicillin, x-rays, tissue culture, anesthetic, chlorpromazine, public sanitation,

1224
01:35:16.020 --> 01:35:24.540
From Theory, evidence-based medicine, vaccines, the pill, computers, oral rehydration therapy,

1225
01:35:24.540 --> 01:35:34.060
DNS structure, monoclonal antibody technology, and the discovery of the health risks of smoking.

1226
01:35:34.060 --> 01:35:39.300
Only two of these were patented, or were due to some previous patent, or brought about

1227
01:35:39.300 --> 01:35:42.340
with a patent incentive.

1228
01:35:42.340 --> 01:35:46.520
A separate list of the top 10 public health achievements of the 20th century was put together

1229
01:35:46.520 --> 01:35:49.700
by the US Centers for Disease Control and Prevention.

1230
01:35:49.700 --> 01:35:57.200
It is striking that not a single one involved patents at any level.

1231
01:35:57.200 --> 01:36:04.380
Several people wrote in to complain that aspirin, Helicobacter pylori and Medline were not on

1232
01:36:04.380 --> 01:36:05.380
the list.

1233
01:36:05.380 --> 01:36:10.060
None owes anything to patents.

1234
01:36:10.060 --> 01:36:15.500
Even looking at a list of top pharmaceuticals does not produce a patent-favorable result.

1235
01:36:15.500 --> 01:36:24.460
Baudrin and Levine find that patents had nothing to do with aspirin, AZT, cyclosporine, digoxin,

1236
01:36:24.460 --> 01:36:34.980
ether, fluoride, insulin, isonazid, medical marijuana, methadone, morphine, oxytocin, penicillin,

1237
01:36:34.980 --> 01:36:46.540
phenobarbital, prontosal, quinine, ritalin, methylphenidate, salversan, vaccines, or vitamins.

1238
01:36:46.540 --> 01:36:51.740
Of the remaining products that owe their existence to patents, most were either discovered accidentally,

1239
01:36:51.740 --> 01:36:55.760
were discovered in university labs, or were simultaneous discoveries that led to expensive

1240
01:36:55.760 --> 01:36:58.820
battles over who would get the patent.

1241
01:36:58.820 --> 01:37:04.620
The authors turned to the problems of corruption in farms, and to their relationship with doctors,

1242
01:37:04.620 --> 01:37:12.140
and to the crazy requirements involved in redundant testing for patents and final FDA approval.

1243
01:37:12.140 --> 01:37:17.320
More than half of newly patented drugs are nothing other than repackaging of existing

1244
01:37:17.320 --> 01:37:19.800
drugs on the market.

1245
01:37:19.800 --> 01:37:24.300
It is not uncommon for a drug going out of patent to be repattented as something new,

1246
01:37:24.300 --> 01:37:28.460
but that requires massive new clinical trials and high costs.

1247
01:37:28.460 --> 01:37:34.060
The companies then have the incentive to market the patented over the out-of-patent product

1248
01:37:34.060 --> 01:37:38.780
and doctors have proven responsive to this tactic.

1249
01:37:38.780 --> 01:37:42.580
It is not surprising that even some studies sponsored by the pharmaceutical industry have

1250
01:37:42.580 --> 01:37:46.960
concluded that they would be better off without the patent, given the high cost of otherwise

1251
01:37:46.960 --> 01:37:51.800
adhering to the mandates, marketing and all the rest, and especially given that the length

1252
01:37:51.800 --> 01:37:58.720
of patent is comparatively short given the time required for FDA approval.

1253
01:37:58.720 --> 01:38:04.800
Despite all odds, the authors have made a very compelling case that a free market in

1254
01:38:04.800 --> 01:38:11.240
pharmaceuticals would lead to the development of innovative drugs, save dramatically in

1255
01:38:11.240 --> 01:38:18.560
all the associated costs of bringing drugs to market today, and save consumers a bundle.

1256
01:38:18.560 --> 01:38:23.560
Even if you are completely unconvinced by this cursory summary, I urge you to read their

1257
01:38:23.560 --> 01:38:30.220
Their entire case, it causes a mind shifting to take place, consistent with the overall

1258
01:38:30.220 --> 01:38:38.760
theme of the book, competition, not monopoly, is the source of innovation and development.

1259
01:38:38.760 --> 01:38:45.580
Life-saving drugs are too important to be left to government grants of monopoly.

1260
01:38:45.580 --> 01:38:49.540
The mercantilism of our time.

1261
01:38:49.540 --> 01:38:54.160
Someone handed me a book the other day, a cult classic among music geeks, and urged

1262
01:38:54.160 --> 01:39:00.220
me to read it, and when I had finished, signed my name in the front cover.

1263
01:39:00.220 --> 01:39:04.340
That way I could be added to the already long list of readers in the front cover, each of

1264
01:39:04.340 --> 01:39:10.100
whom had added his or her scrawl to the book after having read it.

1265
01:39:10.100 --> 01:39:14.740
How charming, except for one thing.

1266
01:39:14.740 --> 01:39:20.980
This is in complete violation of the spirit of intellectual property law.

1267
01:39:20.980 --> 01:39:27.060
All these readers were sharing the same book instead of buying a new copy.

1268
01:39:27.060 --> 01:39:31.660
Think of the revenue lost to the publisher and the royalties lost to the author.

1269
01:39:31.660 --> 01:39:35.720
Why if this gets out of hand, no one will ever write or publish again.

1270
01:39:35.720 --> 01:39:42.740
These readers are all pirates and thieves, and they should probably be subject to prosecution.

1271
01:39:42.740 --> 01:39:47.100
So goes the rationale behind intellectual property law.

1272
01:39:47.100 --> 01:39:53.660
It's what economists call a producer's policy, designed to create maximum revenue

1273
01:39:53.660 --> 01:39:59.420
for one side of the economic exchange, consumers be damned.

1274
01:39:59.420 --> 01:40:05.220
In that sense, it is exactly like trade protection, a short-sighted policy that stymies growth,

1275
01:40:05.220 --> 01:40:08.420
robs consumers and subsidizes inefficiency.

1276
01:40:08.420 --> 01:40:17.800
It's Bastiat's Petition of the Candlemakers Against the Sun, all over again.

1277
01:40:17.800 --> 01:40:22.340
Apply the IP principle consistently, and it's a wonder we tolerate public libraries, where

1278
01:40:22.340 --> 01:40:27.660
people are encouraged to share the same copy of a book, rather than buy a new copy.

1279
01:40:27.660 --> 01:40:32.460
Isn't this also an institutionalized form of piracy?

1280
01:40:32.460 --> 01:40:36.400
The defenders of IP would have to admit that it is.

1281
01:40:36.400 --> 01:40:41.000
They are often driven to crazy extremes in sticking to the claim that copying is a form

1282
01:40:41.000 --> 01:40:43.120
of theft.

1283
01:40:43.120 --> 01:40:47.320
I asked one emphatic correspondent about the ethics of the following case.

1284
01:40:47.320 --> 01:40:53.400
I see a guy in a blue shirt and like it, so I respond by wearing one too.

1285
01:40:53.400 --> 01:40:55.520
Is this immoral?

1286
01:40:55.520 --> 01:41:01.800
No, he said, because the color blue occurs in nature.

1287
01:41:01.800 --> 01:41:05.040
What if a person draws a yellow happy face on the blue shirt?

1288
01:41:05.040 --> 01:41:06.520
Can I copy that?

1289
01:41:06.520 --> 01:41:09.920
No, he said, this would be immoral.

1290
01:41:09.920 --> 01:41:13.000
I must ask his permission and gain his consent.

1291
01:41:13.000 --> 01:41:17.080
Actually, it's even worse than this case suggests.

1292
01:41:17.080 --> 01:41:22.000
If even one person had previously worn a blue shirt with a happy face, no one else on the

1293
01:41:22.000 --> 01:41:26.800
planet would be able to do that without seeking consent.

1294
01:41:26.800 --> 01:41:31.960
It should be obvious that if everyone were required to seek the permission for the use

1295
01:41:31.960 --> 01:41:39.040
of every infinitely reproducible thing that belongs to someone else – every word, phrase,

1296
01:41:39.040 --> 01:41:44.220
look, vocal inflection, chord progression, arrangement of letters, hairstyle, technique

1297
01:41:44.220 --> 01:41:49.440
or whatever – or if we were really to suppose that only one person may possess the unique

1298
01:41:49.440 --> 01:41:55.400
instance of any of these things, civilization would come to a grinding halt.

1299
01:41:55.400 --> 01:42:01.200
Sadly, this is where our laws are tending.

1300
01:42:01.200 --> 01:42:06.380
Right now, there are laws being considered that would step up IP enforcement to the point

1301
01:42:06.380 --> 01:42:09.920
of clear absurdity.

1302
01:42:09.920 --> 01:42:15.640
Just last week, YouTube removed the background music of countless videos for copyright reasons,

1303
01:42:15.640 --> 01:42:19.800
even though such videos helped popularize the music.

1304
01:42:19.800 --> 01:42:25.160
Even home performances of songs written in the 1930s, young kids playing piano and singing

1305
01:42:25.160 --> 01:42:36.760
People are talking about extending patents to sports moves, extending copyright to storylines,

1306
01:42:36.760 --> 01:42:41.280
imposing a central plan on computer design to comply with patents, forcing everyone on

1307
01:42:41.280 --> 01:42:48.000
the planet to obey US-style IP laws by means of military force.

1308
01:42:48.000 --> 01:42:53.680
Kids are going to jail, institutions are hiring internal police forces to watch for IP violations,

1309
01:42:53.680 --> 01:42:59.400
and an entire generation is growing up with a deeply cynical attitude toward the entire

1310
01:42:59.400 --> 01:43:03.120
business of law.

1311
01:43:03.120 --> 01:43:11.780
We are at a prohibition-style moment with regard to IP, just as with liquor in the 1920s.

1312
01:43:11.780 --> 01:43:17.440
The war on the banned things isn't working.

1313
01:43:17.440 --> 01:43:21.320
Those in power face the choice of stepping it up even further and thereby imposing a

1314
01:43:21.320 --> 01:43:49.640
Do you know why we celebrate Columbus Day instead of Cheng Ho Day?

1315
01:43:49.640 --> 01:43:54.720
Zhang Hou was a great Chinese explorer who, in the early 15th century, took his fleets

1316
01:43:54.720 --> 01:44:00.140
to Africa and the Middle East, but he was forced to stop when the elites in the home

1317
01:44:00.140 --> 01:44:04.320
country began to feel threatened by his discoveries.

1318
01:44:04.320 --> 01:44:11.320
The Chinese government won the war on exploration and became static and inward.

1319
01:44:11.320 --> 01:44:17.760
You can win a war on progress, but the gains over the long term are few.

1320
01:44:17.760 --> 01:44:22.840
In addition to relaying the above story, the authors of Against Intellectual Monopoly, in

1321
01:44:22.840 --> 01:44:30.160
the last chapter of their fantastic book, make a case for the complete dismantling of

1322
01:44:30.160 --> 01:44:31.520
the law.

1323
01:44:31.520 --> 01:44:36.720
Intellectual property is a cancer, they write.

1324
01:44:36.720 --> 01:44:42.780
The goal must be not merely to make the cancer more benign, but ultimately to get rid of

1325
01:44:42.780 --> 01:44:45.620
it entirely.

1326
01:44:45.620 --> 01:44:50.220
The authors do not leave it at that – they are intellectuals of the real world.

1327
01:44:50.220 --> 01:44:55.100
They first make a case against any further expansion of bad laws, and lay out some reform

1328
01:44:55.100 --> 01:45:01.180
proposals, shortening patent and copyright terms, changing burden of proof for originality,

1329
01:45:01.180 --> 01:45:05.720
eliminating ridiculous redundancy trials for drugs and the like.

1330
01:45:05.720 --> 01:45:10.580
The authors even volunteer their time to help craft legislation.

1331
01:45:10.580 --> 01:45:18.000
But the really hard work here is intellectual, since the pro-IP bias is so entrenched.

1332
01:45:18.000 --> 01:45:24.900
The authors take the pure abolitionist position as a way of shocking us out of our stupor.

1333
01:45:24.900 --> 01:45:27.100
Is change possible?

1334
01:45:27.100 --> 01:45:29.600
Of course.

1335
01:45:29.600 --> 01:45:34.660
It was thought in the Middle Ages that most all products required monopoly production.

1336
01:45:34.660 --> 01:45:37.540
The salt producer would enter into an agreement with the ruler.

1337
01:45:37.540 --> 01:45:42.440
The ruler would promise a monopoly in exchange for a share of the revenue.

1338
01:45:42.440 --> 01:45:46.680
It was thought that this would guarantee access to a valuable commodity.

1339
01:45:46.680 --> 01:45:51.140
How can anyone make a buck without a guarantee that his hard work would be compensated?

1340
01:45:51.140 --> 01:45:58.220
Well, it took time, but eventually people realized that competition and markets actually

1341
01:45:58.220 --> 01:46:02.960
do provide as implausible as it may seem.

1342
01:46:02.960 --> 01:46:08.280
As the centuries moved on, markets became ever freer, and we no longer believe that

1343
01:46:08.280 --> 01:46:12.680
the king must confer a special status on any producer.

1344
01:46:12.680 --> 01:46:18.740
They still do it, of course, but mostly for open reasons of political patronage.

1345
01:46:18.740 --> 01:46:25.660
And yet, in this one area of intellectual property, all the old, mechanicalist myths

1346
01:46:25.660 --> 01:46:28.440
survive.

1347
01:46:28.440 --> 01:46:33.220
People still believe that a state grant of monopoly privilege is necessary for the market

1348
01:46:33.220 --> 01:46:35.120
to work.

1349
01:46:35.120 --> 01:46:40.520
The myth has now been crushed with this book.

1350
01:46:40.520 --> 01:46:46.600
So now the laws can be beaten back, and they are being beaten back in the age of digital

1351
01:46:46.600 --> 01:46:49.320
media.

1352
01:46:49.320 --> 01:46:57.120
Realize that for young people today, the initials RIAA and MPAA are the most hated on the planet,

1353
01:46:57.120 --> 01:47:01.680
The equivalent of the IRS for a past generation.

1354
01:47:01.680 --> 01:47:05.040
The heck of it is that these are private entities.

1355
01:47:05.040 --> 01:47:07.800
Think what this means.

1356
01:47:07.800 --> 01:47:10.720
Capitalists of the world, please pay attention.

1357
01:47:10.720 --> 01:47:17.640
You have a serious problem when an entire generation is being raised to hate private

1358
01:47:17.640 --> 01:47:20.120
capitalistic institutions.

1359
01:47:20.120 --> 01:47:25.560
Now, you and I know that these institutions are doing something illegitimate, namely

1360
01:47:25.560 --> 01:47:31.000
enforcing intellectual property, which is really nothing but state coercion.

1361
01:47:31.000 --> 01:47:35.940
Still, this besmirches the reputation of free markets.

1362
01:47:35.940 --> 01:47:41.960
So too is a generation of socialists being raised to hate US foreign policy on the belief

1363
01:47:41.960 --> 01:47:47.260
that its export of IP is a form of capitalist imperialism.

1364
01:47:47.260 --> 01:47:53.620
For these reasons, no one has a stronger interest in abolishing intellectual property than supporters

1365
01:47:53.620 --> 01:47:54.620
of Capitalism.

1366
01:47:54.620 --> 01:48:01.500
I said at the beginning of this book that it took me fully six years to think through

1367
01:48:01.500 --> 01:48:03.500
these issues.

1368
01:48:03.500 --> 01:48:10.460
The book by Baldwin and Levine broke through the reservations I had that remained.

1369
01:48:10.460 --> 01:48:14.400
In the meantime, I've received hundreds of messages to the effect that other readers

1370
01:48:14.400 --> 01:48:17.100
have made the jump to.

1371
01:48:17.100 --> 01:48:21.820
Whatever is holding you back, I beg you to read this account.

1372
01:48:21.820 --> 01:48:27.720
I personally consider it to be one of the most mind-blowing books I've ever encountered.

1373
01:48:27.720 --> 01:48:32.620
And so now I join the armies of people who are demanding an end to a system that threatens

1374
01:48:32.620 --> 01:48:36.580
our way of life in the most fundamental way.

1375
01:48:36.580 --> 01:48:42.660
For this reason, this book is seminal, not only for our times, but for the entire history

1376
01:48:42.660 --> 01:48:43.820
of liberty.

1377
01:48:43.820 --> 01:48:49.120
It has clarified a point that has been a source of confusion for many years, and put it front

1378
01:48:49.120 --> 01:48:52.620
and center in the current debate.

1379
01:48:52.620 --> 01:48:57.140
It might need correcting in places, and I have my own knits to pick over their neoclassical

1380
01:48:57.140 --> 01:49:02.240
framework and talk of social costs and the like, but these are petty concerns as compared

1381
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with the overall framework.

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What they have done is marvelous and extremely important.