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Patents and Innovation Economics

Property Rights: The Foundation of Freedom

In the United States, we tend to study the Constitution to secure and understand our freedoms.  This is a bit strange as our freedom throughout history has been secured mainly by property rights.  This was understood by the founders and many others.

 

There is a “diversity in the faculties of men, from which the rights of property originate…. The protection of these faculties is the first object of government.”[1]

James Madison’s Federalist 10

 

“The reason why men enter into society is the preservation of their property.” John Locke

 

“No other rights are safe where property is not safe.”

Daniel Webster

 

“Ultimately property rights and personal rights are the same thing.”

Calvin Coolidge

 

Without property rights, no other rights are possible.

Ayn Rand “Man’s Rights,” The Virtue of Selfishness, 94, http://aynrandlexicon.com/lexicon/property_rights.html

 

“Property rights … are the most basic of human rights and an essential foundation for other human rights.”[2]

Milton Friedman

 

Property rights in the United States were a matter of state law for most of its history, with the minor exception of the Fifth Amendment.  Thus to gain a better understanding of how our freedom is secured, we need to study property rights.  This is a big subject and this post will focus on the historical development and the philosophical foundations of property rights.

The concept of property rights started with some sense of ownership of food and personal possessions among nomadic people.  People had the idea of a superior moral claim to the apple they picked or the deer they killed or the clothes they made and wore compared to other people.  With the advent of the Agricultural Revolution people began to think they had a superior moral claim to the land they cultivated and the crops grown on this land, which was the beginning of the idea of property rights in land.  However, these were not real property rights, because the King or other political body almost always reserved the power to trample peoples’ property rights when it was politically expedient.  In the Middle Ages “property rights” were thought to reside ultimately in the King or the sovereign.  Legal realists still hold onto this idea.  During the Renaissance legal theorist worked on a rational basis for property rights, starting with Hugo Grotius in the early 1600s.  Adam Mossoff has written an excellent paper explaining the historical development of property rights theory including the major theories today, called What is Property? Putting the Pieces Back Together.[3]

After Grotiuss, John Locke continued the work of developing a rational theory of property rights.  Locke’s formulation is that anything in a state of nature (unowned) that someone makes useful, results in them having a property right in the item they made useful.  So if you shoot a deer you have property rights in the deer or if you plant olive trees on some ownerless land you have a property right in the land and the trees.  This is true according to Locke because you have an exclusive moral claim over yourself (body and mind) and anything you create value in gives you property rights in the item.  This is commonly summarized as having property rights in one’s self.

It is important to understand that all of law is based on property rights logically (and historically).  Some libertarians have tried to postulate systems where property rights are some sort of contract.  You cannot have a contract unless you have an exchange and you cannot exchange something you do not own.  You also need to have property rights over yourself to enter a contract.  Contract law presupposes property rights law and to reverse the process results in nonsense.  Tort law makes no sense without property rights.  If you do not own yourself or some property how can you claim to have been harmed.  This is true of all other areas of law also.

Property rights law was developed in common law countries and in the United States along Locke’s theoretical formulation for at least a century or more.  For instance, in the United States the Homestead Act (of 1862) provided that any adult who had not taken up arms against the U.S. could acquire 160 acres of land by farming and living on the land for five years.  The Act made the implicit assumption that the land was in a “state of nature” and that people could obtain property rights by making it more valuable.  This is almost an exact formulation of Locke’s theory of property rights, except that the land had to be surveyed first and the acquirer had to put in an application.

There are several interesting things about the Homestead Acts.  One is that they were first proposed before the U.S. Constitution was ratified and many other homestead acts were passed after the one in 1862.  The Homestead Act of 1862 was clearly passed as part of the politics of the Civil War in the U.S.  Another interesting point is the Homestead Act implies that land grants by Kings did not result in valid property rights.  For instance, the land grants to George Washington for his military service from the British Crown did not confer valid property rights in the land.  Washington had problems with squatters on this land, who seemed to understand that Washington’s property rights in this land were invalid since he did nothing to create value in the land.[4]

Another interesting thing about the Homestead Act is that the surveyed plats were separated by roads.  There were no taxes to create or maintain these roads, so they were un-owned land or land in which no one could have property rights in.  It is important to note that property rights in land that cannot be accessed make those rights meaningless.  An essential element of all property rights in land includes access to and from the land and the rest of the world.  This does not mean that the owner of the land cannot exclude people from their land, but it does mean that property rights in land cannot interfere with reasonable travel.  This is one of those questions in law where the philosophy lays out the general theory, but the law has to work out some practical realities in which there is no exact answer.  In the Homestead Act, they decided that roads had to exist around every square mile block of privately owned land (one mile grid).  This obviously would have to be modified sometimes for terrain and another distance or pattern for the roads could have been selected without violating the general principles.

It would also be an abridgement of people’s right to travel if property rights in land could imprison people.  People exercised the right to travel over land before there were any property rights in land.  Thus property rights in land that unduly impinge on the ability of travel violate other people’s rights.

It appears the Romans understood this.  In the twelve ancient Roman tablets that set out the law, tablet seven appears to require land owners to maintain the roads.  “1. Let them keep the road in order. If they have not paved it, a man may drive his team where he likes.”[5]  Table eight requires “Where a road runs in a straight line, it shall be eight feet, and where it curves, it shall be sixteen feet in width.”[6]  Tablet nine requires “When a man’s land lies adjacent to the highway, he can enclose it in any way that he chooses; but if he neglects to do so, any other person can drive an animal over the land wherever he pleases.”[7]  The Roman tablet eight also require space between buildings, “A space of two feet and a half must be left between neighboring buildings.”[8]  This last law could have been for travel or to keep fires from spreading through the city.  Unfortunately, there does not appear any commentary to let us know.

Some people have suggested that this ownerless land for roads in the Homesteading Act is inconsistent with Ayn Rand’s Objectivism: “Capitalism is a social system based on the recognition of individual rights, including property rights, in which all property is privately owned.”[9]  This mistake is based on a misunderstanding.  There is no such thing as property.  There are property rights and things in which people may have property rights.  In informal language we often use the shorthand property to refer to something in which we or other people have property rights.  Unfortunately, this shorthand results in confusion.  Correctly interpreted what Rand’s statement is saying is that governments cannot have property rights in land or anything else only people can.  What the government has is a custodial duty.  The government cannot have a moral claim to have made something useful, only individuals can do this.  Rand explained it this way with respect to the Homestead Act of 1862:

Thus, the government, in this case, was acting not as an owner but as the custodian of ownerless resources who defines objectively impartial rules by which potential owners may acquire them.[10]

Rand did not directly address the concept of property rights, however she laid out many of her ideas in two articles in Capitalism: The Unknown Ideal: 1) The Property Status of Airwaves, and 2) Patents and Copyrights.  Rand echoes Locke when she explains the origin of property rights, “Any material element or resource which, in order to become of use or value to men, requires the application of human knowledge and effort, should be private property—by the right of those who apply the knowledge and effort.”[11]  Rand is stating that because you made/created something valuable you have a moral claim to the item that is greater than other peoples’.  Rand’s main refinement over Locke is to make it clear that this includes mental effort (in a way Locke leaves more ambiguous), “thus the law establishes the property right of a mind to that which it has brought into existence.”[12]

One important point that should be clear from this discussion is that dead people cannot have property rights.  Property rights are a moral and legal relationship between a person and an item (tangible or intangible).  A related point is that when someone abandons their property rights by no longer making something useful, then it is ownerless again and therefore in a state of nature.  This means that someone else can come in and make the item productive again and therefore acquire property rights in the item.  This is a very complicated subject and covering it in even a cursory way could be a whole book, however I will point to some examples.  In common law there is something called adverse possession, which “is a situation when a person who does not have legal title to land (or real property) occupies the land without the permission of the legal owner” and gains legal title to the land.[13]  Another complicated situation where these principles come into play is when a person dies or estates law.  A dead person cannot have property rights in anything, so suddenly those items they had property rights in are ownerless.  Property rights in land do not go on forever as many people assume.  A detailed- discussion of this issue is beyond the scope of this article.

We have talked about how property rights arise, but not what they are.  Many people think that their property rights in their land are unlimited that they go up infinitely into the sky and down to the center of the Earth and they can do anything they want on their land.  Why do they think this?  Did they create value 500 feet below the surface of their land?  Did they create value 500 feet into the air above their land?  Of course not.  The property rights you obtain are related to the value you created.  The most common form of property rights is called “fee simple” in the law.  Fee simple allows you (ignoring building codes) to farm/ranch and have a house (building), run a business, etc. on your land.  It does not allow you to put a commercial hog sty on your farm next to your neighbor’s house.  This would violate nuisance laws, which ensure that you have reasonable enjoyment and use of your land.  On the other hand, you cannot buy a farm and then build a house next to your neighbor’s pig sty and then sue them for nuisance.

In addition, there are other groups of property rights such as mining rights, which come in two varieties, lode and placer.  Lode mineral rights are designed to ensure that the person who discovers a vein of say gold is the owner of the whole vein.  Otherwise it would be easy for other people to say they discovered the obvious other end of the vein and profit at the expense of the true discoverer of the vein.  These rights may not include any rights to the surface land above them, while a place type of mineral rights does.  There are also grazing rights, water rights, easements, trademark rights, property rights in chattel, copyrights, patent rights (inventions), trade secrets, etc.  All of these property rights are different and come with different rights of action and rules, based on the value that was created.

The property rights you obtain are related to the value you created

Property rights are not monolithic as many people seem to believe.  As Adam Mossoff explains in his paper, Why Intellectual Property Rights? A Lockean Justification:

As Locke first explained, property is fundamentally justified and defined by the nature of the value created and secured to its owner … To wit, different types of property rights are defined and secured differently under the law.

Some property rights come with the right to exclude, however grazing rights do not include a right to exclude unless the person is interfering unreasonably with the grazing rights owner’s ability to graze the land.  Even with “fee simple” ownership of land your right to exclude is limited to using reasonable means to exclude people who are interfering with you enjoyment and use of your land.  This means you cannot shoot someone for crossing your land.

Property rights are a vast and complex area of law of which this article just touches on.  Property rights are the most important area to securing our freedoms and all law starts with and builds on property rights.  The key philosophical foundations of property rights are:

Property rights is the foundation of all law

Property rights are a moral and legal claim to take action with respect to an object

Property rights arise when a person creates value

The rights obtained with property rights depend on the value created

– they are not monolithic.

Property rights are the foundation of all our freedoms and

much more important than the Constitution in securing our freedoms.

 

[1] The Economic Principles of America’s Founders: Property Rights, Free Markets, and Sound Money, Paul Ermine Potter and Dawn Tibbetts Potter, accessed 4/15/17,  http://www.heritage.org/political-process/report/the-economic-principles-americas-founders-property-rights-free-markets-and#_ftnref3

[2] Milton Friedman’s Property Rights Legacy, Forbes, Ken Blackwell, accessed 4/15/17 https://www.forbes.com/sites/realspin/2014/07/31/milton-friedmans-property-rights-legacy/#238d1416635d

[3] Mossoff, Adam, What is Property? Putting the Pieces Back Together. Arizona Law Review, Vol. 45, p. 371, 2003. Available at SSRN: https://ssrn.com/abstract=438780 or http://dx.doi.org/10.2139/ssrn.438780

[4] George Washington, Covenanter squatters, http://explorepahistory.com/hmarker.php?markerId=1-A-28F accessed April 30, 2017.

[5] http://www.historyguide.org/ancient/12tables.html, accessed May 7, 2017.

[6] http://www.constitution.org/sps/sps01_1.htm, accessed May 7, 2017

[7] http://www.constitution.org/sps/sps01_1.htm, accessed May 7, 2017

[8] http://www.constitution.org/sps/sps01_1.htm, accessed May 7, 2017

[9] “What Is Capitalism?”Capitalism: The Unknown Ideal, 19 Ayn Rand Lexicon, http://aynrandlexicon.com/lexicon/capitalism.html accessed May 7, 2017.

[10] Ayn Rand, Capitalism: The unknown Ideal, The Property Status of Airways, p. 132.

[11] Ayn Rand Lexicon, “The Property Status of the Airwaves,” Capitalism: The Unknown Ideal, 122

[12] Ayn Rand, Capitalism: The Unknown Ideal, Patents and Copyrights, p. 141.

[13] https://en.wikipedia.org/wiki/Adverse_possession, accessed May 7, 2017.

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May 20, 2017 Posted by | -History, -Legal, Legal Philosophy | , , | 2 Comments

Adam Mossoff on Property Rights: A Must Read for Capitalists and Patent Attorneys

Why Intellectual Property Rights? A Lockean Justification, by Professor Adam Mossoff, is probably one of the most important papers written on property rights in over a century.  The point of the paper is to show Locke’s labor (physical and especially mental) theory of property rights provides the moral justification for intellectual property (copyrights and patents).

One of the strengths of the Lockean property theory is that it recognizes that IP rights are fundamentally the same as all property rights in all types of assets—from personal goods to water to land to air to inventions to books.

The paper clearly shows that Locke understood that it takes both mental and physical effort to obtain those things man needs to live.  Anything that man makes valuable through his efforts, he obtains a property right in.

Locke himself expressly justifies copyright as “property” and approvingly refers to “Inventions and arts” in his summation of his theory that property arises from value-creating, productive labor that supports the “conveniences of life” in § 44 of the Second Treatise. In 1690, the legal concept of patents (property rights in inventions) did not exist yet,[10] and so this is an explicit indication of Locke’s willingness to include what would later become the legal concept of patents within his property theory.

Locke explains that the world exists for “the use of the Industrious and Rational.”

Interestingly Locke distinguishes between copyrights (and patents by extension) and monopolies something that many modern critics of patents are unable to do.

In an essay on the statutory printing monopoly granted to the Stationers Company by Parliament, Locke condemns such monopolies as violating the “property” in creative works that “authors” rightly claim for themselves. In what might be a further surprising claim for many today who think copyright terms are too long, Locke writes in this 1695 essay that authors should have their property rights secured to them for their lifetimes or after first publication plus “50 or 70 years.”

I have argued that the term of a patent should be 35-40 years for the same reason.  As I have explained here, no property right is eternally.  Dead people do not have property rights.

Another misconception about property rights is that they are the same for every object or value created by man.  As Mossoff explains Locke did not make this mistake.

As Locke first explained, property is fundamentally justified and defined by the nature of the value created and secured to its owner … To wit, different types of property rights are defined and secured differently under the law.

This naturally leads to a final observation: Given differences in produced values in the world, such as a water well, domesticated animals, a fecund farm, the desert sand used to make silicon for computer chips, air, broadcast spectrum, corporations, stock, credit, future interests, inventions, business plans, books, paintings, songs, and the myriad others, the specific legal doctrines that protect these values will vary.

It is amazing how many people miss this point, which leads to all sorts of erroneous ideas about what property rights are.  This is perhaps the most important point in the whole article.

Property rights are highly misunderstood in today’s world by both lay people and academics.  They are even misunderstood by many supporter of capitalism, particularly libertarians and supporters of Austrian Economics, but also by Objectivists and supporters of Ayn Rand.

Libertarians and the economics profession in general have accepted the utilitarian justification for property rights, which is a misnomer and turns property “rights” into arbitrary government grants.  In addition, it fails to explain how property rights are acquired, who they belong to and why, among other problems.

Ayn Rand appears to be in basic agreement with Locke.  She states:

Any material element or resource which, in order to become of use or value to men, requires the application of human knowledge and effort, should be private property—by the right of those who apply the knowledge and effort.

Capitalism: The Unknown Ideal “The Property Status of the Airwaves,” Capitalism: The Unknown Ideal, 122

Rand also discusses property rights in the chapter Patents and Copyrights in Capitalism: The Unknown Ideal.  While she has some keen insights, she never developed a fully articulated theory of property rights.

mossoffIn my limited research into the history of property rights theory there was excellent research and work starting around Locke and the Enlightenment.  Before that property rights were derived from the King (government).  In many ways the economics profession, particularly the Austrians have gone backwards to the idea that property “rights” are whatever the government says they are.  Scholarship continued on property rights particularly in the United States at least until the first Homestead Act, which showed a clear understanding of property rights.  However, that research had died by the time the FCC was created in 1934.

Locke, the Founders, and Ayn Rand understood that property rights are the cornerstone of freedom.  Modern libertarians often think property rights can be replaced with contracts.  This is confusing cause with effect.  Contracts rely on property rights not the other way around.  Some Objectivists undermine property rights by rejecting Locke, the Founders, and Rand’s understanding that each individual has a property right in themselves (Self Ownership or Self Sovereignty).  This is also based on a misunderstanding of what property rights are and how they are derived.

Let’s hope that Adam Mossoff will continue his excellent work in this important area.

December 18, 2015 Posted by | -Philosophy, Patents, philosophy | , , , | Leave a comment

How to Fix the Economy: USA falls to 17th on Index of Economic Freedom

Ever wonder why the US has a record number of people on food stamps now, why the median family income is declining, why the labor participation rate is the lowest since Jimmy Carter?  You need look no farther than the fact that the US has fallen from 2nd or 3rd in 2000 in the Cato/Fraser index of economic freedom to 17th.  It is not just our economic freedom we are losing as the NSA and IRS scandals make clear.  This is not just an academic exercise either.  As the report makes clear longevity, access to medical care, education opportunities etc all deteriorate with a declining of economic freedoms.

The irony of this report is that the CATO Institute has been inconsistent at best about supporting property rights, which is the key issue underlying economic freedom.  CATO has adopted a utilitarian basis for “property rights” that suggests they are just a useful artifact for efficiently distributing scarce resources.  So in fact, they do not support property rights but property grants or privileges.  This also means that they are confused that patents are not property rights.  Patents are the single most important property right to economic growth, especially in a developed country.  CATO is therefore in the position of being for property rights at an empirical level, but arguing against them on a philosophical level.  Interestingly this also means that CATO is inconsistent about supporting our Constitution, which requires that Congress secure the rights of inventors to their inventions.  No wonder the US is an economic basket case.

September 30, 2013 Posted by | -Economics, Innovation, News, Patents | , , , | Leave a comment

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’.

 

July 23, 2013 Posted by | -Philosophy, Patents | , , , , | 18 Comments

Reason Magazine: Using Emotion and Faith to Advance their Anti-Patent Agenda

Reason Magazine has released a video, entitled How Patent Trolls Kill Innovation.  The magazine banner states that they support “Free Minds and Free Markets” but this video relies on the same irrational, emotion driven logic as the media.  I cannot point out all the errors in this video, but below I will highlight some of the major points.  Before I do that , let me show some of the sleazy attempts by Reason Magazine to use emotion and hidden assumptions to advance their argument, instead of reason and logic.

Emotion and Faith

*The video starts with the hidden assumption that patents are not property rights – faith not reason.

*The video uses the phrase “patent trolls” to immediately define who is right or wrong without actually proving their case – an emotional appeal.

*The video selects a small entrepreneur to narrate their story – using the typical liberal tactic of pretending this is a fight between a small virtuous entity against a big faceless entity.  The reality is that so-called “Trolls” sue large entities much more often than small businesses.  Emotional appeal, not reason.

*The video uses an “expert”, Julie Samuels, from a biased source, (Mark Cuban’s lobby group) who has no qualifications in the subject.  She has a degree in Journalism and Law, which means she is NOT A PATENT ATTORNEY and does not have the technical skills to understand the underlying technology of patents.  Faith not reason.

 

Title Search

The video never asks if Austin Meyer did a patent search and clearance opinion before building and selling his software.  You would not build a house without doing a title search to make sure you owned the land.  Given Mr. Meyer’s surprise that he was being sued for patent infringement, he almost certainly did not undertake this simple due diligence step.

 

Using Other Peoples’ Property

Mr. Meyer complains that he may have to pay the patent holder for the life of his product.  Yes, that is what happens when you use someone else’s property.  This is like a steel manufacturer complaining that they have to continue to pay for coal or pay rent for a building they do not own.

Note that the underlying technology is critical to Mr. Meyer getting paid, but he doesn’t want to pay for it.

 

East Texas

The anti-patent crowd always complains that these suits are brought in East Texas.  If someone refused to pay you rent for staying in your house, would you chose the slowest court in the country or a faster court?  Federal Court for the Eastern district of Texas has been one of the fastese to bring invention squatters to justice.

 

Patent Trolls

The video makes the implicit assumption that non-practicing entities (NPE) are evil.  However, Edison was a NPE, as was Tesla, as was almost every great inventor in the last 200 years, as our most major corporations, as most of our Universities and Government labs.  Our Founders looked at the issue of requiring inventors to practice their invention in order to keep their patent and rejected it.  They voted for a FREE MARKET system where people could be independent inventors, just like writers do not have to be publishers in order to obtain or keep their copyrights.  This is consistent with Adam Smith’s division of labor theory.

The video takes the stand that if you buy the patent rights instead of being the inventor,this is somehow evil.  First, all corporations buy their patents – often by paying wages.  Corporation don’t invent so they have to buy their patents.  Second, we do not argue just because you didn’t build your house you cannot rent it out .

 

Old Technology

Mr. Meyer states in the video that the technology he wants to use is old, from the 80s.  If this were true, Mr. Meyer would be free to use it.  But, instead, he wants the updated version of the technology that ensures he gets paid, he just doesn’t want to pay for it.

 

The Patent Should Not Have Issued

Neither Mr. Meyer nor the so called expert, Julie Samuels, are patent attorneys.  They are NOT QUALIFIED to evaluate the scope of the claims of a patent.  It is interesting how lay people (I include attorneys who are not patent attorneys in this definition) believe they can just read a patent and evaluate it, but they would never try to do the same thing with a Warranty Clause in a contract or an Indemnity Clause.  No one would believe a Journalism major or an attorney (non-technical) is qualified to comment on software technology; but somehow they are qualified to comment on patents on software?  This is like asking a plumber to comment on the design of a Nuclear Power Plant.

 

Patents and the Free Market

Patents are property rights, just like a property right in a farm.  The basis for all property rights is creation.  Inventions are clearly creations.  Property rights are part of the free market.  Those countries that are the freest economically have the strongest patents laws, are the most innovative, and have the highest standards of living.  REASON MAGAZINE is pushing a point of view that is much more consistent with a Marxist’s labor theory of value than Capitalism.

 

 

REASON MAGAZINE is neither promoting REASON or FREE MARKETS in posting this video.

 

 

 

 

Reason Magazine: How Patent Trolls Kill Innovation

February 21, 2013 Posted by | -Economics, -Philosophy, Blog, Innovation, News, Patents | , , , , , | 5 Comments

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.

 

October 8, 2012 Posted by | -Economics, -Law, -Philosophy, Innovation, Patents | , , , , | 11 Comments

Property Rights, Possession and Objects

There appears to be considerable confusion differentiating property rights, possession and objects in the economics including academic papers. Property rights are a moral and legal concept. Historically, the moral reason for property rights is based on the natural rights concept that you own yourself and therefore you own the product of your labor, both physical and mental. Property rights in an object mean that you have a legal title to an object, which gives you the right to exclude others from using the object in which you have title. This is exactly the same whether the property right is in the object of land, chattel, inventions, or writings. Continue reading

December 14, 2009 Posted by | Uncategorized | , , , | 1 Comment

Scarcity – Does it Prove Intellectual Property is Unjustified?

A number of scholars[1] have suggested that the logical basis for tangible property rights is scarcity.  Property rights efficiently allocate these resources and avoid conflicts between competing rights of individuals.  These scholars argue that ideas and invention are not subject to scarcity and therefore intellectual property rights should not exist.  These arguments seem to be particularly prevalent among Libertarians, including the Cato Institute and Von Mises Institute, and the open source community.  Continue reading

June 22, 2009 Posted by | -Law, -Philosophy, Innovation, Patents | , , , , , , , , , | 4 Comments