IP as Contract

by Stephan Kinsella on April 20, 2025

Kinsella, “Rothbard on Intellectual Property” (April 21, 2026)
Kinsella, “Law and Intellectual Property in a Stateless Society,” in Legal Foundations of a Free Society (Houston, Texas: Papinian Press, 2023), Part III.C
Kinsella, “The Problem with Intellectual Property,” Part III.C.2
Kinsella, “The Non-Aggression Principle as a Limit on Action, Not on Property Rights” (Jan. 22, 2010)
Kinsella, “IP and Aggression as Limits on Property Rights: How They Differ” (Jan. 22, 2010)
David Gordon on IP (Jan. 8, 2025)
Bionic Mosquito: Intellectual Property Brouhaha (2013) (IP as contract; Kinsella v. Wenzel)

Kinsella, “The Problem with Intellectual Property,” Part III.C.2:

Others argue that some form of copyright or patent could be created by contractual techniques—for example, by selling a patterned medium (book, CD, etc.) or useful machine to a buyer on the condition that it not be copied or revealed to others. It is argued that this could somehow bind not only the parties to the contract but even third parties, thus producing restrictions similar to those of patent and copyright law. But this argument is deeply flawed.

Keep in mind property rights are in rem rights good against the world, as opposed to contract rights which are in personam rights only—rights as between the parties to the contract. It is illegal for you to attack my body, invade my home, or steal my car not because we have an agreement but because my property rights are in rem—good against the whole world. By contrast, as I have pointed out before, “Obligations that flow from binding agreements, or contracts, only bind the parties to the contract. The relationship between parties to a contract is like a private law that applies only to them, not to the world at large.”^[74] A contract is the “law between the parties” and does not bind third parties, who are not in “privity” with the original seller.[75]

For a contractual scheme to emulate IP rights such as patent or copyright, the contract would have to bind not only seller and buyer, but all third parties as well. The contract between buyer and seller cannot do this—it binds only the buyer and seller. Rothbard argues otherwise, using the following example.

suppose that Brown allows Green into his home and shows him an invention of Brown’s hitherto kept secret, but only on the condition that Green keeps this information private. In that case, Brown has granted to Green not absolute ownership of the knowledge of his invention, but conditional ownership, with Brown retaining the ownership power to disseminate the knowledge of the invention. If Green discloses the invention anyway, he is violating the residual property right of Brown to disseminate knowledge of the invention, and is therefore to that extent a thief.

… A common objection runs as follows: all right, it would be criminal for Green to produce and sell the Brown mousetrap; but suppose that someone else, Black, who had not made a contract with Brown, happens to see Green’s mousetrap and then goes ahead and produces and sells the replica? Why should he be prosecuted? The answer is that, as in the case of our critique of negotiable instruments, no one can acquire a greater property title in something than has already been given away or sold. Green did not own the total property right in his mousetrap, in accordance with his contract with Brown—but only all rights except to sell it or a replica. But therefore Black’s title in the mousetrap, the ownership of the ideas in Black’s head, can be no greater than Green’s, and therefore he too would be a violator of Brown’s property even though he himself had not made the actual contract.^[76]

Rothbard’s argument is flawed. First, it presupposes knowledge can be owned, which is question-begging and also simply false. As argued above (see Part II.B and Part III.A.3), all property rights are rights in scarce, conflictable resources. The means of action are distinct from the knowledge that guides action. Rothbard himself, as quoted in Part III.A.3, clearly recognizes the importance of knowledge in guiding actions; without technological ideas, plans, or “recipes,” the actor could not act to transform “iron into steel, wheat into flour, bread and ham into sandwiches, etc.”^[77] He observes that he uses his knowledge and technological ideas to tell him how to use and rearrange scarce means.^[78] But, as Mises pointed out, “[m]eans are necessarily always limited, i.e. scarce, with regard to the services for which man wants to use them.”^[79] But this is not true of knowledge that guides action.[80] There can be no property rights in knowledge.

Let us grant that Green uses his knowledge of Brown’s mousetrap to make replicas, and that this somehow imparts to Black the knowledge of the mousetrap’s design: either he buys a copy from Green, or he observes Green’s replica, or perhaps Green just tells Black or posts the information on the internet.[81] Rothbard says that “the ownership of the ideas in Black’s head, can be no greater than Green’s.” But Black does not need to “own” ideas to use them; in fact, ideas and knowledge cannot be owned; knowledge only guides action. In this case, it could guide Black in making his own mousetrap. Not only does Black not have a contract with Brown (or even Green), he might not even have ever bought or even touched a copy of Green’s replica. He might only have observed it. Or maybe Green told White, and White told Black. When Black uses knowledge he possesses (but does not own!) to make a mousetrap, he in no way violates any contract or property rights of Brown.

As another example I have given before to show the absurdity of the IP-by-contract argument, suppose an author sells physical copies of his books on Amazon, and Amazon requires any buyer to agree not to use or copy the book that he buys, and further, to agree to make any subsequent buyer of the book sign a similar agreement. It is hard to imagine such a practice being viable, for a couple reasons. First, to ensure compliance, the contract will have to impose some kind of penalty payment on the buyer in the event he breaches the contract.[82] Now if it is small penalty, such as one dollar, then many buyers will simply pay the “fine” and copy the book. So the penalty needs to be large to deter buyers from making copies.

But few buyers would pay $20 or so for a book and also obligate themselves to potentially millions of dollars of liability if they copy or impermissibly use the book. Instead, in a world without copyright, where “pirated” books are readily available, the buyer would simply avoid Amazon and its onerous contract and just obtain a cheaper or free copy online or from some other publisher. Obviously, this kind of business model is impractical.

But let’s assume the business model somehow works and there are many buyers of the book who have agreed not to copy it. Still, if one of them copies it an uploads a copy to the internet, third parties could download the file and print and sell copies of it, since (a) they have no contract with Amazon or the author (or the buyer) and (b) they do not need anyone’s permission to do this since knowledge and information cannot be owned.

In rem intellectual property rights cannot flow from contracts.

***

Also: Penner on Intellectual Property, Monopolies, and Property: recognizes IP rights as protected by law are “not rights in personam, but rights against the whole world“—i.e., in rem rights.

Also:

Against Intellectual Property, the section “Contract vs. Reserved Rights” and the subsections “The Limits of Contract” and “Contract vs. Reserved Rights”
Wendy McElroy’s perceptive comments on the “copyright by contract” approach in her note to me reprinted in McElroy: “On the Subject of Intellectual Property” (1981)
You can’t oppose IP without opposing contract; IP simply flows from contracts
See also my 2011 Mises Academy course on IP, Lecture 6 (in particular, see slide 12; or see the transcript there and search for mousetrap; or go to 45:10 in the video )
- See also Leonard Peikoff on IP here (go to 5:41). Peikoff thinks that whether reading books in a library or buying a used book violates the copyright of the author depends on the contract of sale. Thus he appears to be making an argument similar to Rothbard who thought you could have some type of contractual copyright (in inventions, oddly) system. He doesn’t seem to understand Rand’s own argument for IP, which is not based on contract.
See also Wendy McElroy, The Last Gasp of Copyright Dies Within Me
Also explained in detail here: Bryan Caplan’s view on Slavery Contracts and IP
- See also Richard O. Hammer: Intellectual Property Rights Viewed As Contracts
- Also discussed in the transcripts and podcasts here: KOL326 | Scottish Liberty Podcast: Discussing the Mossoff-Sammeroff IP Debate, Take 1: Under the Influence…; KOL234 | Vin Armani Show: Live from London: Kinsella vs. Craig Wright on Intellectual Property; KOL174 | “Rethinking Intellectual Property: History, Theory, and Economics: Lecture 3: Examining the Utilitarian Case for IP” (Mises Academy, 2011); KOL076 | IP Debate with Chris LeRoux; and KOL 038 | Debate with Robert Wenzel on Intellectual Property
See also Adam Mossoff, a pro-IP Objectivist law professor: “one can try to create through contracts some of the protections provided by the concept of an IP right, but it is impossible to create all of them” (emphasis added). “Intellectual Property,” in The Routledge Companion to Libertarianism (Matt Zwolinski & Benjamin Ferguson, eds., 2022), at p. 482, n.2.
Some thinkers, like the Tannehills¹ and LeFevre,² also seem to think some form of IP can be arrived at privately, by contract or arbitration and so on.
- As noted in Ken Schoolland, The Adventures of Jonathan Gullible: A Free-Market Odyssey, “Alan Burris has a section in A Liberty Primer proposing free market protection of ideas.” In Alan Burris, A Liberty Primer, his theory is confused, as noted in this ChatGPT discussion.
- J.C. (Jan) Lester as well; see Anarchist Libertarian Jan Lester’s Argument for Intellectual Property; see also J.C. Lester: “Against Against Intellectual Property: A Short Refutation of Meme Communism”; “Aggression” versus “Harm” in Libertarianism.
Stephan Kinsella, “Law and Intellectual Property in a Stateless Society,” in Legal Foundations of a Free Society (Houston, Texas: Papinian Press, 2023), Part III.I n.75:
- “Mackaay unpersuasively argues that something resembling patent and copyright can emerge through private legal arrangement like trade secret and contractual structures, a “simulated property right,” which the legislator can then “complement” by “by adding the possibility of systematically ensuring exclusivity against third parties.” Ejan Mackaay, “Economic Incentives in Markets for Information and Innovation,” Harv. J. L. & Pub. Pol’y 13, no. 3 (Summer 1990): 867–910, p. 904; see also p. 899–901 et pass. Or, as summarized by Dale Nance, Mackaay sees IP rights: ‘… as representing a compromise that appears relatively warranted because they do not have the kind of features associated with the worst kinds of governmental meddling in the economy, and because their functional equivalents could, to a considerable extent but perhaps at greater cost, be achieved by carefully protected trade secrets combined with contractually imposed restrictions on copying by buyers or licensees of the information in question. In other words, he sees patents and copyrights as little more troublesome than state-provided form contracts.’ Dale A. Nance, “Foreword: Owning Ideas,” Harv. J. L. & Pub. Pol’y 13, no. 3 (Summer 1990): 757–74, p. 770
- “Easterbrook makes a similar, and similarly untenable, claim, when he writes: “[I]n the end intellectual property may be understood as the result of voluntary undertakings, which the government simply enforces.” Frank H. Easterbrook, “Intellectual Property Is Still Property,” Harv. J. L. & Pub. Pol’y 13, no. 1 (Winter 1990): 108–118, p. 114.
Skye D’Aureous, Comments on the Proprietary Status of Data (January 1970):

The concept of contractual transfer is at the core of properly protecting the proprietary status of data. This matter has been given less attention than it deserves, perhaps because data can be replicated with much less cost and effort than most objects. Many of the same principles and techniques apply in the contractual handling of data as in material property, and State involvement is no more useful in one case than the other. Let us return to the pocket computer example. Suppose that I sell non-exclusive rights to the data for $10 per computer. Anyone who is to work with this data—such as manufacturing personnel—do so under voluntary contract, this contract not allowing disclosure outside of those under contract, and probably setting forth the framework under which improvements that these personnel develops will be handled. (Before signing such a contract and gaining access to the data, it would be advisable for a contractee to register any similar data of his and thereby inexpensively establish any independency from the data to be received.)

Although the device is sold to distributors and consumers, the data is not. A contractual condition of sale prohibits opening the device by someone who has not signed a contract (as would Servicemen) and requires this contractual condition on resales.

So far, all transfers of data have been on a contractual basis and State intervention has been no more necessary or desirable than in the case of contractual transfers of material goods.

A discussion of justice as an economic good produced most effectively in a free market and applied to breach of contract would be most germane at this point; however, a minimal description of market versus State monopoly justice and restitution as the standard of justice would be several times as lengthy as this paper. No attempt will be made to “improve the State” by trying to integrate these concepts into a political matrix. The reader is advised to carefully consider the fact that it is profitable to act in accord with the nature of the physical universe and the laws of human action and that the edicts of the State cannot isolate one from the consequences of doing otherwise.

The data banks will have profound and extensive effects. The building of banks, stock markets, etc. (even under the yoke of statist market distortion) has been essential to the rational organization of large scale human interaction. The construction of markets and protective mechanisms for data can be expected to have an effect even more pervasive, dramatic, and valuable than the fantastic developments of strictly material capitalism. The wonders of what little capitalism the statists have so far allowed will be very small compared to the production in a free capitalistic market that embraces all economic goods.

Notice: The ideas expressed herein were developed by me from autumn 1964 to summer 1965. Intellectual debts to Einstein, Von Mises, Rand, and Lorentz are clear. For an independently developed highly elaborated course on this subject, contact A.J. Galambos, Free Enterprise Institute. It will be well worth your time and money. (This plug is unsolicited.)