The US Supreme Court ruled unanimously this past week that human genes may not be patented. That was a good decision. However those in support of this ruling are by and large hypocrites. They vociferously decried the negative consequences of upholding such patents (limiting research, higher costs, limited choice) but then fail to acknowledge these same deleterious consequences occur for ALL patents. It’s not like these bad things don’t occur for “legitimate” patents but do occur for “illegitimate” ones. Patents are the problem, not their “legitimacy.”

So what are patents (and copyright) (aka Intellectual Property or IP)? Quite simply they are a state granted monopoly for a fixed period of time during which the presumed creator has an exclusive right to do with their creations as they see fit. The hope is that in providing, as a reward, a period of monopolous profits such entities will be incentivized to expend resources in creation and thereby benefit mankind. This unquestioningly presumes that risk should be subsidized by the state. Risk the right way and the state will support you, risk the wrong way and you’re out in the cold. But that’s ok, because IP helps the “little guy” right? Wrong. The IP holder must enforce their IP. This necessitates enormous financial resources to legally pursue IP violations. Only the “big boys” can afford this and thus it becomes clear for whom the IP system was created. The IP system is nothing more than a symptom of state and business cronyism. One of the hallmarks of cronyism is the arbitrariness of the rules and regulations supporting it and IP is nothing if not arbitrary. IP terms have changed over the years, often in concert with the needs of the large corporations whose IP is threatened by expiration.

Although its cronyist roots are reason enough to withdraw support from the IP system, we find that upon closer inspection the whole raison d’être of IP is actually quite absurd. IP rests on the idea that mere ideas can be considered property. For a proper claim (title) to be made, the material in question must be “scarce.” “Scarcity” means there is some marginal cost of production, e.g. clothing is commonly available but it is scarce because it does not simply pop into existence; obtaining it requires some non-trivial expenditure of resources. Where there is scarcity there exists the potential for rivalry or conflict over some particular good. There are two ways to prevent such conflict: 1) invent a way to make the good non-scarce or (2) establish property rights in such objects.  Property rights are the civilized, non-violent alternative to killing each other in order to determine ownership/possession. But when it comes to ideas or non-scarce goods there can be no conflict because both parties can simultaneously possess the thing in question. Therefore without conflict there is no reason to have property rights. Such rights are entirely absurd – you might as well attempt to establish property rights in looking at the moon or the right to whistle. The only possible conflict is over who can legitimately say they thought or did something “first”. Fine, fight over that if you wish. But that is not a property right; just because you had the name “Greg” before me doesn’t preclude me from also using that name.

The idea of scrapping the entire IP system will raise the ire of those who have fallen sway to the false choice paradigm we are propagandized with our whole lives, namely that without such “protections” people will simply stop being creative and all new literature, music and inventions would dry up. Seriously. Now doesn’t that sound pretty stupid when you say it out loud. Do you really think there are NO other possible ways creators might get remunerated for their work? Do you truly believe that patents and copyright are the ONLY possible way this could work? These types of objections are about as imaginative as the “but who will pick the cotton?” rejoinders thrown at those that desired to end slavery. In other words, one’s lack of imagination does not invalidate my argument. End the shackles of IP and let loose the entirety of human creativity. (For a more in depth discussion please see the godfather of anti-IP, Stephen Kinsella’s “Against Intellectual Property” which can be downloaded, for free.

The following is an adjunct to the discussion above . The question “But how will this work?” is not a refutation of the principle that IP as a concept is invalid… however…it can be an interesting intellectual exercise to start from a priori free market principals and imagine how people might conduct themselves in order to accomplish the same goals absent a coercive state influence. I will go through some of the more common objections to dismantling IP.

The most common objection to ending IP is that businesses simply won’t innovate anymore because other businesses (the parasites) will just copy everything they do which in effect results in the innovating business subsidizing the parasitic businesses who have no R&D budget. There is just one problem with this. It only looks at one side of the equation (however in this case it reverses the usual paradigm of the “seen benefit and unseen harm” described by Bastiat into one of the “seen harm and the unseen benefit”).

These assertions always ignore the benefits to both society AND the business from whom the idea was stolen. Obviously society will benefit with lower prices and more choice (just as they do when drugs go off patent and can be made as generics). However all businesses will benefit because now it is “legal” for everyone to “steal” ideas from everyone else and improve upon them. So for every ten businesses “stealing” from Business A, Business A can in turn “steal” the ideas of ten other businesses themselves – often the same one that “stole” their idea to begin with. The playing field is leveled if everyone can participate. Rather than restricting R&D to just one company that happens to hold a patent, the creative R&D resources of thousands of companies can bang away at some idea, sowing improvements at each iteration, each company striving to outdo the others in either price, efficacy or quality.

As an aside here I would like to mention this is not an endorsement of industrial espionage. By that I mean businesses can have their employees sign non-disclosure agreements (contracts) and if such agreements are violated they have full legal grounds to pursue not only those employees but most likely the business they disclosed it to (tainted fruit as it were). Now some might object and say “well technically the business it is revealed to can’t be sued because they are not party to the contract”. True, however in a truly libertarian system (no employment law tying the hands of the employer or employee) any higher level employment situation (i.e. knowledge workers with the potential to bring innovation to the table) would be established under an employment contract and in such contracts only a fool of an employee would sign such a contract that did not stipulate that the employer will indemnify that employee in any lawsuit related to their actions in the course of employment (which would of course cover conveying ideas/processes learned at a former employer that could benefit the new employer). In that situation then the employer would be a fool to not make entirely sure all information they get from the employee is not covered by any sort of non-disclosure agreement since if it is, and they don’t check, the employer opens themselves up to an enormous amount of liability (indirectly via their employment agreement). This system would of course not stop such transfer of proprietary knowledge, but it would greatly mitigate the likelihood and even today’s system does not stop all of it either so to say that people might find a way around it and so therefore it can’t work is to say what we have today can’t work because people today find ways around our current system.

Now, back to trade secrets: If your process is truly novel and inventive then it will not be readily copied as no one will be able to figure it out (because without patents you would not need to disclose to the world how it works). If it is a secret, then keep it secret. However, if you are the inventor of something fairly obvious (i.e. one-click checkout, round edges on a phone) then it will be trivial for others to copy you. But because the invention was trivial you would not have had much invested it in anyway. Therefore in a free system those that invent truly novel things that are difficult to reverse engineer will naturally reap the most reward before competitors finally figure it out (if ever). “First to market” is still a powerful incentive to innovate. And even after others figure out an invention there is still much value in the reputation of being the seller of the “original” or “authentic” version of something.

Next common objection, “Ok Mr. Smarty pants, without IP you’d have even more firms like the Chinese just making cheap knock offs and putting the innovators out of business and since they aren’t innovating there is nothing to copy from in this iterative process you describe”. Think about what those “knock off” companies are doing. They are making stuff efficiently and inexpensively. They are making it less expensively than the makers of the “original” products. Now to the extent the knock offs are sub par in quality and function, there will be little market penetration beyond those who never would have bought the authentic product to begin with because of price – so no real loss there. But to the extent there are such manufacturers that actually are basically making “generics” of whatever product it is, that means they are of nearly equal quality and efficacy but for a lot less. In other words between the two such companies (the R&D company making it for a lot of money vs the Manufacturing company making it for little money) there is a stark difference in comparative advantage. One is really good at making stuff and one is really good at inventing stuff. That means each will tend to specialize and become better and better at what they do. Without a patent system we would tend to see more company specialization. For example today companies are more vertically integrated in that they invent things and then manufacture them and then waste time and resources going after those that copy them. In a system without patents the “inventor” companies would specialize in R&D and inventing things and then they would turn around and sell the information on how to make some hot new thing to the manufacturing companies. Basically it is contract manufacturing – which already exists today. The resources they formally spent fighting them with are now used to make improvements. The manufacturing firms are weak in R&D but great at manufacturing. It is a natural symbiosis where the strengths and weakness of each partner complement each other. So as companies specialize in this way we get better R&D and we get better manufacturing. It doesn’t mean that companies can’t still invent things and then make them and sell them, it just means that market pressures will tend to minimize the number of companies operating this way. Only companies whose products require enormous capital investment (e.g. auto manufacturing) would likely continue to exist in this arrangement or within markets that are too small to justify specialized manufacturing needs. Just because the structure of businesses today may not work under a no patent system does not mean there is not a different way to structure business that is just as good if not better in terms of net benefits for society in terms of total goods produced and the function of such goods. For example, perhaps without IP the variety and innovation in smart phone technology would be much more advanced than what we have today and there would be greater variety and lower prices, all because all parties could copy off each other, incorporating each new innovation.

And since I’m throwing out ideas about how things might work, let us now turn to how artists (musicians, authors, print, cinema, etc) could ensure remuneration under a no copyright system. One approach used today is the license, which I believe would work in many situations although it does not protect against copying from a non-license holder (e.g. occurring from loss or theft from a license holder) or violation of the license that can’t be tracked to the originator. But for most situations it would work.

Another approach is the pricing approach, i.e. make the product so cheap that the marginal cost of actually pirating is higher than just buying it (e.g. if songs were a nickel is it really worth your time to scour the web for some hack site trying to track down that song…is it really worth it for those people to maintain such a site? It does actually cost money to maintain such sites (domain fees, server hosting fees, etc). Maybe you spend just 5 minutes doing so but even at minimum wage you just wasted 60¢ of you’re your life away when with one click in 2 seconds you could have the song you want for a nickel.

In general, if people are pirating things that means they cost too much (the cost to pirate is lower than the cost of just buying) and if people are scalping things then they cost too little (i.e. you’re basically giving it away). The key is to find that sweet spot of price where the costs of pirating are higher than what it is sold for, but the sell price is not so low that someone can actually realize an arbitrage advantage by buying it at that level and reselling it at a higher level. For unknown artists this approach is already used today. Many simply give away their fares for free or for next to nothing. They simply want to become known. Once they are known and in demand, then they can slowly raise their price.

Another approach is one I call the “trickle down” approach. It is somewhat similar to the system we have of publishing houses or record labels although it is certainly not restricted to such entities (i.e. an artist could sell to whomever they wish at the initial high price). Here’s how it would work: The artist would be paid upfront a very high sum that would cover the total of what they want (the more well known they are, the more they can demand up front). So copying of works really doesn’t hurt them insofar as they have already received everything they expected to get for the work. But the basic idea is incentive driven copy protection. So for example lets say some artist comes out with some great new work and in order to ensure they get as much as they need based on the effort that went into it they would sell each copy of the work for say $200,000. So let’s say only 5 people want it at that price – the artist made a million bucks right off the bat, not over decades of trickling in royalties. Now each of those buyers at $200,000 has the right to resell it. They’ve spent $200,000 so they sure as heck are not going to just give it away, they have a great incentive to get back what they paid and possibly more. They are all competing against each other as well so the price they charge will tend to start out high but drop as they compete more and more in trying to squeeze out every bit of value from their investment. They might sell 200 copies at $1,000 each. If you spent $1000 on a book or CD would you just “share” it with your friends? No. But you might sell it to them or others at a level where you hope to perhaps break even or make a little.

At some point the price reaches a level where the marginal costs become low enough that people will start to trade or give away what they bought. So this system is not much different than from what we have with any hot new product that comes to market. The rich will pay exorbitant amounts to have bragging rights to be the first to have something and as more of them buy it, costs come down and then more and more can afford it until eventually all can afford it. Progressives should love this as the “rich” pay disproportionately more for something based on their income level, but they do so willingly. The “poor” end up getting things for next to nothing or for free. The only real penalty being that the “poor” must wait longer, but is it really a tragedy if those of limited means must wait a few months to enjoy the latest hot album or book or movie when compared to the rich that have access to it immediately? One objection might be this would not work for new or unknown artists. True, and I did not say this is the way it must work for everyone. This is just one idea. And that is the point, there could be dozens of different creative and inventive approach’s people will take up. Many artists today sell direct to their consumers and that works well for the small or unknown artists as they tend to have a loyal following and there is little market to pirate the works of unknowns.

So to ask “how would this work?” is a bit silly – obviously people would figure out ways to make it work. I’ve presented only a handful here. In order to answer this question the onus is shifted from the questioner (who can’t justify his position) and onto the questioned party to come up with the outcome of what will take the creative efforts of thousands or millions to come up with. The questioner presumes that if the answer provided might have even one tiny hole poked in it as to how there might be a problem with this approach or that, then the whole idea must be scrapped. Based on that reasoning we should dismantle the IP system as it has dozens of problems. It certainly hasn’t stopped “piracy” has it? The only fixes offered up amount to nothing more than greater and greater intrusions of state control in our lives (PIPA, SOPA, etc). Must we give up all semblances of privacy and private property in order that the state be enabled to guarantee IP “rights”?