Independent Institute on The “Benefits” of Intellectual Property Protection

by Stephan Kinsella on February 15, 2016

As an increasing number of libertarians nowadays are aware or sense, intellectual property is utterly incompatible with private property rights and libertarian principles. In fact, it is one of the most insidious and harmful of statist policies.¹ Ever since the advent of the Internet, which has magnified the costs of IP and made them more apparent, causing libertarians to turn their attention thereto, more and more libertarians are coming to oppose IP. Virtually all anarchist-libertarians, left-libertarians, and Austrian libertarians, and a growing number of minarchists, oppose IP, and in increasing numbers.²

Yet there remain stubborn holdouts: primarily Randians, older generation minarchists, novelists and other authors who think their livelihood depends on copyright, and a few others financially dependent on IP who want to preserve their gravy train. Some libertarian think tanks, like the Mises Institute or FEE, are anti-IP or at least feature anti-IP writers. But other libertarian think tanks continue to cling to IP in one form or another, either defending it, or having endless panels and conferences about how to “reform” IP, but never to abolish it. For example, see the recent Cato event Intellectual Property and First Principles, featuring four panelists, two strongly in favor of IP and none calling for IP abolition (despite the fact that IP abolition pioneer Tom Palmer is a former Cato guy). The Independent Institute is another libertarian think tank that seems to never feature anti-IP writers, only defenders of IP. For example, as I’ve noted before, Independent Institute senior fellow William Shughart, in “Ideas Need Protection: Abolishing Intellectual-property Patents Would Hurt Innovation: A Middle Ground Is Needed” (archive), has embarrassingly argued:

Granting a temporary monopoly to the rare breakthrough is necessary, therefore, to provide its inventor with an opportunity to earn a return on the investment that led to the new idea – and to encourage additional such investments. Such protection is especially important in the pharmaceutical industry, where, in its absence, new drugs could be duplicated by competitors, and the incentive to invest would disappear, stifling the discovery process.

To paraphrase the late economist Joan Robinson, patents and copyrights slow down the diffusion of new ideas for a reason: to ensure there will be more new ideas to diffuse.

And in the Winter 2015 issue of the Institute’s journal, Independent Review, we have a pro-patent article, Seeking the Patent Truth: Patents Can Provide Justice and Funding for Inventors, by Arthur M. Diamond Jr.³

See also Lessig, “Cato’$ Late$t” (criticizing the pro-IP views of Adam Thierer in Howard Dean’s Plan for the Internet: Collectivism In, Property Rights Out; see mention of Lessig’s comments in Julian Sanchez, Tech Throwdown, and my post Cato, Lessig, and Intellectual Property), where he says “Of course I’m all for more balance in “intellectual property.” Not a good look, Lessig.

And now we have yet another pro-IP piece from II, “The Benefits of Intellectual Property Protection,” by John R. Graham (Feb. 15, 2016). Graham writes:

If there is one thing about which libertarians are never likely to agree, it is whether intellectual property—patents, copyrights, trademarks, and trade secrets—should receive the same legal protection as physical property.

This is simply a false assertion. As noted above, libertarians are now predominately anti-IP and more and more of us move in this direction. This in fact seems to be one issue that we are in fact likely to agree on, unlike, say, abortion or minarchy. In my own libertarian lifetime I can hardly recall seeing such progress on a previously murky or contested issue.

Without wading too deep into the philosophical debate, but showing my colors as an IP advocate, let me share some new research published by the U.S. Chamber of Commerce’s Global Intellectual Property Center (GIPC) on the benefits of legal protection of intellectual property.

In just one sentence, there are least three things to comment on. First: how can one comment on a supposedly contested libertarian normative issue, while explicitly refraining from engaging in “the philosophical debate”? Sounds like trying to have one’s cake and eat it too—or an abdication of responsibility. One should not weigh in on such an important issue, taking a normative position, without taking or having an argument for a normative or philosophical stance. Second, the author admits he is an IP advocate—though he doesn’t say why (perhaps because of his connections to medical/pharmaceutical industries, which are typically strongly anti-competition, I mean, pro-patent). One can only imagine he thinks his bread is buttered somehow by the IP system. That may be well and good, but it is not an argument. I’m an IP lawyer but I oppose IP, so it is possible to have some integrity. Third: he just launches into “research” as if this is how this issue is to be decided. Not everyone is a utilitarian or empiricist, nor do all of us trust data from advocacy groups.

Graham then launches into a discussion of the U.S. Chamber of Commerce’s “research.” This reminds a bit of the utterly bogus US Commerce Department report “Showing Intellectual Property-Intensive Industries Contribute $5 Trillion, 40 Million Jobs to US Economy”.⁴ This argument, of course, makes the mistake of equating correlation with causation, just as similar arguments for IP do, such as: Postwar Japan prospered because it had a patent system; countries with the most IP are the most prosperous; America’s prosperity and growth since its inception is due to its patent and copyright systems.

Regarding the U.S. Chamber of Commerce study, Graham says:

Published on February 10, Infinite Possibilities ranks 38 countries by 30 indicators of strength of IP protection. The indicators measure both law and enforcement: Countries which do not enforce IP rights, despite the letter lf the law, are marked down. Most of the indicators are straight forward: Longer patent, copyright, or trademark terms are better; strong enforcement mechanisms are better; and treaty obligations protecting intellectual property invented in other countries are better.

The report does not attempt to determine causality between strong IP protection and social or economic outcomes. Indeed, 30 indicators are likely far too many to use for such an analysis. Nevertheless, the report does determine a number of positive correlations between strong IP protection and a number of other beneficial indicators. For example, the correlation between countries’ scores and

access to venture capital is 0.81;

number of researchers in research and development is 0.80;

access to the latest technologies is 0.83;

access to video-on-demand and streaming TV is 0.64;

private sector spending on research and development is 0.75;

share of workforce in high-value, knowledge-intensive services.

I could go on, but I am sure you get the drift. Some libertarian critics complain that IP protection is the result of innovation, not its cause; and the legal framework is a consequence of rent-seeking rather than the government’s desire to promote innovation.

This chicken-and-egg question may be beside the point: It is very difficult to envision innovation continuing at the current rate if innovative industries lose the protections for which they advocate. Infinite Possibilities shows there are no innovative and prosperous countries today that do not have strong IP protections.

One’s jaw has to drop at how bad this argument is. Graham admits that the “report does not attempt to determine causality between strong IP protection and social or economic outcomes.” But, it “does determine a number of positive correlations between strong IP protection and a number of other beneficial indicators.” In other words, he admits that the report does not attempt to show causality, that it only shows correlation. Yet then he simply asserts, “It is very difficult to envision innovation continuing at the current rate if innovative industries lose the protections for which they advocate.” Um. But this is the pro-IP premise, which is simply not supported by the study, since it does not even purport to demonstrate causation.

As for this being a “chicken-and-egg” question: not so. As I have noted, the empiricist-utilitarian approach is unprincipled and bankrupt. But, given the available evidence, anyone who accepts utilitarianism should be opposed to patent and copyright.⁵

In any case, what do these weird “arguments” for IP have to do with liberty, human freedom, private property rights, and the rule of law? So what if a certain government policy might “promote innovation”? Since when was that the purpose of law, justice, and property rights? Utilitarian libertarians just launch into discussions about empirical benefits of various state policies, as if that is relevant to justice. These libertarians have lost their mooring, and their principles.

The Independent Institute should be ashamed for repeatedly promoting the evil, statist idea of intellectual property—especially in the name of liberty and free markets.

Update: More from Shughart, Aug. 12, 2019:

William Shughart8 hours ago edited

Authors of textbooks (among which I count myself) are paid royalties only on sales during (roughly) the first six months after publication. Once new texts enter the used book market, all of the revenue goes to used-book dealers, including college bookstores. In consequence, authors (and publishers) have strong incentives to market revised editions (often only with cosmetic changes), or to use cheap bindings that fall apart quickly, to undercut the used-book market and collect royalties for another six months or so.

Consider, in contrast, the authors and publishers of music, which through an organization called ASCAP, earn royalty income every time a copyrighted song is played or replayed (on the radio or in live performance). If textbook authors and publishers also could benefit from resales, existing editions would remain in print for much longer and their prices would not rise as rapidly, would remain stable, or perhaps even fall over time.

Recall Ronald Coase’s conjecture that a monopolist of a perfectly durable good has no option other than to sell the good at a price equal to marginal cost.

Stephan Kinsella William Shughart 5 hours ago

It is amazing that you promote copyright and patent, from an ostensibly liberal point of view. This is horrible and confused. You are wrong about IP and about its compatibility with free markets and liberalism. Patent and copyright are utterly evil and anathema to free markets. Anyone promoting free markets, human liberty, competition, human progress, etc., should see that. Shughart, you’ve written explicitly in defense of IP law before. Shame. For shame. As you wrote: “Granting a temporary monopoly to the rare breakthrough is necessary, therefore, to provide its inventor with an opportunity to earn a return on the investment that led to the new idea – and to encourage additional such investments. Such protection is especially important in the pharmaceutical industry, where, in its absence, new drugs could be duplicated by competitors, and the incentive to invest would disappear, stifling the discovery process.

To paraphrase the late economist Joan Robinson, patents and copyrights slow down the diffusion of new ideas for a reason: to ensure there will be more new ideas to diffuse.”

We libertarians are NOT AGAINST the “diffusing” or spreading of “new ideas”. We oppose patent and copyright law. They are both abominations. It is sad you don’t know this, and it is also too bad the author didn’t bring in copyright law in his analysis of textbook pricing.

https://c4sif.org/2016/02/in…

Update: According to a friend, in a recent Russ Roberts EconTalk podcast (Oct. 2019, interview with Susan Houseman), Roberts said “I don’t care so much whether our trading partners follow free trade. I do care if they steal our intellectual property.” (01:09:38) Sigh.

“Where does IP Rank Among the Worst State Laws?”; “Masnick on the Horrible PROTECT IP Act: The Coming IPolice State”; “Copyright and the End of Internet Freedom”; “Death by Copyright-IP Fascist Police State Acronym”; “SOPA is the Symptom, Copyright is the Disease: The SOPA Wakeup Call to Abolish Copyright“. [↩]
See “The Death Throes of Pro-IP Libertarianism,” “The Four Historical Phases of IP Abolitionism”, “The Origins of Libertarian IP Abolitionism”. [↩]
Update: See also the excerpt below from Lawrence Lessig, in his article Copyright’s First Amendment, 48 UCLA Law Review 1057 (2001). It is a mystery to me why people think of Lessig as some copyright maverick. Lessig is no friend of liberty or opponent of copyright; see Tim Lee and Lawrence Lessig: “some punishment” of Swartz was “appropriate”. And here he is praising a famous pro-copyright piece by Melville B. Nimmer, “Does Copyright Abridge the First Amendment Guarantees of Free Speech and Press,” 17 UCLA L. Rev. 1180 (1969-1970). Lessig gushes, “There are few essays in the field of legal science that have had as profound an impact on the law as this-not just among academics, but among courts as well.” Well, sure, the Court adopted some of Nimmer’s argument. Bravo. But Nimmer’s argument is bereft of any principles; it’s just clever legal-positivist bullshit that tries to find clever legal tricks to “balance” the “interests” of copyright versus the opposing “interests” of free speech—by making the perverse argument that copyright actually promotes free speech. (To be clear, Copyright is Unconstitutional, and in any case, it is surely wrong and evil.) Here is Lessig paraphrasing the “brilliance” of copyright scholar Nimmer:

“There are few essays in the field of legal science that have had as profound an impact on the law as this-not just among academics, but among courts as well. And I take it that no one was surprised when the U.S. Supreme Court, just as this essay turned fifteen, embraced the central insight in Nimmer’s analysis to explain the puzzle that Nimmer set himself to solve.

That puzzle was this: How is it that a constitution could protect “freedom of speech” from the abridgment by Congress, and yet give Congress the power to grant monopolies over speech?2 What consistency could there be between the command not to control, and the power to give authors almost a century of control? What interpretation of freedom of speech made this control make sense? What understanding of this system of control—copyright—makes this constitutional freedom possible?

In Harper & Row, Publishers, Inc. v. Nation Enterprises, the Supreme Court gave us a theory. Or better, they gave us Nimmer’s theory, now backed with the force of law. Said the Supreme Court, following Nimmer (and citing him twenty-seven times), this alleged contradiction was apparent, not real. Copyright did not abridge speech, because without copyright, a great deal of speech would not exist. Copyright, through its limited protection of authors, creates an incentive to produce speech that otherwise would not exist. It functions, as the Court said, as an “engine of free expression,”4 fueling the creation of what otherwise would not be created.

Copyright does this, no doubt, by limiting some speech. But it limits some speech so that other speech might be created. Just as the Constitution itself limits democracy so that democracy might be more free, as Rebecca Tushnet has written, copyright limits some speech so that other speech might be produced. Thus, there is no first amendment “abridgment” when the baseline is properly set. [↩]
See USPTO, “IP Contributes $5 Trillion and 40 Million Jobs to Economy”; USPTO/Commerce Dept. Distortions: “IP Contributes $5 Trillion and 40 Million Jobs to Economy” . [↩]
Legal Scholars: Thumbs Down on Patent and Copyright”; “The Overwhelming Empirical Case Against Patent and Copyright“. [↩]