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 definition. This definition clearly defines that property rights are not regulations and limits regulations to true meddling in ‘free markets’.
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