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Why No IPR

This is a good post by John Wiley Spiers about why he thinks intellectual property rights (IPR) are not needed for business to succeed.

Why No IPR

At  22 in 1977 I de-trained at Lo Wu to walk, as required, from Hong Kong territory into Red China to alight a Communist train for business in Canton.  From day into night, from Hong Kong to Maoist China.  How could cousins, on each side of the border, end up as those with no resources (Hong Kong side) wealthier than their colonial masters, but the communist side with limitless resources, were dirt poor?  It took a while to find out, but it was merely ideas, and the most advance explication of the ideas was the Austrian school. Thirty years later I was in Auburn for the week long “university,” hearing what any Cantonese businessman would tell you was just so.  It is not lawlessness that explains Chinese uninterest in “intellectual property rights,” it is common sense.

We all know in natural law property rights form when labor is mixed with material, whether land or tools, each according to his abilities.  Private property may yield an artichoke or a lawnmower for sale. But a product is the result of ideas mixed with ideas: my own predilections, customers’ ideas and designers’ input.   Material, whether land or tools, are limited to one person at a time, given physical limitations.  Ideas, like candle light, can be used at once by all within sight, and are endlessly replicable at no cost to the source.  In a neat trick, IPR mocks natural law, but is grounded in positive law. Free candle light defies monopoly, hence the pretense of “rights” must be backed up with violence.

How does a free market work? A premise is small businesses are innovators and large businesses are conservators (following Drucker); small introduces innovation, subsequent iterations routinize and commoditize, and eventually conservators (big biz) “steal” the idea, apply the economies of scale (manufacturing, logistics, finance) to the item, and make material goods and services available to the widest possible demographics.  Innovators bring out (relatively) few, poor, expensive, and slow…  but desirable by enough people to launch a going concern…  conservators apply economies’ of scale and make the innovators’ product more better cheaper faster.  The free market at once introduces what is needed and then conservator gets the price down to where everyone has access to material goods and services, a symbiotic relationship between the innovator and conservator.  See the cell phone, 1980-2010.

In the measure a market is deregulated, the relative freedom produces the benefit.  Recall Jimmy Carter deregulating telephony, beer, transportation and normalizing trade with China.

This process generates division of labor, a real source of well being (following Dr. North, contra arch-anarchist Prince Kropotkin.)

In practice those who thrive in small business have not the slightest interest in IPR.  If someone “knocks off” my design, necessarily they are using 2nd rate factories, selling to 2nd rate customers…  literally none of my business.  My first rate customers are not interested in 2nd rate product.  I find 2nd rate customers not worth serving.  IPR solves a problem that does not exist, in relation to shoddy knock-offs.

Along these lines, when a conservator makes an excellent knock-off of my idea, and lowers the price through superior economies of scale, here again someone is using their factories, capital, etc, to reach customers I never could.  Where is the theft?  Where is the violation of my rights?  This is the flip side of Rothbard’s argument regarding who has the right to control my use of my photocopy machine?  What right do I have to complain of Big, Inc using their resources to reach customers I could not?

Marketing is the key to business, not control.  In essence, my relationship, is built on the degree to which I listen (oboedire) or obey, my customers.  That is marketing, that is what makes or breaks me.  My customers judge me and then tell me how I might best serve them.  I redesign accordingly, if I want a raise.

Something left out of IPR discussion is we innovators are constantly dropping items in favor of more profitable new items.  If I cannot increase sales by improving an item further, or someone has made my product irrelevant with a superior alternative, then I am on to something new, again in deference to customer feedback.  It is all about the customer.

Now, say my product gets to the point, after years of profitable iterations on my part,  a conservator decides to “steal” my idea.  This is not done lightly. The conservator has done the multimillion dollar MIT-expert statistics phd market study necessary to warrant knocking off my product. If it pencils out, Big, Inc knocks me off,  lowering the cost, and making my product available to everyone. But Big, Inc runs a risk.  Having carefully proved the obvious, that is I have a viable mass market item, I can simply do an IPO, raise the money to be the conservator, and become my conservator’s competitor.  See Apple IPO 1980, vs IBM (and everyone else).

After introduction, but before IPO (or not, the vast majority of innovators have not the slightest interest in becoming bigger than a few million per year in sales, life is too short, family is too important to spend it at the office) it is not uncommon for my peers around the world to see my product in the factory overseas.  For example a German may desire to try out my USA-proven item in the German market.  By prior agreement with the factory, the German will be charged a slight premium, which is paid to me by the factory, deposited locally in my account.  I have bank accounts in Canada and Hong Kong for this purpose.  In this way, I am compensated for my designs selling worldwide. It is not intellectual property rights, it’s just business. Rockefeller did it with the railroads, I do it with my USA based critical suppliers as well to assure they do not serve my competitors without me being pleased.

IPR poses a false dilemma and solves solves a problem that does not exist. Business challenges, in practice, are addressed in contract, not intellectual property rights. IPR inhibits justice in the distribution of goods and services.  It keeps the pie small, leaves ameliorants of wants and needs unavailable or nonexistent.  The world would be better off without IPR, but the entrepreneur has an advantage in the marketplace knowing IPR is spurious. Business objectives come faster and easier ignoring IPR.

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Posted in by John Wiley Spiers

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