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summarize the basic problem with patent law from a free-market perspective;
present a series of real patent reforms that could make significant improvement in patent law (short of abolition);
explain and critique the relevant changes made by the America Invents Act;
briefly summarize other imminent IP legislation and treaties on the horizon; and
respond to questions from attendees.
As both proponents and opponents of patent law recognize, these issues are of crucial importance for innovation and our economy. If you are interested in learning about the current direction of patent policy, you may find this class of interest.
Opponents of the state monopoly privilege grants that the state and supporters propagandistically call "intellectual property" use a variety of alternative terms, in attempt to better describe these "rights" without implying they are valid, as the word "property" seeks to do.
Boldrin and Levine, in Against Intellectual Monopoly, use the term "intellectual monopoly." The benefit of this term is that it calls attention to the fact that IP rights are not property but monopoly grants by the state (see Are Patents "Monopolies"? and Intellectual Properganda). I sometimes still call it IP, simple for communicative efficiency and out of semantic inertia, but of late I tend to just say "patent and copyright," to isolate the two main state legislated rights schemes that fall under the IP umbrella. In the past I have proposed the term "pattern privileges" (see Renaming Intellectual Property) and sometimes call IP advocates "intellectual properteers."
The term intellectual poverty occurred to me the other day. It has several advantages: it is disparaging and pejorative; it rhymes with intellectual property; and it implies both intellectual impoverishment (which results from the censorship and restriction on ideas, which are the results of patent and copyright law) and material impoverishment caused by all state invasions of genuine property rights.
I am very happy that Stephan Kinsella is finally teaching a class on intellectual property, which is surely one of the most important issues of our time. We need desperately to spread education about this topic, which is a difficult one. It is not one of the "armchair" issues that you can solve without much thought or serious study.
Let me try to give a flavor of what we are dealing with here.
Last week, I had to haggle with an authors' consortium in Britain concerning a 1946 text. The author had no children and he died before the copyright on the book expired. Someone swept in a renewed the thing, thereby taking it off the market. It hasn't been in print for some 40 years. A paralegal helped me discover the owner, which turns out to be some scam operation that preys on people who want to reprint books. I asked to distribute the thing online. The consortium never seem to have heard of the internet. They wanted a fee for $1 per book with a contract that lasted 2 years and a limit on our sales. None of this works for us. So we said no. As a result, the book, which is not that mission critical, goes back to its eternal resting place, all because of "intellectual property" which is just so obviously a hoax and a violation of human rights.
This is only one of dozens of cases I've dealt with. And there are actually millions of books in this condition, effectively burned and destroyed by IP law. The most exciting innovation in human history is the internet and digital distribution, which offers the ultimate thing, the possibility of universal distribution of knowledge, the dream of every intellectual from the ancient world to the present. And yet this is being stopped by laws administered by fools, in complete violation of the rights of the creators themselves. This strikes me as completely indefensible and yet it is the reality of our times.
Texts published after 1963 and before 1995 when things started going online are as good as gone. By the time these books enter the public domain, their value will be dramatically reduced. Meanwhile, they are being forced into death by the state and its laws, even though we have the technology to liberate them all right now. This is a travesty. Imagine a marauding band of terrorists in the 16th century that smashed every printing press it could find on grounds that it threatened the livelihood of scribes. This is exactly what is going on right now.
The level of ignorance out there concerning copyright is amazing to watch. People hear things on the street and pass them on, while knowing nothing about the actual realities of the law, which is the craziest, mixed up mess of nonsense you will find in the statute books of all human history. There is no one rule that helps you find out what is and what is not available for digitizing. Congress changed its mind every decade or so, to the point that now texts can be tied up in the physical world for as long as 170 years. Authors are constantly tricked into going along with this cockamamie system in the hope of royalties that never arrive. The state has set up a moral hazard and authors keep falling for it.
Authors are often unaware of what they are doing and signing. Just a bit ago, I had an author tell me that all is well because he retained copyright to a book. In fact, this means nothing because when he published, he signed his rights away by making the publisher the administrator of his rights, a status which lasts as long as the book is in print. Guess what? Books never go out of print these days. His book is as good as dead as regards digital media. He had no idea. Even though he is a creator, his rights are being violated in the name of "intellectual property" and he remains totally flummoxed about how this happened.
Most people have no idea just how bad the situation truly is.
Nor have most people considered just how flimsy and ridiculous the foundation of "intellectual property" really is. If the law were actually applied consistently, so that we had to negotiate rights over every idea we use, the whole of society as we know it would come to a screeching halt. Learning and influencing would be against the law. Every generation would start over, having benefited not at all from the experiences of the previous one.
People are constantly fooled over this subject. After my review of Social Network, my in-box filled with questions about my claim that Mark Zuckerberg did not owe the Winklevoss twins anything. The claim is that Zuckerberg took their idea of a Harvard-wide social network, so why should he be forced to pay? Well, consider: what if Zuckerberg's ideas never really went anywhere and Facebook ended up being a huge financial failure. What Zuckerberg have been able to foist his liabilities off on the Winklevoss twins? If ideas are property and Zuckerberg owed his success to them, it makes sense that they would also bear the liability for failure. But no one seriously suggests this, which tells me that the same people don't take their claims literally.
I also have to laugh about people who wrote me to say that they saw the movie on my recommendation and liked it but do not agree with Kinsella on IP. Well, wait just a minute: they took my idea and saw the movie, so shouldn't they be forced to pay me money? Haven't they robbed me of my idea of seeing a movie? Think about this and see how preposterous this truly is. The reality is that 1) I put my idea out there, 2) ideas can be copied without stealing them, 3) the whole of life itself is made possible via the extraction and application of the ideas of others.
I love the movie Social Network because it shows how real life works in the world of entrepreneurship. Entrepreneurs are specialists in extracting information to inform their judgements about the world. They are great learners, great copier, great implementers of the ideas of others, improving them and testing them against the reality of economic life. Ideas alone pay nothing. Only the doing pays returns (or losses). As Rothbard says, a real entrepreneur is not just a thinker but a capitalist who takes risks.
But you say that Zuckerberg had a contract with the twins to do work for them? In fact, there was no contract, and anyone who says that Zuckerberg did anything wrong wouldn't last a day in the real world. It is common in every aspect of life, particularly in the world of geeks and code monkeys, for people to agree in principle and then not come through. It happens with four out of five people I approach about working on Mises.org, for example. That's not contract breaking; it is just the way life is. Zuckerberg had a better idea than to waste time on the twins' project, and good for him. We are all better off.
Try an experiment sometime. Imagine that ideas really are property, and that every time you learn something or discover something or hear something that influences your later actions, you have to pay some money or else you are a thief. Try it tomorrow when you wake up and just see what happens. You will discover that you will either be bankrupt by noon or rendered senseless and motionless. We cannot get by this way.
The beauty, the glory, the magic, the mystery and magnificence of ideas as versus real property is precisely that they are infinitely copyable, malleable, transferable, and spread in unpredictable ways. They are the very energy and life of civilization itself, the means by which we build, grow, and navigate this world of scarcity in ever more successful ways.
There is no greater illustration of the arrogance and pretensions of the state that it imagines that it can bottle these up and buy and sell them, becoming a global mind reader of everything we see and hear, all in the name of property-rights enforcement. The bitter irony is that the state is doing the opposite of enforcing property rights; it is violating them through its attempt to restrict the unrestrictable.
IP consistently applied can destroy the whole world as we know it. As it is, IP is enforced only intermittently and thank goodness for that. What is troubling is that most people are clueless about where they stand on this issue. They figure that it doesn't really matter for them, just as slavery didn't matter to most people in the year 1800, so why should we care? We must care. Everything is at stake in this battle.
But let's say that you don't agree with Kinsella that IP is a myth that must be shattered. Will you benefit from this class? Absolutely. It will help you think, and think hard about this subject. He is a world expert, a patent attorney and a great thinker, surely one of the most important living intellectuals today. He has made himself available to you through the Mises Academy. I don't believe that this class will settle all things but it will help you think and learn and gradually come to a coherent position on this issue.
If we all had our priorities straight, the Mises Institute would need to close the class at 1000 students. I don't think we will have that many but we should. In 500 to 1000 years, students will be studying our generation and wonder who the dunderheads were who slammed on the breaks of social progress by crushing innovation, burning books, fining innovators, jailing teenage file sharers, prosecuting good learners, smashing art and music, and using government force to prop up losers, scam artists, and reactionary forces in society. They will laugh at us.
My speech, "How Intellectual Property Hampers Capitalism," presented last weekend at the Mises Institute Supporters' Summit 2010 (Oct. 8-9 2010, Auburn Alabama), is online now; here is the Audio file; the video is below. There is also an edited transcript of the speech. The conference's theme was "The Economic Recovery: Washington's Big Lie."
"Finally, everything fell into place, primarily from Rothbard and Misesian theory. I found that this issue is difficult, but once you see it, it's one of these issues that sets peoples' minds on fire. It frees you to think about other things in different ways." FULL INTERVIEW with Jeffrey Tucker
Patent law is mind numbingly arcane, technical, and boring, so let me simplify as much as possible. This case was about what the legal test should be to determine whether certain processes can be possibly eligible for patent protection. For typical practical technical or industrial processes, it's not a difficult question. But for "business-related" methods, such as the one here--which had to do a way for commodities buyers and sellers in the energy market to hedge against the risk of price changes by following a certain mathematical formula--the question gets trickier. Courts are leery of opening the door all the way because then we'd be swamped in even more ridiculous patents than we are now (such as the attempt by Dustin Stamper, President Bush's Top Economist, to secure a patent regarding an application for a System And Method For Multi-State Tax Analysis, which claims "a method, comprising: creating one or more alternate entity structures based on a base entity structure, the base entity structure comprising one or more entities; determining a tax liability for each alternate entity structure and the base entity structure; and generating a result based on comparing each of the determined tax liabilities").
The Court of Appeals for the Federal Circuit (CAFC) tried to do this by adopting a more rigid test than had been used before. They said that a process could be patented only if it (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing--this is the "machine-or-transformation test." Based on this test, the claimed business method was rejected. The problem is, this test is not in the Patent Act. So the Supremes had to take a crack at it. Now I have mentioned this case before, in The Arbitrariness of Patent Law; Supreme Skepticism Toward Method Patents; and Radical Patent Reform Is Not on the Way. This is one of these cases that had patent lawyers crying crocodile tears, gnashing their teeth, acting as if this was just part of the terrible and radical--radical!--movement to scale back patent rights. Anyway, I predicted:"I suspect the Court will choke back a bit on software and business method patents-but not too much." It was obvious from the oral arguments that the Court saw how ridiculous it would be to have an open test that allowed a lot more types of processes be eligible for protection. You could have patents on anything. So they want to choke back on this, and so did the CAFC. Unfortunately, the patent law is there. And the judges have to interpret this mess. It's not their fault, really. I don't blame them for this impossible task. As I noted in a recent post,
As I noted in Another Problem with Legislation: James Carter v. the Field Codes, there is a fascinating paper published in 1884 by James C. Carter, The Proposed Codification of Our Common Law: A Paper Prepared at the Request of The Committee of the Bar Association of the City of New York, Appointed to Oppose the Measure. This paper was an attack on David Dudley Field's attempt to (legislatively) codify New York's common law. Carter opposed replacing case law with centralized legislation. Carter notes that caselaw precedents are flexible and allow the judge to do justice (see also John Hasnas's classic The Myth of the Rule of Law), while statutes are applied literally, even where injustice is done or the legislator did not contemplate this result. Thus, Carter argues, one of the worst effects of legislatively codifying law-replacing organically developed law with artificial statutes-is that it changes the role of courts and judges from one in which the judge searches for justice into mere squabbles over definitions of words found in statutes. As he said at pp. 86-86:
At present, when any doubt arises in any particular case as to what the true rule of the unwritten [i.e., judge-found, common-law developed] law is, it is at once assumed that the rule most in accordance with justice and sound policy is the one which must be declared to be the law. The search is for that rule. The appeal is squarely made to the highest considerations of morality and justice. These are the rallying points of the struggle. The contention is ennobling and beneficial to the advocates, to the judges, to the parties, to the auditors, and so indirectly to the whole community. The decision then made records another step in the advance of human reason towards that perfection after which it forever aspires. But when the law is conceded to be written down in a statute, and the only question is what the statute means, a contention unspeakably inferior is substituted. The dispute is about words. The question of what is right or wrong, just or unjust, is irrelevant and out of place. The only question is what has been written. What a wretched exchange for the manly encounter upon the elevated plane of principle!
Or, as I note in "Legislation and the Discovery of Law in a Free Society," Journal of Libertarian Studies 11 (Summer 1995), "Thus, previously, law was thought of as a body of true principles ripe for discovery by judges, not as whatever the legislator decreed. Nowadays, however, legislation has become such a ubiquitous way of making law that ‘the very idea that the law might not be identical with legislation seems odd both to students of law and to laymen.'" [Bruno Leoni, Freedom and the Law]
The point is, the judges here are merely interpreting arbitrary words of an artificial law, a statute--a written down edict of the legislature, a bunch of words that have no inner harmony, no guarantee of consistency, no relationship to justice. So you can't really criticize the courts too much for how they construe these legal abominations.
Back to Bilski. So the Court rejected the CAFC's holding that the "machine-or-transformation test" was the sole test for determining patent eligibility. They said that while this test "may be a useful and important clue or investigative tool, it is not the sole test for deciding whether an invention is a patent-eligible 'process.'"But they had to find a way to strike down this patent, so they did so based on an older test, one that just said you can't patent "abstract ideas." So, the Court was able to reject the narrow test of the CAFC, without having to allow this business method patent. But they wanted to encourage the CAFC that they could try to find yet other ways to limit questionable method patents: "In disapproving an exclusive machine-or-transformation test, we by no means foreclose the Federal Circuit's development of other limiting criteria that further the purposes of the Patent Act and are not inconsistent with its text." I.e., they punted: you guys figure out a better way to shut the doors a bit more, consistent with this statute.
So what do we have: we have a very slight narrowing of patent eligibility by re-use of an old "abstract idea" test; a rejection of the more bright-line, narrower but unstatutory test of the CAFC; and more legaluncertainty. And while the patent bar will use the slightest modification of patent law to cry that the sky is falling, it's not. Unfortunately.
Fortune's Don't ice me, bro! When memes meet the marketplace relates the battle by Vodka peddler Smirnoff against fans of its Smirnoff Ice beverage. Apparently it had become popular with "Bros"--"a college-age person ... They like to hang out. A lot of them drink beer and wear backwards baseball caps. A lot of them drive SUVs and listen to Dave Matthews Band"--well, until Smirnoff sued them, I guess. Some frat-boy antics arose where these kids of privilege and no rhythm would "ice" each other--basically daring or challenging or pranking each other to drink a Smirnoff Ice. Then someone set up fan site brosicingbros.com, with pictures etc. of people "Icing" each other.
Good PR for Smirnoff, right? Well apparently Smirnoff didn't think so, so they threatened the site with a copyright and trademark lawsuit, so it was taken down. The case by Smirnoff is taken apart in Bros Icing Bros - A Case for Copyright Bullying by Overreacting Smirnoff Lawyers by legal non-profit called NewMediaRights, which heroically provides "free legal assistance to bloggers, journalists, and filmmakers getting bullied by companies into taking down their websites."
This Friday, Sept. 23, at 6pm Easter time, I'll be teaching a Mises Academy Webinar discussing the America Invents Act, signed into law last Friday by President Obama. I discuss this webinar in a Mises Daily article today: Obama's Patent Reform: Improvement or Continuing Calamity?.
I am very happy that Stephan Kinsella is
Fortune's 
