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Bernado Decoster, Why Intellectual Property Isn’t Necessary to Reward Innovation

Excellent article on Mises.org:

Why Intellectual Property Isn’t Necessary to Reward Innovation

TAGS Bureaucracy and Regulation

The concept of a pioneer’s advantage is based on a single, intuitive pillar: it takes time for knowledge to spread throughout society. When an entrepreneur mixes his existing knowledge and creates a new idea—in other words, innovates—he is the one who knows best about this idea he just invented. When materializing this idea, it is a fact that not everyone in society immediately knows about this innovation nor how it works. This gives the innovating entrepreneur a temporal head start before his competitors (1) learn about the existence of this innovation, (2) decide to reverse engineer it, and (3) learn how to replicate it and operate it as effectively as him.

In this way, we can indeed say that a pioneer advantage is some sort of “knowledge Cantillon effect.” The Cantillon effect states that money is nonneutral, that not all society is affected simultaneously by the injection of new paper currency. Thus, when new currency is minted, it follows a certain path in the economy, benefitting the early receivers more than the late ones. The early receiver benefit because they have a head start—a temporal benefit—of spending their money at a moment when the prices have not been altered by inflation. Thus, the earlier receivers become wealthier compared to late receivers.

Similarly, when new knowledge is created, it does not impact the entirety of society at the same time. Knowledge and information are thus “asymmetric” in the sense that not everyone knows everything. Those who “minted” this new knowledge have a temporal benefit—a head start—of putting it in practice at a time when their competitors have not even heard about it. As this new knowledge spreads throughout society, consumers flock to this innovative entrepreneur, and if his innovation satisfies them more than what his competitors offer, the entrepreneur will make a profit. With this expansion of capital, the entrepreneur is able to expand operations and build more of this innovation.

Losing consumers to this creative entrepreneur, his competitors suffer losses (this is what Schumpeter called “creative destruction”) and thus are forced by the profit and loss mechanism to seek a way to replicate the invention. This, however, takes more time, and by the time they have managed to reverse engineer it and begin building it, the entrepreneur has had considerable time and acquired enough new capital to expand his own operations and build several more replicas of his new innovation.

Assuming away intellectual property (IP) laws, as other entrepreneurs learn more about this innovation—in other words, as the knowledge Cantillon effect is spreading throughout society—they themselves will begin to improve this innovation in an attempt to replicate the breakthrough. When that happens, these entrepreneurs will themselves get a pioneer advantage in their own innovations.

Ultimately, the consumers are the ones who benefit the most in this innovative flying circus. Society is propelled forward entrepreneurs build on top of other innovations, create more and more knowledge, and expand more and more according to how much they satisfy the consumers.

This concept is extremely useful in solving one of the main objections to the repeal of intellectual property laws. When someone proposes ending laws that monopolize ideas, the very first objection raised is usually this one: “Well, big corporations will just instantly copy the entrepreneur!”

In fact, this was one of the first arguments made by Richard Epstein in his debate against IP lawyer Stephan Kinsella.

Without IP laws, the entrepreneur is not able to sit back and collect rent on his innovation, as his competitors are on the move to reverse engineer and improve on it. He’s forced to continually innovate, expand operations, and satisfy the consumers ever more in order to keep his business afloat.

With IP laws, however, there is no competitive pressure for the entrepreneur to continue improving his innovation. As the state blocks his competitors from reverse engineering his innovation, this entrepreneur is effectively granted a monopoly on the sector. As time goes by, the losses become overwhelming and most competitors go out of business, the sector becomes monopolized by a single entity.

A great example of an entrepreneur who innovated, had a pioneer advantage, and due to IP laws managed to create a monopoly is Steve Jobs and Apple, his company. Steve innovated with the iPhone and revolutionized the smartphone industry, causing the absolute downfall of Nokia, at the time the largest smartphone manufacturer. This is a practical demonstration of how pioneer advantages generate creative destruction. However, due to IP laws, other entrepreneurs weren’t able to improve or replicate the iPhone. This unfortunate reality resulted in a creative stagnation as Apple sat back and was relieved of being efficient by state law.

This monopolization of an idea due to state intervention resulted in the cartelization of the smartphone industry and an absurd concentration of wealth in Apple. Without IP laws, Apple would have still grown and profited considerably and Nokia would have still been knocked down. But other entrepreneurs would have been able to improve on the iPhone and replicate it, applying considerable competitive pressure to Apple. This would have birth a new, freer environment and would have never led to such a concentration of wealth in Apple. The company probably would have still been big, but nowhere near as big as it is now nor as creatively stagnant.

In summary, a pioneer’s advantage is the temporal head start an entrepreneur has after innovating, which grants him considerable time to build wealth and market share before this knowledge spreads to other entrepreneurs and they themselves start improving on and replicating the innovation. It goes without saying that this ultimately benefits the consumers, and society at large, the most.

Author:

Bernardo Decoster

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    To describe an inventor’s pioneer advantage as a “Knowledge Cantillon Effect” (and therefore bad) is to commit a fallacy of context-dropping.

    When a state creates new money to further its ends, it is initiating force. Those who are closest to the state’s spigot benefit from this use of initiatory force, and are accomplices to the crime, or at least its beneficiaries. This is what the Cantillon effect properly refers to – and it is evil because it arises from initiatory force.

    No such force-initiation exists when an inventor produces an innovative new product that people want to buy. These are completely different contexts.

    The author might as well derogate the accomplishments of anyone who does anything first, let’s say the first human to run a 4 min mile, as the “runner’s Cantillon Effect”. And insist that any related earnings of such individuals be redistributed.

    When Austrians argue against a right to Intellectual Property, they sound like redistribution-istas. Somewhere on the lower rungs of hell, ol’ Marx is smiling at Engels, who dangles nearby.

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      You’ve completely misunderstood the concept of property. Property rights arose spontaneously as a way of reducing conflict over scarce, rivalrous resources. Such
      rights are EXTERIOR to political authority, coercive power which colonized the
      natural law of property rights reworking it into a strategy of domination.

      ‘Intellectual property’ is part of and depends on political power. It exists always and only INSIDE political authority. Where REAL property rights function to prevent and when necessary peacefully resolve disputes over scarce, rivalrous resources, Intellectual Property functions to artificially transform abundant, non rivalrous resources into limited, rivalrous ones at the same time it incites massive conflict which would not otherwise arise.

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        “’Intellectual property’ is part of and depends on political power.”

        Property is connected to politics only insofar as the need for rights to be protected. This applies equally to all property: note that the value of any property is based on an interaction between the conceptual and the material/physical. Even something as “physical” as land only has a value based on its conceptual use. Man’s conceptual faculty (his intellect) is the root of all property. There is literally no such thing as purely physical property.

        Capitalism is what unfolds when this (protection of rights) is ensured because individuals operate and control every aspect of their property: only voluntary trading of intellectual and physical values is permitted.

        “Intellectual Property functions to artificially transform abundant, non rivalrous resources into limited, rivalrous ones at the same time it incites massive conflict which would not otherwise arise.”

        This is incorrect. Ideas are not abundant – they are the quintessential scarce resource! It is only when one can own one’s ideas that there are incentives to generate more ideas. The argument that an inventor’s ideas belong in “the commons” aligns with socialism – not capitalism.

        To hear this from individuals who understand incentives and are otherwise pro-capitalism shows the dangers of a-philosophical thinking. This error comes from taking one half of the mind|body, values|action, intellectual|physical false choice, and derogating the other.

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          gary North:

          The phrase “intellectual property” conveys the idea that a temporary monopoly granted by the state to the discoverer of an idea is conceptually the same as the permanent right of someone to a piece of physical property that he bought or inherited.

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          No no no! The whole world can simultaneously think an individual idea. And were it to do so, it would in no way PREVENT the author of the idea from thinking it. On the other hand only one person can drive an individual Mercedes 300 SL. If someone else drives off in it the owner is absolutely prevented from using it. QED

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            I notice that you didn’t address the collectivism that is implicit in your position.

            Your viewpoint translates to “unlike property, ideas must belong to everyone because we assume it”.

            This is an advocacy for the collective ownership of ideas by folks who argue strongly for the individual ownership of property.

            The ownership of an idea is rivalrous, alienable and excludable, if allowed to be. So, the entire rationale amounts to a “begging the question” fallacy. For example, if you own a patent on a mousetrap, then I can’t use the idea to build the mousetrap without your permission.

            Whether people CAN come up with a useful new idea is not relevant. Someone has to be the first to ideate and implement it. It is not an unreasonable standard for assigning ownership: analogous to ownership that is based on being the first to improve a piece of land by using one’s mind & effort. It incentivizes more ideation that generates immense value.

            Lots of people could also have bought the particular car that you drive. But you bought it first, and now someone who wants to drive it would need your permission.

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              All I can do is explode with laughter. I can only repeat that we can each think the same idea at the same time. For instance we can both simultaneously hold in our mind the realization that intellectual property is a malevolent, rent seeking scam. The point is when you think it that does NOT prevent me from thinking it and vice versa. QEDD

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                Explosive laughter is a good smokescreen to evade the implicit collectivism in your position, which you have not addressed.

                Check out this relevant (and short) essay titled “Patents and Copyrights” which I think is the best starting point for this topic. It also addresses why IP should not be held in perpetuity and what happens when a patent or copyright expires.

                It makes no difference if thousands of people can think about a better mousetrap. What matters is that “A” was the first to design it and build a prototype that worked. I get that you are not objecting to A’s right to produce the mousetraps that he designed.

                But absent a right to IP, building mousetraps by himself is A’s ONLY way to benefit from the years that it took to develop the product. A cannot hire an employee “E”, because E might learn the design and go into business for himself. A may not sell his design to “B”, because if anyone can copy it, then so can B. Nor would B pay very much, because he faces the same problems. Investor “I” realizes that there is no protection for his investment and a very low potential return-on-investment, and is unlikely to invest any money in A’s “mousetraps ‘R Us”.

                How many inventors & inventions are likely to exist in a system as described above?

                Get back to me after you’ve stopped laughing – and started thinking. Perhaps you can figure out how the above “mousetrap” problems get resolved in a system which denies IP-rights and has no system IP-rights-protection.

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                  All one can do at this point is howl with laughter. VERY FEW products come under IP law. Take cars. Companies invest trillions in plant and equipment knowing full well that 100 startups can come along and produce competitive car lines. But this has led to great ingenuity, variety, improvement and prosperity not at all the sort of losses you so drearily prophesy.

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                    You conflating a final product with the implementation of the individual features of the final product. The implementation is protected via fixed term patents not the final product itself.

                    For example almost all combustion engines used in new automobiles today have some sort of variable valve timing but none are exact copies of each other.

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                  Gary North:

                  The modern world of mass production began with the expiration of James Watt’s patents on his steam engine design. Before expiration, steam technology did not spread far and wide.

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              “If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea, which an individual may exclusively possess as long as he keeps it to himself; but the moment it is divulged, it forces itself into the possession of everyone, and the receiver cannot dispossess himself of it. Its peculiar character, too, is that no one possesses the less, because every other possesses the whole of it. He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me. That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature, when she made them, like fire, expansible over all space, without lessening their density in any point, and like the air in which we breathe, move, and have our physical being, incapable of confinement or exclusive appropriation. Inventions then cannot, in nature, be a subject of property.”

              — Thomas Jefferson

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        If you’ve ever agreed to a EULA, and I think the odds are almost 100% if you’ve bought and used software, then you’ve voluntarily consented to someone’s IP under their terms, also acknowledging their ownership.

        No political authority needed- just contract enforcement, but private means if necessary.

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      No one is saying that initiation of force occurs when the inventor produces an innovative new product. The initiation of force occurs when the state uses coercion to prohibit others from using their own property to reengineer the product.

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        I’m glad that you agree that the inventor’s production of a new product is not force initiation. OTOH the state’s creation of new money IS force initiation. This is why the author’s Cantillon Effect analogy is an example of context-dropping.

        The enforcement of the inventor’s right to IP is the use of retaliatory force against those who would use the inventor’s idea w/out his permission. We can argue separately about who should exercise the retaliatory force needed to protect the inventor’s rights to IP, and how such retaliatory force should be applied … but we are discussing something more fundamental here: whether such a right exists, similar to that for physical property.

        Rothbard is on the premise that all government action is bad: since governments are typically involved in the administration of IP, there is something wrong with IP. Mises supports intellectual property (not in philosophical terms, but because it encourages the production of creative works and inventions).

        The empirical evidence is against the Rothbardians. IP is the cornerstone of wealth creation under capitalism (see Soviet Russia, in which ideas belong to the state vs USA where inventors can own their ideas). In fact, while there are limits on the value associated with tangible property the only thing that limits IP is man’s use of Reason. In other words IP is infinite and it is this infinite potential that capitalism unlocks when ownership rights to all forms of property are protected.

        In a society that protects the full exercise of Reason and ownership of ALL the products of Reason, we get more value from property – both physical and intellectual.

        The protection involves using retaliatory force against anyone who thinks that they can steal an inventor’s idea just because he saw its physical implementation. In principle it is no different from someone occupying your unlocked house without your permission and refusing to leave, saying “but it was unlocked, therefore it belongs to everyone”.

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          https://mises.org/library/j…

          https://www.spiegel.de/inte…

          You’re trying to cloak your ignorance in walls of text and obscure language, but you fail to grasp the basic principles of economics and natural law.
          Not to mention the factual workings of the human mind.

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            “Germany, on the other hand, didn’t bother with the concept of copyright for a long time. Prussia, then by far Germany’s biggest state, introduced a copyright law in 1837, but Germany’s continued division into small states meant that it was hardly possible to enforce the law throughout the empire.”

            This is why Randians insist on a monopoly of force. The core of their esotericism.

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            Hi Eiji,

            Keep in mind that there was a difference of opinion (on the matter of IP) between Mises and Rothbard. The fact that one of these great Austrian thinkers was wrong should cause some careful thinking on this topic – by all Austrians.

            What philosophical divide lies at the base of Austrian thinking that led to such different viewpoints on the topic of IP and AnCap?

            See my responses to JohnnyO and Robert Carpenter (which address the oft-cited Watt example). The roots of the philosophical error are also mentioned.

            You must be having a bad day because you typically at least put forth an argument or two. Here you leap directly into unsubstantiated, shrill characterization such as “… your ignorance …” and “… you fail …”.

            Hope that you feel better soon.

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              I’m sorry, did I resort to fallacy of appeal to authority? I do not think so. Why you are doing that is beyond me.
              We’ve had this discussion already.
              Ideas cannot be property because of non-rivality, non-alienability and non-excludability (not to mention superabundance etc), full stop.

              Ask any entrepreneur, venture capitalist, game or movie producer: ideas are a dime a dozen.
              Ideas are worthless. Their implementation and market viability are the only things that matter.

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                I am not engaging in an appeal to authority. I am pointing out that it is worth understanding the divergence in the views of Mises and Rothbard on this topic. I think Mises was more correct on this one, although he didn’t get to the philosophical root.

                You (and others) keep repeating this abstraction: “Ideas cannot be property because of non-rivality, non-alienability and non-excludability (not to mention superabundance etc), full stop.”

                This translates to “unlike property, ideas must belong to everyone because we assume it”.

                This is an advocacy for the collective ownership of ideas by folks who argue strongly for the individual ownership of property.

                The ownership of an idea is rivalrous, alienable and excludable, if allowed to be. So, the entire rationale amounts to a “begging the question” fallacy. For example, if you own a patent on a mousetrap, then I can’t use the idea to build the mousetrap without your permission.

                In my career I’ve been personally involved in entrepreneurship and capital (although not movies or games). Ideas are a key part of the value, as is execution. IP ownership establishes the necessary safeguards for an investor to offer a decent valuation to an entrepreneur. Investments are worth a lot less without ideas that can be protected.

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                  This translates to “unlike property, ideas must belong to everyone because we assume it”.

                  No. It’s simply common sense.
                  It means that defining property attributes are not present in intellectual “property”.
                  “Intellectual property” is wholly dependent on the state. Furthermore, it is time-limited, which is never the case with true property.

                  By the way, what are, in your view, the defining characteristics of property – those without which property would not be property?
                  Are there any differences between the definition of tangible and intangible property? Why?

                  How do you define, for instance, theft in the case of IP? Is it any different than in the case of physical property? Why?

                   

                  Investments are worth a lot less without ideas that can be protected.

                  That’s not an argument and you know it.
                  That’s why monarchs used monopolies and patents as rewards for their benefactors, sycophants and collaborators.
                  A monopoly backed by state power is “worth” more because it suppresses/limits everybody else’s right to dispose of their own property as they see fit, something which would be sen as criminal if a private entity attempted to engage in it.

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                    A libertarian should have a better defense when their position opposing the right to Intellectual Property is shown to align with collectivism. Because “No. It’s simply common sense” is inadequate.

                    Check out this relevant (and short) essay titled “Patents and Copyrights” which I think is the best starting point for this topic. It also addresses why IP cannot be held in perpetuity and what happens when a patent or copyright expires.

                    Since you asked a more fundamental question, re: my view re: property:

                    “The source of property rights is the law of causality. All property and all forms of wealth are produced by man’s mind and labor. As you cannot have effects without causes, so you cannot have wealth without its source: without intelligence.” {From Galt’s speech, Atlas Shrugged (italics added}.

                    At its root, property is the result of production which involves man’s reason and effort.

                    “The right to life is the source of all rights—and the right to property is their only implementation. Without property rights, no other rights are possible. Since man has to sustain his life by his own effort, the man who has no right to the product of his effort has no means to sustain his life.” {From this essay}.

                    Note that at the level of political philosophy where we speak of “rights” there is no difference between intellectual and physical property. Both are products of man’s reason and effort (the proportion of these two elements varies). If the products of man’s reason and effort are not protected, then a man doesn’t really have a right to his life.

                    An inventor who spends 10 years of thinking and effort to bring a new product to fruition should not have to forfeit those 10 years because it is takes 3 months to copy his design. It would be absurd to afford the inventor and the copycat the same status: which is what happens if one can only protect one’s “labor and materials”, while the design MUST belong to everyone!

                    When it comes to the law, there are differences between IP and physical property. Here we have to think about what forms of IP can (and cannot) be protected, how long one can own IP, etc. So, yes, it is a complex topic. There is a lot to be gained by getting it right. But, yes, there are all sorts of mistakes possible in the implementation. This does not mean that we should deny the value that IP-rights bring and/or adopt a collectivist stance towards IP.

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          What empirical evidence are you talking about? Can you quantify how much better off intellectual property laws would have made the Soviet Union? Or how much worse off the United States would be without intellectual property laws? Not just some blanket statement that the Soviet Union was worse off than the United States, and we had intellectual property laws and they didn’t, so that must be it.

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            The evidence shows what Mises supported, but Rothbardians must evade or cherry-pick to disagree: intellectual property encourages the production of creative works and inventions.

            The benefits are economic and social and are visible throughout our society:

            Economic benefits: (a partial list)
            * turns the concept of property from something that is finite and relatively limited to one that is virtually unlimited
            * larger incentives for new ideas => more ideas are generated
            * new capital seeks new ideas, in a constantly expanding virtuous cycle
            * enables the valuation of ideas
            * allows a division of labor between those who originate ideas and those who implement them
            * enables constantly improving use & discovery of physical resources
            * improved standards of living
            * more affluence for the brightest minds
            * more disruptive “creative destruction”, not less (the author is wrong).

            Social benefits: (a partial list)
            * reduces the dependence on the physical, in favor of the intellectual
            * any smart, hardworking individual can become affluent: less stagnation

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              You haven’t established that there is more innovation with intellectual property laws than there would be without them. The author has presented a convincing argument that there might be more innovation without intellectual property laws than with them.

              Just on the face of it, the idea that people won’t innovate unless they can monopolize their ideas is absurd.

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                The author (and his fans) begin with an abstraction that intellectual content should not be protected – probably because of another abstraction that “all government is bad”. Then begins the selection of particular examples and an evasion of countless success stories.

                Start instead by looking at the slow pace of innovation in systems in which IP does not belong to individuals: it belongs to the king, to the state, to the collective (which is what you are advocating). This will lead to the abstraction that if human flourishing is the goal, it is critically important to protect an individual inventor’s right to IP. In this regard there is no difference between intellectual and physical property.

                {see also my response to Robert Carpenter on this thread}.

                Then we can discuss the details about HOW to avoid the examples of abuse (which are also real). But Rothbardians (not Misesians) approach this issue incorrectly and end up throwing the baby out with the bath water.

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                  You begin with the abstraction that intellectual property should be monopolized. And you can’t demonstrate that your position is true. You can’t demonstrate that society is better off with laws that monopolize ideas. But that doesn’t stop you from proposing that the government should be able to restrict people’s rights to use their own labor and materials based on what they observe going on around them. I see your position as similar to Zach cash’s position on trade restrictions, which is that the government should persue some supposed good by restricting some people’s peaceful conduct.

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                    No, I don’t begin with abstractions. That’s the key methodological difference.

                    Sounding a lot like Marxists, Rothbardians focus on “labor and materials” as the only source of value (derogating the intellectual/conceptual content of all values). How they square this with their “theory of values” while decrying Marx’s failed labor-theory-of-value is unclear.

                    Referring to our previous “mousetrap” example: the value of Bob’s new mousetrap includes his innovative idea + materials. In my view, Bob owns the idea and (if he chooses to produce mousetraps) the materials that he uses.

                    In your view (and Marx’s), Bob’s idea is owned collectively, so Jim is free to use it.

                    I don’t support restrictions on trade (between domestic or international parties) except when force is involved.

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                      In your view (and Marx’s), Bob’s idea is owned collectively, so Jim is free to use it.

                      Wrong.
                      The idea is not owned individually or collectively.
                      It’s not owned at all.
                      “Intellectual property” involves forbidding people from using their own property – including their bodies and minds – in favor of a single monopolist.
                      So no, it is not beneficial to “society” or “economy”.

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                        Hello Eiji,

                        I was responding to JohnnyO, who has previously said this (a direct quote): “ I’m with Rothbard on intellectual property. The only way to enforce intellectual property rights is to violate other people’s property rights. That’s a contradiction. Once ideas have been placed in the public they belong to everybody.

                        He also said: “Markets exist to serve consumers, not producers.” while arguing that the lower prices for mousetraps that result from the free use of Bob’s design were good for consumers. This was in the back-and-forth on this topic thread: https://mises.org/library/f…

                        You guys should compare notes!

                        If Jim is free to use Bob’s “mousetrap” idea, and so are Tom, Dick and Harry … then “not owned at all” is just collectivist ownership in a fig-leaf disguise.

                        Your approach permits the theft of Bob’s ten years of inventive work by anyone who can spend a week (or three months) in copying his idea.

                        The source of this error is the failure to recognize the involvement of reason (man’s intellect) in all production. Rand recognized this: all property is a mix of intellectual and physical effort. It is a huge error to focus only the latter and derogate the former. It comes from picking the “body” side of the mind|body false dichotomy even though man is a unity of mind and body.

                        The error is philosophical, but it rears its head and bites Rothbardians in this very practical matter.

                        “ “Intellectual property” involves forbidding people from using their own property – including their bodies and minds – in favor of a single monopolist.”

                        On this logic, what forbids people from using your car without your permission? See if you can answer without “non rivalrous, inalienable…” because that’s just begging the question.

                        It is when Bob is not permitted IP rights to his mousetrap design that Jim, Tom, Dick, Harry … everyone …can take the product of Bob’s mind without his permission. “… from Bob according to his ability, to everyone according to his need”!

                        And we all know how “beneficial” ^^this^^ maxim is to society (not).

                        ^^THIS^^ is what Rothbardians are unwittingly supporting when they decry IP rights! Can you see why Marx is smirking victoriously at Engels while roasting in a fiery hell?

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                          If Jim is free to use Bob’s “mousetrap” idea, and so are Tom, Dick and Harry … then “not owned at all” is just collectivist ownership in a fig-leaf disguise.

                          That’s pure tosh and you know it.
                          Is air collectively owned?
                          No, because it’s not subject to property rights. (It is not an economic good, either.)
                          Why? Because it’s not alienable, excludable, transferrable etc.
                          Once it’s purified, pressurized, packaged… it becomes a different thing – an economic good, and is subject to ownership, transfer of ownership (donation, sale,…) and protection of property rights (it can then be stolen – the owner can be deprived of the piece of property by the act of theft).
                          This is not the case with IP. The “owner” is not deprived of the “ownership” through the alleged “theft”.

                          Similarly with ideas. You put the idea down in a book, you’ve got an economic good, a piece of property that you can sell, loan, lease, steal…

                           

                          On this logic, what forbids people from using your car without your permission?

                          The fact that I own the car and have ownership right in it. I can tell when someone is using my car because I can’t then use it myself. Because ownership is rivalrous.
                          I can tell when someone has stolen my car because they broke into it, spoofed the alarm, broke into my garage, physically hauled it off or whatever. Because ownership also means excludability.
                          Your attempts to redefine ownership fail, since you haven’t even defined ownership in the first place, except therough esoteric platitudes.

                           

                          Your approach permits the theft of Bob’s ten years of inventive work by anyone who can spend a week (or three months) in copying his idea.

                          I believe you were accusing me of argumentation similar to labor theory of value? Ironic, isn’t it.

                          Re your “compare notes” snipe: I have no idea why you would say that. Should everybody have the same opinion, viewpoint, idea?
                          Sorry, I’m not much into the hivemind ideal. So no, we should not compare notes.

                          Finally, your mental contortionism doesn’t help your case either. Appeal to ridicule seems to be the best “argument” you are able to muster.
                          I’m not even amused any more.

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                            In a good property rights framework, one could own “air” in some way, e.g. you own the airspace over your property up to a certain limit. This would solve many of the problems that are now linked under the topic of “externalities.”

                            Re: your car: what keeps another person from stealing it when it is left unlocked on a street? It is not something that derives from the nature of the object. It is a moral principle whose embodiment is your title of ownership and the threat of retaliatory force against anyone who steals it. That’s what a patent can be for an invention in a system that recognizes IP.

                            “ This is not the case with IP. The “owner” is not deprived of the “ownership” through the alleged “theft”.

                            In the absence of IP rights, Bob is deprived because he cannot use his mousetrap design in the manner that he chooses. For example, he can’t sell the idea (who would buy it, if they can replicate it for the cost of “labor and materials”). He can’t even hire an employee to build his mousetraps, for fear that the employee could go into the mousetrap business for himself. He can’t raise capital to scale up to build 100x more mousetraps/day because no investor would invest in a product which is reduced to “labor and materials”.

                            I hope I don’t have to draw a diagram to show how ruinous this approach is to free market capitalism?

                            Re: your comment about Marx’s Labor Theory of Value: Marx posits that value derives ONLY from labor. I’m talking about value derived from the products of Reason (which include reason-directed thought AND action. Marx (and apparently Rothbardians in this context) suggest that value is derived ONLY from labor and materials.

                            I’ve noticed that your tone get shriller as you run out of arguments. It would help if you can think conceptually and put forth arguments, not emotion.

                            And no, I’m not suggesting a hive-mind. But I am pointing out that philosophical errors can bite … hard: even intelligent people like JohnnyO and you are not immune. Nor are geniuses like Rothbard.

                            By now you should have sensed that there is something wrong – or at least something that needs examination – in Rothbard’s view on IP. If the foundation was strong, there would be an unassailable argument, not a weak, collectivist “b-b-but they’re owned by nobody”. Check your premises!

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                              In a good property rights framework, one could own “air” in some way, e.g. you own the airspace over your property up to a certain limit.

                              Partially agree. There’s a difference between airspace and air. One cannot own specific air molecules in natura. I’d say that my definition of property is something that can be defended.
                              “Defending” IP always includes initiation of force.

                               

                              Re: your car: what keeps another person from stealing it when it is left unlocked on a street? It is not something that derives from the nature of the object.

                              It is precisely because it is an object that it can be owned. When property is stolen, you no longer possess it. You still possess the thought or idea that was “stolen”.

                               

                              In the absence of IP rights, Bob is deprived because he cannot use his mousetrap design in the manner that he chooses.

                              1/ Having and idea does not mean that Bob has some kind of right to profit off of it simply because he had the idea.
                              Enterepreneurs try new ideas and risk their property testing their profitability every day. Why should an ‘inventor’ be somehow privileged?

                              It is state legislation that sets arbitrary requiremens for which specific type or kind or magnitude of intellectual property can be protected, how, and for how long. Your view of IP is necessarily arbitrary.
                              Not all IP is equal – either every original thought, concept, principle, discovery, idea… (What about original combinations… original applications… original implementations thereof?) is property and must be protected as such by law, or none.
                              Time limits just emphasize the arbitrary nature.

                              You can’t just say “anything smaller than a matchbox is public property” or “you can own the matchbox/suit/car/house for only a week/year/5/50 years, then anyone can take and use it without asking”, yet the state tries to do exactly that in IP.
                              Not property.

                              There is no need for arbitrary distinction in real property. All property is equal. From matchbox, to suit, to car, to house. And one owns it as long as it exists.
                              Property.

                               

                              In the absence of IP rights, Bob is deprived because he cannot use his mousetrap design in the manner that he chooses.

                              Refer to my comment on entrepreneurs above.
                              The only difference is that most original (entrepreneurial) ideas are not “legally patentable” or “copyrightable” or what have you.

                               

                              Marx (and apparently Rothbardians in this context) suggest that value is derived ONLY from labor and materials.

                              I believe that value is derived from serving customers (be it your employer or your client).
                              The way you serve them always includes both material and immaterial components. Hardly any of them are truly “original”, but the way you combine them makes them so.

                              What imo decides ‘merit’ is the profitability of the idea’s market implementation. There are many operations on the market built on the exact same ideas with slightly different implementation – think restaurants, books, cars, shirts, services like barber, lawyer, plumber…
                              Some of your customers could easily do the same thing they pay you for (cut grass, shine shoes, make reservations, call clients…), so it’s not the idea they pay for, it’s the implementation and how well they perceive it’s done by their own, too often unspoken, criteria.

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          Intellectual property is the principle that the creator of an idea has a right to certain controls over all the physical forms in which his idea is recorded. The extent of this control may be different depending on whether the idea is considered copyrighted, patented, or trademarked, but the essential principle is the same in all cases.[1] This presumed right of the creator of an idea is often believed to be similar to the right that a homesteader has to land he has settled, but the analogy is false. Intellectual property is necessarily a statist doctrine.

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        No this is not what patents do. Patents prevent you from copying they don’t prevent you from improving a product.

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      Tell it like it is brother!!!

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      Gary North:
The concept of private property establishes responsibility for the use of an asset that someone either owns or rents. It is a physical asset. No one is allowed to remove the asset from someone else’s possession without authorization by the owner.

      The assumption here is that a piece of property can be used by only one person at a time. In other words, a piece of property cannot be in two places at the same time. If it is used for one thing, it cannot be used for another. If it is used by one person in order to benefit that person, another person is not allowed to take the property or the fruits of that property without permission from the owner.

      The idea here is that the property is physically identifiable. It is under the control of the owner. He has the responsibility of putting it to use. If he chooses incorrectly, he suffers a loss. If he injures someone else or someone else’s property, he is legally liable. The courts are in a position to determine who caused what damage, and on what basis. The injured party is entitled to restitution from the person who inflicted the injury or the damage. In other words, private property is an extension of an existing legal system that defends specific kinds of property.

      A person can establish property in his name. His name belongs to him. Someone else cannot legally take credit for what the other person has physically produced. The imposter may do something that injures somebody else, and the original individual with a particular name gets blamed. This injures his reputation. He suffers a loss.

      The application of property rights doctrine in the defense of the name is an extension of custom. It is an aspect of a hierarchy of responsibility. The civil government imposes negative sanctions against the theft of property, but it does so within the framework of widely shared opinions regarding the legitimacy of private property and the necessity of establishing legal liability for the use of this property.

      People have property in their own physical or intellectual labor. If they use their time as a way to gain income by selling it to one person, they cannot legally sell the same labor to somebody else unless the paying party agrees.

      An idea is intangible. The problem from the point of view of ownership is this: is the idea defined as property in the way that a physical invention is? This is the debate with respect to patents and copyright. If I use somebody else’s idea to increase my income, have I stolen from him? Over the last 400 years, the state has increasingly said that the use of somebody else’s words or ideas without paying for the use of the ideas as a form of theft. But this is only for a limited period of time. Somehow, property rights are not permanent, according to the defenders of patents and copyrights. There is a time in which the right must not be defended. Why is this? What is the ethical foundation of the state’s unwillingness to enforce property rights after a specific period of time? There is no moral logic to this. It is completely arbitrary. It can be changed by politicians, and this is what they did with respect to copyright. Prior to 1978, copyright extension was 50 years if renewed in year 28. Today, it is death of the author plus 70 years. Congress passed this in 1978, and at the time, a lot of critics commented on the fact that Mickey Mouse was about to come in the public domain. But I digress.

      There is a fundamental moral discontinuity involved in all patent and copyright legislation. That is the element of arbitrariness. The defense of patents and copyrights is based on the fact of a supposed ownership right. But then government says that, in the long run, it is not a good thing for the economy to make patents and copyrights permanent. This form of ownership will be used to establish a monopoly, which will lead to abnormally high profits, which will restrict access to something valuable by the public. So, U.S. politicians have put a 20-year limit on patents. It is completely arbitrary for politicians to establish a time limit. It means that they have acknowledged that patents are counterproductive, but only after 20 years. Why not 19 years? Why not five years? What is it about a patent that is a tremendous benefit to the society, but not after 20 years? There is no logical answer for this. It is completely arbitrary. It is completely political.

      Do we wish to trust property rights, meaning the moral case for property rights, to the United States Congress? I don’t think we should.

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      I didn’t interpret the term “Knowledge Cantillon Effect” having a negative connotation. I thought it just was showing how being the first creator of an innovation has its advantages, even without the use of IP. The Cantillon Effect explains both the benefit to the first receiver of money, as well as the negatives to the later recipients.In the case of the pioneer advantage, no rights are being violated of later users of the innovation, since none of their physical ownership has been tampered with.

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        Richard Cantillon identified clearly that those nearest to the state spigot benefit from their proximity unlike those who are downstream from it. This explains why the former are typically not opposed to money-creation. The latter are powerless and/or less informed, so it is an imposition of force by statists and their cronies on less connected people. In addition to explaining the economics of money creation, the Cantillon Effect outlines important ethical issues related to statist money creation.

        ” …no rights are being violated of later users of the innovation, since none of their physical ownership has been tampered with.”

        Your statement falls into the category of “begging the question”, since it assumes that there is no right to Intellectual Property.

        Note that Mises supports intellectual property (not in philosophical terms, but because it encourages the production of creative works and inventions). Rothbard does not support intellectual property. So, among the Austrian thought leaders there are at least two points of view about Intellectual Property.

        I find the Rothbardian case against the right to IP as being rather weak. I think that his starting point is an a priori abstraction based on the involvement of the State in protecting Intellectual Property. He would be better off beginning with empirical evidence from the conditions in places with different postures towards the rights to IP (e.g. Soviet Russia vs US).

        One can always find problems with certain examples of stagnation, and abuse of IP rights. Much is made of certain inventors who missed the coveted pioneer status by a few hours.

        All inventors benefit from the very existence of a system that gives ONE individual ownership of IP for a predetermined time. Yes, they have to compete to be that ONE individual. It makes no sense to complain about the unfairness of the occasional “exact time” clash, when compared with the immense loss (to everyone) in a system in which NO independent inventors could protect their invention property. This is a case of applying an absurd standard of “fairness” to dismantle a system that would provide the same competitive opportunity to all.

        In fact, it is reminiscent of this socialist argument: capitalist competition is unfair because there are “winners”; fairness demands that we re-distribute everything!

        Rothbardians find themselves arguing that a competition that rewards a first-place winner is bad. What they are saying in effect is that ideas belong to everyone (the collective), and must be re-distributed.

        Implicit in this position is also a restriction: an inventor may not sell his idea. Because the first use of an idea implies giving it away! No one would be interested in buying an idea under these conditions because as soon as they put a product on the market, they lose ownership of the idea.

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          Take the internet. What you are seeing is a return to the Sponsorship model and the abandonment of the IP model. Some fraction of an internet content creators audience are willing to sponsor the creator, to fund his endeavors. The content creator is incentivized to produce great content in order to grow his audience and increase his fractional sponsor remuneration. This is the model which belongs in the free market, free enterprise, free society. What you are proposing is unfit for, is antithetical to the peaceful, prosperous, free society. Yours is the mass surveillance police state where armies of government spies exercise an intrusive vigilance on behalf of the affluent corporation in order to crush the small time merchant. Think of all the stories about Homeland Security targeting street merchants selling knockoff handbags. Where Austrians advocate for free markets, IP discourse is on the order of crony capitalist fascism.

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    One of the arguments I’ve heard is that no one would make a hundred million dollar movie if everyone could immediately rip it off. But the lack of hundred million dollar movies might be a good thing. This issue is rarely addressed.

    The use of force often has hidden negative effects, ones not easily recognizable.

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      I could definitely live without Hollywood movies.

      However, didn’t anti-trust suits prevent production companies from owning their own movie theaters? If producers could control the distribution of their content then perhaps they could continue to make hundred million dollar movies. They might just have to provide an innovative experience for the consumer (think theme-park type experience) that would convince them to pay money rather than obtain the bootleg versions.

      Once again we have government interventions to “correct” the unfortunate effects of past government interventions.

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    Money creation is a pre-requisite to pay for the initiation of force against the use of knowledge.

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    Nice piece. For more in-depth reading on this topic on an empirical basis, see Against Intellectual Monopoly by Michele Boldrin and David Levine (2008).

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    I’m sorry. I read Kinsella’s pamphlet explaining his case for removing IP laws. I was thoroughly unconvinced. That he applied the same logic to copyright laws was even more strange to me. It should obviously unjust for a person to buy one of the first printings of a Harry Potter book and start printing his own copies to sell on the market. You are stealing a person’s ability to make a living off their own creativity.

    I do think that IP laws should be reformed. Enforcing monopolies isn’t a good thing, and IP is used dishonestly to keep whole technologies out of the market. That all needs to change. Patents need to be made very narrow and protections shouldn’t last as long as they do for example.

    However, ideas may be non-scarce. But new, good, profit making ideas are very scarce. If they weren’t then people would be coming up with the same ideas and raising law suits about virtually everything. That isn’t happening. Of course there are disputes, but from my perspective in a product development lab, that is very rare. The cost to generate profit making ideas is also scare. It involves time, expertise, experience, skill, and loads of capital. Those who take the risk to invest money for innovation should be certain that their sacrifice doesn’t facilitate their competitors to copy.

    If you disagree with this, you are opening up the ability of competitors to send in spies to take pictures of equipment or buy equipment drawings from businesses that contract with manufacturers to design and build processing equipment.

    Also, the examples given in the article are poor examples of monopoly. Apple may have a monopoly on the iPhone. But there are still loads of different smart phones out there and the market is highly competitive.

    thecrosssectionrmb.blogspot…

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      If you disagree with this, you are opening up the ability of competitors to send in spies to take pictures of equipment or buy equipment drawings from businesses that contract with manufacturers to design and build processing equipment.

      The owner of the property can legitimately forbid e.g. taking any recordings; they could perhaps require visitors to hand over all electronics upon entry – or whatever else they see fit. The owner can restrict the visitors’ physical property, contractually (exaplicitly, tacitly…).
      But they can’t contractually bind them to forget whatever they’ll see that they don’t want them to see. They can’t make them leave their new ideas behind.
      I hope I make sense here.

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      If you disagree with this, you are opening up the ability of competitors to send in spies to take pictures of equipment or buy equipment drawings from businesses that contract with manufacturers to design and build processing equipment.

      Using this criteria, America’s founding is illegitimate.

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        Maybe. Doesn’t change the reality though.

        Plus, there are arguments that Europeans were legitimately living in America if the area wasn’t where Indians lived or where they mixed in their labor.

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          I am not talking about the land. I was talking about Britain’s ‘intellectual property’ that was ‘stolen’ and taken to America.

          This is the unchangeable reality:

          “The owner of an intellectual property, particularly a popular one, cannot expect to retain control over his work. A work that has spread over the globe, having been enjoyed by thousands or millions of people, is simply too big. Imagine that someone were to lend out thousands of small trinkets all over the world to people he has never met, knows nothing about, and cannot keep track of. Can he, by any stretch of the imagination, believe that these will be returned to him?


          The type of infrastructure necessary to maintain such an empire is such that it could never be supported on the free market. Millions of objects would have to be monitored — in peoples’ houses, on their computers, in their business affairs, and wherever the idea might be put to use. It is only by way of the state and its eagerness to employ any excuse to wield power that intellectual property might plausibly be enforced.”

          Source

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    Brilliant analogy!

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    from AL to the world

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    Explaining the pioneer advantage as a “knowledge Cantillon effect” was a really great analogy, and one I hadn’t thought of before.

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    Intellectual property rights is good in theory but in practice it creates litigation and protects insider corporate monopolies. Eli Whitney found that out the hard way.

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To the extent possible under law, Stephan Kinsella has waived all copyright and related or neighboring rights to C4SIF. This work is published from: United States. In the event the CC0 license is unenforceable a  Creative Commons License Creative Commons Attribution 3.0 License is hereby granted.