Intellectual Property Is “Evil”-And Businesspeople Should Oppose It

Kinsella: Intellectual property is a term used by lawyers to refer to laws that protect the products of the intellect, for example copyright (which gives authors a right in original works such as novels or paintings), patent (which gives inventors rights in practical inventions, like a mousetrap), trademark (which gives companies rights in names used to identify products, such as “Coca-Cola”), and trade secret. Trademark is said to have its basis in protecting consumers from deception and fraud by unscrupulous vendors who falsely use others’ names and reputations.

Patent and copyright became more prominent in Western countries about two hundred years ago, and emerged from older mercantilist practices where the crown would grant monopolies to court favorites (patent, which is rooted in the Statute of Monopolies of 1624), and censorship of prohibited books (copyright, rooted in the Statute of Anne of 1710). Free market economists were suspicious of or even hostile to these laws, so defenders of patent and copyright started referring to them as “intellectual property” to appeal to the pro-property sentiments of legislators and the populace. But in truth patent and copyright are state-granted monopoly privileges, not natural property rights, though they are widely called “intellectual property” now. The term “industrial property” is more commonly used in Europe.

These laws are used to varying degrees by various individuals and companies, depending on their industry and interests. Software and video game vendors, Hollywood, the music industry, rely widely on copyright and related laws, to try to stop “piracy”, though a large number of software producers in effect “opt out” of the copyright system through the use of “open” licenses, and an increasing number of independent musicians and artists are opting out of copyright protection though the use of “creative commons” licenses.

Pharmaceutical and high tech companies rely more heavily on patent law. Pharmaceutical companies claim that they need the patent monopoly to help make up for the costs imposed on them during the expensive and lengthy FDA drug approval process. But think about that: the state imposes heavy costs on pharmaceutical companies, then tries to partially make up for it by granting a monopoly to these companies. High tech companies stockpile thousands of patents, mainly to use as defensive weapons against patent lawsuits filed against them by their competitors. As an example, consider the ongoing “smartphone” wars between Apple and Samsung and others, which are being waged in dozens of countries and costing tens of millions of dollars or more.

The effect of this is to entrench the monopoly positions of the larger players, who can afford to acquire thousands of patents and to pay millions of dollars to lawyers in litigation costs, and to pay each other royalties after the inevitable settlements, and then pass most of this cost on to the consumer in the form of higher prices. Smaller companies cannot afford to defend against such lawsuits and have no large patent arsenals to draw on defensively, so the effect of this is to erect barriers to entry, leaving large markets in the control of a small number of large, patent-wielding companies. This is a monopoly or oligopoly type situation. The dominant firms have less incentive to innovate, since they face less competition and can collect monopoly profits from earlier innovation since it has been patented.

To obtain a patent, the inventor has  to disclose the details of his invention; that is the so-called “patent bargain.” The public can learn about the invention, and eventually use it, after the 17-or-so year term expires, in exchange for the inventor being granted a temporary monopoly. Some companies, however, find it in their interest to keep some of their innovations and other confidentially information (like client lists) secret, rather than publicize it by filing for a patent application. This is what trade secret law covers.

Most companies with trade names, brand names, and so on rely to some extent on trademark as well.

Kinsella: I’ve been a registered patent lawyer for almost 20 years. I’ve helped companies obtain hundreds of patents, and have been called upon many times to help defend companies from patent threats. I’ve also been a very strong advocate of free markets, private enterprise, and private property rights, for my entire adult life. I view IP as similar to, say, taxes. High taxes and IP are both harmful to prosperity and freedom. But given the existence of these laws and systems, there is a need for companies to be aware of and deal with these laws. Given high taxes, there is a need for CPAs, tax software, and tax attorneys who defend people being threatened with prison for tax evasion. Likewise, given the existing IP system, there is a need for IP attorneys like me. There is a need to be aware of the contours of the system, to navigate it, even to use it. High tech companies actually do need to spend some money obtaining patents, if only for defensive purposes. If there were no patent law, then the need to waste funds on such acquisitions and on lawsuits and distorting business strategies would evaporate. If taxes were lower, tax lawyers would have to find a new profession. If we cure cancer, oncologists might be out of a job, too, but I suspect a decent oncologist really hopes that his job is someday rendered unnecessary.

In my view, patent and copyright should be abolished, for a number of reasons. First, most advocates of IP admit that they are temporary monopoly privileges, that these laws are deviations from the free market, from a private property system. But they argue that the harm done by these laws is outweighed by innovation gains. That is, they argue that without IP, we would have less artistic creation and less innovation, and that with these laws, we have far more innovation and creativity, and that the value of this extra innovation is far greater than the costs of these laws. However, these claims are completely unfounded, and in fact are counter-intuitive and implausible. These are essentially empirical or utilitarian arguments, but the IP proponents cannot produce the evidence showing that they are right. In fact most of the proponents are special interest lobbyists, such as the pharmaceutical industry, Hollywood, or the music industry, who don’t really care whether IP is a good idea in a free market; they are out for their own interests. They then lobby–bribe–Congressmen, who enact laws that benefit these special interests. Then the guy on the street repeats, fairly mindlessly, the propaganda he’s heard filtered down from the special interest, lobbyists, and legislators, in groundless pro-IP slogans.

For example, the typical person has an assumption that IP is part of a free market and private property system, it incentivizes artists and inventors, it protects the small guy innovating in his basement. This is contrary to reality, but the average person does not always have time to examine these common arguments and assumptions, and so the propagandists succeed. Again, we see this in the very term “intellectual property,” a misleading label which serves the purposes of the IP lobby but which has taken hold.

The empirical evidence we do have suggests strongly that patent and copyright heavily distort the creative and innovative fields, and lower the total amount of innovation in society. IP imposes huge costs on society and the economy: probably hundreds of billions of dollars a year, or more. For example, see my blog posts “Legal Scholars: Thumbs Down on Patent and Copyright” and “The Overwhelming Empirical Case Against Patent and Copyright”, both available at www.c4sif.org.

But the main reason I oppose IP—especially, and primarily, patent and copyright—is that it is not only does it impose costs and slow down progress and impede freedom: but that it is a blatant case of infringement of property rights. Over the years I have found different ways to try to explain to people why IP is not compatible with a free market. One explanation I have given runs like this. Imagine you live in a neighborhood of 100 people, where everyone owns his own home and the tract of land it sits on. The neighbors might agree to enter into a restrictive covenant that prohibits certain uses of one’s home, unless the neighbors agree to it.

For example everyone might agree to use their property for residential use only, and not to paint their house bright orange. If you want to use your property in such a way, you can’t do it unless you get the neighbors’ permission. In effect, everyone has agreed to grant to their neighbors a limited, partial property right in their own home: a veto right. The neighbors can prevent you from using your property in certain ways. Now this practice is common and popular because it has useful benefits. That is why people enter into these arrangements voluntarily. And that is really why they make sense, why they are compatible with private property rights: because they are entered into by the homeowners voluntarily. In fact, such agreements areexercises of private property rights: the owners agree to transfer some of their property rights to others, in exchange for similar transfers, in the hopes that the overall value of the neighborhood will be improved. These property arrangements can be called negative easements or negative servitudes. They are “negative” since your neighbors cannot use your property, but they can prohibit certain uses of your property. The owner of property that is subject to such an easement or servitude, is said to have a “burdened” estate. He owns the main use of the property, but it is subject to the veto of others, a veto right that he contractually agreed to.

And this brings me to my primarily objection to patent and copyright. These rights are types of negative servitudes. A copyright holder can stop you from printing a given pattern of words on your own paper with your own ink and printer. A patent holder can stop you from using your own materials to shape them into certain arrangements. In effect, copyright and patent holders hold a “negative servitude” over others’ property. But the owners of the burdened estates–you and me–never agreed to this. We didn’t contractually grant this servitude to patent and copyright holders. The state simply grants it to them by fiat. So in effect, the state makes patentees and copyright holders co-owners of everyone else’s property, without the property owners’ consent. It is basically an erosion of property rights, a taking of property, a redistribution. It is a limitation on competition and learning and emulation.

Kinsella: The common view of IP, I would say is merely misguided. But when proponents of IP say that they are for it because it enhances innovation and welfare, and yet all the studies point the other way, one has to assume that they are dishonest. They remind me of the liberal advocates of failed welfare policies who continue to advocate these policies even after it is clear they cause human misery and devastation. These are the people rightfully skewered by Thomas Sowell in his book The Vision of the Anointed: Self-Congratulation as a Basis for Social Policy. 

And then we see attempts to apply, enforce, and expand patent and copyright, which do not merely retard innovation or impose some dollar costs on society, but which are truly fascistic and scary, such as the attempt to reduce Internet freedom with SOPA and PIPA in the name of stopping copyright piracy, imprisoning people for years for uploading or downloading a few movies, extraditing foreign students and nationals to face US jail time for having websites with links to piracy sites, invading the homes of people in foreign countries (Kim Dotcom of Megaupload, in New Zealand) in the name of protecting “intellectual property.” The Internet is a key development and tool for the defense of freedom. Anything that imperils it should be taken very seriously.

The state has an interest in restricting digital, technological, and internet freedom, and uses various excuses to do this this: terrorism, child pornography, tax evasion, prostitution, drugs and Silk Road, digital money (bitcoin), online gambling, money laundering, and copyright “piracy.” And you have the US government, at the behest of very powerful American special interests (big pharmaceuticals, Hollywood, the music industry) twisting the arms of developing countries to adopt Draconian US-style patent and copyright laws, in the name of “capitalism” and “private property rights.” Most free market advocates and libertarians oppose laws against narcotics, high taxes, and so on, but when the state labels its monopoly patent and copyright privileges “property,” it befuddles and confuses the opposition.

Kinsella: I have collected a large number of examples at www.c4sif.org/resources. I recount them regularly on the blog there, but there are too many to keep up with. But for a few examples: copyright is said to be necessary to help struggling authors. Yet copyright grew out of a guild-censorship system in Europe, which resulted in the Statute of Anne in 1710. Before this, the Stationer’s Company had a state-protected monopoly over which books could be published and circulated, using the printing press. Authors could not be sure their works would be published, without official approval. The Statute of Anne pretended to give authors the right to decide, but the publishing industry quickly co-opted these author-based copyrights, resulting in the system still prevalent today, in which an author is forced to sign his rights away to some publishing house in order to get published. Then the publisher can refuse to reprint the work when sales fall, yet copyright prohibits others from reviving the work, for over a century. So many works disappear, so-called “orphan works,” or are lost or too obscure. I discuss this in my post How long copyright terms make art disappear.In the case of patent, we have the phenomenon of patent trolling, where patentees who sell no products basically extort money from small companies and individuals, who buckle under because they know they cannot afford a multi-million dollar patent lawsuit. We have high-tech startup companies who receive patent infringement lawsuits just days before an IPO, designed to delay or ruin the IPO. We have the independent seller of “Eat more Kale” teeshirts being bullied by Chick-Fil-A because it allegedly infringes their “Eat Mor Chicken” slogan. Documentary producers are unable to get their films cleared because of outrageous copyright claims. Copyright holders use the Digital Millennium Copyright Act procedure to get criticisms taken off of Youtube since there is little penalty or sanction for “abuse” of this process. It exerts a chilling effect on freedom of expression and it distorts the culture. More mindless Hollywood sequels are made than would be the case, absent copyright; novels and films have–quite literally–been banned by judicial order, because of copyright, such as a sequel to Cather in the Rye.

BAMSouth.com: Ironically, you are an IP attorney—is that a contradiction for you professionally or does your training provide an advantage in criticizing it?

BAMSouth.com: When—and why—did you become opposed to IP law?

BAMSouth.com: Why do so many intellectuals—and legal experts/lawyers in particular—continue to defend IP even after the facts you have presented?

BAMSouth.com: Do any other attorneys or commentators share your view today? Is there an anti-IP movement that is growing?

Kinsella: Free market economists seem to have long been skeptical of IP, and a growing number of legal scholars do as well, though only a handful of them seem to want to go so far as to abolish the whole system. Among free market proponents such as libertarians, my impression is that since the advent of the Internet in the mid-nineties, when copyright and patent enforcement started becoming more visible and virulent, there has been increasing skepticism of IP’s legitimacy. Among free culture types, the free software movement, Austrian libertarians, anarchist libertarians, and left-libertarians, there is a large and growing opposition to IP. For the sake of liberty and capitalism, I hope that more and more people come to see that patent and copyright need to be done away with.