WEBVTT NOTE 10.07. Patents and Copyrights 1 00:00:00.000 --> 00:00:05.840 7. Patents and Copyrights 2 00:00:05.840 --> 00:00:12.600 Turning now to patents and copyrights, we ask, which of the two, if either, is consonant 3 00:00:12.600 --> 00:00:18.900 with the purely free market, and which is a grant of monopoly privilege by the state? 4 00:00:18.900 --> 00:00:25.200 In this part, we have been analyzing the economics of the purely free market, where the individual 5 00:00:25.200 --> 00:00:29.800 All persons and property are not subject to molestation. 6 00:00:29.800 --> 00:00:36.040 It is therefore important to decide whether patents or copyrights will obtain in the purely 7 00:00:36.040 --> 00:00:43.720 free non-invasive society, or whether they are a function of government interference. 8 00:00:43.720 --> 00:00:48.580 Almost all writers have bracketed patents and copyrights together. 9 00:00:48.580 --> 00:00:54.300 Most have considered both as grants of exclusive monopoly privilege by the state. 10 00:00:54.300 --> 00:01:00.540 A few have considered both as part and parcel of property right on the free market. 11 00:01:00.540 --> 00:01:07.180 But almost everyone has considered patents and copyrights as equivalent, the one as conferring 12 00:01:07.180 --> 00:01:13.060 an exclusive property right in the field of mechanical inventions, the other as conferring 13 00:01:13.060 --> 00:01:17.340 an exclusive right in the field of literary creations. 14 00:01:17.340 --> 00:01:22.080 Yet this bracketing of patents and copyrights is wholly fallacious. 15 00:01:22.080 --> 00:01:26.960 The two are completely different in relation to the free market. 16 00:01:26.960 --> 00:01:33.200 It is true that a patent and a copyright are both exclusive property rights, and it is also 17 00:01:33.200 --> 00:01:39.180 true that they are both property rights and innovations, but there is a crucial difference 18 00:01:39.180 --> 00:01:41.840 in their legal enforcement. 19 00:01:41.840 --> 00:01:49.300 If an author or a composer believes his copyright is being infringed and he takes legal action, 20 00:01:49.300 --> 00:01:55.980 He must prove that the defendant had access to the work allegedly infringed. 21 00:01:55.980 --> 00:02:01.980 If the defendant produces something identical with the plaintiff's work by mere chance, 22 00:02:01.980 --> 00:02:03.740 there is no infringement. 23 00:02:03.740 --> 00:02:10.160 Copyrights, in other words, have their basis in prosecution of implicit theft. 24 00:02:10.160 --> 00:02:16.180 The plaintiff must prove that the defendant stole the former's creation by reproducing 25 00:02:16.180 --> 00:02:41.100 Patents, on the other hand, are completely different. 26 00:02:41.100 --> 00:02:45.100 Thus, one how-to writer on patents declares, 27 00:02:45.100 --> 00:02:51.100 You have patented your invention, and you read in the newspaper one day that John Doe, 28 00:02:51.100 --> 00:02:58.100 who lives in a city 2,000 miles from your town, has invented an identical or similar device, 29 00:02:58.100 --> 00:03:02.100 that he has licensed the E.Z. company to manufacture it. 30 00:03:02.100 --> 00:03:07.100 Neither Doe nor the E.Z. company ever heard of your invention. 31 00:03:07.100 --> 00:03:12.100 All believe Doe to be the inventor of a new and original device. 32 00:03:12.100 --> 00:03:16.100 They may all be guilty of infringing your patent. 33 00:03:16.100 --> 00:03:25.100 The fact that their infringement was in ignorance of the true facts and unintentional will not constitute a defense. 34 00:03:25.100 --> 00:03:29.100 Patent, then, has nothing to do with implicit theft. 35 00:03:29.100 --> 00:03:34.100 It confers an exclusive privilege on the first inventor, 36 00:03:34.100 --> 00:03:40.980 and if anyone else should, quite independently, invent the same or similar machine or product, 37 00:03:40.980 --> 00:03:45.620 the latter would be debarred by violence from using it in production. 38 00:03:46.740 --> 00:03:53.380 We have seen in Chapter 2 that the acid test by which we judge whether or not a certain practice 39 00:03:53.380 --> 00:04:00.820 or law is or is not consonant with the free market is this. Is the outlawed practice 40 00:04:00.820 --> 00:04:03.780 Implicit or Explicit Theft 41 00:04:03.780 --> 00:04:07.140 If it is, then the free market would outlaw it. 42 00:04:07.140 --> 00:04:13.780 If not, then its outlawry is itself government interference in the free market. 43 00:04:13.780 --> 00:04:16.020 Let us consider copyright. 44 00:04:16.020 --> 00:04:21.300 A man writes a book or composes music. When he publishes the book or sheet of 45 00:04:21.300 --> 00:04:26.340 music, he imprints on the first page the word copyright. 46 00:04:26.340 --> 00:04:32.620 This indicates that any man who agrees to purchase this product also agrees as part 47 00:04:32.620 --> 00:04:39.340 of the exchange not to recopy or reproduce this work for sale. 48 00:04:39.340 --> 00:04:45.100 In other words, the author does not sell his property outright to the buyer. 49 00:04:45.100 --> 00:04:50.780 He sells it on condition that the buyer not reproduce it for sale. 50 00:04:50.780 --> 00:04:57.740 Since the buyer does not buy the property outright but only on this condition, any infringement 51 00:04:57.740 --> 00:05:05.100 of the contract by him or a subsequent buyer is implicit theft and would be treated accordingly 52 00:05:05.100 --> 00:05:06.980 on the free market. 53 00:05:06.980 --> 00:05:13.940 The copyright is therefore a logical device of property right on the free market. 54 00:05:13.940 --> 00:05:19.640 Part of the patent protection now obtained by an inventor could be achieved on the free 55 00:05:19.640 --> 00:05:27.320 Free Market by a Type of Copyright Protection Thus, inventors must now mark their machines 56 00:05:27.320 --> 00:05:29.320 as being patented. 57 00:05:29.320 --> 00:05:35.200 The mark puts the buyers on notice that the invention is patented and that they cannot 58 00:05:35.200 --> 00:05:37.200 sell that article. 59 00:05:37.200 --> 00:05:42.960 But the same could be done to extend the copyright system, and without patent. 60 00:05:42.960 --> 00:05:49.440 In the purely free market, the inventor could mark his machine, copyright, and then anyone 61 00:05:49.440 --> 00:05:55.640 The man who buys the machine buys it on the condition that he will not reproduce and sell 62 00:05:55.640 --> 00:05:58.320 such a machine for profit. 63 00:05:58.320 --> 00:06:05.200 Any violation of this contract would constitute implicit theft and be prosecuted accordingly 64 00:06:05.200 --> 00:06:07.500 on the free market. 65 00:06:07.500 --> 00:06:15.280 The patent is incompatible with the free market precisely to the extent that it goes beyond 66 00:06:15.280 --> 00:06:17.020 the copyright. 67 00:06:17.020 --> 00:06:23.340 The man who has not bought a machine and who arrives at the same invention independently 68 00:06:23.340 --> 00:06:29.500 will on the free market be perfectly able to use and sell his invention. 69 00:06:29.500 --> 00:06:35.960 Patents prevent a man from using his invention even though all the property is his and he 70 00:06:35.960 --> 00:06:43.900 has not stolen the invention either explicitly or implicitly from the first inventor. 71 00:06:43.900 --> 00:06:50.300 Patents therefore are grants of exclusive monopoly privilege by the state and are invasive 72 00:06:50.300 --> 00:06:53.720 of property rights on the market. 73 00:06:53.720 --> 00:07:00.080 The crucial distinction between patents and copyrights then is not that one is mechanical 74 00:07:00.080 --> 00:07:02.040 and the other literary. 75 00:07:02.040 --> 00:07:07.160 The fact that they have been applied that way is an historical accident and does not 76 00:07:07.160 --> 00:07:10.620 reveal the critical difference between them. 77 00:07:10.620 --> 00:07:17.500 This can be seen in the field of designs, which can be either copyrighted or patented. 78 00:07:17.500 --> 00:07:23.440 The crucial difference is that copyright is a logical attribute of property right on the 79 00:07:23.440 --> 00:07:30.060 free market, while patent is a monopoly invasion of that right. 80 00:07:30.060 --> 00:07:37.380 The application of patents to mechanical inventions and copyrights to literary works is peculiarly 81 00:07:37.380 --> 00:07:38.620 inappropriate. 82 00:07:38.620 --> 00:07:43.420 It would be more in keeping with the free market to be just the reverse. 83 00:07:43.420 --> 00:07:48.140 For literary creations are unique products of the individual. 84 00:07:48.140 --> 00:07:53.940 It is almost impossible for them to be independently duplicated by someone else. 85 00:07:53.940 --> 00:08:00.060 Therefore, a patent instead of a copyright for literary productions would make little 86 00:08:00.060 --> 00:08:02.060 difference in practice. 87 00:08:02.060 --> 00:08:07.780 On the other hand, mechanical inventions are discoveries of natural law rather than 88 00:08:07.780 --> 00:08:14.500 and Individual Creations, and hence similar independent inventions occur all the time. 89 00:08:14.500 --> 00:08:20.880 The simultaneity of inventions is a familiar historical fact, hence if it is desired to 90 00:08:20.880 --> 00:08:28.760 maintain a free market, it is particularly important to allow copyrights but not patents 91 00:08:28.760 --> 00:08:31.580 for mechanical inventions. 92 00:08:31.580 --> 00:08:37.500 The common law has often been a good guide to the law consonant with the free market, 93 00:08:37.500 --> 00:08:43.700 Since it is not surprising that common law copyright prevails for unpublished literary 94 00:08:43.700 --> 00:08:49.660 manuscripts while there is no such thing as a common law patent. 95 00:08:49.660 --> 00:08:56.320 At common law, the inventor also has the right to keep his invention unpublicized and safe 96 00:08:56.320 --> 00:08:57.740 from theft. 97 00:08:57.740 --> 00:09:05.180 That is, he has the equivalent of the copyright protection for unpublicized inventions. 98 00:09:05.180 --> 00:09:10.380 In the free market there would, therefore, be no such thing as patents. 99 00:09:10.380 --> 00:09:16.940 There would, however, be copyright for any inventor or creator who made use of it, and 100 00:09:16.940 --> 00:09:23.180 this copyright would be perpetual, not limited to a certain number of years. 101 00:09:23.180 --> 00:09:29.060 Obviously, to be fully the property of an individual, a good has to be permanently 102 00:09:29.060 --> 00:09:35.000 and perpetually the property of the man and his heirs and assigns. 103 00:09:35.000 --> 00:09:40.640 If the state decrees that a man's property ceases at a certain date, this means that 104 00:09:40.640 --> 00:09:47.200 the state is the real owner, and that it simply grants the man use of the property for a certain 105 00:09:47.200 --> 00:09:49.400 period of time. 106 00:09:49.400 --> 00:09:54.800 Of course, there would be nothing to prevent the creator or his heirs from voluntarily 107 00:09:54.800 --> 00:10:02.400 abandoning this property right and throwing it into the public domain if they so desired. 108 00:10:02.400 --> 00:10:08.400 Some defenders of patents assert that they are not monopoly privileges but simply property 109 00:10:08.400 --> 00:10:12.660 rights in inventions or even in ideas. 110 00:10:12.660 --> 00:10:18.960 But as we have seen, everyone's property right is defended in libertarian law without 111 00:10:18.960 --> 00:10:20.400 a patent. 112 00:10:20.400 --> 00:10:27.500 If someone has an idea or plan and constructs an invention and it is stolen from his house, 113 00:10:27.500 --> 00:10:32.580 The stealing is an act of theft, illegal under general law. 114 00:10:32.580 --> 00:10:39.440 On the other hand, patents actually invade the property rights of those independent discoverers 115 00:10:39.440 --> 00:10:45.800 of an idea or invention who made the discovery after the patentee. 116 00:10:45.800 --> 00:10:50.800 Patents therefore invade rather than defend property rights. 117 00:10:50.800 --> 00:10:57.420 The speciousness of this argument that patents protect property rights in ideas is demonstrated 118 00:10:57.420 --> 00:11:04.500 by the fact that not all, but only certain types of original ideas, certain types of 119 00:11:04.500 --> 00:11:08.980 innovations are considered patentable. 120 00:11:08.980 --> 00:11:15.280 Another common argument for patents is that society is simply making a contract with the 121 00:11:15.280 --> 00:11:21.500 inventor to purchase his secret, so that society will have use of it. 122 00:11:21.500 --> 00:11:27.820 In the first place, society could pay a straight subsidy or price to the inventor. 123 00:11:27.820 --> 00:11:34.660 It would not have to prevent all later inventors from marketing their inventions in this field. 124 00:11:34.660 --> 00:11:41.340 Secondly, there is nothing in the free economy to prevent any individual or group of individuals 125 00:11:41.340 --> 00:11:45.380 from purchasing secret inventions from their creators. 126 00:11:45.380 --> 00:11:49.460 No monopolistic patent is necessary. 127 00:11:49.460 --> 00:11:56.060 The most popular argument for patents among economists is the utilitarian one that a patent 128 00:11:56.060 --> 00:12:02.140 for a certain number of years is necessary to encourage a sufficient amount of research 129 00:12:02.140 --> 00:12:09.300 expenditure for inventions and innovations in processes and products. 130 00:12:09.300 --> 00:12:15.720 This is a curious argument because the question immediately arises, by what standard do you 131 00:12:15.720 --> 00:12:22.920 You judge that research expenditures are too much, too little, or just about enough. 132 00:12:22.920 --> 00:12:28.660 This is a problem faced by every governmental intervention in the market's production. 133 00:12:28.660 --> 00:12:35.940 Resources, the better lands, laborers, capital goods, time in society, are limited, and they 134 00:12:35.940 --> 00:12:39.640 may be used for countless alternative ends. 135 00:12:39.640 --> 00:12:45.540 By what standard does someone assert that certain uses are excessive, that certain 136 00:12:45.540 --> 00:12:49.220 Time uses are insufficient, etc. 137 00:12:49.220 --> 00:12:55.220 Someone observes that there is little investment in Arizona but a great deal in Pennsylvania. 138 00:12:55.220 --> 00:12:59.700 He indignantly asserts that Arizona deserves more investment. 139 00:12:59.700 --> 00:13:03.440 But what standards can he use to make this claim? 140 00:13:03.440 --> 00:13:07.120 The market does have a rational standard. 141 00:13:07.120 --> 00:13:14.360 The highest money incomes and highest profits for these can be achieved only through maximum 142 00:13:14.360 --> 00:13:17.240 Maximum Service of Consumer Desires 143 00:13:17.240 --> 00:13:24.740 This principle of maximum service to consumers and producers alike, that is, to everybody, 144 00:13:24.740 --> 00:13:29.620 governs the seemingly mysterious market allocation of resources. 145 00:13:29.620 --> 00:13:37.060 How much to devote to one firm or to another, to one area or another, to present or future, 146 00:13:37.060 --> 00:13:43.440 to one good or another, to research as compared with other forms of investment. 147 00:13:43.440 --> 00:13:50.040 But the observer who criticizes this allocation can have no rational standards for decision. 148 00:13:50.040 --> 00:13:53.260 He has only his arbitrary whim. 149 00:13:53.260 --> 00:13:58.660 This is especially true of criticism of production relations. 150 00:13:58.660 --> 00:14:06.640 Someone who chides consumers for buying too much cosmetics may have, rightly or wrongly, 151 00:14:06.640 --> 00:14:09.620 some rational basis for his criticism. 152 00:14:09.620 --> 00:14:15.540 But someone who thinks that more or less of a certain resource should be used in a certain 153 00:14:15.540 --> 00:14:23.700 manner, or that business firms are too large or too small, or that too much or too little 154 00:14:23.700 --> 00:14:30.340 is spent on research, or is invested in a new machine, can have no rational basis for 155 00:14:30.340 --> 00:14:31.500 his criticism. 156 00:14:31.500 --> 00:14:38.140 Businesses, in short, are producing for a market, guided by the ultimate valuations 157 00:14:38.140 --> 00:14:44.340 Valuations of Consumers on that Market Outside observers may criticize ultimate 158 00:14:44.340 --> 00:14:51.140 valuations of consumers if they choose, although if they interfere with consumption based on 159 00:14:51.140 --> 00:14:56.940 these valuations, they impose a loss of utility upon consumers. 160 00:14:56.940 --> 00:15:03.860 But they cannot legitimately criticize the means, the production relations, the allocation 161 00:15:03.860 --> 00:15:15.780 Capital funds are limited, and they must be allocated to various uses, one of which is 162 00:15:15.780 --> 00:15:17.920 research expenditures. 163 00:15:17.920 --> 00:15:23.920 On the market, rational decisions are made in setting research expenditures in accordance 164 00:15:23.920 --> 00:15:29.420 with the best entrepreneurial expectations of an uncertain future. 165 00:15:29.420 --> 00:15:36.220 Coercively to encourage research expenditures would distort and hamper the satisfaction 166 00:15:36.220 --> 00:15:40.660 of consumers and producers on the market. 167 00:15:40.660 --> 00:15:46.380 Many advocates of patents believe that the ordinary competitive conditions of the market 168 00:15:46.380 --> 00:15:52.940 do not sufficiently encourage the adoption of new processes, and that therefore innovations 169 00:15:52.940 --> 00:15:56.860 must be coercively promoted by the government. 170 00:15:56.860 --> 00:16:03.100 But the market decides on the rate of introduction of new processes, just as it decides on the 171 00:16:03.100 --> 00:16:07.300 rate of industrialization of a new geographic area. 172 00:16:07.300 --> 00:16:13.300 In fact, this argument for patents is very similar to the infant industry argument for 173 00:16:13.300 --> 00:16:19.620 tariffs, that market processes are not sufficient to permit the introduction of worthwhile new 174 00:16:19.620 --> 00:16:21.280 processes. 175 00:16:21.280 --> 00:16:27.440 And the answer to both these arguments is the same, that people must balance the superior 176 00:16:27.440 --> 00:16:34.080 productivity of the new processes against the cost of installing them, that is, against 177 00:16:34.080 --> 00:16:41.120 the advantage possessed by the old process in being already built and in existence. 178 00:16:41.120 --> 00:16:48.480 Coercively privileging innovation would needlessly scrap valuable plants already in existence, 179 00:16:48.480 --> 00:16:55.200 and impose an excessive burden upon consumers, for consumers' desires would not be satisfied 180 00:16:55.200 --> 00:16:58.040 in the most economic manner. 181 00:16:58.040 --> 00:17:04.140 It is by no means self-evident that patents encourage an increased absolute quantity of 182 00:17:04.140 --> 00:17:11.080 research expenditures, but certainly patents distort the type of research expenditure being 183 00:17:11.080 --> 00:17:12.240 conducted. 184 00:17:12.240 --> 00:17:18.340 For while it is true that the first discoverer benefits from the privilege, it is also true 185 00:17:18.340 --> 00:17:26.340 It is true that his competitors are excluded from production in the area of the patent for many years. 186 00:17:26.340 --> 00:17:35.340 And since one patent can build upon a related one in the same field, competitors can often be indefinitely discouraged 187 00:17:35.340 --> 00:17:41.340 from further research expenditures in the general area covered by the patent. 188 00:17:41.340 --> 00:17:59.340 Moreover, the patentee is himself discouraged from engaging in further research in this field, for the privilege permits him to rest on his laurels for the entire period of the patent, with the assurance that no competitor can trespass on his domain. 189 00:17:59.340 --> 00:18:04.340 The competitive spur for further research is eliminated. 190 00:18:04.340 --> 00:18:12.180 Research expenditures are therefore overstimulated in the early stages before anyone has a patent, 191 00:18:12.180 --> 00:18:18.020 and they are unduly restricted in the period after the patent is received. 192 00:18:18.020 --> 00:18:23.660 In addition, some inventions are considered patentable while others are not. 193 00:18:23.660 --> 00:18:30.380 The patent system, then, has the further effect of artificially stimulating research expenditures 194 00:18:30.380 --> 00:18:37.900 in the patentable areas, while artificially restricting research in the non-patentable areas. 195 00:18:39.260 --> 00:18:47.100 Manufacturers have by no means unanimously favored patents. R. A. McPhee, leader of England's 196 00:18:47.100 --> 00:18:53.180 flourishing patent abolition movement during the 19th century, was president of the Liverpool 197 00:18:53.180 --> 00:19:00.060 Chamber of Commerce. Manufacturer I. K. Brunel, before a committee of the House of Lords, 198 00:19:00.060 --> 00:19:06.780 deplored the effect of patents in stimulating wasteful expenditure of resources on searching 199 00:19:06.780 --> 00:19:14.100 for untried patentable inventions, resources that could have been better used in production. 200 00:19:14.100 --> 00:19:20.220 And Austin Robinson has pointed out that many industries get along without patents. 201 00:19:20.220 --> 00:19:27.240 In practice, the enforcement of patent monopolies is often so difficult that competing manufacturers 202 00:19:27.240 --> 00:19:33.200 These have, in some industries, preferred to pool patents and to look for sufficient 203 00:19:33.200 --> 00:19:40.960 reward for technical invention in the advantage of priority that earlier experimentation usually 204 00:19:40.960 --> 00:19:45.760 gives, and in the subsequent goodwill that may arise from it. 205 00:19:45.760 --> 00:19:52.760 As Arnold Plant summed up the problem of competitive research expenditures and innovations, neither 206 00:19:52.760 --> 00:19:59.280 Where can it be assumed that inventors would cease to be employed if entrepreneurs lost 207 00:19:59.280 --> 00:20:03.120 the monopoly over the use of their inventions? 208 00:20:03.120 --> 00:20:08.620 Businesses employ them today for the production of non-patentable inventions, and they do 209 00:20:08.620 --> 00:20:13.680 not do so merely for the profit which priority secures. 210 00:20:13.680 --> 00:20:19.760 In active competition, no business can afford to lag behind its competitors. 211 00:20:19.760 --> 00:20:31.760 The reputation of a firm depends upon its ability to keep ahead, to be first in the market with new improvements in its products and new reductions in their prices. 212 00:20:31.760 --> 00:20:43.760 Finally, of course, the market itself provides an easy and effective course for those who feel that there are not enough expenditures being made in certain directions. 213 00:20:43.760 --> 00:20:47.760 They can make these expenditures themselves. 214 00:20:47.760 --> 00:20:53.680 Those who would like to see more inventions made and exploited, therefore, are at liberty 215 00:20:53.680 --> 00:20:59.200 to join together and subsidize such effort in any way they think best. 216 00:20:59.200 --> 00:21:06.200 In that way, they would, as consumers, add resources to the research and invention business. 217 00:21:06.200 --> 00:21:13.520 And they would not then be forcing other consumers to lose utility by conferring monopoly grants 218 00:21:13.520 --> 00:21:16.740 and distorting the market's allocations. 219 00:21:16.740 --> 00:21:24.740 where voluntary expenditures would become part of the market and express ultimate consumer valuations. 220 00:21:24.740 --> 00:21:28.740 Furthermore, later inventors would not be restricted. 221 00:21:28.740 --> 00:21:37.740 The friends of invention could accomplish their aim without calling in the state and imposing losses on a large number of people.