Having covered the nature and value of private property and what a free market means for us, as producers and consumers, sellers and buyers, we now come to the important topic of “intellectual property.” On this issue, we must again sweep aside the traditional and conventional notions, along with all the vested interests trying to maintain the status quo, especially amid a digital age.
Historically, letters patent were enforcement of monopoly privileges by a legal authority, be it a monarch or other form of authoritarian regime. These documents officially granted exclusive rights to those creators of inventions who were able to obtain them from those in power. Currently, intellectual property (IP) is enforced via patent, trademark, and copyright laws.
The primary claim for IP is that particular creations must remain the originator’s property—not only the items in the originator’s possession, but also the conceptual processes and structures manifested in items sold to others. In other words, monopolistic privileges concerning patterns of information, be they original, rediscovered, or even duplications (from independent sources at different times) are declared property and thus under one’s exclusive control in the marketplace by the force of the State. Today’s legal notion of IP seeks to stop and penalize others who use, copy, distribute, sell, alter, or improve upon these conceptual innovations in the marketplace, when they don’t get permission from the lawfully declared owners.
Obviously, the fundamental issue of debate over IP concerns whether it’s actually a valid form of property and, thus, whether its reproduction and manifestation in the marketplace by others without the purported originator’s consent or “license” is a violation of property rights. In the realm of the intellect, the free-ranging and creative place of ideas, should property rights actually be claimed, not to mention granted and enforced by the State? Does ascribing such rights make any sense, based on what we know about property?
Closing Pandora’s Intellectual Box
To reiterate, we claim property to avoid conflict with others and thus better enable value creation in the marketplace. And we establish rights to our property either by way of first possession or voluntary transfer from someone else. After all, it’s hard to create and trade myriad goods and services when no one knows exactly who owns what, or when the State claims ownership.
Property boundaries are delineated basically through both property usage and possession. Notice that we can establish technical boundaries of utilization of our own property, whereby overstepping those boundaries would infringe on the property usage of others. As renowned libertarian scholar and economist Murray Rothbard noted, we basically homestead specific technological units for our particular purposes. Radio transmitters are a prime example; the owners only broadcast at specified frequencies or wattages that they have negotiated—either through contract or prior use—with other owners of electromagnetic spectrum usage. Clearly, establishing such property boundaries is essential to avoiding conflicts. However (no surprise here) presently such free market property arrangements have been impeded and heavily regulated by the Federal Communications Commission (FCC) and various judicial decisions.
You can rightly assume that what resides in your own brain is your property, whether or not you’re an inventor, composer, or author—just as the rest of your body is your property. Clearly, someone would have to trespass on your property and do a coercive brain scan in order to gather this decidedly private information. But only by keeping information to oneself, that is, in private form and shielded from the marketplace can one declare conceptual information to be one’s own. The right to privacy, along with this private knowledge, stems from property rights and their established physical boundaries in relation to others.
The notion of property of the intellect existing in the marketplace, however, is basically a contradiction in terms. As outlined, property is something that’s claimed, used, and possessed as an extension of self-ownership. Property rights ultimately mean the freedom of action to use and/or dispose of certain owned items and to do various things in relation to them. Property rights do not mean the freedom to prevent others from duplicating what you own, unless that duplication creates conflict of usage and possession of your property, as in identity theft, which involves fraud (which we’ll deal with in detail later).
Clearly, tangible items have all sorts of uses and capabilities that are conceptualized and exploited by reasoning minds. For example, you own the contents of your diary because the book of blank papers is yours and the ink adds something tangible to the item; the words within it also demonstrate how you can put it to use. The same could be said if the ink were in the form of the language of musical notes, that is, a song.
When intellectual information that’s manifested in tangible items and processes makes it to the marketplace, such as a story or song or even mining processes or the sequencing and use of particular genes, it’s quite obviously no longer for the creator’s eyes only, and no longer in the creator’s possession. Others are then exposed to this information via these items and their innumerable uses. One would have to initiate force to dictate to others what they can and cannot do with the intellectual information that’s now in their brains. In other words, because what’s claimed to be intellectual property is simply a pattern of information manifested in a tangible thing—specifically information that can be reproduced by others without conflict—one can’t enforce the terms of its replication and dissemination once it reaches the marketplace, that is, once information has been duplicated by other brains and transformed into tangible expression by them. That would essentially be trying to control the property of others.
To put it another way, after a person exposes ideas, products, and services to the marketplace, he or she has no right to prevent others from reproducing or duplicating those same things—even if that person was the one who truly created or discovered them. One only has the right to control one’s own particular products and services in which that information is embodied, that is, one’s own capital resources and inventory (rightful property).
When other minds become aware of information, it basically goes from being private property (because trespass would be required to glean it) to being in the public domain, or marketplace. That’s the way a free market works. No force is initiated by either buyers or sellers. Both realize that property rights apply to all aspects of tangible items they own and the various uses they choose to employ with them.
The Legal Jungle Of Patents, Copyrights, And Trademarks
For many of us, having been subjected to innumerable FBI warnings and “all rights reserved” clauses, or even been called pirates or thieves by members of the IP establishment for sharing files on the Internet, all this may be a rather new way of looking at the subject. So let’s explore it further.
The current understanding by courts, lawyers, and law schools of IP and its licensing is essentially arbitrary, as well as complicated and confused. For instance, where does one idea or a small set of abstract ideas (typically not copyrightable) end, and a series or string of ideas (such as a poem) begin? Sure, one might say “Ideas themselves are not copyrightable; only their manifestations in specific combinations are,” but where do old ideas end and new ideas begin?
This leads us directly into the thickets of patent law. Where exactly does the discovery of an idea, a better mouse trap for instance, transition from being “obvious” (and therefore not patentable) to “unique” or “original”? How many actually unique inventions are there, in which the creator didn’t utilize or build upon any other ideas or processes already known (and perhaps even claimed as IP, what’s called “prior art”)? And what happens legally when many people arrive at the same idea independently—or when one person makes a discovery one week, month, or year before someone else?
Instead of answering these questions in a logical manner by rejecting the notion of IP entirely, the State imposes its laws as the politicians, bureaucrats, judges, and lobbyists have outlined. In the midst of the enforcement of various versions of IP, parts of copyright are legally declared to be free to use under the specified conditions of “fair use.” And formerly copyrighted material is at some point declared to be in the public domain. Patented ideas, plants, and designs expire at a variety of designated times, while things trademarked can be renewed indefinitely through payment of fees. How come?
In this environment of legally enforced intellectual “property” in the marketplace, where does one draw the line concerning what’s in the public domain? Some say for educational purposes only. Does this mean strictly a school or library, or what? Moreover, how long should one be able to enforce exclusive rights to IP? Plant and utility patents, 20 years? Design patents, 14 years? Copyrights, 70 years after the author’s death—or, 95 or 120 years after publication—or should we revert to the original 14 years—or, in perpetuity? Can a crustless peanut butter and jelly sandwich really be patented and the exhaust sound of a Harley-Davidson motorcycle really be trademarked? Apparently they can. According to whom? According to the U.S. Government’s Patent and Trademark Office, by arbitrary fiat, of course.
Witness also how patent claims are written: specific enough to assert something supposedly novel, and yet broad enough to discourage others from even thinking about offering any specific or general improvement without risking patent infringement. So much for encouraging creativity and innovation, or Constitutionally promoting “the progress of science and useful arts.”
It’s understandable and completely natural that copyright, trademark, and patent holders and filers have their self-interest in mind. No one wants his or her works misused, and individuals certainly don’t want to lose out monetarily. Of course, I’m also aware of this mindset, being a previous holder of copyright (it’s the default legal status unless one disavows it), and having filed for both a provisional patent and trademark as an entrepreneur a few years ago. But upon serious inspection, it turns out that IP enforcement isn’t actually in our rational self-interest. A free market of ideas most certainly is. IP claims backed by lawyers and governmental guns do nothing to foster a free society of respectful interaction. As in all economic activity, persuasion and reputation should replace force as a means to gain and maintain market share.
Of course, many people who stand to lose their existing monopoly privileges might be horrified or incensed by the preceding paragraphs. Their stance goes something like this: “I will allow people in the marketplace to use duplicates of mycreation so long as I can exclusively control their use, copying, and distribution.” In other words, they want to enforce and retain exclusive right to license alleged property in a widely distributed fashion, rather than to just sell it and see it released into the public domain. But there’s nothing inherent in an idea or string of ideas, big or small, complex or simple, that warrants a claim of property rights. Though I’m sure each of us has declared something to be “my idea” before, we know that it’s possible for others to formulate (and improve upon) the same idea as well. Everybody has ideas; it’s the nature of human consciousness to have them and put them to good use. Unlike valid forms of property, ideas aren’t scarce; they can be reproduced without conflict. Just as in other aspects of business, protectionist rackets can’t logically serve our economic interests; in fact, they stifle commerce and hinder economic opportunities.
Again, copyright, patent, trademark proclamations, and their legal implications concern, by definition, reproducible items offered in the marketplace. Proclamations such as “end-user licenses” aren’t objectively valid because what’s being claimed as property actually isn’t. So, one logically can’t mass produce and enforce blanket contracts on buyers that attempt to censor their minds and control their behavior. This obviously applies to the various license “agreements” we encounter at points of purchase (excluding warranty information and return policies, of course). Contrary to popular and legal belief, we aren’t in any valid sense signing an IP contract when we buy copyrighted, patented, and trademarked items.
All reproducible items in the marketplace are necessarily marketable items, not someone’s intellectual property. To the degree that others become aware of the information contained in these reproducible items (in a rights-respecting fashion) they may reproduce them at will. We, as property owners and producers, have no right to artificially create scarcity through licenses that aim to prohibit or restrict duplication and dissemination of information in the public eye. It turns out that most products or services can be duplicated, depending on the reproduction technology that’s available and one’s skills and resources at reverse engineering. We’ll address more of the economic significance of this shortly.
Duplication doesn’t entail any theft of property—only utilization of the particular information pattern found in the product or service. Thus, human beings only have the choice of whether or not to keep their creations secret. Of course, this doesn’t mean that someone else won’t think of the same things and bring them to market. Supply will meet the demand.
The Nature Of Contracts
So, you might wonder, what about contracts in general? Again, everyone has a right to what they possess or have acquired voluntarily. In addition, each of us can devise agreements in order to prevent potential conflicts from arising with others in the use of our own property. Loaning and leasing are examples of contractual stipulations placed on the use of one’s property by others, via negotiation and signed agreement. And as mentioned in a previous chapter, covenants between property owners are another example of preventing conflicts and outlining behavior that affects or can affect one’s property rights; real estate easements are yet another example. For instance, people can contract with one another to ensure that no one will build anything prohibited by their signed deed restriction.
Trade secrets and their protection by nondisclosure agreements as well as “contracts not to compete” curiously represent attempts to keep the contents of one’s mind and the nature of one’s creations, private after being exposed to others. Similar to covenants and deed restrictions, these contracts reflect the desire to direct the behavior of others in the use of their own property. Nondisclosure and no-compete agreements seek to prevent others from disseminating certain knowledge that they have (or will have) gained from the property owner. A contract binds others (who choose to be bound) to this secrecy and outlines the penalties imposed for revealing and/or exploiting certain information. Thus, such a contract represents an agreement between parties in a working relationship that concerns a thing or process, that is, a pattern of information not to be reproduced in that context. However, here’s the kicker with these types of contracts: Such processes can obviously be duplicated by others who aren’t involved in the contract and therefore have no working relationship to uphold. This necessarily leads to problems of enforcement as well as determining exactly how others who weren’t parties to the contract acquired the same ideas.
Exclusivity agreements, in contrast, involve signing parties who agree to do business only with each other, according to specified provisions, hence contracting to restrict duplication of business processes instead of ideas. Conditional contracts are somewhat similar. For example, we’re probably all too familiar with (and perhaps frustrated by) the ones we sign with the purchase of our mobile phones. Most corporations’ wireless communications plans have a two-year contract, which stipulates that the discounted phone price (or “free phone”) and the monthly rate apply only if the customer gives them two continuous years of business. Otherwise, fines will be imposed, that is, “early termination fees,” usually amounting to a couple hundred dollars.
These kinds of contracts are a bit representative of the unspoken mottos of many “pragmatic” and regulated corporations, four of which now provide roughly eighty percent of the wireless market: “The hand is quicker than the eye”; “Which shell is the pea under?”; and “Never give a sucker an even break.” The marketing push for sales often overrides fully informing, and thus fully satisfying, customers. A simple solution for businesses to avoid costly litigation and bad reputations is to make sure the customer is aware of the trade-off involved in signing the conditional contract: short-term gain but potentially long term pain (cheap phone but you’re locked in with us for two years) versus short-term pain but long term gain (expensive phone but the ability to switch anytime without an early termination fee). Customers who select the latter option then pay the actual phone price up front, which is typically a few hundred dollars, and either pay month-to-month or buy their minutes as they go. However, this still doesn’t overcome the problem of potentially not being able to use your new phone if you switch service providers, which is another corporate-created shell game. You’ll have to see if you can “unlock” your particular brand of phone and install a new SIM (subscriber information module), which of course means spending more money.
We can of course thank the FCC and its maze of regulations for most of this trouble. Lack of competition and therefore lack of consumer choices in the marketplace of wireless telephony and other radio technologies are the result of State-licensed, State-controlled, and State-prohibited use of electromagnetic spectrum. Without clearly delineated property rights in this area of the market, which includes presently unlicensed spectrum, FCC rules and corporate cronies of central planning bureaucrats continue to commit their injustices on consumers and potentially innovative competitors. Local governments also hinder placement of towers, which of course contributes to weak signals and dropped calls. Clearly, electromagnetic spectrum property rights ought to be established via homesteading, that is, making use of available bandwidth as well as transmission and reception technologies. Just as necessary is the ability to sell that property to other entrepreneurs in the market, who can employ new methods that are currently stifled by FCC licensure and regulation.
We of course always have the discretion to breach our contracts, though with the associated penalties. Such penalties can’t include simply forcing performance of the contract, which would obviously make it unbreachable. Bodily harm also can’t be a proper penalty for contract breach, for instance, being dropped into a vat of boiling oil for not performing your contractually stipulated obligations. Torture is a form of pure evil, no matter what you’ve agreed (or not agreed) to do.
We don’t possess the right to enslave ourselves, nor can others enslave us. This would contradict the rational, chosen nature of contracts, rendering them unconscionable. In most cases, monetary damages seem to be the only reasonable penalty for breach of contract, which enable payment to others who are willing and able to finish or repair and restore what was contracted. A free market system of contract insurance, with accompanying ratings of individual customers that reflect their contract history, would help prevent breaches as well as mitigate damages. Insurance for agreements that involve a lot of time, labor, money, and capital investment, the loss of which would otherwise be difficult to recoup, can be quite useful. Agreeing to the assignment of penalties for breach may also give the contracting parties greater confidence about their firm business intentions to work together.
Having said that, there are some valuable rules of thumb in the business world that also insure against such risks. Regarding trade secrets, for instance, if you don’t want your secrets to become public, then keep them to yourself. Or, if need be, tell your secrets to persons you can unreservedly trust. In any event, leaked secrets may be one of the natural costs of doing business. No matter how many crafty contracts we’ve had our attorneys draft and our associates and employees sign, in an attempt to control their behavior, risks are unavoidable in business. By now it should practically go without saying that such risks won’t entail destitution, because of the nearly endless business opportunities in a truly free market.
Granted, in long-term business relationships, as well as long-term neighbors, it’s important to minimize potential for losses. But the more we associate with and reside next to people of honesty and good character, that is, people of virtue, the better our working relationships will be. These valuable human qualities ought to precedecontracts which, after all, can be breached anyway.
There also seems to be a degree of folly in wanting to make others do certain things, in this case to keep secrets under threat of penalties. Such contracts may themselves erode trust and respect in the working relationship. When dealing with others in a company, it’s clearly most beneficial to rely on trust and the honor system. Distrust and dishonesty are corrosive to any relationship—human interaction 101.
Inescapable risks are of course part of doing business with others, but the more we respect others (and the more they respect us), the less risk there will be in doing business with them. Distrust of others often becomes self-fulfilling prophecy, as authoritarian old-school managers and antagonistic labor union bosses (who rely on political pull) continually demonstrate.
On the other side of the contract, there are probably some things we ought not agree to. If we believe that we’re entering an agreement that creates a relationship of drastically unequal power (typical of standard form contracts), we should think carefully before we sign. Adhesion contracts, for example, are those that leave us with no choice concerning the terms and no room for bargaining. If a brief reading of the contract’s extensive fine print makes you feel like you’ve mysteriously entered a law library, then at least make sure the basic terms are reasonable—and that you can effectively argue against the unreasonable terms in the fine print, if need be. True to form, the corporate-influenced and governmentally controlled legal system makes the nature of some agreements really problematic. Restriction of market choices is the statist game, after all. Therefore, it’s imperative to discover the reputations and level of customer satisfaction of those with whom we might contract.
How About IP In Perpetuity?
Having covered the essential nature of contracts, let’s now resume our discussion about the invalidity of IP. What if government weren’t in charge of granting and enforcing such “rights”? Are there any other approaches that try to avoid the governmentally created contradictions?
As far as I know, the only internally consistent approach to claims of IP is that of Andrew Galambos, a free market anarchist who favored the processes of the marketplace and private legal agencies instead of government. Many who’ve studied the writings of various libertarian thinkers might have heard of his version of intellectual property. Basically, Galambos believed that inventors should be able to enforce exclusive rights to their discoveries, and thus the information embodied in things exposed to the marketplace, for however long they wish. IP would thus exist in perpetuity for the declared owners. Private enforcement agencies would ensure compliance, and a free market-created “Clearinghouse” would supposedly inform everyone who used another’s IP to whom they’d need to pay royalties (assuming the IP holder wanted to license it).
I’m not sure if Galambos drew any definite lines about what could and could not be legitimately claimed by individuals as IP—perhaps whatever one proved to come solely from one’s own brain. I do know that students of his lectures were advised not to discuss his ideas in detail outside the classroom (they even signed nondisclosure agreements concerning this). Not surprisingly, this makes for difficult, beating-around-the-bush conversations with his former students.
The Galambos interpretation has internal consistency, to be sure, in that it leaves the determination of IP duration to the discretion of the alleged holder of it, rather than to the capriciousness of government and lobbyists. But it asserts a notion of property that extends beyond the simple right to privacy, one’s right to possessions against trespass (as well as to working relationship contracts that seek to extend that right, however misguided they may be). Hence, Galambos’ form of IP can’t be considered morally valid or, for that matter, practically enforceable. To reiterate, no one has the right to prevent others from reproducing the information patterns they’ve observed in the marketplace, even if such patterns are avowedly original. They only have the right to seek justice for commissions of fraud.
The great thing about the free market is that it encourages trading values, swapping ideas, and spreading information. This leads to further cooperation, capital accumulation, increases in productivity, and more economic opportunities for everyone. The extensive network of commerce in society is the direct result of the flow of information and the sharing of knowledge. Entrepreneurs depend greatly on insights gained from their experiences in the marketplace of ideas, goods and services. No one, no matter how intellectually and psychologically independent, creates in a vacuum. Individual minds build on the prior works of other individual minds. Teams and groups of people add to the synergistic effects. The result is a vibrant economy filled with virtually endless avenues for creative expression and money making.
If there’s a demand, then a better drug, a catchier tune, or more efficient vehicle will be supplied to the market. The notion that new ideas would never reach the public without IP is simply erroneous. It not only attempts to make the end justify the means—restricting competition in order to make money—but it’s also contrary to the nature of a free market. There’s little payoff in keeping one’s innovations to oneself indefinitely, even though accumulating venture capital and effectively taking a product to market can indeed take some time.
Distribution, marketing, and perhaps the honor of being distinguished as the original creator, all determine how well one’s work will sell on a free market. Mainly, it’s about distribution and marketing, which typically lead to successful sales. Yet many creators today don’t want to heed this business truth. They’re lured instead by the government’s coercive mechanism of IP—even though over 95% of patents never turn a profit. The lottery has been called the poor man’s tax, so perhaps the patent process ought to be called the inventor’s wishing well. It’s a deep, dark well at that, filled with many coin-catching IP lawyers. Certainly, there are much better uses of our time, money, and creativity.
The copyright racket is similar. Millions of authors and composers have waited and waited (and waited) for royalty checks to trickle down to them from licensing entities such as the American Society of Composers, Authors, and Publishers (ASCAP) and Broadcast Musicians Inc. (BMI). The big record labels and their special interest strong arm, the Recording Industry Association of America (RIAA), also contribute to today’s chaotic, extremely litigious, and unjust legal framework. And let’s not forget the Motion Picture Association of America (MPAA), which back in the day, actually sued to ban video cassette recorders. They’re now involved in a whole host of lobbying efforts regarding DVDs and issues of “Digital Rights Management” (DRM). Remember those FBI warnings? These are new and improved ones designed to prevent “unauthorized use.”
Creative Commons, And So On
Unlike these organizations, we now know better than to ask government and their abettors to do us any favors, to grant us any special corners on the market. In contrast, Net labels, open source record labels, free software licenses (GNU General Public License), and “copyleft” licenses (“all rites reversed”) are examples of free market responses to governmental coercion and corporate copyright schemes. Creative Commons (founded and chaired by Lawrence Lessig) offers licenses as well as public domain dedication to creators of online content. These are now somewhat viable alternatives to typical end-user licenses, though they still have to maneuver through copyright laws.
The Creative Commons (CC) license offers a range of options, from simple fraud protection, which requires that credit be given to the author, to prohibition of commercial use. Of course, it still relies on copyright law for making such restrictions; so, to that extent, it’s an intermediate point on the way to complete liberty in the marketplace of ideas.
Nonetheless, as long as licensees (buyers and users of an author’s works) follow specific disclosure guidelines, all works under CC license grant the following freedoms: to copy the work; to distribute it; to display or perform it publicly; to make digital public performances of it (for example, webcasting); and, to shift the work into another format as a verbatim copy. Obviously, this is a big enlightened step forward in the realm of property rights. Once you buy something, it’s yours to do with as you please. Common sense wins in the end!
In the marketplace of goods, services, and ideas, anything that can bereproduced or duplicated using one’s own effort and ingenuity typically will be. This necessarily includes patterns of information. Notice that I’ve repeatedly mentioned “reproduced” or “duplicated.” This is key, because certain tangible resources can’t be reproduced; one can only transfer possession of them. Real estate is a good example. One’s own self is another, as well as specific contracts, including legal documents pertaining to yourself, in which duplication would be fraud (counterfeiting being a form of fraud). Any attempt to occupy or possess such property of another without consent is theft, the initiation of force, essentially the height of social conflict.
As noted, products of the intellect are inherently reproducible, so bringing further goods and services based on them into the marketplace doesn’t cause the loss of one’s property. There’s no theft, and there’s no attempt at forceful occupation of one’s property. Thus, there’s no conflict. Only by attempting to possess and use another’s property, or use a non-reproducible item, without the owner’s consent, can a person commit a rights-violation. Such a rights-violation can involve visible, tangible property, which importantly includes documents that assign ownership, such as titles, deeds, bank notes, or money deposit receipts. Duplication of these legal documents by those not representing the property of the particular person or organization would be counterfeiting. Additionally, we have no right to possess and use “invisible” property of others without their consent, such as using occupiedfrequencies of the electromagnetic spectrum, which are aspects of reality that more tangible property, such as a transmission tower, makes use of.
In determining what are valid property rights, the proper distinction doesn’t concern visible versus invisible, or tangible versus intangible property. The proper distinction concerns reproduction, possession, and use without conflict versusreproduction, possession, and use with conflict. It’s as simple as that.
Human ingenuity really determines what can be established as property. For instance, by switching from solely analog to analog plus digital on the FM radio band, more streams of information can be transmitted; each channel can then carry a few additional signals. Advances in technology can obviously create many new forms and facets of property. Internet domain names are just one example of all the technological properties created from the Internet. Since the Internet employs a universally recognized addressing system, someone can’t duplicate your domain name address with impunity; that would be a case of trying to possess your piece of (virtual) real estate without your consent. Further, the various owners of the Internet backbone and server networks don’t permit such conflict.
This is why identity theft is clearly an instance of fraud: The thief claims to be the actual person who’s authorized to make particular transactions, in order to unjustly use that person’s property and privileges. Of course, duplication of names is commonplace in most cultures, but the name must coincide with each unique person and his or her particular property, according to specific standards of verification. There may be many John and Mary Smiths out there in America, but they don’t presume to be the same person with the same property and privileges. Fortunately, nearly all people want to avoid such confusion and hasten to resolve it, which is one reason why we use middle names and specify our addresses. Of course, assigned numbers coupled with biometric identifiers would also help to prevent any confusion of identities in a prosperous future of many more people on this planet. However, such choices must always be left to individuals, not governments. As long as the State presumes to be in charge of personal ID cards and numbers, and as long as it imposes such things as drivers’ licenses and Social Security numbers, we should be very alarmed. Such information is being used to deny our basic freedoms to travel and function independently in the marketplace. States, especially police States, make a point of keeping track of people in order to gain more control and power over them—always for “security” reasons, of course.
How The Market Performs Without Intellectual Property
In a truly free market, which is governed by an understanding of objective law—that is, law based on individual rights—what you create with your own brain and transform into goods and services is also yours to sell in the marketplace. The profits from these sales are assuredly your property, as is the inventory that you’ve yet to sell. But the creations of your own brain, whether truly original or not, can’t remain your property as information patterns within the goods and services you’ve sold to others.
Fraud is basically an issue between the buyer and seller, directly or indirectly involving the original creator. Absent today’s IP enforcement, companies that produce knockoffs might face fraud charges if they didn’t make it clear to customers that their $10 “Nikes” (with the accompanying Swoosh on the side) for example, were made by a different company than the $100 actual Nikes—though typically the price difference is a dead giveaway, just as it is for all those “Ray Bans” and “Louis Vuittons” on street corner shops. Of course, the main reason people buy knockoffs is to save money while creating an illusion of high fashion. On account of this, there’s little incentive for most buyers to bring charges of fraud, for that would entail getting their money back from their cheap purchase and forking over many more dollars for the real McCoy.
Nevertheless, few companies would last long if they tried to sell knockoffs as the originals, that is, as products or services coming from the original producers and sellers. Valid charges of fraud by just a handful of customers might make such business practices quite risky. Moreover, market pressures to avoid confusion will naturally discourage many companies from using identical trademarks and service marks. It’s just not good business to be continually mistaken by your customers for another company. Though imitation can be the sincerest form of flattery, most businesses try to avoid damage to their finances as well as reputations through misleading buyers about their actual identity. Yet, companies might find many creative uses for previously monopolized marks, and they’ll be free to do so, even though they won’t be free from encountering charges of fraud by irate consumers.
Clearly understood and delineated property rights are the only way to avoid confusion and conflict in civilization. In a society that fully respects ownership, conflict and its legal consequences are avoided by not trespassing on legitimately claimed property. One who first possesses property, or receives it through consensual transfer, determines how it’s to be used and/or disposed.
Today, people commonly try to defend (or oppose) the modern day approach to letters patent by way of arguments about use and profits. Those strongly in favor of IP are backed by the Constitutionally authorized Patent and Trademark Office and legions of lawyers, both governmental and corporate. They contend that without IP, no inventor or businessperson could make a profit: As soon as their products hit the market, others would piggyback on companies’ R&D investment and flood the market with cheap knockoffs, such as generic drugs. Hence, for the sake of business, profit-making, and capitalism, IP must be recognized and enforced—ultimately, at the point of a gun.
Such a stance obviously overlooks the fact that many business sectors today make enormous profits without direct reliance on IP enforcement. The fashion industry and most service industries are prime examples. Ironically, however, many try to bolster their arguments for IP by pointing to the heavily regulated and very corporate pharmaceutical industry, as if their huge investment costs were a free market phenomenon. The many years and hundreds of millions of dollars (actually approaching a billion per drug) spent on research and development in the FDA trial-and-approval process aren’t actually necessary. Additionally, more competition in the realm of creating and selling products that relieve suffering and prevent deaths won’t stifle money making. Clearly, some moral premises need to be checked here. Some IP advocates also point to the millions spent on actors and film production in the corporate-controlled movie industry, as if good flicks with skilled actors require skyrocketing budgets. No matter how many fear its artistic repercussions, a free market without IP won’t reduce us to only watching clips on YouTube.
On the other hand, those who mostly reject the calls for strong enforcement of IP (fortunately a good share of the creative, free software and open source techie crowd, as well as quite a few non-union artists and musicians) contend that information needs to be free and that people shouldn’t be restricted in its use; instead, people should be allowed to sample, tinker, create, and duplicate. For instance, a software engineer’s version of digital hell is likely one in which he’s not allowed to use, modify, and distribute source code for further development. And a consumer’s version of digital hell is often one in which she can’t copy media to other devices that she herself owns.
Preventing people from reproducing and innovating various products and services truly impedes economic progress. In addition to frustration over the use of one’s own property, it yields much less innovation, fewer choices, and higher prices. It also means tremendous amounts of energy wasted in legal wrangling and disputes involving purported intellectual property rights infringement. Many businesses even expend much energy and resources on securing patents they’ll never use, in order to prevent others from entering particular areas of innovation—so-called defensive patenting.
The arguments for intellectual freedom in the marketplace are indeed correct, while arguments for some version of IP, be it the government’s or Galambos’, are mired in hopeless contradictions. The reproduction of goods, services, and ideas reduces scarcity and, hence, it lowers prices and creates many more values in the marketplace; it also greatly diminishes litigation. These facts reveal that there will be many more opportunities for profit-making in a free market without IP. But that, of course, is a utilitarian argument, and what must logically accompany arguments about utility or consequences, are rights-based, principled arguments.
IP proponents essentially want to control what’s already been sold. Obviously, the “property rights infringement” that advocates of IP are referring to ultimately boils down to the loss of sales of their goods and services, that is, potential profits from unknown buyers. Clearly, the money presently in the pockets of consumers is not the property of producers. It only becomes a seller’s property after a transaction has been made. Once you purchase a product from me, for example this book, the entire book is yours to keep, alter, even to copy and sell as you like. You’ll notice that I’ve released it into the public domain. Since it’s your book, your property, I have no right to tell you what you can and cannot do with it. Plus, maybe many more people will read these valuable ideas if you help in the distribution process. Grass-roots, word-of-mouth marketing is thereby facilitated.
Others have no right to stipulate what people can and can’t do with their property. Moreover, we must be careful not to start thinking that labor, in and of itself, has economic value. That would be embracing the labor theory of value, brought to us mostly courtesy of Marx and Engels. For example, if I spent the rest of my life (and thus resources and money) writing a philosophical treatise on the pure, undeniable pleasure derived from eating freshly baked chocolate chip cookies, should I expect to profit from it? Perhaps only in my dreams. What if I baked and sold the actual cookies? Most probably, I would make some money. What if no one had ever heard of such delicious cookies? In other words, what if I were the original creator of the recipe? Would I then have the right to forcibly prevent others from baking the same kind of cookies, so that I could coercively maintain a monopoly on my cookie market? Of course not. What if I had negotiated contracts with those suppliers and workers who might otherwise exploit my trade secret? Regardless of the inherent problems in enforcement of such contracts, this still wouldn’t stop anyone else from doing some clever cookie reverse engineering and competing with me.
The same principle applies to all “recipes,” be they words on pages, the mechanical and electrical structure of a computer, the design of an aircraft, the parts and workings of a turbodiesel engine, the composition of a drug, or the sequence of genes for production of a particular protein. The most interested and enterprising individuals in an innovative and continuously changing marketplace will determine the future manifestations of this information.
Productivity is a valuable end. Labor can be a means to that end, but it’s not the end in itself. If labor were an end in itself, then a thousand workers digging a 10 foot deep, mile long trench with shovels would be preferable to one person digging it with a fifty-ton excavator. The excavator frees up those 999 other men to do all sorts of other things, to expand productivity in countless ways. It also frees the excavator operator, after a few days work, to begin the next project. Moreover, the excavator represents many other types of work that the would-be shovelers can do instead—from the production of crude oil and refinement of its diesel fuel and hydraulic oil, to the forging of steel and the tooling, machining, and assembly of thousands of parts for the heavy equipment. And let’s not forget the engineering know-how and design elements that must be employed to create a dependable product that construction companies want to buy and use; countless innovations follow from these trial-and-error processes. This all helps explain why hydraulic power is favored over muscle power these days.
There are always costs in doing any kind of business, costs to any use of capital and expenditure of labor. And it just so happens that duplication is a potential risk one faces with products and services that are easily copied and disseminated. Advances in technology tend to make many more things easier to reproduce. This is a really good thing, because it yields more for everyone, thus raising everyone’s standard of living. Perhaps the technological apex will be reached with the perfection of nanotechnology, the ability to rearrange matter at the molecular level for design and fabrication of nearly anything. For instance, if everyone had a special nano-machine that could construct a new automobile from a pile of scrap materials in a few seconds, then the big automobile manufacturers would certainly have to switch to a different line of work—maybe to the manufacture of “new and improved” nano-machines, ones that could make flying cars instead. Just as most horse-drawn carriage manufacturers found a different line of work after the introduction of automobiles, so too would auto manufacturers find new ways to make a living. Free markets are about change, after all—and we humans are especially good at adapting to changes in our environment.
At some point a few thousand years ago, the wheel was invented. If those in the Galambos’ school had their way back then, we’d all be paying royalties to the legally declared heirs, the descendants of the wheel inventor, every time we turned a wheel. Many of us would thus try to use our wheels surreptitiously, only rolling them in the darkness of night. Others might settle for less suitable polygons, such as decagons or even dodecagons in order to avoid royalty payments. Envision this scenario in a marketplace of billions of brains, each creating and declaring things to be their own intellectual property, and you can begin to fathom the deepest meaning of legal chaos, confusion over ownership, economic distortions, slowing of innovations, as well as rights-infringements.
Again, anything that can be reproduced in the marketplace likely will be reproduced in the marketplace. Humans are in the business of making stuff—better and cheaper stuff, including plastic that lasts beyond our own expiration date (nod to George Carlin). Reproduction is not theft, by definition, unless it involves the government’s printing press, which as you know is another story about fraud on the grandest scale imaginable.
Basically, it’s up to buyers and sellers to sort out what’s highly valued in the marketplace. It’s probably a safe bet that most people desire to honor the “real deal,” or the originator’s product or service, rather than individuals or companies selling so-called knockoffs. At the very least, most people believe that it’s bad manners not to give credit where credit is due, that is, when appropriate; obviously, most things we think about and do are not so novel. Many people exhibit brand loyalty, which may be fostered by better customer service, delivery options, and ease of returns. And many are willing to pay a premium for these things.
In fact, most people are happy to pay original content creators. Music is one clear example, as long as gratuitous middlemen keep out of the way. GarageBand.com and eMusic.com for example, are a couple websites that enable independent musicians direct access to their audience; and, they offer songs as MP3 file downloads (which is a non-DRM, versatile format). Nonetheless, the popularity of Apple’s iTunes Store has arisen not only because of the cool designs of iPods, but also because of convenience and selection. Of course, it’s heavily influenced by the RIAA and the big record labels, so instead of selling open MP3 files that can play on any player you might own, the songs are in AAC format with Apple’s version of DRM called FairPlay; among other things, this allows songs to be duplicated only to other iPods.
Peer-to-peer file sharing is still widespread on the Web, which shows that the price points for iTunes songs are still too high and their inherent DRM device restrictions unwanted. Nevertheless, many consumers find it more convenient to “legally” acquire music in the single-song purchase fashion, rather than buy shrink-wrapped CD’s in record stores. In contrast, podcasts on iTunes and many other websites are offered as MP3’s. They are free to consumers (podcatchers) and feature either limited or no advertisements. While podcasting represents a fun hobby for many in this burgeoning field of infotainment, the main business model at present relies on user donations. Many independent artists and musicians are turning to this too, as they give listeners many free songs to encourage monetary contributions.
It turns out that most people, when they can afford it, desire to reward original creators; they know and appreciate hard work when they see it. This will especially be the case in a future economy that fully respects individual rights and, as a result, has enormously more wealth (gold standard, no taxes, no regulations, etc.). Still, what people value on a free market is their own prerogative. Obviously, the cheaper the duplicates, the more likely that poorer people will be attracted to them; this would definitely be the case with generic drugs throughout the developing world. Entrepreneurs and inventors therefore need to adjust their business models accordingly, to acknowledge people’s freedom to innovate and compete, which ultimately benefits everyone.