“The truth is that today’s patent litigation rate is less than half what it was in the mid-nineteenth century, a period widely recognized as the golden age of American innovation.”

The article puts today’s patent litigation rates in context.

According to Lex Machina’s authoritative “Database of U.S. Patent Litigation 2011,” the number of patent suits filed between 2001 and 2010 has held steady at less than 3,000 per year. Only about a hundred of these cases actually went to trial each year

To put it in even broader historical context, the estimated 100 patent suits currently filed in the smartphone industry is actually less than one-fifth the number of suits filed during the first “Telephone Wars” of Alexander Graham Bell’s time. Back then, the American Bell Telephone Company and its successor, AT&T, litigated a whopping 587 patent cases alone.

Perhaps even more importantly the article explains that a strong patent system creates a division of labor between inventors and manufacturers.  According to Adam Smith the division of labor is key to increasing our wealth.

“The growth of market trade in patents raised the returns to invention and encouraged a division of labor whereby technologically-creative individuals increasingly specialized in their comparative advantage—invention,” observed Lamoreaux and Sokoloff. “It was the expanded opportunities to trade in patented technologies that enabled the independent inventors of this golden age to flourish—and that stimulated the growth of inventive activity more generally.”

By 1865 the per capita patenting rate in the U.S. was triple that of Britain, and the vast majority of those citizen-inventors were what we now call “non-practicing entities,” or NPEs, who licensed their patents to others to commercialize into new products.  Indeed, patent and legal records from the nineteenth century indicate that more than two-thirds of the 160 so-called “great inventors” of the Industrial Revolution, including Thomas Edison, were NPEs.

Please check out the full article at:

“No, the Patent System Is Not Broken”

The law on point is:

 35 U.S.C. 171 Patents for designs

“Whoever invents any new, original, and ornamental design for an article of manufacture may obtain a patent therefor, subject to the conditions and requirements of this title.”

There does not appear to be any reason why the designer of the headlamp should not receive a design patent according to the law.  Under the case law it appears that there might be some argument that the design patent does not apply because it falls under the repair exception to patents.  However, if the patent holder got a design patent on the headlamp, then this would not appear to apply since the headlamp is not being repaired it is being replaced – manufactured.

The economics on point do not appear to be so straight forward.  If the designer of an automobile determines the price of a car based on their total return, then they probably include the residual income they expect to make from repairs.  If this is the case then the law will just increase the cost of new automobiles and reduce the cost of repairs, but the total cost of ownership will stay the same.  In addition, if the bill becomes law it is likely to reduce the value of original designs.  As a result, we will trade unique designs for me too designs.  This is likely to help low cost me-too producers at the expense of innovators.  The economics of the situation are ambiguous at best, but it is likely to hurt manufacturers at the expenses of the financial industry (insurance companies).  Given the recent performance of financial companies and the fact that they have inordinate influence on Washington, I am inclined to say the net result will be detrimental to average Americans.  Manufacturers tend to employ many average Americans at good wages.  Finance companies tend to inordinately enrich a few people at the top.

The real problem with this bill is that it is not based on a discussion of property rights.  It is an example of power politics at its worst, much like the SOPA and PIPA bills.  It pits the lobbying power of the automotive industry against the lobbying power of the insurance industry.  In other words this is just another example of how our country has deteriorated into a Civil War without guns.  Each group uses the government to steal from the other group, which is why I call it a Cold Civil War.

From a property rights perspective a manufacturer should be able to obtain a design patent for each part that is manufactured – assuming it is an original design.  Given the narrow nature of design patents, it should be relatively easy to modify the design to avoid the patent.  For instance, a slight change in the headlamp assembly should avoid the design patent.  In a free market, a consumer should have the choice to select a car that has a common design and the cost of repairs are low because few design patents apply or a highly stylish design where the cost of repairs are high because many design patents apply.  The cost of insurance would also vary based on this information.  As a result, the insurance industry should not be disadvantaged.  The fact that they insurance industry is whining about this just shows that their goal is to obtain unjustified profits (based on a property rights point of view) at the expense of manufactures.  Of course, we don’t live in anything like a free market and there is all sorts of other government interference in the market that one or the other side might make them believe they have the right to ignore the property rights of the other group – Government bailouts of insurance companies and automobile companies come to mind.

The US is no longer a nation of laws, because we no long have a meaningful Constitution and we no longer protect or understand property rights.  The PARTS Act is just another sad example of how we have become a country in a COLD CIVIL WAR.

The reason for marking you product with a patent number is that it provides “constructive notice” to infringers of your patent.  Damages for patent infringement accrue from the date of actual or constructive notice to the infringer.  As a result, the damages you may recover will be larger the sooner an infringer is deemed to have notice of your patent.

From a practical point of view, having a website explaining which patents cover which products is significantly easier and less expensive than marking the actual product or the product’s packaging.  If it is not too expensive to also mark your product or its packaging I would suggest that inventor’s do both.

Here is how Section 16 of the AIA reads:

(a) VIRTUAL MARKING.—

(1) IN GENERAL.—Section 287(a) of title 35, United States Code, is amended by striking ‘‘or when,’’ and inserting ‘‘or by fixing thereon the word ‘patent’ or the abbreviation ‘pat.’ together with an address of a posting on the Internet, accessible to the public without charge for accessing the address, that associates the patented article with the number of the patent, or when,’’.

(2) EFFECTIVE DATE.—The amendment made by this subsection shall apply to any case that is pending on, or commenced on or after, the date of the enactment of this Act.

 

This lack of understanding of property rights causes multiple errors in both the paper and CATO’s and Reason’s analysis of this issue.  For instance, once you understand that patents are property rights you understand the purchase of patents by investors is not different that the purchase of a building from the builder.  The profits by the subsequent purchaser of the building are not “DEAD WEIGHT” costs and neither would a lawsuit by the purchaser to demand rent for someone squatting in their building.  When the (paying) occupancy rate for buildings is high this encourages the building of new structures.  The same is true for patents – when owners of patents receive good returns on their assets then inventors create more of these assets.

Unfortunately, the CATO Institute has become hopelessly lost on the issue of property rights.  They have adopted the Utilitarian point of view that property rights are just an efficient way of allocating scarce resources.  Professor Adam Mossoff has commented on this nonsense.  Mossoff states that Jeremy Bentham’s ideas are at the root of Libertarian’s attack on IP.  Bentham basic philosophy was Utilitarianism – the greatest good for the greatest number. Bentham stated that the reason for property rights was because of scarcity and conflict resolution not natural rights.  Mossoff then points out that the followers of Bentham argue that there is no conflict between people using the same ideas like there is with land.  Ideas can be copied and used endlessly.  This argument fails for because there is a conflict when a physical embodiment of the idea (invention) is created. The copier has clearly limited the return for the inventor and patent law only prohibits the physical embodiment.  I discuss the fallacies behind the scarcity theory of property at my post Scarcity: Does it Prove Intellectual Property is Unjustified and Scarcity -2 and Scarcity -3.  Mossoff points out that this is the philosophical point of view used by the Cato Institute and the Von Mises Institute to attack patents (IP).

Utilitarianism’s “greatest good for the greatest number” always leads to totalitarianism.  It also never leads to the purported goal.  The reason for this is that utilitarianism is merely a justification for short term actions.  Once something has been produced, it always looks like the greatest good is to redistribute the creation.  However, this is clearly only true in the short term.  In the long term it is clear that this always destroys the economy.  This is the theory behind the USSR, North Korea, and all socialist states.  As Ayn Rand pointed out you only need open your eyes to see that these countries do not produce the greatest good for the greatest number.  This is because stealing the product of one’s mind (mental labor is labor) is no different than banning free speech.  It stifles the mind, which source of all economic progress (values).

The CATO Institute’s article is under the header “Regulation.”  This again demonstrates that the CATO Institute does not know the difference between property rights and regulations.  Here are three easy questions for Libertarians, Socialists, and Economists to determine if a right is a monopoly (rent seeking) or a property right.

1) Does the right arise because the person created something?

2) If someone else was the creator would they have received the right in the creation?

3) Is the right freely alienable?

Patents meet all the tests of property rights.  They are not a regulation.  Enforcing property rights does not result in dead weight costs.

Another great article on this issue can be found at Gametimeip entitled Myopic Patent Cynicism.

The downside of this legislation is that it is a band aid to fix the problems with our Securities Laws.  Every academic study of the effectiveness of our Securities Laws shows that they have been either totally ineffective at protecting investors or worse counterproductive.  The real answer to the lack of funding for start-ups would be to repeal all Securities Laws and Regulations except the common law requirements under contract and tort law. 

Judge Napolitano has written an excellent book on Natural Law from the perspective of an attorney.  He attacks legal Positivists, who believe the law is whatever the government says it is.  He points out the moral bankruptcy of Positivists by pointing out that they have no logical basis to be against Hitler’s final solution of wiping out all Jews – since it was a validly passed law.  He also rejects the non-sense of “majority rule” or Democracy.

He explains that Natural Law is like science.  He states:

Only man-made theories for what those rules are and how the operate may change.

However, without an explanation or understanding, those rules remain just as “true”: Penicillin will combat certain infections, and gravity will always pull things toward the center of the Earth, regardless of whether or not we understand how.

He also states something that will not sit well with conservatives:

Truisms reject moral relativism, and American Exceptionalism.  They compel and understanding of the laws of nature that animate and regulate all human beings at all times, in all places, and under all circumstances.  And truisms equal freedom.

The book starts off with the Declaration of Independents.  It moves onto eminent domain issues where the judge has a number of illuminating points.  I particularly liked the freedom of association chapter.  Napolitano I think is one of the few people to write about this issue.  I also found the right to petition chapter illuminating.  I believe that only someone with Judge Napolitano’s legal background could have done this chapter justice.  His chapter on the growth of the Defense Industry was illuminating.  While I did not agree with all his points, he makes it clear that the Defense Industry has grown completely out of control.  According to the Judge the US military is in over 130 countries.  The quote from Fredrick the Great comes to mind “in trying to defend everything he defended nothing.”  The US military has become just another welfare/crony capitalism project.  The military will complain that defense spending as a percentage of GDP is less than it was during the Korean War.  However, we did not have the Department of Homeland Security, the Department of Energy, the Border Patrol, etc, which are all really part of our defense spending at the time of the Korean War.

Unfortunately, the book is marred by two problems.  I am in complete agreement with the Judge’s emphasis on Natural Law, but he defines it in terms of “essential yearnings.”  Someone might have an essential yearning to torture people or kill them.  That does not make it a natural right.  It is enough to state that people have ownership of their body.  The rest of Natural Law and Natural Rights flows from this simple concept.  Once I own myself, I clearly own the product of my labor which leads to all of property law, including patents.  Criminal law comes from violating my rights in my body or in my property.  The “essential yearnings” adds nothing to the concept of Natural Law and Natural Rights.

The second problem with the book is Judge Napolitano’s analysis of fractional reserve banking.  The Judge and some Austrian economists incorrectly state that fractional reserve banking allows banks to create money out of nothing.  A fractional reserve bank is a bank that lends out part of its depositors money.  Fractional reserve banking is how all modern banks (since at least 1750s) operate.  Wikipedia defines a Fractional-reserve banking as a type of banking whereby the bank does not retain all of a customer’s deposits within the bank. Funds received by the bank are generally on-loan to other customers. This means that available funds (called bank reserves) are only a fraction (called the reserve ratio) of the quantity of deposits at the bank. As most bank deposits are treated as money in their own right, fractional reserve banking increases the money supply, and banks are said to create money.

The history of fractional reserve banking starts with the concept of an exchange bank.  I explain in my book, The Decline and Fall of the America Entrepreneur: How Little Known Laws and Regulations are Killing Innovation:

Modern banking started in the early 1600s with the Bank of Amsterdam.  Merchants could deposit coins with the Bank of Amsterdam and use this account to pay for transactions.  Using checks, a merchant’s account was debited and another merchant’s account was credited.  This meant that coins did not have to be transported from one merchant to another with the attendant risk of theft and loss or the cost of transportation.  The Bank of Amsterdam was just an exchange bank that facilitated transactions between merchants.  Next came the Swedish Riksbank established in 1656.  The Riksbank was not only an exchange bank, it also lent money making it the first modern fractional reserve bank.  Fractional reserve banking is the banking practice in which banks keep only a fraction of their deposits in reserve (as cash and other highly liquid assets) and lend out the remainder, while maintaining the simultaneous obligation to redeem all these deposits upon demand.  Commonly, loans are made against collateral such as land or jewelry.  … Some people believe fractional reserve banking creates money out of thin air, but what really happens was the money for these loans were backed by some collateral other than coins or bullion.  The downside of other types of collateral is they are not as liquid as species (coins, bullion).  As a result, if large numbers of customers of a fractional reserve bank wanted species (currency) at the same time, the bank would not able to fulfill all its customer’s demands.  This is a classic run on a bank.  A run on a bank is a cash flow issue.  A sound bank may have plenty of collateral and performing loans, but if most of its customers demand species at the same time it will not be able to fulfill these requests.  Fractional reserve banks free up capital from low performing assets so that they can be invested in higher performing assets.  For example, if you owned a large tract of ranching land that was not highly profitable but represented a large amount of capital and you want to invest in an oil well, without fractional reserve banking you would have to sell some of the land in order to invest.  With fractional reserve banking you could convert your land into a generally accepted form of money, by pledging your land as collateral to a bank for a loan.  In the modern world, the loan to you is just a computer entry in your bank account.

It is clear from history that fractional reserve banks are not some sort of government institution, like the Federal Reserve.  Without fractional reserve banking it is would be very difficult to securitize (Collateralize) many assets, such as houses and land.  This would significantly impede the economic growth of a country.  Logically if you are against fractional reserve banking you should be against a stock market.  Both are just a way of securitizing assets.  The stock of paper money act as a claim against various assets and/or future earnings.

Fixing our economy and our unemployment problem is a straight forward case of increasing our ranking of economic freedom.  The Heritage Foundation put out an excellent video explaining the results of a declining level of economic freedom.

The passage of the America Invents Act is part and parcel of losing our economic freedom.  It had a number of special provisions for Wall Street and big Pharmaceutical companies.  It weakened the rights of startups and individuals in their inventions.  This has made it more difficult for inventors and startups to raise capital.  Technology startups are the driving force behind new jobs and high quality jobs.

The book has an excellent review of the history of how patent law developed in the US, with the 1836 Patent Act playing the hero of the book.  The Act was modeled on the patent statute in Venice in the 1400s, according to Gibby.  This leads to an explosion of invention in the United States and in the economy.  This story is told through the lens of the great inventors of the time, including Morse, Colt, and Goodyear.  These stories are well told and compelling.  The book is a fount of knowledge about the early history of inventing and patent law in the United States.

The book argues that the change in the patent laws resulted in a brain drain from England and that there was an explosion of invention in the US.  The book states:

The rate of innovation as determined from the number of patents increased six times from 1840 to 1850, nine times from 1850 to 1860, and 13 times from 1860-1870, as compared to the increase in population.

The book claims that our per capita rate of inventing is less than half of what it was in the 1860s.  The US rate of inventing has decreased over the last decade.

The conclusion of the book is that our patent system is broken and this is hurting innovation and the US economy.  While I generally agree with the conclusion, I believe the premise could have been better supported.  Also, I think it is impossible to talk about the lack of invention without also mentioning the restrictions on raising capital by inventors.  Perhaps the biggest impediment to raising capital has been Sarbanes Oxley.  This is not mentioned at all in the book.

The biggest downfall of the book is that the author calls a patent a monopoly.  A patent is not a monopoly.  35 U.S.C. 261 makes it clear that a patent is personal property.  Patents have all the attributes of property and none of the attributes of a government monopoly.  Property rights arise from of the act of creation – but for the creator the item would not exist, therefore they have a property right in the item.  Inventing is creating a new product, process, or service that did not exist before.  The fact that a patent attorney could make this mistake is hard to believe, but more importantly I believe this completely undermines the thesis of the book.

The book has a number of specific proposals for fixing the patent system.

Complex Patent System: The book states that the biggest reason for our inventive decline is the overly complex, over administered, and underfunded patent system.  I agree that our patent system has become overly complex, too expensive, and overly officious.  The author believes this is the result of a judicial reaction to the Wright brothers’ patent, which he believes was too broad.  Here I completely disagree with the author.  The Wright brothers’ patent broadly claimed the ability to control an airplane by “having lateral marginal portions capable of movement to different positions above and below the normal plane” of the wing.” (USPN 821393)  The author believes the Wrights only invented wing warping.  I disagree.  The Wright brothers clearly showed that any method of altering the flow of air over the wing could be used to control the airplane.  If the Wright brothers had been limited to the author’s interpretation, then Glenn Curtis and others would have been able to free load off of the Wright brothers’ invention.

The author also argues that the growth of the airplane industry was retarded by the Wright brothers attempting to enforce their patent.  This argument is also made by anti-patent forces and is without any logical basis.  We have no idea how long it would taken for someone else to have created a controllable airplane if the Wright brothers had not done so.  It is just as likely that, but for the Wright brothers it would have taken years for someone else to invent control surface for airplanes.  If there was any delay in the development of the airplane, it was the fault of Glenn Curtis and others who refused to pay the Wright brothers for their invention.

I think it is also inexcusable that the book does not mention the detrimental effects of antitrust law on patents.  The anti-patent backlash in the early 20^th century was not a result to the Wright brothers patent, but to the rise of antitrust law.  The author’s lack of understanding that patents are a property right and not a monopoly has blinded him to this simple fact.

Require Models: The author wants us to return to a patent system that requires models.  He suggests that computer models would be acceptable, so we would not have the problem of storing these models.  The author’s main reason for this requirement is based in the belief that the Wright brothers, Seldon, Bell and others received overly broad patents or really were not the true inventors.  In the case of Bell, the author suggests that Bell’s attorney copied Elisha Grey’s patent application by hand into Bell’s application upon filing the Bell application.  I cannot comment directly on these assertions.  But the book does not even mention that there was an interference between Bell, Grey, and Edison (see Bell).  All of these inventors had top patent attorneys and I seriously doubt that hand copying part of another person’s application would have survived very long in an interference.

The author seems to want to use models to limit the scope of the claims.  This would allow inventors who improved another person’s invention not to have to pay royalties for using their underlying invention.  I don’t see any advantage to this system and I believe the author has fallen for the anti-Wright brother, and anti-Bell propaganda.

Abolish Obviousness Standard and Doctrine of Equivalents: The author makes a strong case for abolishing the obviousness standard, which I agree with.  He explains that the obviousness standard is subjective and unworkable.  He suggests that the doctrine of equivalents and the obviousness standard are opposing ideas used to overly broaden or overly narrow the rights of an inventor.  I did not initially agree with the author, but he made strong points in defense of his thesis.  Specifically, he argues that eliminating the obviousness standard would allow inventors to craft their claims to correctly define their invention.  As a result, he believes that it would be unfair for inventors to then be able to expand/change the scope of their invention in litigation.  The only problem with the author’s argument is the doctrine of equivalents has been dead for all practical purposes for at least twenty years.

The author also makes the excellent point that eliminating the obviousness standard would significantly reduce the backlog of unexamined patents.  His reasoning is that moving to an objective system of patentability would eliminate a lot of wasted effort on the part of the Patent Office and Applicants.

Cut the Current Twenty-Year Patent Term in Half: I disagree with the author and I think his point of view is based on the erroneous belief that patents are a monopoly.  Shortening the term for patents is likely to reduce the value of investing in new inventions.  This would decrease the rate of new technologies being created and introduced into the economy.  The result would be slower economic growth and lower per capita incomes.

Curtail the Continuation Practice: Continuations are critical for start-up companies to reduce their cost.  While I agree that eliminating the obviousness standard would reduce the cost of filing patent applications, this advantage is unlikely to be enough to protect our highly innovative start-up companies.

First to File System: The author buys into the absurd idea that eliminating interferences is going to free up resources at the Patent Office.  With less than 100 interferences a year, this is very unlikely to occur.  He also argues that this will be good for individual inventors and startups.  While he is correct that interferences are too expensive for individual inventors (start-ups), the solution is not to subvert the Constitution and award exclusive rights to the first person to file instead of the inventor.  The solution to this problem is to reduce the absurd cost of all federal litigation.

There have been several studies on the effectiveness of changing from a first to invent system to a first to file.  All these studies have shown a decrease in patenting by the most innovative groups in our country – namely individual inventors and start-ups.

Conclusion: Overall there are many important points in this book.  But the author’s incorrect labeling of a patent as a monopoly undermines many of the most important points he is trying to make.

Part 1 

Part 2 

Part 3 

Part 4 

Part 5 

Natural Laws of Invention

With this in mind I propose the following laws of invention.

Conservation Law of Invention:

All inventions are combinations of existing/known elements.

Conservation of matter (and energy) means that you cannot create something from nothing.  As a result, all inventions must be a combination of existing or known elements.  For those people who want to point to Americium (94), Curium (96), Berkelium (97), all these chemical elements are made of protons, neutrons, and electrons and all of these were existing elements.

Causality Law of Invention:

Invention precedes production, production precedes consumption.

In order to consume an item it first has to be produced.  Production may just be the act of finding food for a hunter gatherer, but this has to be done before it can be consumed.  With the possible exception of some very simple things, mother’s milk and air for instance, things have to be invented before they can be produced.

Set Law of Invention:

The number of potential inventions is infinite.

The total number of inventions may be limited by the total mass and energy of the universe and the laws of entropy that limit how many elements can be combined.  However, physics is pretty ambiguous on this point.  There may be multiple universes, there may exist energy and matter outside of our event horizon.

There are essentially an unlimited number of potential inventions.  Paul Romer, a professor of economics at Stanford uses the following example to illustrate this point:

On any conceivable horizon — I’ll say until about 5 billion years from now, when the sun explodes — we’re not going to run out of discoveries. Just ask how many things we could make by taking the elements from the periodic table and mixing them together. There’s a simple mathematical calculation: It’s 10 followed by 30 zeros. In contrast, 10 followed by 19 zeros is about how much time has elapsed since the universe was created.^[1]

Someone might object that Paul Romer has overstated the number of possible chemical inventions, since not all elements are able to chemically bind to each other.  On the other hand, this calculation only includes one of each element.  Some of our most important chemical compounds contain long chains of carbon and silicon atoms.  In addition, the elements can bond to each other in multiple ways, ionic bonds, covalent bonds, polar covalent bonds and hydrogen bonds.  Elements may also have double, triple and quadruple bonds.  When you add in all these variations, Dr. Romer probably underestimated the number of possible chemical inventions.  This calculation is only for chemistry.  When you consider computer networks or electronic circuits with millions of transistors or nodes the number of different possible connection is n(n-1)/2 or easily equal to the number of combinations described for chemistry.  This does not begin to name all the possible number of inventions.  Previous inventions often are the basis of future inventions.  As a result, the development of an invention acts as node for additional inventions and increases the potential number of inventions rather than reducing the potential number of inventions.

Another example that Romer uses to illustrate the unlimited number of possible combinations is all the possible bitstreams you can turn into a CD-ROM.  The number is something in the range of 10 to the power of 1 billion, which virtually ensures that we will never run out of software to discover.  He notes that there is not enough mass in the universe to make that number of CDs.^[2]

Rate Law of Invention:

The rate of invention is dependent on the number of inventors, the size of the set of elements the inventors can access, and the size of the set of goals.

Inventions are combinations of elements and connections, but an individual has to put together these combinations.  If more individuals are involved in the process of trying out combinations, then there is a greater likelihood they will find a useful combination or invention.  In a rough analogy, the more samples or children in an genetic algorithm, assuming they are diverse, the more likely or sooner you will find an acceptable solution.  Silicon Valleyoften creates many companies in a particular space, which function like a large population in a genetic algorithm, and results in an optimized solution (company) more quickly than only having a few companies in the space.  Individuals create these sample combinations and test them against a selection criteria.  If more people are creating these samples then you increase your probability of inventing a useful product of service.  The corollary is that you have more “failures” than you have success.

A successful solution to a particular selection criteria or fitness criteria has an increased probability if the creators (inventors) have access to the complete set of elements available in the world.  When the inventors are limited in their selection or application of existing elements, then it reduces the potential number of combinations.  It is possible in this case, that many solutions meeting the fitness criteria will not be part of the search space.  This deceases the probability of finding a solution.  When inventors’ freedom of action is restricted it will decrease their chance of creating something useful.

Inventors as a group will be more successful if each individual inventor is allowed the freedom to pursue their own invention goal.  There are at least two problems with restricting the goals of inventions.  One, the individual’s talents and interests may fall into a forbidden area.  Two, unexpected results may fall into a forbidden area and therefore not be pursued.

As a result, we see that freedom fosters invention.  This is consistent with both our academic institutions’ policies and with a free market.  Invention is not encouraged by plagiarism.  Plagiarism results in wasted resources, because the plagiarizer is reinventing the wheel and they erode the valve of the original inventor’s work.  This is one of the reasons for a patent system.  We do not want people to plagiarize, but inventing around a patent which creates a diversity of inventions is good.  The inventor is the first person to create a new technology because they add to the store of human knowledge.  Even innocent copycats do not add to the store of human knowledge.

Note that freedom as used herein applies to everyone.  Forcing someone to support your inventive activities, restricts their freedom.

A corollary is that invention is fostered by wide dissemination of the information on how to build earlier inventions.  Without this dissemination, individuals will waste time recreating technologies.  This is why patent systems require a description of how to practice the invention.

Commons Law of Invention:

Inventions are not subject to overuse.  The creation of inventions is subject to under investment without property rights in inventions.  The diffusion of inventions is subject to under investment without property rights in inventions.

Although there are unlimited number of potential inventions, this does not mean that creating them is free.  The U.S.spends over $300 billion a year on research and development to discover inventions.^[3]  Just like real property, conceiving inventions takes scarce resources.  The number of researchers, research facilities, and research equipment are all limited.  Each researcher’s ability to pursue various inventions and discoveries is limited.  It will always cost less for a copier to produce existing items than create their own inventions without property rights in inventions.  This will result in an under investment in the creation of inventions.

Once an invention or discovery is made it still costs considerable resources to distribute the invention.  For instance, scientific principles are not subject to intellectual property rights and therefore can be freely disseminated.  Calculus was discovered over 300 years ago and is not the subject of intellectual property rights.  Despite this, only a small percentage of the population understands it even in the most advanced economies.  Those people that do understand calculus generally paid an instructor to learn this area of math even though books on the subject can be reviewed for free at many libraries.  Almost everything a student learns through formal education, even in graduate school, is information that is readily available.  Even if the text book is copyrighted, the information is usually available in a non-copyrighted form or available for free from a library.  In spite of this, theU.S.spends over $500 billion a year on all forms of education.  Clearly, adopting and distribution ideas including inventions is not free.

According to venture capitalists, most start-ups will spend 2-10 times the amount on marketing their inventions than on developing them.  If the distribution of ideas was free, not subject to scarcity, this would clearly be unnecessary.

University professors, doctors, lawyers, engineers, judges, marketers, sales people and computer scientists are mainly in the business of distributing or implementing known information.  Most of these professionals would be unnecessary if distributing information was frictionless.  Distributing information is extremely costly, especially new information.

Without property rights in inventions, most people and institutions will not spend the additional money required to create and distribute inventions.  This will result in an under investment in invention.

Income Law of Inventions:

The per capita income of a large group of people can only increase over the long term if their level of technology increases.

Real per capita increases in income can only be the result of inventions.  Adding capital without any inventions associated with the capital will result in elevating every worker to a certain efficiency level, however never above that level.  Once every worker has the all the capital resources they can use in their job they have hit a maximum output without inventions.

Conclusion

Every living organism has to overcome entropy to stay alive.  We defined entropy as biological entropy as opposed to absolute or energy entropy, because living organisms cannot necessarily extract all the energy shown by absolute entropy.  Maximum entropy for an organism was defined as when death occurs.  This setups up the competition between organisms and between species to extract energy to stay alive or the process of evolution.  The unique feature of man is that he invents new technologies to overcome biological entropy.  All economic growth is the result of increasing levels of technology.  Biological entropy implies diminishing returns.  In a technologically stagnant world, diminishing returns ensures that humans will be stuck or fall back into the Malthusian Trap.  A technologically dynamic world allows humans to escape the Malthusian Trap permanently and have ever increasing standards of living.  This economic growth is an endogenous process and property rights in inventions has been the major catalyst for increasing rates of invention and increases in our level of technology.  Perfect competition does not provide the resources or justification to invest in new technologies and is synonymous with a technological stagnant world.  The Industrial Revolution was an explosion in new technologies and happened first in England and was quickly followed by the United States because these countries provided the first property rights for inventions for large groups of people.  There are a number of natural laws of invention and these can be helpful guides in determining if an economic policy will result in economic growth.