Costs vs benefits of patents

Is intellectual property really property? (Part 3)

Continuing on part 1 and part 2 in our series on intellectual property, today we look at why the social value of patents is greatly overestimated.

Patents not necessary for innovation

Most patents are not litigated.  That would be insanely expensive.  What ends up is a policy of mutually-assured destruction, where big companies build up patent portfolios as a defensive measure.  But this could be accomplished with a voluntarist patent system, where you lose protection of your patents, if you violate anyone else’s.

Trade secretsMost intellectual property is not patented.  It is squirrelled away as trade secrets.  It lies in the particular operations and tradecraft of millions of businesses.  That means most of the innovative power of the economy is not dependent on the government-run patent system.  Then we have to question whether the patent system itself is necessary.

Huge costs of patents

The supposed benefits of patents to innovators are the justification for the system.  But the costs to innovators and startup businesses are overlooked.

patent_troll_chartPatent trolls build up massive patent portfolios and litigate against any startup in a particular field, even without merit, as the cost of defending is extremely high.  This creates huge uncertainty in entrepreneurship and requires a lot of capital to start up.  It is another example of government-mandated capital concentration.

Innovators are more likely to get hammered by a lawsuit, than to benefit from a patent that takes millions to grant and to defend.  This means patents are not necessary for innovation and they actively discourage it.  This obviates the very reason patents were created in the first place.

The costs greatly outweigh the benefits of the current patent system.  And it certainly is not any better than a voluntarist system, that does not rely on violence for enforcement, but only mutal respect of participants’ intellectual property.


growing stages

WANTED: Liberty entrepreneurs

Money is a dirty word in the liberty movement.  Ironic, for a pro-free-market and free trade ideology.  But when theory becomes reality, many recoil at the idea of bloggers doing sales or advertising.  Why?

Spending time to make content or technology means taking time away from other activities, whether business or leisure.  That time has to be compensated.  Yet some act like entitled socialists, expecting this work to be provided for free!

To be fair, some monetization strategies are obnoxious or spammy.  But all that means is we need better monetization options.  Better technologies.  Better feedback and suggestion from audiences of what works and what doesn’t.

For the liberty movement to survive, much less thrive and change the world, it must be economically self-sufficient.  If you can’t feed yourself, you can’t change the world.  If our activities in pursuit of liberty are not profitable, but only financial drains, we will never grow and advance.

We need more business models around advancing liberty.  We need more content, more media platforms, more technologies.  With the fake news media collapsing before our eyes, there has never been a better opportunity than now.  There is so much pent up demand and very little supply.

We need more liberty entrepreneurs.

Not just from an economic perspective, but from a psychological one as well.  It can get depressing focusing only on what the poweful are doing to us.  Who wants to be on a constantly losing team, with a victim mentality?  It’s time we recognize our own power, take responsibility, and become agents of change.

I am working on several media technology projects with a group of liberty-minded developers and creators.  Want to join the effort?  Email me at apollo at apolloslater dot com and let’s get to work!


Occupational licensing hurts the poor

This is a continuation of the series on why capital concentration is the result of government, not of the free market.

Occupational licensing is one of those nasty abuses of the citizenry that should outrage both the right and the left, yet it’s still rampant in this country.  It is a perfect example of government protecting the bigger and stronger, and stomping on the weaker.  It hurts low-income entrepreneurs the most and has no rationale that is not already fulfilled by private, voluntary rating systems such as Google and Yelp.

Local and state governments make money through licensing fees, occupational schools make money from mandatory classes, and incumbent businesses are protected from competition.  Who are the losers?  Hard-working poor people who are ready and willing to provide valuable services but are threatened with jail and fines if they do so.  Consumers also lose, by paying higher prices than they would in a free market.

Next time on this series: the financial industry.

Government supports large businesses against small businesses (with federal contracts)

Continuing in our series on “Government as the cause of capital concentration“, let us look at how the US government supports large businesses in the way it awards federal contracts.  According to the SBA, 22.7 percent of federal contract dollars were awarded to small businesses in 2010 and the rest to large and international businesses.  There is strong evidence this is an overestimate of the actual share, due to improper classification of business size.  Meanwhile, the SBA reports that small businesses accounted for 44.5% of GDP in 2010.  That means the government awarded much more money to large businesses relative to their contribution to GDP.

Federal contracts by business size (2010)GDP contribution by business size (2010)

This is strong evidence that the government directly increases concentration of capital by supporting large businesses vs. small businesses.

Government meddling

Government as the cause of capital concentration

I lay out the following hypothesis: that government is the primary cause of the capital concentration that Marx blamed on capitalism.  I aim to test this by studying the facts of the present day and of history, so this hypothesis may turn out to be wrong or in need of modification, according to the evidence presented.  I also make the following corollary claims:

The hypothesis holds for the United States government of the present day and all similar mixed-market representative democracies.

The hypothesis also holds for governments of all types, past and present.

It is not private property, but the violation of private property, that causes the highest capital concentration.

The regimes implementing Marx’s Communist Manifesto increased the concentration of capital.


Is intellectual property really property? (Part 2)

This is a followup post to the previous post in this series.

It’s not the idea, it’s the execution

Let’s get into the utilitarian argument for patents. The claim goes: Without patents, inventors would make no money, so they wouldn’t be able to invent anything.  The fallacy here is that an idea has any economic value without execution.  The fact is that execution matters more than ideas.  In fact, the idea itself is usually not clear until someone has tried to bring it to market.  Most businesses do not end up following a set-in-stone plan, but adjust, pivot, and fine-tune until a truly valuable idea is produced.  In other words, value is created from the process of acting and organizing, of selling and responding to consumer feedback, not from the initial seed of an idea.  Anyone can have an idea; not many can execute.

beauty-and-the-beast-inventionThe image of the lone inventor genius hacking away for years in his shed to come up with the perfect invention is a cartoonish myth.  It has no basis in reality, yet this is the philosophical basis for patent law!  The reason it rings somewhat true is basically circular reasoning, resulting from the patent process itself:  The inventor makes a device, he patents the device, and then nobody else invents it after that.  Therefore, it’s a good thing he came up with it or it would have never been invented!  Well, duh.  All the other inventors are now prohibited by law from making a similar device.  Of course you won’t see anyone stepping forward.  Patents make the lone inventor a self-fulfilling prophecy.

Inventors don’t need patents to make lots of money

In economic terms, the inventor is not at all prevented from making money from his idea, even without patents.  It’s just that he can’t prevent others from making money from it too.  So the question is not: should the inventor make any money.  It’s: why should he make more money than he could in a free market (without patents)?  We don’t have to choose between utter destitution and untold riches doing nothing but collecting royalties.  If an inventor truly produces value, he will be hired, he will be compensated, for the value he produces – just not as much as with a government-enforced monopoly.

In my next post, I’ll look at the ethics and economic consequences of patents, on society as a whole.

Patents tug of war

Is intellectual property really property?

The IP issue has been a sticking point in libertarian circles for a while and still divides, as was evident in the extensive debate between Robert Wenzel and Walter Block about a year ago.  My position is that intellectual property is not property, at least not in the same way that physical property is.  And even if it is, there’s no justification for coercive state intervention, as there might be for physical property.

Let’s focus on patents as representative of IP, because they are the most expensive and most litigated, although many of these arguments could extend to trademarks and copyright as well.

Calling it property doesn’t make it so

Libertarian IP advocates tend to fall into a circular reasoning: they presume that ideas are property, and then apply a libertarian defense of property to their assumption.  Therefore, IP must be protected.  But there is no reason ideas should be property.  Just because you can conceive of a thing as property, doesn’t mean it is or should be.  Such as people – slaves.  Just because a thing is rare, or has economic utility, doesn’t mean it is property.  Ultimately, there has to be an ethical justification.

There are both ethical and utilitarian justifications for intellectual property, which I’ll cover here in a series of posts.

Necessity is the mother of invention

Claim: Without the inventor of an idea, that idea would not have arisen.  Because the inventor has brought something into the world, that exists only because of him, he owns the idea and should have a monopoly on its application.

But the problem is, we can’t test this assumption.  We can’t travel into the future to see whether or not an idea would have arisen anyway, or how long it would have taken to arise.  In fact, history shows us many ideas, fundamental ideas like calculus, developed independently, in parallel, or within a short time of each other.  In reality, ideas do not arise in a vacuum in one person’s mind, but are the result of the culture and times in which the inventor finds himself.

Yet the inventor does not credit all the intangible, fleeting, and unaccounted ideas he has absorbed over a lifetime to produce his invention.  All these cultural influences are working on many people and we simply can’t know that one idea, even a narrow one, will not arise in the near future.  “Necessity is the mother of invention” is the old aphorism, which explains why good ideas will inevitably be invented, regardless of the particular inventor.

Can’t divide ideas like you divide land or objects

With physical property, it’s easy to tell what’s mine and what’s yours.  This land is my land, that land is your land.  We have a marker, a division.  But it’s very difficult to tell where one idea begins and another idea ends.  How broad or specific should the distinction be?  Is a pink telephone really an “invention” versus a regular telephone?  What about a round pink telephone?  These are not trivial questions – they cut to the heart of the claim that inventions would not have come about except due to the particular inventor who first came up with them.

In general, the broader the claim, the more likely it is that it would have been invented anyway.  The more specific the claim, the more trivial it is, and the less it can be called an “invention”.