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Richard O. Hammer: Intellectual Property Rights Viewed As Contracts

This article is confused. Anything enforced by contract is not IP since contract rights are in personam—between the parties only—whereas IP rights are in rem (or erga omnes) property rights good against the world. That is why they affect third parties and precisely why they are problematic. A contract cannot bind third parties so it can’t produce IP rights. Hammer is confused. Rothbard was wrong that contracts can bind third parties. I explain this in the “IP as Contract” section of Against Intellectual Property, in particular the subsections “The Limits of Contract” and “Contract vs. Reserved Rights.”


This article was published in the Winter 1995-96 issue of Formulations

by the Free Nation Foundation

Intellectual Property Rights Viewed As Contracts

by Richard O. Hammer

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While we libertarians wrestle with the rectitude of intellectual property rights, I suggest that we think of contracts, and the limits of the enforceability of contracts. Suppose Scribbler has written a book that you want to read. Scribbler offers you a contract. For $10 you may take the volume — but only if you promise not to copy it.1

While some libertarians argue persuasively against the legitimacy of intellectual property as granted by state power,2 I think that most of us would agree that the state should not intervene to void a contract between two freely consenting parties. You and Scribbler have a right to enter into a contract which gives Scribbler a right, of sorts, to intellectual property.

One friend of mine, a staunch opponent of intellectual property rights, on hearing this idea asserted that he would simply ignore the contract. To which I suggested the possibility that Scribbler, given foresight, had also gotten bonding, $50,000 plus legal expenses, secured by my friend’s house, in the fine print of the contract. And here starts the chase. Is such a contract enforceable?

I propose for our consideration this free-nation answer to the question of intellectual property rights: intellectual property rights will exist where contracts securing those rights are practicable.

Notice that contracts will work better in the free nation than in America. Contracts for small values, even less than $1, the suggestion of which will produce only laughs in America, will often work in the free nation. In America government has seized and debilitated many of the means of enforcing contracts; if you want to enforce a contract you probably have to get a lawyer and go to court. This means it is silly for you to try to enforce any contract of small value, say $1000 or less.

Since we have been raised in this government-diseased environment, many of us have come to believe that our decision to conform to a low-valued contract may be motivated by honor, but not by practicality. And, by and large, experience upholds this ethic in America.

But, as I argue elsewhere,3 in a free nation the cheater faces an opponent more formidable than a government court system. The cheater faces free enterprise. A cheater can get away with a 50 cent theft only until an entrepreneur invents a 40 cent way to catch him. If you violate a contract by photocopying page 1 of an article, some electronic wizardry, as authorized by your contract, may seize a $50 penalty from your checking account before you copy page 2. But do not worry about this too much. I am sure that you, and other inhabitants of the free nation, will learn the new ethic quickly.

And, free enterprise being capable of the trick of seizure just described, it could also do another, friendlier trick: On the copy machine there might be a button which you could push to signal your request to transfer the agreed-upon payment to the owner of the copyright.

Technology, I am sure, could easily do this. But it does not happen in unfree nations because government strangles the evolution of institutions. In America, an entrepreneur who tried to offer this service would encounter crippling obstacles: both regulatory agencies and private recipients of government-created “rights” could get government thugs to halt this innovation.

So, in a free nation, I believe that systems of contracts would evolve which would effectively protect the income of many creators of intellectual products. Exactly what would evolve is, of course, impossible to predict. But we can speculate.

The system sketched thus far would limit copying of an item by all who acquired that item through contract, but it leaves unregulated all who might acquire a copy some other way. If a tornado rips through your house and drops your copy of Scribbler’s volume into my hands, it might seem I could go into business, selling thousands of copies of Scribbler’s work for $9 a copy.

But other kinds of contracts might limit my ability to do this. For instance, the contract I signed to join a jazz CD-of-the-month club (Watch out for that fine print!) might have bound me to honor the copyright not only of the musicians on the CD’s which I purchased, but also of all members of the Intellectual Creators Guild, of which Scribbler is a member. Or perhaps the contract I signed when joining the nationwide Mutual Defense League bound me to respect the property, as described in the fine print, of all others members in the league, and Scribbler is among the members.

Now, my friend who opposes the idea of intellectual property rights may make it a point to join a CD-of-the-month club and a defense league which do not impose these limits on copying intellectual products. But would that work in practice? Would these communities which agreed not to regard any rights in intellectual property become deprived of new, good intellectual work? I do not know.

The answer is blowing in the wind of the enforceability of contracts. In our free nation I propose that contract and technology will limit some, but not all, copying of intellectual products. Even though contract and technology will work at their best in a free nation, some efforts to restrict the copying of intellectual products will not pay for themselves. This economic reality, I suggest, will determine the extent of intellectual property rights.

I am inclined to believe that the resultant amount of protection of intellectual products will be optimal, in some measure of abundance, for the society as a whole. If we are lucky perhaps one of our Austrian economist friends will build this argument.

This system of contracts will, I expect, step around some of the problems created by government-granted intellectual property. For instance, the government system can seem arbitrary in giving exclusive patent to the first inventor to get to the patent office even though another inventor independently invested a lifetime completing the same invention. But with contracts both inventors can profit, their rewards depending upon their success in marketing. And consumers will benefit from the competition.

Before departing this subject, I want to address an objection which we may expect: that this system would protect the intellectual product of wealthy corporations, but it would fail to protect the intellectual product of the little guy who lacks financial resources to insure enforcement. But the little guy should be able to work out a win-win contract with a big guy who, for a share of the profits, will take on the cost of enforcement.4 This happens in the present legal environment when an author publishes through a large publishing company. D



1 This idea, that contract might limit copying of intellectual products, received attention 100 years ago in an extended debate about intellectual property published in a periodical named Liberty. See: Wendy McElroy, “Intellectual Property: The Late Nineteenth Century Debate,” Libertarian Heritage No. 14, c. 1995, a publication of Libertarian Alliance (25 Chapter Chambers, Esterbrooke Street, London SW1P 4NN, U.K.).

2 Roderick T. Long, “The Libertarian Case Against Intellectual Property Rights,” Formulations, Vol. III, No. 1 (Autumn 1995).

3 See “Toward Voluntary Courts and Enforcement,” starting on page 5 of this issue.

4 This possibility, of a weak party protecting itself against overwhelming odds by working out a win-win exchange with a strong party, receives inspiration from the practice in Iceland 1000 years ago: a victim of crime could sell his claim for compensation to someone with enough power to collect it. Thus big villains found themselves facing big adversaries. See: Roderick T. Long, “The Decline and Fall of Private Law in Iceland,” Formulations, Vol. I, No. 3 (Spring 1994).


Richard O. Hammer, of Hillsborough, NC, for the time being works full-time on his hobby, the Free Nation Foundation. In the past he has worked as a residential builder and engineer.
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