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NOTE How Intellectual Property Hampers Capitalism

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I am a registered patent attorney. I try not to do very many patents anymore. I find it a little bit distasteful.

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It's also not – it's not the most enjoyable profession to have when you mention to people that you're a patent attorney.

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They always want to tell you their inventions. I was like sitting on the plane, and some guy is like, what do you do?

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I say, I'm a patent lawyer. He's like, oh, let me tell you about the time I invented OneClick before Amazon patented it.

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And I'm thinking, oh God, I got a three-hour flight with this guy. Maybe I should have told him I was a proctologist, but I guess I could have actually been worse.

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So David, that's joke one I save for you for today. So today what I'm going to argue is that intellectual property is incompatible with capitalism.

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Now, the word capitalism itself might need a little bit of clarification because in recent years, some fellow advocates of the free market and the free society have said they're in opposition to capitalism.

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I think it's basically a semantic dispute. What they're opposed to is what we would refer to as say corporatism or mercantilism or crony capitalism or capitalism as the Western governments portray it.

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So you have this sort of funny situation where we're in favor of capitalism, by which we mean private property, and we're against – or I'm against – intellectual property.

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Left libertarians are against capitalism, and they're against intellectual property.

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And regular leftists believe that intellectual property is a legitimate type of property right, and they're against it for that reason.

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So they're all over the map, which reminds me of my second joke, David. So this is inspired by the rise of the late 19th century anarchist philosopher Proudhon.

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And so the joke is why don't anarchists drink – why do anarchists drink herbal tea? Because property is theft.

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All right, off of the joke. Sorry, Doug.

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So why do I say that intellectual property is opposed to capitalism or not part of a legitimate property rights free market system?

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Why don't we just step back, and let's consider some cases where the Western government, supposedly representatives of capitalism, have tried to impose capitalism on the rest of the world.

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trying to bring more backwards countries into the fold of an advanced economy.

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What have we given them? What have we told them to do? What have we twisted their arms and tried to force upon them?

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Well, there's income tax withholding, and we know that's capitalist because Milton Friedman suggested it.

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Antitrust law, American antitrust law, anti-bribery laws like the Foreign Corrupt Practices Act, which we have here,

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that we have here, which penalizes American businessmen from engaging in what's regular business practices in other parts of the world and puts them at a competitive disadvantage with respect to companies from other countries, which are not so impeded, leading, of course, to America to force treaties upon the rest of the world to get other countries to also ban bribery in their countries so that Americans wouldn't be as harmed by these laws. Central banking. We've imposed central banking, US-style, on the rest of the world.

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Canada in the 1930s, Russia after the fall of communism. What about state ownership of natural resources? Is that capitalist?

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That's what we have here in America. On state lands – and I used to be an oil and gas lawyer before I went to the dark side.

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On state lands in America, unlike anywhere else in the world that I'm aware of, minerals underneath land are privately owned as it should be.

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But everywhere else, every other country and even outside the states in America, like offshore where the BP accident happened, the MMS, the Minerals Management Service, the federal government basically claims ownership of the minerals under the ground.

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And then they grant leases, and they take a cut. So actually the landlord of the BP disaster was the federal government, but you don't see them taking the blame for it.

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So what do we do? We impose this system on other countries too. Iraq, after we overthrew – after the American government overthrew Saddam Hussein, they're encouraging them to do the American model there.

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Is that capitalist to have the government of Iraq own the resources and sell the oil to customers?

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Of course, there's managed – there's drug laws too. Would we allow Mexico, for example, to legalize narcotics? Would we put up with that?

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There's managed trade in terms of NAFTA agreements like this, and then of course the Marshall Plan after World War II and democracy itself, which arguably, and in my opinion, is not capitalist, not compatible with property rights.

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So we have cases of America and the West pressuring other countries to adopt so-called capitalist measures routinely in the name of capitalism, but these are not capitalist.

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Now, what about intellectual property? We have a similar situation. We have America and its lackey the World Trade Organization pressuring other countries like Russia, India, China to adopt our draconian IP laws.

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China is now actually coming into shape a little bit. They're now third in place behind Japan and America in terms of patent filings, which is a radical shift from five or ten years ago due to American pressure.

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We have diplomatic pressure being exerted on Canada right now to adopt some of our copyright provisions that are in our Digital Millennium Copyright Act, which make IP law much worse and more draconian.

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And even worse right now pending is the secret anti-counterfeiting trade agreement or ACTA.

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It's a treaty that's being negotiated right now. I suspect it will pass probably this year, and it's going to be horrible.

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that's going to impose patent and copyright type protections around the world, including Digital Millennium Copyright Act or DMCA type provisions.

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And as science fiction author Cory Doctorow observed, the act is a radical rewriting of the world's internet laws taking place in secret without public input.

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So maybe we got it right this time. Maybe anti-bribery laws, tax laws, antitrust laws, these are not really capitalist.

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But maybe this one case of IP law is really capitalist. Maybe it's compatible with property rights.

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Maybe it's a good thing that the American government is trying to force other countries to adopt our way of doing business. Maybe we got it right.

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But let's think about where did it actually come from? Where did intellectual property come from?

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And by intellectual property, I'm primarily referring to patent and copyright. These are the two big culprits in my opinion.

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There are others. There's trade secrets. There's trademarks. There's reputation rights. There's boathole designs. There's semiconductor mask work protection.

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but the big two are patent and copyright. Where did they come from?

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Well, patents – they both basically came from sovereigns or monarchs issuing monopolies to favored people to get them indebted to the sovereign basically.

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They were exclusive monopolies that protected various goods and services for a limited period of time, so they were monopolies.

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The word patent actually, as a historian Patricia Seed notes, the word patent comes from the Latin patente, signifying open as distinct to closed letters or private letters.

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So there are open letters granted by the monarch that gave someone authorization to do something, like to be the only person to sell a certain good in a certain area.

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And here's something interesting I came across recently. Letters patent – one of the early uses of the letters patent in the 1500s was granting authority to pirates, real pirates, not pirate bay pirates, to become privateers, which is just legalized piracy.

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And say – so you gave them a monopoly over the spoils of their piracy for some period of time. This is where patents originated.

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A famous example was Francis Drake. Some people say Sir Francis Drake, but as he was a slaver, I don't call him sir.

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He was given a letter patent on March 15, 1587 that authorized him to engage in piracy, and he attacked Spanish ships sailing back from South America, laden with silver, brought the treasures back home to the queen, and he was famous for this.

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So if you think about it, what's ironic is that you have defenders of intellectual property attacking pirates today who are not really pirates.

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I mean real pirates come aboard your ship, kill people, break things, take things, make you worse off.

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So they basically accuse people that share information of being pirates when the original – ironically, one of the original uses of patents was to authorize real piracy.

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Okay, and it's a little bit amusing. You'll find defenders of intellectual property, some patent lawyers and even some libertarians, and they get really indignant if you call it a monopoly.

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It's not a monopoly. It's a property right. If it's a monopoly, then your use of your car – your car is a monopoly.

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Well, one of the first patent statutes was England's Statute of Monopoly, 1624. They didn't really mince words back then.

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And remember, we used to have a Department of War in America. Now it's the Department of Defense. The old status were much better. They were more honest.

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But this patent statute in England, the statute of monopolies, it was a way to raise money for the crown without having to impose a tax.

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They sold these monopoly grants by charging fees to people for applying, and what it did was it helped cement political loyalty.

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So what happened was – and this was from a correspondence I had with Jeff Tucker talking about this.

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So the monarchs, what they wanted – you had growing trade at the time in the 1600s.

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So the monarchs wanted credit for this growing trade, so they wanted to say we can take credit for this. We're granting these patents.

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And then the producers of these goods, they wanted not to be looted, and they wanted protection from competition.

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So they did this deal, and they both – everyone was great. Everyone benefited except for the consumer.

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So in other words, the merchants were afraid of being looted by the king, so they took this deal, sort of like a monopoly.

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They joined the state to keep the enemy close. Now, today what we've done is we've democratized or we've institutionalized intellectual property.

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So anyone can apply. You don't have to go to the king. You can just go to the patent office.

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But you see the same thing happening now. You see companies like my company applying for patents because you have to to keep the wolves at bay.

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In other words, if you don't have patents, someone might sue you or might steal your ideas.

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So you have all these companies spending millions of dollars to obtain patents just to have a weapon to fire back against someone who might sue you with their patents.

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Now, of course, what happens is the large companies get together, and they sue each other. They rattle their sabers, and then they make a deal.

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They cross license to each other. So Microsoft and Apple might sue, and then they'll find – they both have a large patent arsenal.

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So they'll finally compromise and settle, and they'll say, okay, okay, okay. Maybe you pay me some money. Maybe I pay you some money.

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But then going forward, we each get the right to use each other's patents. Well, that's fine for them, but that means they both have protection from each other's competition.

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But what does it do to these little companies? Little companies don't have big patent arsenals. They can't jump over this hurdle. They can't get into the club.

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So the patents basically amount to a barrier to entry, a mercantilist type of protectionism.

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What about copyright? The roots of copyright literally lie in censorship, so you had these guilds sort of arising when printing became easier.

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And the church and the government started getting worried. Oh, we can't control official and political thought as easily now.

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We can't control what is approved thought. So they passed the copyright statutes to basically help limit what could be produced and said and what information people could copy and share with each other.

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And the first full-fledged copyright statute was the Statute of Anne in England in 1709.

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Now, if you want to go back a little bit farther, you can go all the way to 500 BC in Greece, the ancient – in ancient Greece, Atheneus, the Greek city of Sibir, sorry, located in what's now southern Italy.

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There were annual culinary competitions, and the victor was given the exclusive right to prepare his dish for one year.

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And I always think that it's great that we had this law, otherwise we wouldn't have had any innovation in food in the last 2,500 years.

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Now, if you want to turn to the modern type of IP, the American system, 200-and-some-odd years ago, basically it started with the American Constitution adopted in 1789.

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Article I, Section 8, Clause 8 authorizes Congress, doesn't require them to, but it allows them to promote the progress of science and the useful arts by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.

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So basically this is the authorization for modern patent and copyright law.

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And unlike some opponents of IP law, I don't think it's unconstitutional. It actually is constitutional, so is slavery. It doesn't make it right.

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You'll notice – what's interesting about that is the word science and the useful arts is used.

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And most people nowadays think, well, science is patents. Useful arts is artistic creations like copyright.

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But it's actually the opposite. There was more archaic language used back then, and useful arts meant artisans like crafts.

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So it meant producers' goods and inventions. And science was a more broad term back then. It meant all knowledge, including artistic knowledge and creations.

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So actually, science had to do with copyright, and useful arts had to do with patents, be that as it may.

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What is interesting is that despite common arguments for IP by the people in favor of it, the founders of the Constitution – and you can tell from the language –

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did not view intellectual property as a natural right. They viewed it merely as sort of a prudential measure. It's just a policy tool.

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They thought they could encourage innovation with this. That's why they gave it just for a limited time.

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They were nervous about it. Thomas Jefferson, who was the first patent commissioner, ironically, was very queasy about the idea of granting these monopolies.

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But they knew they were monopolies. They granted them consciously. Even Locke did not view copyright and patent as natural rights.

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Even Locke did not believe – and whose writing influenced the Founding Fathers by the way – Locke did not believe that his homesteading idea extended to ideas.

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It only extended to scarce resources. Now, it is true that sometimes there were little versions of copyright and things like this in some of the state constitutions before the American Constitution.

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And on occasion, language of natural rights was used to defend them. Well, this was just cover.

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In other words, they were granting monopolies to special interests, and they wanted to hide that fact, so they called it natural rights to cover it up.

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Clearly, it's not a natural right. Natural rights wouldn't expire after 15 years. Natural rights wouldn't be extended only to Americans, which they were.

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Natural rights wouldn't exclude lots of types of creations and only cover some enumerated types. It's clearly a policy tool and a civil right.

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So we have this modern federal statute administered by a huge federal bureaucracy granting monopolies to Americans who apply that allow them to go to the federal courts to ask the federal courts to use federal force against their competitors who are doing what?

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They're using information to guide the use of their actions. They're peaceful people. They're competitors. Can we really think this is capitalist?

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There are any number of examples I could give, and I won't run through them here. They get tedious.

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I mean there's daily examples of outrages and horror stories, crazy patent lawsuits, crazy copyright lawsuits, crazy patents granted on a daily basis.

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Of course, these are not the problem. The problem is that even if you get a patent legitimately, you can use it to use the force of the government against your competitor.

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I will mention one example, one outcome of IP law, which is particularly egregious with respect to copyright and how it can be used to actually censor thought, which shouldn't be surprising since its roots are in censorship, as I've mentioned.

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But it literally has led to censorship even recently. I'll just give you a couple of examples here.

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So this was just a month or so ago in the news. Russian authorities were using the pretext of intellectual property piracy and violations as a pretext for seizing the computers and other materials from political opponents of the government.

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So they were using IP to crack down on political opponents and dissidents.

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Susan Boyle, you might remember her from Britain's Got Talent, the singer from England.

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She was literally prevented from singing a Lou Reed song on some show the other day because of copyright.

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She couldn't sing it. She couldn't use her mouth to perform certain actions.

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In Germany, there's a group of newspaper publishers. They're lobbying for a new exclusive right conferring the power to monopolize speech.

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In other words, assigning the right to reuse a particular wording in the headline of a news article anywhere else without the permission of the holder.

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So you can't even – they want to monopolize the right to the title of an article.

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There is an actual case where there was a German silent film, Nostveritu. It was deemed a derivative work of Dracula, and the courts ordered all copies destroyed.

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This is literally true, and the worst case in my opinion is the author J.D. Salinger of Catcher in the Rye, the one that all the psychos read.

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So there was a novel called 60 Years Later Coming Through the Rye, sort of a derivative work, a parody or a follow-up.

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Well, he got the courts to ban the publication of that book based on copyright. I mean it's just banned.

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This is literally modern equivalent of book burning due to copyright law. Now, you tell me how this can be justified by libertarians.

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So I'll give you a couple of – some of the best arguments I've heard for intellectual property from advocates of intellectual property.

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There's a philosopher named David Kepsel who's a good libertarian philosopher and professor, and he's an anti-intellectual property theorist.

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And he had argued in an online debate that he pointed out that in the 19th and early 20th centuries, two of the most innovative countries on earth, which were the Netherlands and Switzerland, had no patent systems at all due to legislative anomalies.

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They actually didn't have a patent system for a while, but they had tons of innovation despite this, so he was giving this argument.

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And there's this patent attorney named Gene Quinn who's a regular patent shill, and he wrote this.

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Thank goodness the Swiss did have a patent office. This is – that is where Albert Einstein worked, and during this time as a patent examiner, he came up with a theory of relativity.

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So we need to have patents, so we'll have a patent office so that we'll employ potential future physicists.

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I came across this argument by a free market economist writing on a website in the last year, a senior fellow with a free market think tank.

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And he said it's true that other means exist for creative people to profit from their effort, and he was arguing in favor of IP.

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He said in the case of copyright, authors can charge fees for reading their works to paying audiences.

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says, Charles Dickens did this, but his heavy schedule of public performance in the United States, where his works were not protected by copyright, arguably contributed to his untimely death.

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We have to look out for Dickens. We don't want to kill people by not having copyright law to protect their interests.

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And this author also – he observed – he said, to paraphrase the late economist Joan Robinson, patents and copyrights slow down the diffusion of new ideas for a reason to assure there will be more new ideas to diffuse.

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Now, this is an advocate of IP. He thinks this is an argument for IP. He's actually admitting that copyright slows down new ideas and their diffusion.

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It reminds me of modern economists who talk about – and all these scientistic metaphors about the economy.

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We need to cool down an overheating economy. Basketball games have momentum, all these scientistic terms.

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So – but more seriously, the basic utilitarian argument, which is the common one among libertarians, is this just assumption, which the founding fathers had.

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There's an assumption that if we have the government grant these monopolies on certain types of innovation, we'll get more of it and we'll all be better off.

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Basically, net wealth will be created. This is their argument, but they rarely make it this explicit because if they made it explicit, they would have to give us numbers.

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Their argument is that it creates wealth. Well, how much wealth? Tell me how much.

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So there is no doubt that the patent system, for example, imposes costs on society.

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I've estimated it costs $38 to $48 billion a year. That's just my off-the-cuff estimate, and that's annually in America alone, just the patent system.

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So it imposes costs, my salary, litigation costs, insurance, higher costs for products.

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So if you're going to argue that patents impose a net gain on society, you need to tell me – well, tell me what the cost is.

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Tell me what the net gain is. Subtract from it certain types of innovation that are now suppressed.

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There's no doubt that some innovation is lost because of patents. Even if some innovation is gained, some is lost.

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So we need to know the net. They never give you these answers. They don't know. If you ask them, they just change the subject.

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I have yet to meet a serious person who argues this way. All the studies that I've seen – now, I'm not an empiricist.

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I'm not a utilitarian, but this is their argument. And every study that people come up with is either inconclusive.

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They say, well, we just can't figure it out. We don't know, which is probably the proper answer because values are subjective and ordinal, not cardinal.

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We cannot really sum up these things, but all the attempts to do so using conventional methods, they either conclude that the copyright or patent system actually imposes a net cost on society, and it decreases innovation.

158
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So it's like there's a double penalty, or they say we can't prove it one way or the other.

159
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So you would think that if you were a utilitarian, you would conclude from this we should be against patent law and copyright law.

160
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We know that it's infringement on liberty. We know that it's costly, and we have no evidence to back up our utilitarian hunch, which the founders had, that it might be a net gain.

161
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So until someone can satisfy their burden of proof, we should oppose it, but no, they're in favor of it.

162
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And in fact, you could ask – so their argument is that, well, you wouldn't make this drug if you didn't have the incentive by the government.

163
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Now, let's think about this. Here we have the federal government, which imposes probably, if you add it all up, 50% taxes on average on people which work at these companies and who are their customers, taxes the corporations, imposes FDA regulations and delays on them, imposes other monopolies through the FDA which are like the patent system, regulates these companies to death, imposes all kinds of costs on them.

164
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Now, you want to empower this agency, this criminal agency that does everything it can to destroy business.

165
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You want to empower them to grant you selected monopolies to people to allow them to charge a little bit of monopoly price on the market to make up somewhat for all the damage the government is doing you.

166
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I wouldn't trust this agency to do it for me. How about they drop the taxes? How about they stop the regulations? How about they abolish the FDA?

167
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And then these companies, everyone would be eight times richer, and they would have a lot more money to invest in research.

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So I will conclude there, and I would just say that I think it's clear that capitalism is not compatible with intellectual property. Thank you.