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Posts Tagged ‘Patents’


This article, Intellectual Property, Innovation and Economic Growth: Mercatus Gets it Wrong, by Mark Schultz & Adam Mossoff is a follow up to their other article Intellectual property and economic prosperity: Friends or foes?  This article is more hard hitting and the ask the questions of who has the burden of proof on whether patents promote economic growth?  Anti-patent proponents consistently fail to provide any empirical data to support their positions, although they are great at coming up with anecdotal stories.  Despite this they assume that the burden of proof is on people who support property rights in inventions.

 

The reason anti-patent advocates don’t think they have the burden of proof is that they have been taught the economic concept call pure and perfect competition as the goal of capitalism.  Some of these people even think that perfect competition is the definition of capitalism.  Perfect competition is inconsistent with the condition necessary for real per capita economic growth, is inconsistent with all property rights, has nothing to do with capitalism, is anti-mind, anti-invention, anti-patent.

PERFECT COMPETITION IS THE ECONOMIC IDEALIZATION OF SLAVERY.

 

 

 
Another Libertarian Argument Against Patents Bites the Dust

Libertarians and Austrians, including such organizations as the CATO Institute, Von Mises, and the Wall Street Journal, have put forth a number of arguments against patents and intellectual property.  These arguments include that ideas (an invention is not just an idea, but I will let that go) are not scarce and therefore patents are not real property rights, patents are monopolies, patents inhibit the growth of technology, patents require the use of force to enforce one’s rights, patents are not natural rights and were not recognized as so by Locke and the founders, among other arguments.  I have discussed most of these arguments earlier and will put the links in below.  One of their favorite fall back arguments is that patents limit what I can do with my property.  For instance, a patent for an airplane (Wright brothers) keeps me from using my own wood, mechanical linkages, engine, cloth, etc. and building an airplane with ailerons (and wing warping).  This according to the libertarian argument is obviously absurd.  After all it is my property.  Here is an article Scarcity, Monopoly, and Intellectual Property on the Von Mises website where you can see almost every variation on the arguments mention above either in the article itself or in the comments.

Can I do whatever I want to with my property, or are there restrictions?  Well when I buy a book, a movie, or a song, it does not give me the right to make unlimited copies of them.  I have a property right in the physical book, but not the rights (copyrights) to make copies.  Of course, many Libertarians think copyrights are absurd also, so let’s look at another example.  Let’s assume you own your house and land outright.  Does that give you the right to do whatever you want to with you land?  Most likely, your land has easements for utility lines, such as water, gas, sewer, electricity.  You are not allowed to do anything that interferes with those easements.  You might object that I don’t own the easement, so this is a bad example.  So let’s say you own a bulldozer, does that give you the right to bulldoze my apple orchard and build a house there?  It is your property after all and according to the libertarian argument you are allowed to do whatever you want to with your property.  You might object, that of course the libertarians did not mean that you could take advantage of my property to build on.  Of course that begs the question, what is property?  If a patent and copyright are property rights, then this is exactly the same situation.  Another example where you are prohibited from doing something with your property, is in the case of water drainage.  In particularly wet areas of the US you are prohibited from moving the earth on your land so water drains onto your neighbors property more freely – and no this is not an EPA rule, this is common law property rights.  In parts of the country where water is scarce you are prohibited from damming up water on your land.  If you buy land in a residential neighborhood you are prohibited from setting up a pig farm.  Just because I own a gun, doesn’t give me the right to go around shooting people.  The libertarian argument that patents are not real property rights because they prevent others from doing something with their property fails even the most cursory review.

One of the common themes that runs throughout all Libertarian arguments against patents is that Libertarians’ do not seem to know what property rights are, or how they arise.  Here is a post on point, Property Right, Possession, and Objects; this post not only explains the proper basis of property rights, but why the Libertarian point that property requires possession is a fallacy.  Libertarians have failed to provide a clear definition of what property rights are and how they arise.  In fact, most anti-patent libertarians believe property rights are a useful social convention for distributing scarce resources.  This is interesting, because they can become so adamant about what is their property.  But nothing in this concept of property has anything to do with RIGHTS.  If another, better system comes along for distributing scarce resources, then your property is gone.

Property rights do not give the owner the right to do whatever they want with their property.  The source of property rights is creation, not the idea that it is a socially useful convention.  Patents recognize the metaphysical fact that the inventor is the creator of his invention and are completely consistent with other property rights in prohibiting an owner of other property from using it to build his invention.

 

 

Below is a list of other Libertarian arguments against patents and why they fail.

 

Inventions are not scarce:

Scarcity – Does it Prove Intellectual Property is Unjustified? 

 

Patents are monopolies

Patents: Monopoly or Property Right a Testable Hypothesis 

If patents are a monopoly, as some suggest, then it should led to certain outcomes.  A close examination shows that none of the supposed monopoly effects result from granting patents.

 

Monopoly/Rent Seeking vs. Property Rights/Intellectual Property

This post explains the characteristics of a monopoly and a property right and poses three questions to show the difference.  Patents fit all the characteristics of a property right and none of a monopoly.  Note that professional license, such as a law license has some of the characteristics of a monopoly.

 

More on the Myth that Patents are Monopolies 

This post contains a number of quotes from philosophers explaining that patents are not monopolies.

 

The Myth That Patents are a Monopoly 

This post compares the definition of a monopoly to the rights obtained with a patent.  It shows that the rights obtained with a patent do not confer a monopoly.

 

Patents are Natural Rights 

This post traces the ideas of Locke and William Blackstone to show patents and copyrights are natural rights.

 

Patents inhibit the growth of technology:

Source of economic growth

This post shows that those countries with the strongest patent systems are the technological leaders of the world Patents: Monopoly or Property Right a Testable Hypothesis

 

Patents require the use of force

This is one of the more absurd arguments by libertarians.  All property rights are enforced by the government’s use of force.  If someone trespasses on your land or steals your car, the government threatens or uses force to get it back.  The same is true for patent, which are property rights in inventions.

 

 
Patents: Property Rights or Regulation

There appears to be a lot of confusion on whether patents and patent laws are property rights and property laws or regulations.  For instance, Steve Forbes in an article entitled, America’s patent system is all wrong for today’s high-tech world  starts that article by complaining that the Obama Administration is always looking for a way to “regulate and interfere in the free market.”  Mr. Forbes goes on to complain about Non-Practicing Entities (NPEs) asserting patent rights and ends the article by complaining that “don’t we have enough regulatory hurdles to jump in the first place?”  I have seen this same theme that patents (all IP) are regulations in a number of blogs.  These people do not seem to understand property rights.  Part of the confusion may be that we do not have clear definitions of what property rights are and what regulations are.  For instance, I looked up a number of definitions of property rights and the definition from Black’s Law Dictionary is representative.

 

What is PROPERTY?

The ownership of a thing is the right of one or more persons to possess and use it to the exclusion of others.

 

This definition is incomplete at best.  For instance, is a taxi medallion a property right?  Is a license to a part of the electromagnetic spectrum from the FCC a property right?  Is a government monopoly to provide electrical power within a certain geographic region a property right?  All of these are exclusive legal rights.

Personally, I would consider a taxi medallion or a FCC license a regulation.  So I looked up a number of definitions of regulation, and the one below from Free Online Dictionary is representative.

1. The act of regulating or the state of being regulated.

2. A principle, rule, or law designed to control or govern conduct.

This definition is so broad as to encompass any law.  For instance, is the right to free speech a regulation?  Is the right to your house a regulation?  Are the laws against murder a regulation? Is the Homestead Act a regulation?  All of these control or govern conduct.  When we are talking about regulations most people mean something like building codes or OHSA rules or the FTCs requirement that all bicycles are required to have retroreflectors on the pedals.  We generally do not think of the laws against murder, burglary, or even the rules on recording title to land and houses as regulations.  But if you look at these two definitions, property rights and property laws are a subset of regulations.  This is clearly nonsense.

Most histories of the modern regulatory state in the US place its origin around 1900 and refer to agencies such as the Interstate Commerce Commission (whose original function was to regulate railroads), the Federal Trade Commission, the Securities and Exchange Commission, etc.  This provides a clue to the correct definition of regulation and shows that we do not mean common law property rules or common law crimes when we are speaking of regulation.

According to Steve Forbes and most people when we think of a regulations we think laws and rules that interfere with the free market.  Unfortunately, people use very loose definitions of ‘free market’.  For instance, some people think a free market is one that has “perfect competition”, which suggests that anti-trust laws are part of the free market as might be the FTC.  A better starting place to find out what is a regulation and what is a property right is the logical foundation on which this country was created – Natural Rights.  Natural Rights define property rights based on the idea that if you own yourself you own the product of your labor.  Thus you own land because you spent the effort to improve it, e.g., the Homestead Act.  (Today most of us trade our labor for currency that we then use to purchase ownership in our house or land based on our Natural Right to contract.  But the principle still applies.)  Inventions are the creation of the inventor and therefore the inventor has a property right in their creation.  I have created a three part test to determine whether something is 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?

 

If the answer is yes to all three questions, it is a property right.  A patent fits all three as does ownership in land.  Note that taxi medallions, electrical power monopolies, and FCC licenses all have at least one no to the above definition.  Thus a regulation is something that interferes with a person’s property rights, such as EPA wetland rules or the right to use your property to start a business.  Other regulations, such as minimum wage laws interfere with a person’s right to contract.

A regulation is a government rule that interferes with a person’s Natural Right to property or right to contract. 

Patents and NPEs do not fit that definitionThis definition clearly defines that property rights are not regulations and limits regulations to true meddling in ‘free markets’.

 

 
Patents: Monopoly or Property Right a Testable Hypothesis

It is common for people and economists to state that patents are a monopoly.  Because patents are a monopoly, it is argued that they negatively affect the pace of innovation and slow down the diffusion of inventions.  The only redeeming feature of patents they concede is that if provides a profit incentive to invent, but then it inhibits follow on inventions and the dissemination of knowledge.  If this thesis is correct, it should be testable.  Let’s test this hypothesis.

If MONOPOLY

1) Countries with strong patent systems should innovate less than countries with weak patent systems.

2) Countries with strong patent systems should have slower dissemination of new technologies than those countries with weak patent system.

If PROPERTY RIGHTS

1) Countries with the strongest patent systems should innovate more than countries with weak patent systems.

2) Countries with strong patent systems should have faster dissemination of new technologies than those countries with weak patent system.

Let’s take a look at the facts, according to the World Intellectual Property Organization (WIPO),  the top ten most innovation countries and the bottom 10 countries for 2012 are:

Top 10

1. Switzerland

2. Sweden

3. Singapore

4. Finland

5. United Kingdom

6. Netherlands

7. Denmark

8. Hong Kong (China)

9. Ireland

10. United States of America

 

Bottom 10

132. Syrian Arab Republic

133. Pakistan

134. Cote d’Ivoire

135. Angola

136. Togo

137. Burundi

138. Lao PDR

139. Yemen

140. Niger

141. Sudan

 

In a report from National University of Singapore they show a chart of the Fraser index vs. Ginarte-Park index.  The Fraser Index is a ranking of economic freedom and the Ginart-Park index is a ranking of patent strength.  The chart shows an almost perfect correlation between the two.  For those of you who are not familiar with economic freedom indices, there are several and they all show that economic freedom correlates positively with economic growth, wealth, education access, health, longevity, the environment, civil rights, etc.

They also had a couple of charts for the countries with the strongest patent systems for four different years and those with the weakest patent systems.  I do not know all the countries that were included in this survey.

Top countries

1980 1985 1990 1995
U.S.A. 39.30 U.S.A. 39.06 U.S.A. 39.06 U.S.A. 42.75
Netherlands 28.20 Belgium 32.23 Belgium 36.22 Netherlands 41.36
Switzerland 28.12 Netherlands 31.47 Netherlands 35.22 Denmark 41.26
Germany 28.01 Switzerland 30.55 U.K. 33.57 Finland 41.01
Japan 27.14 Germany 28.73 Germany 33.14 U.K. 40.15
       

 

Bottom countries

1980 1985 1990 1995
Nicaragua 2.38 Nicaragua 2.38 Guyana 3.17 Niger 5.38
Peru 2.22 Bolivia 2.30 Pakistan 3.17 Guatemala 5.10
Guatemala 1.90 Guyana 1.69 Jordan 2.95 Nicaragua 5.00
Guyana 1.78 Guatemala 1.50 Guatemala 2.15 Rwanda 4.64
Jordan 1.72 Peru 1.31 Peru 1.73 Zaire 3.51

 

If we examine the first postulate, does it appear the most innovative countries have the strongest patent systems or the weakest patent system?  Which countries do you think have the strongest patent systems – the USA, Singapore, Switzerland or Niger, Pakistan, Sudan?  It is clear that the most innovative countries according to the WIPO survey have the strongest patent systems.  If we look at the charts from the National University of Singapore (NUS) we see those countries with the strongest patent systems are clearly the most innovative.  Although the WIPO data and the NUS data are from different time frames we see some overlap between those countries with the strongest patent systems (NUS) and the most innovative (WIPO) and the same is true for the weakest and least innovative.

If we examining the second postulate, does it appear that the countries with the most technology diffusion have the strongest patent systems or the weakest patent system?  Which countries do you think have the most technology diffusion – the USA, Singapore, Switzerland or Niger, Pakistan, Sudan?  It is clear that those countries with the strongest patents have the most technology diffusion.

The macroeconomic evidence does not support the thesis that patents are a monopoly.  The data shows the exact opposite of what this theory predicts.

 

The empirical evidence is overwhelming that patents are a PROPERTY RIGHT not a MONOPOLY.

 

I have written extensively on whether the defining characteristics of a patent are consistent with the definition of a monopoly or the definition of property rights.  For instance see:

Monopoly/Rent Seeking vs. Property Rights/Intellectual Property.

This post explains the characteristics of a monopoly and a property right and poses three questions to show the difference.  Patents fit all the characteristics of a property right and none of a monopoly.  Note that professional license, such as a law license has some of the characteristics of a monopoly.

More on the Myth that Patents are Monopolies.

This post contains a number of quotes from philosophers explaining that patents are not monopolies.

 Property Rights, Possession and Objects

This post explains the difference in the concepts of property rights, possession, and objects.  Most economists and patent detractors confuse these concepts.  The origin, definition, and legal basis of property right are explained.

 The Myth That Patents are a Monopoly

This post compares the definition of a monopoly to the rights obtained with a patent.  It shows that the rights obtained with a patent do not confer a monopoly.

 

The only way to suggest that patents are a monopoly is define “market power” so broadly that any property rights confer market power.  I admit that I reject this argument.  A property right is not a monopoly and this is an attempt by people with a political agenda to attack the concept of property rights.

PATENTS are PROPERTY RIGHTS under the law, by definition, and according to all statistically significant macro-economic evidence.  People who suggest otherwise are pushing a political agenda or do not understand the definition of the words monopoly and property rights.

 

 
Paul Ryan: Good or Bad for Patents, Tech Startups and the Economy

Congressman Paul Ryan has been selected as the vice presidential running mate of Mitt Romney.  Many in the Republican Party have hailed him as true advocate of free market principles.  Unfortunately, his voting record is much more conventional than we have been led to believe.

Congressman Ryan voted for the America Invents Act (AIA).  This Act was laden with crony capitalist gifts for Wall Street, Big Pharma, and large corporations at the expense of startups and individual inventors.  The Act was widely criticized as being unconstitutional.  This was more than enough reason to vote against the AIA, but Paul Ryan led the charge to gut the only redeeming feature of the Act – namely ending fee diversion.  When I called Congressman Ryan’s office to ask why they were doing this, they responded that it was important to balancing the budget.  REALLY, in a $3 trillion federal budget the $100M or so you are stealing from inventors is going to make the difference?  This is less than 0.1% of the federal budget.  This is less than we give to Egypt or the UN or any number of other extra-Constitutional spending.

I pointed out that the PTO was a self funded agency, meaning no tax dollars are used to fund its operation.  Diverting the money of inventors and using it for another purpose is conversion (stealing).  Their response was how is this any different than putting the fee you pay to enter a National Park going into the general treasury?  There are a number of differences.  First, when I pay a fee to enter a National Park, I immediately get the service I paid for.  In the case of patents, inventors have to routinely wait from three to ten years to get the service they paid for.   Second, National Parks were created with federal funds, but inventions are created with private funds.  Even the Patent Office was created with private funds, since it is a self funded agency and always has been.  If a private company or an attorney did what the federal government does with patent fees it would charged with fraud and conversion.  This attitude that the federal government is above the law is exactly what is wrong with our country Mr. Ryan.

Ryan is bad for patents

Congressman Ryan voted for Sarbanes Oxley.  SOX has made it impossible for startups to go public, which has made it very difficult for startups to raise money.  Historically, most of the growth and job creation of startups occurs after they go public.  The Kaufman Foundation has shown that all net new jobs since 1972 have been created by startups.  To the best of my knowledge, Congressman Ryan has not said he is in favor of repealing SOX.  This means he is bad for technology startups and bad for job creation.

Ryan is bad for startup funding

Paul Ryan is widely praised for coming up with a plan to reduce our budget deficit.  Since government spending crowds out money that could be used to fund startups, this is good.  As part of this proposal he has a plan to rein in entitlements, such as medicare, medicaid and social security.  In spite of this, Congressman Ryan voted for medicare part D.  The question is which Paul Ryan will show up if he becomes VP.

Ryan also voted for TARP, for the bailout of GM and Chrysler, for the economic stimulus of 2008 and 2009, and for extending unemployment benefits to 59 weeks.

Ryan deserves credit for advancing a fairly realistic plan to reduce the budget deficit, but even this plan does too little to cut the deficit.  It’s goal is to reduce federal spending to 20% of GDP in about four years.  It is unlikely that we have four years before we are hit with massive inflation, which will more than double our interest payments on our debt and break our budget.  In addition, his voting record shows that he is unlikely to have the backbone to follow through with even this weak proposal.

Ryan is not a fiscal Conservative

Ryan has put forth a moderate plan to rationalize our tax system.  It does not go far enough, but it is his most pro-growth proposal.

The Problem with Supply Side Proponents

Supply side proponents (SSP) such as Larry Kudlow are ecstatic with the choice of Paul Ryan.  The problem with SSPs is that they do not understand that the only way to continually increase real per capita income is to continually increase our level of technology.  This means we need to eliminate the barriers to the capital markets for technology startups.  This means we need a well functioning system of property rights for inventions.  It also means we need to reduce the tax burden on startups, reduce their regulatory burden, legal risks, and accounting rules biased against them.  But Paul Ryan does not seem to understand this and neither do most supply siders.  As a result, it is unlikely that Paul Ryan and Mitt Romney will be able to put  the US on a sustainable path to growth.

Paul Ryan will be better than Obama or Biden

Unfortunately, this is damning him with faint praise.  Don’t be surprised if Paul Ryan turns into a Bush disappointment instead of a Ronald Reagan.   (Note I hope I am wrong and have to eat my words)

 
Mark Cuban’s a Mythical Patent Creature

Mark Cuban has been famous for criticizing intellectual property and particularly patents.  According to IPBiz he stated on his blog that,

 Pick any country that is currently doing well, China is a perfect example. In China the Intellectual Property Laws are so weak that someone thought it was a good idea to completely replicate Apple retail stores. Compare their economy to ours. As much as I hate to compare other economies to ours, it’s worth taking a look .

 He has also criticized companies that enforce their patent rights.  But now Cuban has bought into a company, Vringo, that acquired Lycos’ patent portfolio and is now enforcing those patents, according to an excellent post on GametimeIP.  Vringo could be described as a Mythical Patent Creature (I stole this line from Patrick at Gametime IP).

This is not the full extent of Mr. Cuban’s hypocrisy.  I am sure that he has made a fortune on the IP rights he has in the Mavericks (Just think of the money we could make by rebroadcasting Mavericks games, if we didn’t have to pay for Cuban’s IP).  In addition, his argument that the countries that are doing well have weak IP rights is clearly nonsense.  Is North Korea doing well?  The start of China’s economic growth corresponds to their recognition of property rights including IP rights.  They didn’t have any IP rights during “The Great Leap Forward” when millions of people starved to death.  The current economic downturn in the US is not because our patent rights are too strong, but because they are too weak.  Patents are property rights and when patents are under attack you can bet that all property rights are under attack.  Clearly, the communist we have in the White House is not interested in strong property rights, but in fairness the Bush Administration was only ambivalent about property rights.

 
CATO & Reason Demonstrate Ignorance of Property Rights – Patents

The CATO Institute are reiterating the findings of the flawed paper The Private and Social Costs of Patent Trolls , Boston University School of Law Working Paper No. 11-45, by James E. Bessen, Michael J. Meurer, and Jennifer Laurissa Ford.  This paper looks at lawsuits filed by NPE (Non-Practicing Entities) and the subsequent drop in the stock price of the company being sued.  The paper suggests that this loss of wealth is all “deadweight” loss, since little of the money ends up with the original inventors of the technology.  This last part is an intellectually dishonest slight of hand.  The authors make no attempt to determine if the cases are meritorious.  If the firms are infringing a valid patent, then the filing of the lawsuit represent the cost to society of deterring the theft of inventions.  This cost discourages further theft by companies.  If half the patent lawsuits (by cost) are meritorious then the net cost of these lawsuits is zero.  Unless you assume that the cost of protecting property rights has no value, which I am afraid is the ultimate problem with anti-reason people at Reason Magazine and CATO.  Neither of these organizations seems to understand property rights.

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.

 
Trade Deficits, The Economy, and Intellectual Property

Donald Trump is fond of saying that China is stealing our economy from us and he attributes this to China manipulating its currency.  Here is an article, Counterfeit Chinese Parts in US Military Weapons, that would appear to support his point of view.  The article explains that counterfeit Chinese parts are found in U.S. military weapon systems and the implication is that this is happening even more widely in the US economy.  Pat Choate’s excellent book Hot Property: The Stealing of Ideas in an Age of Globalization, documented this problem.  Counterfeit products are not the result of currency manipulation but lax enforcement of intellectual property rights.  Our politicians talk a lot about protecting our intellectual property, but ten years ago they required U.S. inventions be published for all the world to see and steal at 18 months from filing a patent application.  They passed the America Invents Act this year which made it easier to challenge patents issued in the U.S. and effectively eliminated the one year grace period.  Congress is a bunch of hypocrites when it comes to intellectual property, they only want to protect Hollywood and software copyrights. They have done everything in their power to undermine our inventors, who are much more important to our economy than Hollywood.

The U.S does have a legitimate complaint with China, but it is not currency manipulation it is the theft of our Intellectual Property – particularly our inventions.  Here is what Congress should do to revive our economy and protect our inventors.

1) Repeal the publication requirement for patents

2) Demand that China and other countries require reciprocity for patents. This means that if you receive a patent in the U.S. it is enforceable in China and vice versa without the cost of filing a patent application in every country around the world.  The present situation with respect to patents is exactly the position that existed with respect to copyrights in the 1860s.  We realized that it made no sense for copyrights and it makes no sense for patents to only apply in each country.

3) Fully fund the Patent Office.  It now takes from 3 to 10 years to obtain a patent.  This is severely hurting our technology startup companies.  When combined with the publication requirement it has allowed China and the rest of the world to steal our technology.

4) Apply tariffs to those sectors of Chinese goods that have consistently violated U.S. intellectual property rights.

 

 
Perfect Competition is Economic Equivalent of Altruism Morally & Why it Matters to Patents

Perfect competition is when no one producer or consumer has the ability to affect the market price and all producers and consumers compete for a homogenous product, driving down the cost of the product.  Under perfect competition, a producer’s profit is eliminated or at least reduced to a trivial return.  Why this matters to patents is that the theory of perfect competition is often used to attack the patents.  It is argued that patents allow producers a differentiating feature or product and therefore they have a greater margin than their competitors.  Economists argue this means that the patent holder is getting monopoly profits according to the “perfect competition” theory and they call this profit a “deadweight” loss.  This supposedly shows that resources are not being allocated efficiently.

So why do I say Perfect Competition is the equivalent of Altruism morally?  Altruism is the idea of self sacrifice as a moral value and perfect competition is the economic idea of sacrificing a producer profits and a consumer’s right to choice.  The goal of perfect competition is that no one, producer or consumer, is treated as an individual and everyone needs to be sacrificed to the altar of perfect competition collective.  There is never any discussion of property rights with respect to “perfect competition” or individual rights.

Ayn Rand often stated that so called defenders of capitalism are often worse than its detractors.  Perfect competition is another example of this.  The Chicago School of economics, which included Milton Friedman, pushed the idea of “perfect competition.”  The book of A Random Walk Down Wall Street was the application of perfect competition to Wall Street by a Chicago School of Economics professor.  Perfect competition is the enemy of capitalism, individual rights, and economic growth.

Real per capita growth is the result of increases in one’s level of technology.  Under perfect competition, there is no reason to invest in creating new technologies and in fact there is no reason to invest at all.  Under perfect competition every investment yields the same low rate of return or no rate of return.  Perfect competition is used to justify antitrust laws that destroy property rights and most importantly property rights in inventions.  Perfect competition results in the same sort of idea of self sacrifice as altruism and is totally incompatible with capitalism, property rights, natural rights, and human happiness.

 

 
Evolution, Economics, and Patent Law

The study of economics would be the same thing as the study of evolution of humans if humans did not invent.  Without invention there is no reason for trade.  Why would we trade my berries for your berries if they are essentially the same berries?  If we both eat the same dead animals, what would the purpose of trade be?  Without trade, production is limited to the immediate needs of the person.  Perhaps you might store up some nuts, but everything else will spoil.  Note that shelter is an invention, unless it only involves taking over a cave or a hole in a tree.  The unique feature of man is that he is a rational animal and in the economic realm this means that he invents.  No other animal invents.  Only humans change their environment to meet their needs.

The driving function of evolution is the Malthusian Trap.  In the Malthusian Trap, food (things need to survive) is limited and population growth in any species is always greater than the growth of the food supply, except humans very recently.  This puts species into competition for food and selects for the species that are most successful in a given area.  The only reason that humans (some) were able to escape the Malthusian Trap was that they invented faster than their population grew.  Meaning the rate at which technology changed provided greater productivity growth than the expansion in the population.  Why after 20,000 to 100,000 years of human existence did people in England, the United States, and the West suddenly escape the Malthusian Trap?  Clearly, the rate of invention accelerated in these places so that productivity outstripped population growth.  But why there and why then?  There is extensive evidence that the introduction of property rights (individual – there is no such thing as group property rights) always provides a strong incentive to maximize return on an asset.  England and then the U.S. at the beginning of the Industrial Revolution were the first large groups of people to introduce property rights in inventions.  This provided the necessary impetus to invent new technologies and diffuse them widely.  Clearly, patents cannot provide this incredible benefit outside of a system of individual rights and property rights.  However, it was the linchpin that launched large groups of humans outside of the Malthusian Trap and the constraints of biological evolution.

For more information see:

The Source of Economic Growth

The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention

Jobs and Patents

Are Patents Relevant

 

 
Great American Inventor Steve Jobs Dies

Steve Jobs was an inventor on over 300 patents.  He is the quintessential American inventor entrepreneur.  He and Steve Wozniak started Apple in January of 1977.  The company went public in December of 1980 and was the largest IPO (Initial Public Offering) since Ford in 1956.  Apple goes on to launch the MacIntosh in 1984 with its now famous television ad that played off the book 1984, where IBM played the role of Big Brother.  This launches the graphical user interface (GUI) as the standard for computers.[1]

This fairy tale start to Apple is marred by John Sculley, former president of Pepsi, being appointed CEO of Apple and firing Steve Jobs in 1985.  Strangely enough, Jobs foreshadowed this event in his Playboy interview in which he talked about how Polaroid fired Edwin Land, their creative founder and how Polaroid floundered  thereafter.  Once Jobs was fired,  Apple floundered for over a decade, and in the late 1990’s was all but dead.  Jobs returned to Apple 1997 and to profitability by 1998.  This is a cautionary tale for all those management gurus who ignore the technical creative genius and believe running a business is all about people skills, management, or finance.  Real wealth is created by invention and Jobs was a consummate inventor as his patent record shows.

An interesting question is raised in the book Great Again is could Apple have been successful today?  They answer the above query with a series of questions:

Could a twenty-year-old college dropout, just back from six months in an ashram somewhere, attract funding for a capital-intensive venture based on the manufacture (yes, they manufacture) and sale of a $2,500 consumer product unlike any that had ever been bought by consumers before?  One whose potential uses were at best unknown, and possibly nonexistent? And one for which the total current market size was exactly zero?

Not only could Apple not get funded today, it probably could not go public. Nor would Apple have received its first patent (USPN 4,136,359) in only 20 months.  The book asks “how many of today’s Apples are not getting a chance?”  Perhaps the death of Steve Jobs is the right time to examine this question.


[1] XEROX’s PARC center deserves a significant amount of credit for inventing the GUI.  Unfortunately, the FTC’s absurd attack on XEROX in the early 1970s for being a technological leader caused this great American company to pull back on commercializing a number of great inventions, including Ethernet.  This is a shameful history in American government that is being repeated today.  For more information see http://hallingblog.com/jobs-the-economy-and-patents/.

 

 
Adam Mossoff Lecture: Ayn Rand on Intellectual Property

The Ayn Rand Institute held a lecture on intellectual property (IP).  The talk was given by Adam Mossoff a law professor at George Mason University School of Law.  There are eight parts to the lecture.  I provide a short synopsis/comment about each video with a link below in case you want to skip to a particular section of the talk.  I have previously written on Ayn Rand’s views of intellectual property, see Ayn Rand on Intellectual Property.  My post is more about the issues of patent law, while this lecture is more about how IP is the most fundamental of all property rights.

Part 1 of 8: Introduction

This part is a general discussion of the state of the economy and how Ayn Rand’s ideas apply.  Mossoff argues that intellectual property has risen to prominence and discusses all the new advances in technology that are based on IP.  He explains that Leftists and Libertarians have joined in an all out attack on IP, particularly patents. He also argues that “Net Neutrality” is an attack on IP.  He notes that recent Supreme Court cases have significantly weakened patent rights.  He concludes with the idea that all property is really intellectual property.

Part 2 of 8: All Property is Fundamentally Intellectual Property

From this point forward the lecture focuses on patents and inventions.  Ayn Rand stated that patents are the heart and core of property rights.  The talk is about the moral justification for IP.  All property is based on two concepts: 1) the nature of value, and 2) man as a rational animal and his mind is his basic tool of survival.  It is only life that makes the concept of value possible.  Unlike other animals, man has to first determine what values are necessary to sustain his life using his mind.

Professor Mossoff seems to be making an argument that all products/services we use are/were inventions (products of the human mind).  They may have been invented a long time ago, but they do not exist in nature (separate from man) and therefore they had to be invented by man before they could be produced.  He then points out that human needs do result in the creation of products/services to fill those needs.  First, the solution to the need has to be invented and produced and only then can the need be satisfied.

The birth of Industrial Revolution corresponds with the creation of property rights in inventions, i.e., patents.  I make this point in my post, Source of Economic Growth.

Part 3 of 8: The Industrial Revolution

The Industrial Revolution was an explosion of inventions that occured when patents were created.  Daniel Webster argued that an invention is the product of the inventor’s mind and he has more rights to his invention than any other property.  Mossoff quotes a US judge in the 1800s who states that patents are a natural right.  Mossoff argues that theUSpatent system (first modern patent system) was the key reason theUSsurpassedEnglandas the driving force of the Industrial Revolution.  This explosion of inventive and economic activity in theUSamazed Europeans.

Ayn Rand in Atlas Shrugged refers to machines as the frozen form ingenuity.

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 then 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 two reasons.  One, there is not conflict between ideas, but there is a conflict when a physical embodiment of the idea (invention) is created.  They the copier has clearly limited the return for the inventor.  Second, a specific purpose of patent laws is to spread the knowledge behind the invention so that other inventors can take advantage of this knowledge – so patents do not limit access to knowledge they increase it.  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 theUSSR,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).

Part 4 of 8: Libertarians Assume Resources

Mossoff shows that Libertarians ignores the creation of these inventions.  They just assume they exist.  The Leftists version of this in theUSis the statement “theUSis the wealthiest Nation in the World” and therefore we should be able to afford X (national health care, social security, free education, fill in the blank).  Both groups ignore how and why these resources were created.

Libertarians deny the very foundation of all property rights in their attacks on IP – the rational mind.  Libertarians embrace the anti-mind collectivist premises that Leftist use to attack all property rights.  I made the same point in my book The Decline and Fall of the American Entrepreneur.

Part 5 of 8: Why the Utilitarian Defense of IP Fails

Mossoff points to the ACLU v. Myriad, see my post ACLU – Gene Patent Non-Sense.

Value creation is the source of property rights according to Ayn Rand.  Mossoff states that it is no coincidence thatRandin Atlas Shrugged had the state nationalize all patents in the infamous Directive 10-289.  It was because patents are the most fundamental of all property rights.  Man’s mind is the root of all material value ever produced in the world.

Mossoff argues that Locke’s labor theory of property is incorrect.  He argues that Locke was specifically talking about physical labor.  Note it takes calories and effort to perform mental labor, so the distinction between physical labor and mental labor is not that one involves the physical transform of the world.  (A similar point seems lost on computer programmers).  I would argue that Locke never intended labor to mean “physical labor” but productive effort in modern terms.  However, Locke also never clearly defined that all material values comes from the mind.

Part 6 of 8: Question -1

The question is from a teacher at theHenryGeorgeSchoolwho suggests that Kilby and Noyce’s decision to resolve the interference (who owns the patent) to the integrated circuit by not pursuing a patent resulted in faster development of the IC.  Mossoff points out that this is fallacy.  First, other people would have been inspired to design around the patents or license them and there is no evidence that the development of the IC would have been slowed down.  (Most patent attorneys will tell you that there has never been a patent that cannot be designed around eventually)  Second, the macroeconomic evidence shows that countries with weak patents are slow to adopt new technologies.  Third, Mossoff points to the Bayh–Dole Act, which was enacted because federally funded research was not being commercialized.  The reason it was not being commercialized was that the ownership rights were uncertain.  This is a typical tragedy of the commons problem.  Fourth, Mossoff points out that when the uncertainty about the ability to patent genetically modified life forms was removed in theUSthe biotech industry took off.  Biotech languished inEuropefor another decade because of their resistance to recognize patent rights in genetically modified organisms.

The questioner clearly did not listen to a single thing that was being said during the lecture.

Part 7 of 8: Question – 2 & 3

Another question from a teacher at theHenryGeorgeSchool.  He suggest that land is special.  He argues that the value of land is often enhanced by what is done around your parcel of land and has nothing to do the owner’s labor.  As a result, he argues that people should pay “society” a rent for the use of the land.  The questioner is confusing externalities with property rights.  Externalities and spillover benefits have been used over and over by socialists to justify stealing from producers for the socialists pet projects.  The questioner also confuses luck with property rights.  Just because someone is lucky and becomes wealthy does not justify stealing from them.

Mossoff points out that land has value because people used their mind to create value from land.  Land has no inherent value.

The next questioner asks about multiple people who contribute to the invention of a chair.  In patent law this is why patent are a right to exclude, not the right to make something.  This ensures that all contributors have rights to the invention.  If we did not have a right to exclude, then the final inventor (or first inventor) would be the only one who would receive an economic return.

Part 8 of 8: Question – 4 . . .

Is IP enforcement of copyrights censorship?  Mossoff points out that if a Leftist comes into your house and spouts off socialist nonsense it is not a violation of their free speech rights to force them to either leave or shut up.  The right to free speech does not give you the right to use someone else’s property.  The government’s enforcement of your property rights is not a violation of the 1st Amendment because you do not have a right to free speech while on or using someone else’s property.  Milton Freedman showed that free speech is actually impossible without property rights.

Another question suggests that IP slows down the adoption of new technologies.  There is absolutely no statistically valid evidence for this point of view.  There are anecdotal stories of this happening, but the actual evidence is that countries with weak patent rights have slower adoption rates of new technologies not vice versa.

 
Are Transaction Costs for Patents Too High?

I was confronted with the statement that there are “Hugh transaction costs related to patents.”  This statement implies the assumption that these transaction costs are unjustified.  I disagree with the premise, but since all systems can be improved I will provide a number of specific proposals to reduce the transaction costs.

The alternative proposed by the author of this statement, was to shorten the length of patents and increase government funding of R&D.  The proposed system of government funding for research is not effective substitute for patents.  The history of government funding for research is mixed at best and much more expensive than patents.  The US patent system is completely funded by user fees (in fact Congress has been stealing user fees to pay for their pet projects).  The patent system has been significantly more effective at stimulating innovation than government funded projects – see Zorina Khan’s work including her book The Democratization of Invention: Patents and Copyrights in American Economic Development, 1790-1920 (NBER Series on Long-Term Factors in Economic Development) also see The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention, by William Rosen.

Assumptions

Litigation Costs:  There has been a very effective propaganda campaign to suggest that the patent litigation is out of control.  The implication is that there is an explosion in patent litigation.  This is just not true.

“The real facts of the so called litigation crisis are that for the past two decades the number of patent lawsuits commenced annually has been about 1.5 percent of all patents granted. In 2006, it was 1.47 percent. This is business as usual. Most patent lawsuits, moreover, settle before trial. In 1979, some 79 percent of patent cases settled before trial, while in 2004 almost 86 percent did. Matters are actually improving.

Also, the U.S. has few patent trials. For instance, in 2001 only 76 patent lawsuits were tried and only 102 went to trial in 2006. By no measure can 102 patent trials be considered a national litigation crisis. The annual report of Federal Judicial Caseload Statistics, which is on the Internet, provides the factual antidote to false claims of a litigation crisis (www.uscourts.gov/ caseload2006/contents.html).” see http://www.manufacturingnews.com/news/07/0629/art2.html

Even though this data is a little old nothing has changed in the last several years.  In a $14.4 trillion economy built on technology this is anything but a litigation crisis.

There is also a myth that there is a patent quality issue in the US.  This is not supported by the facts.

“As to the massive numbers of “unworthy patents” argument, the real-world test is how many patents are challenged and the outcome of those challenges. Between 1981 and 2006 the USPTO issued more than 3.1 million patents. In that period, 8,600 were challenged at the Patent Office through inter partes and ex parte reexaminations. The number challenged amounts to less than three-tenths of one percent. Of those challenged, about 74 percent resulted in claims narrowed or cancelled. In addition, almost 60 percent of the relatively few patents challenged in a court trial are sustained.

My point is that the USPTO’s work is certainly not perfect, but the Patent Office is also not pouring out a stream of bad patents.” http://www.manufacturingnews.com/news/07/0629/art2.html

By every objective measure: R&D per patent, GDP per patent, and number of citations per patent patent quality is increasing.  See http://hallingblog.com/2010/01/07/patent-quality-nonsense/ and http://hallingblog.com/2009/08/18/patent-quality-myth/.

Cost and Time to Obtain a Patent: When Edison applied for his light bulb, he received a patent in 3 months.  The reason it takes so long to obtain a patent today is because Congress has been stealing money from the Patent Office.

I have an angel investor friend who was a highly successful entrepreneur who complained that when he invested in a company he did not know about hidden prior art and this created a large amount of uncertainty.  He supported the idea of publication of patents.  However, the answer was not publication of patents, which breaks the social contract, but fully funding the patent office – as the Edison example above proves.

Disingenuousness of Libertarian Argument about Costs of Patents:  All property rights systems have some costs involved in them.  GE employs 600 attorneys to comply with tax laws, it probably employs another 600 to comply with SOX, discrimination laws, environmental laws, health and benefit laws.  However, it probably employs less 100 patent attorneys.  Their patent costs are a drop in the bucket compared to dealing with tax and other regulatory laws.  The Libertarian attack on patents in light of all the other burdens imposed on business is disingenuous.

Patents are property rights and companies’ purposeful infringement of other people’s property rights is not a regulatory burden, it is the result of purposeful belief that they can get away with the theft.  It is called efficient infringement.  See “Technology Theft as a Business Strategy”  http://hallingblog.com/2010/03/24/pat-choate-technology-theft-as-a-business-strategy/

Solutions

Patent Litigation: While patent litigation costs are similar to litigation costs generally, there are a number of things that can be done to make the system more efficient.  Some are changes to government and some are private sector initiatives.

Secondary Market/Title Insurance for patents.  Before the advent of title insurance it was very expensive to buy a piece of land.  You had to pay an attorney for a title report that did not come with any insurance.  Lawsuits over the boundaries of real property were epidemic before the advent of modern survey tools.  Patents are in the same position where no title insurance has been created.  Unfortunately, antitrust law undermined the first efforts to create a title insurance/secondary market for patents.  Patent pools were a way to determine the validity of patents, enforce patents, and widely license the patents in a cost efficient manner.  But the antitrust idiots said that they were illegal.  Today, Luddites are using the rallying cry of “patent troll” to kill off the beginning of a secondary market – see http://hallingblog.com/2009/09/18/in-defense-of-patent-trolls/ For more information see Jump Starting a Secondary Market for Patents http://hallingblog.com/2009/11/16/jump-starting-a-secondary-market-for-patents/.

Accelerated Patent Court:  A new court similar to the ITC that has expertise in patents and accelerates the patent litigation process is needed.  The court should be sufficiently funded and have procedures that allow patent cases to be resolved in under a year.  Perhaps the court would be limited to issuing injunctions as a remedy as opposed to economic damages.  The goal of this new court is to establish the US as the premier arbiter of patent rights.  The US is the best positioned country to protect patent rights, despite our recent history.  This would increase the US’s standing as a technological leader in the world and draw innovative companies and people to the US.

Judges:  Appoint judges with technical backgrounds and who have passed the patent bar to adjudicate patent cases.  Judges without these qualifications make silly mistakes, such as stating that any invention that is just a combination of known elements is suspect whether it should obtain a patent.  All inventions are combinations of known elements – it is called conservation of matter and energy.  You cannot create something from nothing.  (For more on the Supreme Court’s ignorance see http://hallingblog.com/2010/01/19/ksr-supreme-ignorance-by-supreme-court-2/ )

Patent Acquisition

Patent Reciprocity: One of the largest costs of obtaining patent protection is foreign filing.  Patent reciprocity would significantly reduce this cost.

If you drive your car across the border into Canada you do not lose title to your car.  If you take your manuscript across the border into Canada you do not lose the copyright to your manuscript.  But, if you take your invention across the border into Canada, you lose your patent protection and anyone can steal the invention – not the physical embodiment, but the underlying invention.

Patent reciprocity would automatically provide patent rights in a foreign country when you obtained a patent in the US and vice versa.  This idea was first proposed by the US in the mid 1800s according to B. Zorina Kahn’s book “The Democratization of Invention: Patents and Copyrights in American Economic Development, 1790-1920“. Unfortunately, the idea died and since then patent rights have been part of the convoluted process of trade negotiations.

Patent reciprocity would significantly increase the value of patents and increase the value of research and development.  As a result, it would spur investment in innovation.  Reciprocity would increase the valuation of technology start-up companies in all countries that participated.  It would also increase per capita income.

Eliminate Maintenance Fees: Maintenance fees are the major cost associated with a patents filed outside the US.

Maintenance fees are a backhanded way of introducing a “working requirement” to patents.  Working requirements for patents have always been rejected in the US.  These fees favor large entities and reduce the effective life of patents.

A strong patent system pays for itself several times over in increased tax revenues from increased economic activity.  The supply side returns from a strong patent system probably exceed the return resulting from lowering the capital gains tax.

Reduce Formalism in Patents:  A large part of the cost of obtaining and litigating a patent is overly formalistic requirements.  The Non-obviousness requirement should be repealed.  It is not logically a part of the definition of an invention and is the source of uncertainty, and increases the cost of both obtaining and enforcing/defending patent lawsuits.  For more information see Non-Obviousness a Case of Judicial Activism http://hallingblog.com/2010/06/18/non-obviousness-a-case-study-in-judicial-activism/.

Some of the other overly formalistic requirements include the rules on restrictions, the inequitable defense, and the silly requirements related to section 101.  Restrictions are required for trivial differences that are embodiments of the same inventive idea.  The doctrine of equivalents has been dead for over a decade.  Formalism over logic rules in the realm of inequitable conduct.  USC 101 issues related to software inventions also place form over function that require absurd recitations to computer hardware.  All of these formalistic requirements favor patent thieves at the expense of real innovators.

 
Monopoly/Rent Seeking vs. Property Rights/Intellectual Property

Here are three easy questions for Libertarians, Socialists, and Economists to determine if a right is a monopoly or a property right.

 

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

Creation is the basis of all property rights.  The law is just recognizing the reality that the person is the creator and without that person the creation would not exist.  This is consistent with Locke’s Natural Rights and Ayn Rand’s Objectivism.

 

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

This ensures that the right does not arise from political favoritism.

 

3) Is the right freely alienable?

Freely alienable means that right can be sold, transferred, divided, leased, etc.  This is a key feature of property rights.

 

Let’s see how this applies to some common property rights, some monopolies, and rent seeking systems.

 

Land: 1-yes, 2-yes, 3-yes.

Some people may be confused about why question 1 is a yes with respect to land.  Clearly no one created land.  That is true, but the reason that the person owns the land is because they improved it.  This was the major criteria for receiving land under the Homestead Act.

Now some people may complain that most of us do not obtain title to land because we improved it.  This is true, but we had to create something and trade this for money.  This money was then used to buy the land.  Because property rights are freely alienable, they can be transferred for other property.  As a result, creation is still the reason we own the land.

Thus a right in land is a property right.

Note in the modern world land is usually not completely alienable because of various regulations.  However, this is an encroachment on property rights but does not change the underlying fact that rights in land are property rights.

 

Utility Grants: 1-yes, 2-no, 3-no

Utility grants includes electric utilities, water utilities, cable television, etc.  In all cases, the company that receives the right has to build something (electrical power system, water purification and distribution system, or cable system.  As a result, the answer to question one is yes.  However, if someone else created a utility system in the same geographic area they would not receive the same right.  Utilities receive their legal rights not because they created something, but because a political entity selected the particular organization.  The grant is generally not alienable.  If the present holder of the utility right wants to sell, lease or subdivide their utilities rights, they have to get permission from a political entity.

Thus utility grants are monopolies not property rights.

 

Patents: 1-yes, 2-yes, 3-yes

You obtain a patent because you created an invention.  If someone else had created the invention, they would have received the patent to the invention.  Patent rights can be sold, leased and subdivided.

Patents are property rights.

Note that you have to apply for a patent in order to obtain it.  The same was true for land under the Homestead Act.

 

Mineral Rights: 1-yes, 2-yes, 3-yes

You obtain mineral rights because you discovered minerals at a particular location.  Much like land in the modern world most mineral rights are purchased, but this is still the result of creation.  If someone else had discovered the minerals they would have received the right.  Mineral rights can be sold, leased, subdivided etc.

Mineral rights are property rights.

 

Professional licenses: 1-no, 2-yes, 3-no

Professional licenses include medical licenses, legal licenses, cosmetology licenses, etc.  You obtain a profession license because you proved a mastery of certain knowledge and fulfilled other bureaucratic requirements.  You do not obtain a professional license because you have created something.  If someone else proved mastery of the subject matter and fulfilled the other bureaucratic requirements they could also receive a license.  Professional licenses are not alienable at all – they cannot be transferred, sold, subdivided, etc.

Professional licenses are pseudo monopolies or rent seeking devices.  They clearly do not limit the market to one provider, but they do limit the number of providers in a market.

 

 

Antitrust Law

Modern antitrust law turned the law against monopolies on it head.  The Statute of Monopolies limited the power of the Crown (government) to interfere with private property rights.  The Statute of Monopolies excluded patents for inventions because they result from the creative act of the inventor and therefore are property rights.

On the other hand modern antitrust law increases the power of government to interfere with private property rights.  The underlying theory of antitrust law is the efficient market hypothesis.  The hypothesis postulates that wealth is created by falling prices for existing goods and services and this is result of competition to sell existing goods and services.  However, this is not true.  Increases in per capita income are the result of increases in technology – inventions.  Antitrust law undermines the incentive to create and invest in new technologies and therefore hurts our economic health.

 

 
The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention

This book has an extremely intriguing title.  The book’s goal is to explain why the Industrial Revolution happened and how it happened.  The book explains that there are over two hundred theories for why the Industrial Revolution occurred.  The author points out that most of these theories miss the most obvious point, “which is that the Industrial Revolution was, first and foremost, a revolution in invention.” (Italics in the original)  It further explains, “For a thousand centuries, the equation that represented humanity’s rate of invention could be plotted on an X-Y graph as a pretty straight line.  . . .  Then during a few decades of the eighteenth and nineteenth centuries, in an island nation with no special geographic resources” it changed.  Ultimately, the Industrial Revolution was a perpetual innovation machine.

The author explains that England’s patent laws democratized invention and this combined with the advent of limited liability companies and the new capital markets resulted in an explosion of new inventions that created unimaginable wealth.

“The best explanation for the preeminence of English speakers in lifting humanity out of its ten-thousand-year-long Malthusian trap is that the Anglophone world democratized the nature of invention.

In England, a unique combination of law and circumstances gave artisans the incentive to invent.  . . .  Human character (or at least behavior) was changed, and changed forever, by seventeenth-century Britain’s insistence that ideas were a kind of propertyThis notion is as consequential as any idea in history.” (emphasis added)

The United States went on to create the first modern (non-archaic) patent system that was considerably more democratic (this is small d democrat) than England’s.  This was a major reason why the U.S. became a world economic power in less than 100 years.  Unfortunately, the U.S. is presently considering legislation, the America Invents Act (aka Patent Reform), that will again make inventing undemocratic and the province of the wealthy.

The book explains the history of patent law, the history of the science of steam (thermodynamics) as well as the history of the technology and economics of steam engines.  The writing style is easy to read and very informative.  Despite the bold initial statements in the book, it really focuses on the story of the Industrial Revolution instead of supporting its thesis.

The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention, by William Rosen.

 

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