Future Money Trends Interview: Stephan Kinsella—Copyright Laws Cost the U.S. $Billions in Economic Growth

Why do you think that is not the way it should be?

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This is sort of a theoretical argument.  David, you made this argument.  The purpose of property rights is to permit peaceful use of scarce resources.  That’s things that only one person can use at a time.  So, otherwise, you would have people fighting over these resources.

So that is what libertarians…we believe in exclusively assigning the right to use to one person on a certain criteria which is, basically, like in homesteading, the first guy who gets it, gets to keep using it.  Or if you buy it from somebody by contract, you’re the owner of that thing.

Anything else is contrary to that.  And the problem with the IP laws is they basically protect companies from competition.  So, for example, you mentioned trademark and copyright.  The two worst types of IP, I would say, are patent and copyright.   Trademark is less problematic although it’s still got a lot of problems.

Trademark law, part of it, could be justified under the idea of fraud.  Like, for example, if the Coca-Cola company somehow implied by use of the Mickey Mouse symbol that it was Disney or deceived its customers into thinking this has been endorsed by Disney, then, potentially, the customers would have a cause of action for fraud because they’re buying the Coca-Cola under false pretenses.  So there is an aspect of trademark you could justify, but under today’s law Disney has the right to sue Coke, not the customer.  So you’re taking this fraud claim and giving it to Disney, basically.  And, moreover, you don’t have to show fraud because in most cases, there is not fraud.

For example, if there is a knock off handbag, a Louis Vuitton handbag, Louis Vuitton could sue the knock off handbag maker, even though the handbag maker is not defrauding any customer.  If you buy a $20 Louis Vuitton bag, you know it’s fake and you want a fake, right?

So the basic problem is that…the basic idea would be what Benjamin Tucker, who was a late 1800s anarchist, he said if you want your ideas to yourself, keep them to yourself.  But the IP abolition idea is the idea that there is nothing special about any kind of knowledge or information.  It is all useful.  Patterns information, which is what Mickey Mouse is represented by, copyrighted work, the idea of how to make a machine, which is what patents cover, or other ideas like secret information or just facts about the world, all this knowledge is useful to human actors and businessmen, but if you reveal knowledge to the world, you have to expect it to spread, especially if it is useful or desirable and people are going to learn about it.

So the bottom answer is because Disney revealed to the world this picture, so people are free to learn from what Disney has done.  So just like if you observe a competing business, let’s say they open up a new type of drugstore with a drive up window, and then, you know, say Walgreens does this.  And then CVS is losing business.  You could say that Walgreens stole their business.  This is kind of the language IP people use.  They use the word stole, steal, theft to refer to things that are not really theft.  They are using that to justify their argument.

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So in that 17 year period, basically the seller can charge a monopoly price, or higher than average price, because he has no competition or little competition.  So the consumers are going to pay a higher price for it and, you know, in a sense the patent holder has a reduced incentive to keep innovating because he can just sit and rest on his laurels for 17 years.

You can say the patent system gives an incentive to innovate as well because then you can get a monopoly on it.  So you have competing incentives.  Which way it goes, I don’t know.

But I do believe in an IP free world, people that have technology as part of their business would face the world of competition just like everyone else does.  I mean if you have an idea to do Domino’s Pizza delivery pizza business, then you know that as soon as you get going, if it is successful, you are going to attract competition.  That is one of the beauties of the free market, is that the price system actually is a knowledge conveying mechanism, right.  It spreads the knowledge to society by these profits the guy is making.  It is a price signal telling everyone else, hey, look at what this guy is doing.  He is actually satisfying the customer.  That is why he is making a temporary profit.  And that will attract competition.  This is how the free market works.

The patent system short circuits that by saying, “No.  No one can compete with you for 17 years”.

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But the point is, a lot of people right now are having trouble making artistic works because they have a song or a picture of a building in the background, like in documentaries.  They have a nightmare of a time getting clearance to publish their film because of copyright.

A lot of remixing and hip hop art and all these types of music would be unleashed.  People would be free to experiment and do whatever they want.  Right now, the whole music and fashion industry and the culture has been distorted and contorted by IP law.

In the patent field, for example, you cannot get a patent on, like, E=mc².  It is a theoretical thing.  That takes innovative creativity.  It is a useful thing.  It is information that if it gets out into the world, people could use it.  You don’t get a reward for that.

So what that does is it distorts the structure of research and development.  Companies, if they would do this much abstract R&D and this much practical gizmo creating, after patents, now they’re going to reduce this and increase this because there’s more of a patent monopoly you can get on this.  So it distorts and skews the entire structure of production and research and development.  So I think if you got rid of these things, it would just…and not only that, my estimate is that the patent system probably imposes costs on the United States economy annually of $100 billion or more.  I think it is probably far more.

So let’s say it is $100 billion of pure, dead weight cost.  So if you get rid of the patent system, we are all richer.  It is $100 billion extra or resources that can be used for research and development.

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Then they’ll back up and say, “Well, you are stealing a potential sale from him”.

So now we get to the real case here.  What they’re concerned about is the money you could have made from a potential customer.  But that means they’re saying you had a property right in the money that is in your potential customers’ wallets. But you don’t.  They own that money.  Which is exactly the same reason why if Walgreens opens up a new method of attracting customers, they steal customers from CVS, CVS might say, “They stole our customers”.

But, you know, that’s okay.  They don’t have a property right in their customers.  If I steal your girlfriend, you know, you don’t own your girlfriend.  Just because we use the possessive doesn’t mean you own these things.  So CVS faces the prospect of competition and losing these customers.

So the bottom line is if you say patent violation or copying someone is stealing, what you’re saying is you’re stealing money from third party customers’ pockets.  But you’re not. They still have the money and they spend it on who they want to spend it on.

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The fashion industry is a good example. The fashion industry used to have this boycott system where they…there is not copyright on fashion, okay, so there is no official IP on fashion designs.  So they would have a way of ostracizing and boycotting the smaller companies that were pirates basically.  So it worked fairly well until the federal government broke it up because of antitrust law.  So all the ways people would come to deal with this problem that IP is addressing in a free society, the federal government is stymied and thwarted.  And we’re speaking of the distortion of technology and research and development in the fashion industry, for example.  Copyright and patent, as I said, do not generally apply to articles of clothing which means you can knock it off.

So what the fashion industry has done is they…like the Louis Vuitton bags, they put their trademark on the bag, so now at least they can sue you for trademark infringement.  So they have adopted a whole style that has pervaded the entire high fashion industry which is putting your trademark and making that part of the design.  Now we’re used to it.  We think it is fun.  But the point is that is probably a distortion caused by the existence of trademark law.  If you hadn’t had trademark law in the first place, the way it is now, then there would be no benefit to putting your mark all over your purse.  Maybe someone could do it.  Who can tell?  But the point is this is another distortion, a complete distortion….

There is a recent case going on right now in the Supreme Court where the first sale doctrine of copyright is under threat which means that if you buy an article, like a piece of furniture even, or a watch, or a painting, or a book, that is made overseas that has copyrighted material on it, the first sale doctrine might not apply which means the guy who buys it doesn’t have the right to resell it.  So you own a physical object that you are unable to sell without the copyright holder’s permission.  You can’t resell a book.  Libraries can’t lend books out that are bought overseas.

Omega, the watch company, was selling this expensive watch for, let’s say, $19,000 here, maybe $10,000 in some South American country.  It is a legitimate watch.  They sell it less there because the market is a different market.  So Costco was importing the watches doing price arbitrage, right, and selling them for a few thousand dollars less than the U.S. price, making a big profit.  Omega didn’t like this, although it is legal.

So what they did was they designed a little logo, a globe logo.  They put it on the back.  It is copyrighted.  Then they used this new legal ruling which says that if it sold overseas, the first sale doctrine doesn’t apply which means you can’t resell it.  So they used this to shut it down.

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