From Mises blog; archived comments below.
My EETimes Letter on Protecting the Patent System
In EE Times: Opinion: Engineers should stage a patent strike, I noted an op-ed by Rick Merritt in EETimes, “Opinion: Engineers should stage a patent strike.”
A Mr. J. C. Cooper, of Pixel Instruments Corp., replied with a letter to the editor in defense of the patent system. My reply is reprinted below:***
Mr. Cooper writes:
“Your articles in the April 20 edition of EE Times [“Dealing with Mad Patent Disease”] which portray the U.S. patent system as broken and worse seem terribly biased. I wonder where you are getting your information. Surely you don’t have any direct experience with patents, e.g. using a patent to protect a money making invention, or you would be able to formulate a more balanced viewpoint.”
I’d like to respectfully disagree with some of Mr. Cooper’s contentions. As a preliminary matter, I disagree that only those with a lot of experience in patenting are entitled to have an opinion, or ought to be accused of being “biased” if they dissent on the mainstream viewpoint on IP rights. that said, I am a practicing, registered patent attorney, with BSEE and MSEE degrees. I’ve represented many clients and obtained hundreds of issued patents over the last 15 or so years.
Mr. Cooper writes,
“The patent system could use some tweaking but it is far from the “mad patent disease” you describe. The U.S. needs a stronger patent system, not weaker …. The only way that innovation, and its industry, can be protected is with intellectual property, i.e. patents. To weaken the patent system at the urging and benefit of a few large multinational corporations (most of which have been found guilty in court of stealing the property of others) runs the risk of destroying that one remaining thriving U.S. industry.”
There are a few problematic assumptions and chains of reasoning here. I agree that innovation is good, but Mr. Cooper’s assumption that “The only way that innovation, and its industry, can be protected is with intellectual property, i.e. patents” is unwarranted. There are of course other ways–exclusion methods; first-to-market; trade secrets, and so on. And there are other methods discussed extensively in Boldrin and Levine’s Against Intellectual Monopoly. No one can seriously argue there would be no innovation without patents. At most, you can argue there is more innovation under a patent system.
But the patent system obviously has costs. So the argument that we need a patent system to encourage more innovation assumes that the value of the extra innovation induced by a patent system is greater than the costs of the patent system. But as I note in my article “There’s No Such Thing as a Free Patent” (links below to this and others mentioned here), no one has ever been able to show this. In fact, most studies and analyses I’m aware of conclude that if anything, the cost of the patent system is greater than the value of any extra, marginal innovation stimulated. Some analyses even conclude that there is less innovation overall under a patent sytem, than there would be without one–so that added to the undeniable cost of the patent system is the cost of the lost innovation.
If Mr. Cooper is aware of information no one else seems to have–what is the net value of the patent system (i.e., what is the value of the extra innovation induced by the patent system, minus any lost innovation, minus other costs of the patent system), I and others would love to see this data.
Mr. Cooper implies that those opposed to IP rights are biased, or not “balanced,” or are mainly “a few large multinational corporations (most of which have been found guilty in court of stealing the property of others).” But surely individuals and even companies are entitled to their viewpoint. It can easily be argued that those who can profit from the patent monopoly granted to them by the state are also biased, and are willing to argue in favor of the patent monopoly system–that they do not really care whether the system is a net benefit to the economy overall–that they are happy to have it exist so long as they benefit from it, even if this is at the expense of overall innovation and growth. Certainly, the deafening silence of advocates of IP to provide any data that supports their contention that patents indeed spur innovation worth more than the cost of the system, casts suspicion on their sincerity. (And is it really that surprising that patent attorneys are almost uniformly pro-IP rights?)
Mr. Cooper’s aside that most of the “large multinational corporations” complaining about patents “have been found guilty in court of stealing the property of others” begs the question of whether IP is, or should be, recognized as a legitimate form of property rights, by calling it “stealing” of “property”. The question is whether patterns of information are, or ought to be ownable as property. In my view, not only does the patent system cause overall economic damage in the billions of dollars, but patent and copyright are not legitimate forms of property rights–in fact, patent and copyright are contrary to, and undermine, private property rights. As I argue in my book Against Intellectual Property, a free market relies on private property rights being respected, which means scarce resources are owned by the original homesteader of the property, or that person’s descendant in title. But to grant a patent to someone who finds a new way to use their own property, is to grant that person some rights in how other people use their own property–this is redistribution from owners, to outsiders. As an example, if the state granted me the right to prevent Mr. Cooper from using his car to transport passengers–if I had this type of veto right–then I could demand he pay me a royalty for my permission to let him carry passengers. I would be a partial owner of his car–where before, he was the full owner, now he is only a part owner. This would be a type of theft of Mr. Cooper’s rights in his car, a transfer from him to me. This is what the patent system does, and it is ethically unjustified and contrary to the sanctity of private property rights.
It is understandable that technology companies take advantage of the state’s patent system; they have virtually no choice, if only for defensive reasons. And it is understandable they become used to this model, and cannot imagine how their business model would change if the state did not intervene in the market with IP law. But this does not mean IP law is justified.
For those interested in further reading on this (and for links to some of the sources mentioned above), I recommend:
1. The superb new book Against Intellectual Monopoly, by economists Boldrin and Levine.
2. Jeff Tucker’s excellent commentaries on Boldrin and Levine.
3. Some of my material, many on Mises.org. Such as: my little book, Against Intellectual Property, my article “There’s No Such Thing as a Free Patent,” and my presentation, “Rethinking IP Completely,” all available here.
4. Mike Masnick’s frequent and excellent anti-IP commentary on Techdirt.
There are many other excellent anti-IP pieces, but this is a good starting point.
Comments (30)
Published: April 29, 2009 1:17 PM
Amazingly, other people don’t abandon their views just because you disagree with them. It’s a flaw in the system, I’ll grant you.
Published: April 29, 2009 1:27 PM
Think about it.
Published: April 29, 2009 1:49 PM
The other day I said privately to Kinsella that you can divide all libertarians into two camps: One camp includes the people who try to meaningfully advance the cause of liberty through word and deed. The other camp embraces the language of liberty in order to wield it as a club against those who don’t immediately recognize their superior intellectual prowess. They care less about promoting liberty then getting others to acknowledge them as the smartest person in the room.
So my question for you, Silas, is what camp do you want to belong to? Think about it.
Published: April 29, 2009 2:10 PM
Published: April 29, 2009 2:45 PM
Kinsella, you can compare costs of two IP systems but not an IP versus a non-IP system. The latter belongs to external economies. There is no way to calculate prices and costs there.
Published: April 29, 2009 2:56 PM
Of course, the argument is not that anything with costs should be outlawed. Nice try though.
Published: April 29, 2009 3:31 PM
The argument about non-zero market price without IP has been repeatedly refuted, and if you opened up your eyes you would actually be able to observe it in real life.
Published: April 29, 2009 3:37 PM
The argument about zero market price without IP has been repeatedly refuted, and if you opened up your eyes you would actually be able to observe markets for immaterial goods it in real life that have nothing to do with IP.
If someone makes claims that are evidently refuted by reality, it sometimes means that he is so emotionally attached to the false idea that he is willing to sacrifice logic to keep the warm fuzzy feeling.
Published: April 29, 2009 3:45 PM
If refutation means pulling a Goebbels I agree.
Please open my eyes (but don’t send the Gestapo).
Published: April 29, 2009 3:48 PM
I also support the concept of the “engineer’s strike.” The current practice is to require employees who develop valuable IP to sign a royalty free assignment agreement for the consideration of ONE DOLLAR.
I do not support weakening patent rights. A savvy individual who performs their own due diligence and patent research (easily performed online for free), and who can write their own patents can attain a utility patent pretty cheaply, if they have a cooperative attorney. Furthermore the “first to market” argument is completely bogus in today’s oligarchical economy.
IP protects the individual inventor/entrepreneur. Take it away and you consign innovation to the entities least equipped socially and otherwise to create it: government funded universities and large corporations.
Published: April 29, 2009 4:06 PM
Some of your posts make me think that you actually know what you are talking about, unlike Silas and ktibuk. Then you post something like this.
Do you deny that there are markets with immaterial goods that do not utilise IP? Just for the kicks, name any profession you can think of that creates immaterial goods and I will point to a real life example how they earn money by selling immaterial goods without any support of IP laws.
Published: April 29, 2009 4:16 PM
I thought that after he was exposed as an opponent of “Intellectual Property”, he would stop trying to derail debates and steer them toward his weird “Intent Property” scheme.
Here: http://blog.mises.org/archives/009499.asp ,
Jason Gordon took Silas’s own claims to their logical conclusion when he said: “The fact that IP rights [fail] to assert ownership over an understanding tells me that there [exist] no IP rights.”
Published: April 29, 2009 4:33 PM
@Peter_Surda: Please show me where the IP calculation argument has been specifically addressed in an academic paper by an Austrian.
There are a number of ways an Austrian can handle it, but any way forces you to accept unpalatable conclusions. Let’s take yours:
Do you deny that there are markets with immaterial goods that do not utilise IP? Just for the kicks, name any profession you can think of that creates immaterial goods and I will point to a real life example how they earn money by selling immaterial goods without any support of IP laws.
Ah, okay, you’re going with the tack of: “Hey, look at these markets where people waive their IP rights and they can still make a profit!”
Well, sad to say, Peter_Surda, but I can point instances where people waive their rights to physical property. It wouldn’t prove that there’s no economic calculation problem for physical goods.
I can point to merchants who give away free samples and then make money on selling to later customers. I can point to people who give away baked goods to help raise money in a bake sale. I can point to people who donate goods to charity. I can point to drug markets where people *can’t* rely on any legal protection of their drug property rights.
Does all that somehow prove that we can safely eliminate the shackles of property rights in physical goods? Are all of you for that too?
From the fact that some people waive right X, it doesn’t not follow that right X is unnecessary for economic calculation. What about this is so hard to understand?
This issue requires serious analysis of the fundamentals: When someone values a “good”, what are they actually valuing? What are people actually buying in markets that allows them to get “goods”? What about property rights enables economic calculation? Then you have to take those answers and apply them as generally as possible.
My answers to those questions are that: A “good” is any *experience* that someone pursues as a result of it being high enough on their preference scale. When someone buys a good, what they are really buying is the removal of others preventing their access to it (i.e. the legal right to it), and the facilitation of their own access to it.
I could go on, but that’s getting kind of tangental. The point, sadly, is that even trying to answer these very fundamental questions is very difficult with Austrians, which makes it nearly impossible for them to even see what the opposing argument is.
Published: April 29, 2009 4:36 PM
@Cosmin: “The fact that IP rights [fail] to assert ownership over an understanding tells me that there [exist] no IP rights.”
ROFL!!! Are you still clinging to that statement as being somehow insightful?
For anyone who misseed that exchange, here is Cosmin’s latest stroke of genius:
1) IP rights don’t assert ownership over something that it would be ridiculous to assert ownership over (and that no one has argued in favor of).
2) Therefore, IP rights don’t exist.
It’s such a confused mess I didn’t even bother to respond the first time, but since Cosmin must think he’s on to something, I’ll give it a go here:
First of all, how does the *lack* of a bad attribute prove that a right doesn’t exist? The lack of a bad attribute would be a good thing! OTOH, if you meant that IP rights don’t currently exist, so what? The debate was whether the legal right *should* exist.
Second, why should someone have to defend a position he’s not advocating? The argument is that legal rights to IP should exist. The *substance* of IP rights is the right to form physical matter into a certain pattern. Why does it matter whether or not IP asserts right to “understanding”? Debate whether you think that right should exist, not whether it adheres to some other standard about if it asserts ownership of an understanding.
Third, if what you meant was that owning an understanding and owning the right to instantiate a pattern are one and the same so that if the former is conceded as invalid, so must the latter be … well, what can I say? That’s wrong. You can understand an idea even if you don’t have the right to form physical matter in a way that instantiates it. If you’re going to argue that the brain *is* the instantiation of it, fine, but IP advocates don’t care about these kinds of instantiations, because they aren’t observable nor do they amount to distribution (among other reasons).
Next?
Published: April 29, 2009 4:50 PM
Do you support creating “markets” for CO2 and other pollutants? Currently these pollutants are externalized from production costs and the harms they cause society at large just as you seem to argue would occur in the case of removing government rules regarding ideas. How are these situations of government created markets different from one another? The arguments seem the same to me.
Jason Young
Published: April 29, 2009 5:09 PM
Since you agree about understanding, your whole argument boils down to restricting freedom. To you, self-ownership is not an unalienable right.
Good luck with that.
Published: April 29, 2009 5:12 PM
Uh, if respecting someone else’s property right is a restriction of freedom and self-ownership, then you’re guilty too, bro.
@Jason_Young: That’s kind of getting off-topic. Here I’ll just say that if certain atmospheric “resources”, broadly defined, are limited, then there should be property rights in them.
Published: April 29, 2009 5:28 PM
You’re right, I don’t respect that “property” claim of yours.
Published: April 29, 2009 6:07 PM
> calculation argument has been specifically
> addressed in an academic paper by an Austrian.
The original economic calculation problem is based on the presence or absence of a pricing mechanism in a free market. Since the absence of IP laws does not create this condition, there is no “IP calculation argument” to refute.
If you do not agree, show me a real world example of a good or service that can be obtained through a market in a world with IP, but cannot be obtained in one without. With the minor exception, of course, of IP lawyers.
> Ah, okay, you’re going with the tack of: “Hey,
> look at these markets where people waive their IP
> rights and they can still make a profit!”
So far you are correct.
> Well, sad to say, Peter_Surda, but I can point
> instances where people waive their rights to
> physical property.
This analogy is flawed. Waiving IP rights and waiving normal rights have a different legal basis, and they also cause different economic results.
Waiving an IP right means you do not utilise a monopoly power to prevent third parties from competing without your consent, but still keep the right to use. In this setting, markets are still possible and indeed present.
Waiving real property rights means you give up the right to use. Without the right to use, contracts cannot be made and therefore a market cannot exist.
Your confusion stems from not understanding the different definitions of property: the right to use, and the right to prevent third parties from using. With rival goods, these definitions are equivalent, but with non-rival they have different meanings. Unless you properly distinguish between them, your arguments will stay flawed.
> It wouldn’t prove that there’s no
> economic calculation problem for physical goods.
The economic calculation problem is not about “giving stuff away for free”. It is about the absence or presence of prices generated by markets.
> I can point to merchants who give away free
> samples and then make money on selling to later
> customers.
This is indeed a real world example, however again a flawed analogy, partially for the same reason explained above, partially for new ones. Giving up IP does not mean giving away anything for free. Also, even if it meant that I give away something for free, it does not necessitate that I reassert the IP later in order to recoup the losses, as your example does. Money can be made without any IP whatsoever, forever, not just temporarily. For example, as I said many times, I have been a software engineer my whole carreer and my income never depended on IP. According to your logic, I should have been heavily in debt now.
> I can point to people who give away baked goods
> to help raise money in a bake sale. I can point to
> people who donate goods to charity. I can point
> to drug markets where people *can’t* rely on any
> legal protection of their drug property rights.
At this moment I think it would be interesting to point out that all your examples are based on the presence of real property rights. All of these transactions are based on contracts, which obviously necessitate property rights.
Again: the economic calculation problem is not about zero price, it is about whether the price is generated by market.
> Does all that somehow prove that we can safely
> eliminate the shackles of property rights in
> physical goods? Are all of you for that too?
As I said two sentences before, all of the examples require property rights. There is no argument.
> From the fact that some people waive right X, it
> doesn’t not follow that right X is unnecessary for
> economic calculation.
This is one of the few correct sentences in your comment.
> What about this is so hard to understand?
I have no problem understanding it. But two things prevent your argument from being correct:
– they do not actually demonstrate giving up said rights
– if the waiving “works” not only temporarily for some but permanently for everyone, it indeed proves that the said right isn’t necessary
> This issue requires serious analysis of the
> fundamentals
Indeed. First a definition of the term “property” is required, so that we can separate cause and effect and do not confuse specific features of real property vs. IP.
> When someone values a “good”, what are they
> actually valuing? What are people actually buying
> in markets that allows them to get “goods”?
> What about property rights enables economic
> calculation? Then you have to take those answers
> and apply them as generally as possible.
I agree that this would help.
> My answers to those questions are that: A “good”
> is any *experience* that someone pursues as a
> result of it being high enough on their preference
> scale.
This sounds unnecessarily complicated, but let’s say it’s ok.
> When someone buys a good, what they are really
> buying is the removal of others preventing their
> access to it (i.e. the legal right to it), and the
> facilitation of their own access to it.
Thank you for bringing this up yourself. These two definitions are not always as connected as you present them here and in fact have very different effects.
Even with rival goods I can demonstrate that the effect is different. Say there is a patch of land, and you find out your competitor wants to build a manufacturing plant in that area. You manage to buy it from the owner, preventing the plants construction. You have no intent to use the land, you just want to make it harder for your competition.
And this is the crucial point. Whereas the right to use gives you the ability to create contracts and markets can arise, the third party exclusion right gives you the ability to make it harder to compete. Different rights, different effects. Sometimes, they can be applied separately, sometimes they can’t.
In case it still has not been explained sufficiently, IP refers only to the second right, the one where you exclude and make competition more difficult, but not to the first right, which allows one to enter contracts and markets to arise. Therefore, there is no connection between the economic calculation argument and IP.
> I could go on, but that’s getting kind of tangental.
Maybe you don’t need to go on, rather step back and reevaluate your claims.
> The point, sadly, is that even trying to answer
> these very fundamental questions is very difficult
> with Austrians, which makes it nearly impossible
> for them to even see what the opposing argument
> is.
Answering them is trivial, as demonstrated above, you just need to eliminate incorrect assumptions.
Cheers,
Peter
Published: April 29, 2009 8:03 PM
Could you clarify this? It is so unbelievable I had to doublecheck!
Published: April 29, 2009 9:03 PM
> Could you clarify this?
But of course. If a market price of a good is zero, it indicates that there is no necessity to economise the usage. In case of non-rival goods, this correctly reflects the economic reality. What would happen as a consequence is that people who insist on selling it would bundle it with some other goods and/or services that have a non-zero price.
Now, this is just a theoretical concept. As B&L; eloquently conclude, in reality the price is never zero. According to my interpretation, they provide the following arguments:
– it is impossible to “unbundle” immaterial goods from material ones. In real world, every transaction that deals with immaterial goods “piggybacks” on some material goods or services.
– between the the time the immaterial good is “initially” created and sold for the first time, there is no supply of the good available anywhere. Anyone who wishes to obtain it therefore needs to enter into a contract with the creator, which allows a non-zero price.
Continuing on the B&L; line, the utilitarian question isn’t whether money can be earned without IP (which it obviously can), but whether the gains of an IP system outweight the costs.
Cheers,
Peter
Published: April 30, 2009 11:30 AM
B&L; eloquently uses the market system after they have so eagerly eradicated it. Talking about unintended consequences! I know these are only technicalities for you but it is hardly utilitarianism any longer at this level.
Published: April 30, 2009 12:15 PM
> How do you do your due diligence under non-IP
> schemes before purchasing any inventions?
Contracts.
> Who would in his right mind show you anything
> non material if you subsequently can just steal
> instead of buying?
Please refrain from using the word “steal” in this context. There is no logical or legal basis for that. Let’s call it unauthorised competition.
The situation you are describing with emotionally laden words merely describes an everyday occurance: the risk of competitors undercutting you. How to prevent this is a question that should be answered by a businessman and not by an economist.
> Piggybacking makes it only harder to figure out
> the real price as you have to deconvolute it first.
This argument only has limited applicability, since it ignores emergent properties (a whole can have a greater value than the sum of its parts) and the costs of obtaining information. Even if we stick to material goods only, there is a limit to how deep a decoupling creates usable pricing information. In case you are familiar with cost accounting, you should be immediately able to recognise this: there are various methods of how to assign costs to your inputs, each has its uses and none of them decouples ad infinitum. Some are specifically designed for situations where the costs of decoupling are too high compared to the additional information gained by it. I recommend you read a book about cost accounting.
> And this is only one prospective transaction of
> many.
I do not understand. Are you refering to the first sale?
> How do you price research material, labor,
> expertize.
Among companies: by accessing the market prices. Inside a company: by having cost accounting.
> How do you even interact with anyone
> under this scheme?
By using contracts instead of government granted monopoly power. Business as usual.
> Every potential IP market participant will retreat to
> his bunker to protect his secrets.
That’s what a bad businessman would do and rightly therefore deserves to go bankrupt.
> Co-operation, division of labor? Just forget it!
Yet again, you deny reality. If your arguments were correct, most of the things you see around you wouldn’t exist. You probably wouldn’t exist either, since your parents wouldn’t have been able to obtain a market price of each other, therefore would “retreat to their bunkers” instead of entering a marriage contract.
The “risk” of competition is an inherent feature of capitalism. Noone wants it, but everyone profits from it. That is what reflects our nature and makes it a superior system.
> B&L; eloquently uses the market system after they
> have so eagerly eradicated it. Talking about
> unintended consequences! I know these are only
> technicalities for you but it is hardly utilitarianism
> any longer at this level.
I find it regrettable that what started as a meaningful discussion ends up with emotional exhortations and denial of reality. Please come back once your temper has subsided.
Cheers,
Peter
Published: April 30, 2009 6:57 PM
If a market price of a good is zero, it indicates that there is no necessity to economise the usage. In case of non-rival goods, this correctly reflects the economic reality.
Here, I think is the fundamental flaw in your view. You forget that the price is important, not just for economizing on a good [1] that already exists, but in deciding whether to produce that good to begin with!
A price of zero doesn’t just mean the good doesn’t need to be economized; it means the good shouldn’t be produced if it requires forgoing *any* means. But clearly, the existence of a new, useful idea moves everyone up on their preference scale, so certainly it justifies forgoing *some* means. And we reach a contradiction.
So to say the idea is correctly priced at $0 is in error.
You claim that the good can be bundled with other goods that do have value. But this misunderstands what a zero price means; it means that people don’t need to buy any other good to get to it, meaning this mode is impossible. Moreover, it results in cases where 1000 people would pay $1000 for the idea to exist, but it requires the sacrifice of $3000 worth of means and only $1000 (the first good) can be secured a revenues. Here, the lack of IP has made everyone strictly worse off, and it’s due to the deletion of information that prices are supposed to provide.
[1] If I were to be more rigorous than anyone alive who addresses this topic, I would point out that “good” here means, “the physical possibility of want satisfaction related to intentional manipulation of a known physical item”.
Published: April 30, 2009 9:58 PM
> Here, I think is the fundamental flaw in your view. You
> forget that the price is important, not just for
> economizing on a good [1] that already exists, but in
> deciding whether to produce that good to begin with!
I did not forget it. If you recall, I added that this is just a theoretical construct. In reality the price can never be zero.
> So to say the idea is correctly priced at $0 is in error.
It is you who claim (incorrectly) that it is priced at zero. I merely claim that IF the price is zero, it correctly reflects the economic situation.
(bundling)
> But this misunderstands what a zero price means; it
> means that people don’t need to buy any other good to
> get to it, meaning this mode is impossible.
You make an error here by assuming that the market value of the the bundle is equal to the sum of the values of the components. In my opinion this is almost never the case. Indeed, if it were, trade would not be profitable and there would be no market. Whoever buys the bundle is better off than if he instead got the “zero priced item” for free and paid for the other parts. The revenue that you get from selling the bundle minus the cost of the other parts creates a non-zero market price for the “zero priced item” component.
In reality, everything traded on a market is a bundle. I don’t know how much experience you have with selling goods and services to customers, but my experience tells me that customers typically request bundles rather than components. Indeed, the more stuff you bundle, the greater the demand for your goods and services.
By using a reductio ad absurdum argument, you can split all goods and services into components that have prices below the threshold of market profitability (doesn’t even need to be zero). Then you could successfully argue that nothing can be produced at all.
> Moreover, it results in cases where 1000 people would
> pay $1000 for the idea to exist, but it requires the
> sacrifice of $3000 worth of means and only $1000 (the
> first good) can be secured a revenues.
To use Dr. Boldrin’s expression, this is an empirical problem. It is a question of whether a specific business model is profitable.
> Here, the lack of IP has made everyone strictly worse
> off, and it’s due to the deletion of information that prices
> are supposed to provide.
You forgot to account for the costs of IP, for example the opportunity cost of having less competition.
You basically argue that if a specific business makes less profit, it is a bad thing. Obviously, it is bad for that particular business. But it is better for their competitors and for the customers.
Cheers,
Peter
Published: May 1, 2009 4:20 AM
Is it really an empirical matter whether expanding people’s choice sets is weakly preferred? (i.e. allows them to move up on teir preference scale or stay the same, but cannot make them move down) I thought there was a praxeological theorem to that effect.
Remember, with IP, people can still do those ventures that are still profitable even with unlimited copying: they just waive the right, like people waive the property rights in the free samples they give out. IP simply enables those larger-scale pareto-improvements that aren’t otherwise possible.
You make an error here by assuming that the market value of the the bundle is equal to the sum of the values of the components. In my opinion this is almost never the case.
Even so, the “bundled goods” are decoupled from the preferences people have for ideas. For example, when someone transfers a song as an mp3 to me, then yes, they *necessarily* bundle the knowledge of the mp3 with “the service of transferring 3 megs of data”. However, the cost of “transferring 3 megs of data” is completely decoupled from the value of the new idea contained therein. It costs just the same to send 3 megs of a song, as it does to send 3 megs of random noise (assuming full compression, blah blah blah).
But people are *not* indifferent to whether new songs are simply random noise. Ergo, the lack of IP deletes the information contained in price signals.
Indeed, if it were, trade would not be profitable and there would be no market.
Ding ding ding! You’re absolutely right! In the absence of the ability to have the exclusive legal right to instantiate certain patterns, many pareto improvements simply won’t happen: “there would be no market”. Not a “market, side-by-side with happy free-loaders”. But no market.
Published: May 1, 2009 11:14 AM
> people’s choice sets is weakly preferred?
IP doesn’t provide any such expansion per se. It redistributes the money flow instead. I can also counter that it shrinks the choices, as competition is eliminated. Discussing this part of the problem is pointless.
> … allows them to move up on teir preference scale or
> stay the same, but cannot make them move down.
Of course it can move down. Just like IP applies to your outputs, thereby increasing their market value, it also applies to your inputs, increasing their cost.
> Remember, with IP, people can still do those ventures
> that are still profitable even with unlimited copying:
Only in case their costs stay the same. Ceteris paribus.
> IP simply enables those larger-scale
> pareto-improvements that aren’t otherwise possible.
Now you are jumping to empirical area again. As B&L; conclude, there is no evidence that IP means a pareto-improvement. Rather, IP seems to correlate with stagnation, just like any other feature of legal system that suppresses competition.
> However, the cost of “transferring 3 megs of data” is
> completely decoupled from the value of the new idea
> contained therein. It costs just the same to send 3 megs
> of a song, as it does to send 3 megs of random noise
> (assuming full compression, blah blah blah).
Just like the cost of transport of any material good is (typically) decoupled from the market value of that goods and depends primarily on their weight, volume and distance. Just earlier today I sent a letter and a package. The post office guy didn’t ask what was inside, instead he put it on a scale and looked at the destination country.
Also, it isn’t always decoupled: just like electronic financial transactions have higher requirements and therefore are more costly, transport of physical money has higher requirements and is more costly. Referring to the earlier case, I had my package insured for a little extra cost, but not the letter.
> In the absence of the ability to have the exclusive legal
> right to instantiate certain patterns, many pareto
> improvements
There is no evidence of said pareto-improvement.
> simply won’t happen: “there would be no market”. Not
> a “market, side-by-side with happy free-loaders”. But no
> market.
Again you are describing a situation of specific business models not being profitable. Which as I said many times is of no relevance to the debate. I can make up any sort of fictional business model that depends on exclusive rights and then claim that because it is not profitable in the current legal system, this situation is somehow undesirable.
You are too fixed at the hypothetical zero price. Even if it happened (it can’t), zero price is irrelevant, as long as you can calculate the difference between the cost and revenue. If it is negative (or zero), you need to bundle. If you can’t, someone else can. If noone can, there is no market. You need to process all these steps before jumping to the conclusion. And to prove that noone can profitably bundle something, is intelectually a very difficult endeavor, and the negative outcome is embarassing, as it means your competitor is smarter than you. Outlawing competition is a loser’s way of making a living.
Cheers,
Peter
Published: May 1, 2009 2:19 PM
> completely decoupled from the value of the new idea
> contained therein. It costs just the same to send 3 megs
> of a song, as it does to send 3 megs of random noise
> (assuming full compression, blah blah blah).
Just like the cost of transport of any material good is (typically) decoupled from the market value of that goods and depends primarily on their weight, volume and distance. Just earlier today I sent a letter and a package. The post office guy didn’t ask what was inside, instead he put it on a scale and looked at the destination country.
I’m sorry, did you forget what the discussion was about? Let me review it for you:
Me: IP-free regimes don’t allow ideas to get prices that correctly signal their value to people.
You: Sure they do. Even if ideas are forced to zero price, any real-world selling of the idea involves other, scarce goods, and *those* will reflect the value of the idea.
Me: But they can’t, because the cost of those goods doesn’t depend on the idea.
You: And the cost of shipping an object doesn’t reflect the value of the object either! (your last response)
Me: *falls out of chair* But to buy such an object, you have to pay for the object *and* shipping, so there is a meaningful price signal for both. For ideas, the idea is priced at zero, and the “bundled” goods are unrelated to the value of the idea, so no price reflects the value of the idea!
> Is it really an empirical matter whether expanding
> people’s choice sets is weakly preferred?
IP doesn’t provide any such expansion per se. It redistributes the money flow instead.
It doesn’t redistribute the money; it allows some goods to exist that otherwise wouldn’t. Even you agree with this. In the absence of IP, the money wouldn’t flow to multiple sellers; the goods (for many cases) simply wouldn’t exist, and money would flow to nobody for producing the good.
I can also counter that it shrinks the choices, as competition is eliminated.
Yes, IP eliminates competition in the production of a good that wouldn’t otherwise exist. That means the competition reduction is zero.
As B&L; conclude, there is no evidence that IP means a pareto-improvement. Rather, IP seems to correlate with stagnation,
B/L looked at very poor implementations of IP. If our world had developed in such a way that people were too stupid to know how to spell out physical property boundaries or homesteading rules, you would similarly conclude, “as an empirical matter”, that property corresponds to stagnation relative to family/clan-based communal production.
Yes, governments can botch IP systems. They can botch physical property too! Are proponents of property rights obligated to defend every tyrant’s expropration?
just like any other feature of legal system that suppresses competition.
Oh, really? All legal systems that suppress competition stagnate relative to if they hadn’t suppressed competition in that area?
Well, private property systems suppress competition for the optimal use of my bike. Does that lead to stagnation relative to where anyone could use my bike?
Oh, I forgot: you define monopolies that you like to be “not really monopolies” and thus, with a stroke of a pen, you’ve defined away the efficiency of intellectual property! Brilliant!
And to prove that noone can profitably bundle something, is intelectually a very difficult endeavor, and the negative outcome is embarassing, as it means your competitor is smarter than you.
Okay, so if a competitor can *copy* something that you had to *design*, that means they’re smarter?
You might as well just say that if someone was able to defeat my defense mechanisms and steal my inventory, then that “competitor” is smarter, and that theft is an example of efficiency of the market, because it required intelligence.
Oh, right, I forgot, intelligence and market efficiency are only defined with respect to the property rights system you’ve decreed to be the right one.
Published: May 1, 2009 2:47 PM
> goods doesn’t depend on the idea.
That is NOT what you said. Or, if you THINK that is what you said, then you made an incorrect assumption that the cost of an mp3 is equivalent to bandwidth costs.
> It doesn’t redistribute the money; it allows some
> goods to exist that otherwise wouldn’t.
While this argument may potentially be true (we have no way of verifying it), that does not prove anything. That argument can be made of any law that creates special privileges, one would merely claim that in a free market, the costs of inputs would be higher than the market value of the output, and therefore the good in question would not be produced. This argument is also frequently used to justify the government, and is equally unsubstantiated in that case.
> In the absence of IP, …
Yet again, this is an empirical problem. There is no method of knowing in advance the answer to this question. It is a matter of business models, not of economic models.
> Yes, IP eliminates competition in the production
> of a good that wouldn’t otherwise exist. That
> means the competition reduction is zero.
You are repeating the errors that you already made. So let me repeat the clarification: we have no way of determining in advance whether the cost would be higher than revenue. While this doesn’t mean that the good would be produced, it also doesn’t mean that it cannot be produced.
> B/L looked at very poor implementations of IP.
Thank you for bringing this up. If that is correct, then you (or anyone in the discussion) has yet to provide a fix for any of these poor implementations. I would tend to think that this is actually a very important element, so I wonder why it is not addressed. Surely if you are correct then it can’t be that difficult?
> If our world had developed in such a way that
> people were too stupid to know how to spell out
> physical property boundaries or homesteading
> rules, you would similarly conclude, “as an
> empirical matter”, that property corresponds to
> stagnation relative to family/clan-based communal
> production.
Yes, you are completely correct on this one. So why don’t you provide any way to remedy the allegged stupidity of our lawmakers? In a post to a previous blog entry, http://blog.mises.org/archives/009856.asp#comment-537584 , I posed several questions which a potential IP system has to address. How about you try to solve them?
> Yes, governments can botch IP systems. They
> can botch physical property too! Are proponents
> of property rights obligated to defend every
> tyrant’s expropration?
The difference being of course, that while economists are able to provide a coherent, solid and functional concept for “classical” property rights (let’s not call them physical property rights, as they of course also extend to immaterial goods, they just do not meet your requirements as to the extense of those rights), IP proponents have yet to provide the equivalent.
> All legal systems that suppress competition
> stagnate relative to if they hadn’t suppressed
> competition in that area?
It is not the legal system that stagnates, rather the advancements in that industry where competition is suppressed.
> Well, private property systems suppress
> competition for the optimal use of my bike.
If, hypothetically, someone else can sell your bike without violating your right to use it, then it can be argued that a law preventing this suppresses competion, yes. As far as I know, noone is forbidding others to copy the bike and sell the result. Rather it is the nature that prevents it. Lawmakers have preciously little to do with it. Maybe some day in the future this will be possible. What would happen then?
If I am correct, competition in this case (i.e. absence of laws restricting it) would create unprecedented wealth and increase in productivity and innovation. A law restricting it would on the other hand create monopolies, stagnation and black markets.
If you are correct, then the results would be exactly the opposite. The absence of the restrictive rights would bring about poverty, all markets would collapse and noone would be motivated to create anything. Only the restriction of competition and thorough enforcement of said restriction would bring back the economy.
I think for now I’ll stick to my estimates.
> Does that lead to stagnation relative to where
> anyone could use my bike?
See above. Different rights, different effect.
> Oh, I forgot: you define monopolies that you like
> to be “not really monopolies” and thus, with a
> stroke of a pen, you’ve defined away the
> efficiency of intellectual property! Brilliant!
I don’t know where you got this from. I define monopolies by whether competition is suppressed by violence.
> Okay, so if a competitor can *copy* something
> that you had to *design*, that means they’re
> smarter?
No. If a competitor can obtain something at lower cost than you, or sell it at a higher price, or find a more profitable combination of the inputs or outputs, then they are smarter.
> You might as well just say that if someone was
> able to defeat my defense mechanisms and steal
> my inventory, then that “competitor” is smarter,
> and that theft is an example of efficiency of the
> market, because it required intelligence.
I am starting to get tired of continued false analogies by the IP proponents, so I made a picture out of my previous explainations that I can refer to from now thereon: http://shurdeek.shurdix.org/tmp/ip.png . You are making an analogy by comparing the cells 1 and 4. It is evident that this is incorrect. Eliminating IP does not eliminate the right to use. Eliminating classical property does.
> Oh, right, I forgot, intelligence and market
> efficiency are only defined with respect to the
> property rights system you’ve decreed to be the
> right one.
If you spent as much time actually analysing intellectual property as you spend on making random irrelevant accusations, I am sure the quality of discussion would improve.
Cheers,
Peter
Published: May 1, 2009 5:24 PM