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

Complainer in Chief: US Business Lazy

According to a Fox News story, President Obama: U.S. Gotten a Bit “Lazy” on Attracting Businesses, “President Obama said that the United States has gotten a “little bit lazy” when it comes to bringing in new businesses in to the states”.  He said some of the advantages of the US are its stability, and its innovative free market culture.

I guess I am just a little confused how a 2300 page health care law provides stability or how the government taking over 1/7th of the economy is free market?  How is a patent law (AIA) written by large companies to entrench their position furthering our innovation?  How does Dodd Frank also over 2300 pages further the free market?  Or contribute to stability?  How does interfering with Boeing’s decision to move to South Carolina result in stability?  How is that a free market?

Of course Obama is such a narcissist that he would never look at his own idiotic policies and how they are causing the slowdown in American business.  It is doubtful that Obama really wants the US to be successful.  So, his speech was really an exercise in DOUBLESPEAK.  1984 predicted the future it just took twenty five years longer than Orwell thought.

 

November 13, 2011 Posted by | -Economics, Innovation, News, Patents | , , , , , , | Leave a comment

The Value of Charity

From President Bush’s 1000 points of light to President Obama’s biblical argument “aren’t we our brother’s keeper?” for government charity programs it appears everyone agrees that charity is good for our country and may even strengthen our economy.  We are bombarded with the message that “we must give back to our community.”  This discussion even spilled over to Bill O’Reilly and Stephen Colbert where they both agreed that charity was good but disagreed on the extent and implementation of charity.

First, let’s  examine the logic of the “give back” mantra.  In order to give something back you must have taken something.  If you live in a free and just society the only people who can “give back” are those people who are thieves.  The statement is complete nonsense, meant to associate anyone who is successful financially with thieves morally.

Yes, but we don’t want to see our fellow human beings dying in the street for lack of food do we?  About 200 years ago humans in the Western world first escaped the Malthusian Trap.  The Malthusian Trap is when humans are like every other animal, their population expands until they are on the edge of starvation.  This means that until 200 years ago some people did starve to death and it was a real threat for all but the wealthiest people.  This could not have been solved by using charity to redistribute food to those people starving.  There just was not enough food for all the people on Earth.  Even today there are parts of the World where people starve to death.  This problem will never be solved by charity.  While there may be enough food to feed all the people on Earth today, the problem is purposeful manipulation of food supplies in countries for political purposes.

People did not escape the Malthusian Trap because of charity.  The only reason people escaped the Malthusian Trap is because we increased our level of technology.  The only way to increase our level of technology is by inventing and then disseminating these invention.  This occurs when we have strong property rights, particularly for inventions (patents), and free markets.  Why don’t we celebrate people and companies that create and disseminating new technologies instead of charity?  If you truly want to help the “poor,” then you should support free markets and strong property rights, particularly for inventions.  For more information see Source of Economic Growth.

Charity takes (gives) money from a productive person and gives it to someone who has not produced anything.  Since everyone has to consume to live, charity results in a decrease in total wealth.  In addition, the money given to charity is not given (spent) on someone who is productive.  If you really wanted to maximize the “pay it forward” value of your charity, you would give it to the person who was most likely to do the most good with it.  This means you would give it to a person who is productive, which is what generally happens in a free market.

When people donate their time to charities it also destroys wealth.  When engineers, lawyers, architects, doctors, etc spend time preparing meals or hammering nails, they are trading time worth $100-$1000 per hour for labor worth $10 per hour.  This does not help the poor, it just reduces the total wealth created.

Does charity have any value?  I have been both the recipient of charity and have given charity over the years.  I am appreciative of the charity I have received and have no regrets about the charity I have given.  Charity is like manners.  It makes civil society more pleasant, when it is private charity.  Government charity is not charity it is theft.  Even when there is too much private charity it is destructive.  How much is too much charity?  When more than 10% of the people in a country receive charity it is too much.  I remember a United Way pitch I was forced to sit through where they said 40% of the people in our area benefited from the charities the United Way supported.  If that was the case, why didn’t we just pay for these things directly rather than paying United Way to take a cut and redistribute our money?

Here is what Ayn Rand had to say about charity.

My views on charity are very simple. I do not consider it a major virtue and, above all, I do not consider it a moral duty. There is nothing wrong in helping other people, if and when they are worthy of the help and you can afford to help them. I regard charity as a marginal issue. What I am fighting is the idea that charity is a moral duty and a primary virtue. (emphasis added)

“Playboy’s Interview with Ayn Rand,” March 1964.

Note that Ayn Rand believes that charity requires judgment, specifically the judgment of whether the recipient is worth of help and the giver can afford the expense.

People who push charity as a moral issue are immoral and are not helping the “poor.”

 

December 21, 2010 Posted by | -Economics, Innovation, Patents | , , , , , , , | Leave a comment