State of Innovation

Patents and Innovation Economics

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’.

 

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July 23, 2013 - Posted by | -Philosophy, Patents | , , , ,

18 Comments »

  1. Mr. Halling, this is interesting but seems to lead to the possibility of anything becoming a property right just by the government’s fiat. The difference between the possession and ownership of a piece of land or a moveable object is that monopoly privilege can asserted against these naturally, just by the fact of exclusive possession. Monopoly privileges over IP are not naturally asserted, they must be granted by a government. But not all grants of interests by governments are legitimate property rights. So, for instance, if the government says tomorrow you have a right to good health, or health care, I assume you’d agree with me that that is not a legitimate grant or creation of some new property right. How is it that the government’s grant of a property right over the expression of ideas, which is not otherwise naturally exclusive, is a better, more justly founded property right than the right to good health? If you don’t want to become some sort of socialist, who believe the government can willy-nilly create property rights, you need to come up with a good theory of the limits of those grants.

    Comment by Dr. Gomez | July 30, 2013 | Reply

  2. …afraid to engage with my questions? If you have a good theory, meeting them will only strengthen it. I was curious to hear your responses here.

    Comment by Dr Gomez | July 31, 2013 | Reply

  3. Dr. Gomez,
    Property rights start with creation. Not anything can be a property right, but anything created by man, a person has a natural property right in it.
    You are misusing the word monopoly, what I think you really mean is possession. For instance, if I plant an orchard, do I possess all the apples at the same time? No, of course I do not. Possession is not the fundamental basis of property rights. According to your theory, I could not own a song, and easement, because I cannot possess them. This is a very narrow theory of property rights which leads to many contradictions.
    Healthcare and one’s “right” to it: This goes back to creation. The so-called right to healthcare assumes that one does not have a right to their own labor/creation. Totally inconsistent with a correct understanding of natural rights and property rights.

    Comment by dbhalling | July 31, 2013 | Reply

  4. Your reply would be more clearly suspect had you allowed my previous comment through, but I will attempt to recapitulate: If I plant an orchard on my land, then yes, I do possess that orchard and all its apples by virtue of my homesteading a plot of land. Possession is the foundation for just property laws, and the exclusivity of possession more specifically. I create all sorts of things I cannot possess, and thus can have no valid ownership of. The validity of just laws stems from prelegal facts, unless you think that any law is as valid as any other. If I sing a spontaneous song, and others overhear it, there is simply no way to contain it (and indeed the presumption of free speech would suggest that others have a right to repeat what I sang), thus the law of IP creates an artificial monopoly, very unlike the natural monopoly I maintain over my possessions. Now, to get back to the question I posed in my original comment you deleted: what distinguishes the creation of the artificial monopoly over non-exclusive expressions from an artificial monopoly right the government might choose to create in, say “health care”? Surely, you must have one theory to say that the governmental creation of an artificial exclusionary right in the one case differs from some other artificial, non-possessory right in the other. Or is any artificial right created by the government as good as any other? I hope you’ll let this comment through so we can engage in a less lop-sided discussion.

    sincerely,
    H.G.

    Comment by Dr. Gomez | July 31, 2013 | Reply

  5. I see you posted my previous comment, thank you.

    Comment by Dr. Gomez | July 31, 2013 | Reply

  6. Just to illustrate the weakness of your argument regarding creation as the basis for ownership claims, let’s say I create happiness in an audience by some performance, or I create affection or admiration by my actions, I cannot claim to have any rights to those creations, can I? Only “things” whose exclusivity and rivalry requires dispossession (things that cannot be simultaneously possessed by more than one person without some dimunition of access) can be justly claimed to be “mine”

    Comment by Dr. Gomez | July 31, 2013 | Reply

  7. Dr. Gomez,

    I do not see your previous comment anywhere. I double checked in my spam folder.

    Your are just wrong about possession being the foundation of property right, it is about creation. Possession can occur because of force and literally possession is clearly nonsense. If I am not in my car or holding an apple I am not in possession. If I pick an apple I am in possession of it that does not make it mine if I did not own the tree. If possession is the standard for property rights it is an immoral system that rewards force.

    Free speech does contradict copyright laws. Free speech does not mean you can use my printing press for your free speech and it does not mean you can steal my creation song. Your ideas on property rights are primitive and unworkable. They are also historically incorrect. Common law property rights are based on creation, not on possession. The homestead act did not provide land to those who possessed the land, it required improvements – i.e., creation.

    Comment by dbhalling | July 31, 2013 | Reply

  8. Thank you for your reply, but “just wrong” is not really an argument. You never addressed the problem of the creation of ephemeral, non-tangible, non-exclusionary things (e.g. the emotion examples I used above), nor the problem of where to draw the lines at the government grant of rights, even in things one “creates”. let’s say your “good health” is the result of your creation: your diet, your exercise, etc., all due to your action and creation: now let’s say the govt. says tomorrow that you have a right to that health, and thus should receive some reward, let’s say a stipend, or perhaps a health care system, etc…. your view gives credence to the notion that it is perfectly legitimate for the govt. to create new exclusionary rights even in those things over which no natural monopoly could be exerted. Indeed, possession is 9/10ths of the law because it IS the foundation for just property rights, and the Anglo-American legal system has long recognized this. The notion that “creation” could afford just ownership is much, much newer and leads to socialism, as the mere creation of new rights by the govt. could justify any sort of monopoly even over ephemeral, non-exclusionary resources and items.

    Comment by dr. Gomez | July 31, 2013 | Reply

  9. Emotions belong to the emmoter. Natural Rights, which is what property rights are based on, start with the simple premise that you own yourself. Those your emotions are yours. If I made you laugh, I did not create the laugh you did.

    You clearly have not studied common law. Common law is based on Natural Rights -see Blackstone’s commentaries. Under natural rights it is the act of creation not possession. Possession may be evidence that you are presumed to be the owner, but not why you are the owner.

    You are miss using the word monopoly. I admit that economists, politicians and propagandists have purposely expanded this word. By monopoly goes back the the Statute of Monopolies of 1623. That statute limited the governments ability to interfere with your natural right to property and contract freely.

    Unless you understand Natural Rights you cannot understand property rights. Socialism is the anti-thesis of natural rights. Property rights is the law recognizing the metaphysical fact that but for the creator the creation would not exist.

    Comment by dbhalling | July 31, 2013 | Reply

  10. Sir, you are begging the question: “emotions belong to the emotor” … I gave you a few examples where those emotions were created by someone other than the emotor, you ducked the example and committed the fallacy of begging the question by making the unsubstantiated claim that the emotor owns the emotion, and failing to address how the counter example avoids the problem of creation giving rise to ownership claims over non-material objects. So why does not the progenitor, the creator of those emotions, have a just claim? It’s not enough for you to simply claim that the emotor owns the object, the emotion in this case, since your thesis was that the act of creation confers the claim, and my examples were of creators who do not, and cannot possess the objects of their creation. Would a law that provided for recompense for anyone creating, say, “joy” in anyone else, by dint of state-enforced monopoly be just? I doubt anyone would think so, but that is where your reasoning leads you, unless you can address the challenge I stated earlier which is to draw some sort of line as to the extent of the state’s rights to create monopolies over immaterial things. I have studied common law, and Locke, and Locke places the source of the right over improvements of land etc. in the acts of labor, not thought. Regarding monopoly, the word means an exclusive control over something, and when I am in possession, I have a natural monopoly over it, as you correctly observe, I have a natural right over my own self. All natural rights flow from this, and the exertion of power by others, and the state, are immoral when they deprive me of access to my own self and my justly acquired property. Now the example of IP right depriving me of the just use of myself, in, say, expressing anything I want to express simply because someone else has acquired a government-sanctioned monopoly through some law, even though my re-expression would deprive no one of anything, ought to really trouble you if you give real credence to natural rights.

    Comment by dr. Gomez | July 31, 2013 | Reply

  11. The term monopoly predates the Statute of Monopolies by a hundred years, and derives from the Latin for exclusive sale. One who has exclusive possession of something has a monopoly, but where an object, even if created, cannot be exclusively possessed, the only means for a monopoly is some positive law. Sovereigns used to grant monopolies, and began the practice of IP rights, but they were never entitled to do so, and have poor rerecords in general for recognizing natural rights. One more example: I create a religion complete with gods and a set of beliefs. This religion would not exist but for me, the creator. Can the govt. Justly grant me an exclusive right to the profits from this set of beliefs? Still waiting too to your position on the joy I create in others.

    Comment by dr Gomez | July 31, 2013 | Reply

  12. A monopoly is a legal grant to a market. A patent does not give you this. You focus on exclusivity is misplaced. If I own my house, the utility company has an easement. My exclusivity to my property is a legal exclusivity it is not a physical one. I cannot be in all the rooms in my house at once.

    Comment by dbhalling | July 31, 2013 | Reply

  13. Really mr. Halling, it would surprise 99% of the general population to know that their possessions cease being their possessions just because, at a particular moment, they are physically holding them. Since long before laws recognize rights to property, indicia of possession have served to demarcate personal property, even absent current, physical possession. Laws recognize the right to ownership based upon prior, peaceful possession, but they do not create that right. A natural monopoly is the hallmark of possessory rights, and precedes artificial monopolies like IP. You don’t get to define terms just to suit your arguments, you need to abide by their common usage.

    Comment by dr. Gomez | August 1, 2013 | Reply

  14. correction:

    cease being their possessions just because, at a particular moment, they are NOT physically holding them

    Comment by dr. Gomez | August 1, 2013 | Reply

  15. YEs, which is why possession is not the standard – logically or historically

    Comment by dbhalling | August 1, 2013 | Reply

  16. no, which is why indicia of ownership (see above) have always been the standard, both logically and historically…

    Comment by dr. Gomez | August 1, 2013 | Reply

    • You have flipped you argument. Now ownership implies possession, not possession implies ownership. Either way your idea of property rights fails.

      Comment by dbhalling | August 1, 2013 | Reply

  17. Not at all, Mr. Halling. You need to re-read your Hayek. Scarcity/exclusivity is the historical cause of ownership, and prior peaceful possession and its indicia are pre-legal bases for just ownership claims. You still never explained how creation of immaterial objects grounds just claims of ownership. I’m still curious.

    Comment by dr. Gomez | August 1, 2013 | Reply


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