Chapter 39: Patents, Copyrights, and Trademarks
Updated: 4/13/20
The Lord God commanded the man, saying, “From every tree in the garden you may freely eat. But from the tree of the knowledge of good and evil you may not eat, for on the day that you eat from it, you will surely die” (Genesis 2:16–17).You must not steal from anyone (Exodus 20:15).
You must not covet your neighbor’s house; you must not covet your neighbor's wife, his male servant, his female servant, his ox, his donkey, or anything that belongs to your neighbor (Exodus 20:17).
A thief must make restitution. If he has nothing, then he must be sold for his theft. If the stolen animal is found alive in his possession, whether it is an ox, a donkey, or a sheep, he must pay back double (Exodus 22:3–4).
You must not remove your neighbor's landmark that they set in place a long time ago, in your inheritance that you will inherit, in the land that Yahweh your God is giving you to possess (Deuteronomy 19:14).
I have discussed all of these passages in my economic commentaries. There is no escape from this conclusion: privately owned property is protected by biblical law. The archetype is the judicial boundary that God placed around the forbidden tree. The tree belonged to God. Adam and Eve were not allowed to eat from it. Their violation of this boundary constituted theft. It was the original sin. It brought all mankind under God’s negative sanctions.
The courts of every civil government have a responsibility to defend property rights. They must declare negative sanctions against theft. Civil magistrates are required by God to carry out these sanctions. The legitimate sanctions are clear with respect to the theft of most property: double restitution (Exodus 22:4). Whatever the market price of the stolen good was at the time it was stolen, the thief must restore the property as well as pay a penalty equal to its value. This is to serve as a warning to thieves. If they are captured, tried, and convicted, they cannot escape their obligations simply by restoring the value of whatever was stolen. They must be worse off as a result of their theft. [North, Exodus, ch. 43]
There are two judicial aspects of privately owned property. The first is an identifiable asset. It has value to the owner. The tree of the knowledge of good and evil was clearly identifiable. The second aspect is a judicial boundary around the identifiable piece of property. God establishes this boundary: legal ownership.
In all but one property law in the Bible, the laws protecting property have to do with physical property. The exception is the third commandment. “You must not take the name of the Lord your God, in vain, for I will not hold guiltless anyone who takes my name in vain” (Exodus 20:7). [North, Exodus, ch. 23] This violation is a violation of identifiable property. God’s name belongs to Him, and to Him alone. He establishes the proper uses of His name. The protection given to God’s name extends to the protection given to the names of His agents in history. This is why there is a law against slander. This is the meaning of the ninth commandment: “You must not give false testimony against your neighbor” (Exodus 20:16). The neighbor’s reputation is protected by God’s law. [North, Exodus, ch. 29]
A person’s name is associated with personal responsibility. A private property legal order has as its greatest benefit the linking of ownership with economic responsibility. Responsible people are better servants to God and men than irresponsible people are. This principle applies also to a person’s general behavior. He has been given life. He has been given opportunities. He has a reputation. This reputation is assessed by others in the marketplace. His reputation must not be undermined by false accusations.
Similarly, a person is not to use another man’s name on his own productivity. This law prohibits counterfeiting of all forms. He is also not to take credit for the other man’s productivity. To take credit for another man’s productivity is an act of theft. It is a particular form of theft: fraud. If a person takes credit for another man’s productivity, the victim is entitled to double restitution (Exodus 22:4). But the expense in time and legal fees of proving this in most cases will be much greater than the potential restitution payment from the thief. This is a restraining factor on the number of cases brought before the courts. There is always a cost of receiving justice. There is forfeited time. There may be lawyers to pay. In most cases, it is not worth someone’s time and money to take a case in front of the civil magistrate in the hope of gaining double restitution.
I come now to a fundamental principle of Christian economics. The biblical state is not an agency of wealth creation. It is an agency of justice. The only wealth redistribution by the state that is authorized by God is the imposition of penalties for theft. These penalties are not based on the wealth of the victim. They are based on the value of the stolen goods. If a relatively poor man steals something from a rich man, the poor thief owes the rich man double restitution. If he cannot pay this because he is a poor man, he is to be sold into slavery, and the money used from the sale is transferred to the victim. This reminds poor men that they should not steal from rich men. If they do, they should not steal something of high value. The greater the value of the loot, the greater the threat of the restitution penalty. I use the present tense. This law is universal. The thief who cannot pay his victim in cash must either be sold into slavery or else placed in a position of compulsory service in which part of his pay goes to his victim. This system is allowed by the United States Constitution. In the thirteenth amendment (1865), the anti-slavery amendment, we read: “Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States, or any place subject to their jurisdiction.” This is consistent with Exodus 21.
There is no case in the Bible of legal protection given to the discoverer of an idea. More to the point, there is no principle of biblical law that defines or identifies an idea as private property. Physical property is protected by law. A person’s reputation is protected by law. That is to say, his name is protected. The work of his hands is protected by law. But the work of his mind is not protected by law.
To better understand the distinction between the protection of a man’s name and protection of his idea, consider the sin of plagiarism. It is an act of fraud. In academic circles, it is legitimate to quote from another author. As long as the person quoting a passage acknowledges that someone else wrote it, he is entitled to quote the passage. Why? Because the person who wrote the passage gets credit for it—credit, not money. His name is protected, but his discovery or insight is not. Plagiarism usually leads to negative sanctions in a scholar’s career. The easiest way to avoid the accusation of plagiarism is to acknowledge the name of the person who came up with the idea. Then there is no sin. There is surely no crime.
A discovery that has economic value in a production process is called intellectual property. The phrase “intellectual property” conveys the idea that a temporary monopoly granted by the state to the discoverer of an idea is conceptually the same as the permanent right of someone to a piece of physical property that he bought or inherited. Most of this chapter deals with the authority of the state to grant a temporary monopoly to someone who has discovered a new production process. This monopoly is called a patent. Part of this chapter deals with copyrights: a monopoly grant of a much longer duration to someone who has published a specific sequence of words or musical notes or other works of art that may generate money for their creator. I also deal briefly with a third grant of monopoly: trademarks. Their duration is permanent.
The state grants patents on this pragmatic basis: they supposedly lead to more discoveries, and more valuable discoveries, than the free market does without state intervention. Society therefore benefits from patents. Those scholars and policy-makers who support patents have an obligation to answer the following questions: (1) How can an idea’s economic gains for society be accurately estimated by judges and policy-makers? (2) How can the economic losses imposed on society by the state’s restriction on the market-based implementation of an idea be calculated by policy-makers? (3) What is the nature of the legal boundary that is said to surround intellectual property? (4) How can this boundary be enforced? (5) At what cost? (6) At whose expense? These questions are aspects of the main question that I raise in this chapter: “In what way is a technological idea or a sequence of words a judicially identifiable form of property that is comparable to physical property?”
Biblically speaking, in order for an asset to have the legal status of property, the person who claims ownership has to show that there are biblical legal boundaries around this asset. He has to be able to prove in a court of law that he is a lawful owner. What is his judicially valid evidence? Did he purchase it? Did he inherit from someone who had purchased it? Was it a gift from someone who had purchased it? There has to be a trail of title. Only in extremely rare situations, when one culture is conquering another culture, is there no trail of title. In this case, the civil government of the invading culture establishes the terms of ownership, but only if it is successful in defending its claims against the opposing civil government. Ownership is established on the battlefield. This is what happened when Israel invaded Canaan. But it happened only once in the history of Israel. It was not to serve as a model for future conquest. Israel was not to become an empire. Mosaic laws restricted this.
A person who claims ownership of an idea has no trail of title. The Bible says that he got his idea from God. “Every good gift and every perfect gift is from above. It comes down from the Father of lights” (James 1:17a). God does not include a certificate of title to this form of property. It is a gift to the individual. But it is not a legal claim to control over the property of other people who also make use of this gift. Under biblical law, he can use his idea to benefit himself, but there is no enforceable legal boundary around this God-given idea. God could have given the idea to anybody. It is the recipient’s idea to be used freely in his own circumstances, but it is also an idea that can lawfully be used by others in their circumstances if they learn about it. If he wishes to keep it a secret, he may lawfully make the attempt, but if the secret gets out, he has no legal title to defend. Without a trail of title, there is no legally defendable ownership for an idea. It may be a valuable asset, but it is not an asset protected by a legal boundary. Any attempt to establish a legal boundary is a violation of biblical law. This attempt should be resisted by citizens, legislatures, and courts.
A baker of bread has the biblical right to say this: “This bread is mine.” On what legal basis? He has a trail of lawful title to the ingredients. At least, no one else can prove ownership with a superior claim. In contrast, he does not have the biblical right to say this: “The recipe is mine.” Why not? He has no trail of title. There can be no such trail. The original claimant had none.
God did not tell Adam that he could not seek the knowledge of good and evil: ethics and judgment, points three and four of the biblical covenant. He wanted Adam to possess such knowledge, but only on God’s terms. He wanted mankind to possess it, but only on God’s terms. God therefore did not claim exclusive ownership of such knowledge. That was the serpent’s misleading suggestion. But God did claim exclusive ownership of a physical tree that had a legal boundary around it. By implication, so can private owners of physical property. Ideas are not physical property. Men cannot legitimately claim exclusive ownership of ideas that lead to dominion.
My discussion of patents and copyrights is lengthy. There is a reason for this. The topic has generally been ignored by economists. They shy away from it. There is no developed body of theory on these related issues. Even Ludwig von Mises tried to avoid these twin conceptual land mines. In the final section of Chapter XXIII of Human Action, a chapter on the data of the market, he wrote the following. “Patents and copyrights are results of the legal evolution of the last centuries. Their place in the traditional body of property rights is still controversial. People look askance at them and deem them irregular. They are considered privileges, a vestige of the rudimentary period of their evolution when legal protection was accorded to authors and investors only by virtue of an exceptional privilege granted by the authorities. They are suspect, as they are lucrative only if they make it possible to sell at monopoly prices. Moreover, the fairness of patent laws is contested on the ground that they reward only those who put the finishing touch leading to practical utilization of achievements of many predecessors. These precursors go empty-handed although their main contribution to the final result was often much more weighty than that of the patentee.” As you will understand after you have read this chapter, I am among this group.
Mises then asserted this: “It is beyond the scope of catallactics [economic theory] to enter into an examination of the arguments brought forward for and against the institution of copyrights and patents. It has merely to stress the point that this is a problem of delimitation of property rights and that with the abolition of patents and copyrights authors and inventors would for the most part be producers of external economies.” On the contrary, it is vital that a Christian economist examine these arguments carefully. They have to do with ownership, legal responsibility, theft, and economic growth. They are aspects of property rights. The central judicial issue is this: “Whose property rights? The patent holder or the rest of society?” The answer determines economic winners and losers. It also affects the rate of economic growth.
1. Preventing Harm
Biblical civil government has the responsibility of imposing negative sanctions against people who commit harm. The Mosaic law included this law: “If a fire breaks out and spreads in thorns so that stacked grain, or standing grain, or a field is consumed, the one who started the fire must surely make restitution” (Exodus 22:6). [North, Exodus, ch. 44] , This was an aspect of what we call strict legal liability. But the civil government had no authority to extract wealth from someone else to reward an inventor. There had to be a physical loss for restitution to be lawfully invoked by a victim: a fire or a physical injury. (There was an exception: false witness. This protected a man’s name.) This is what Exodus 22 deals with: physical losses. There was restitution for physical losses; there were no subsidies to promote ideas. If someone in Mosaic Israel discovered a way of increasing agricultural output, he could not go to the state and demand that those neighbors who were copying his discovery pay him restitution. He also did not have the legal right to demand a royalty payment from neighbors who applied his discovery. He had the legal right to benefit from his discovery in his own fields, but not from his neighbor’s fields.
Here is a modern example. Consider the use of honeybees in pollinating orchards. Someone hires a professional bee-pollination service to bring bees into his orchard, so that his fruit-producing business may experience greater output. But if some of the bees fly into his neighbor’s orchard and perform that same biological service, the individual who hired the bee-pollination service cannot legitimately demand payment from his neighbor. The state would not intervene in order to collect such a payment. The state cannot lawfully impose a negative sanction on the beneficiary of a positive sanction that he did not agree to pay for. The neighbor did not agree to pay for the bee-pollination service. He owes his neighbor nothing.
The theology behind the biblical view of idea sharing is easy to explain. Because God can give an idea to anybody, and because this idea may enable others to subdue their allotted share of the earth, there should be no legal restraint on the spread of this information. The state’s God-given role is to impose negative sanctions on people who have inflicted harm on others: restitution to victims. Its role is not to impose negative sanctions on those who have gained measurable benefits from ideas developed by others. No state-enforced payment is owed to someone who has discovered a beneficial service for humanity. The discoverer cannot lawfully call on the state to restrict the spread of the benefits that have resulted from his idea. He is allowed to benefit personally in his own business from his discovery, but he is not entitled to benefit personally in the businesses owned by others who have benefitted from his discovery. He does not have a property right in the use of their property.
Patents and copyrights are violations of this principle of biblical law. The state threatens violence against anyone who adopts a recently discovered production technique if the discoverer complains to the courts. No one can legally implement this productive process without his permission. In short, the state denies their property rights: the use of their land, labor, and capital. It acts on behalf of someone who should not have any legal claim. There is no biblical basis for a legal claim on an idea. In the name of defending the income of someone who had no property right to an idea until the state granted him a temporary monopoly, the state restricts the property rights of an entire society: producers and the consumers who would have bought from them.
Where did such a concept of property rights come from? With only a few exceptions in history, East or West, until the Renaissance city-state of Venice in the mid-1400s, no state’s legal code authorized such an invasion of property rights.
2. Economic Growth Without Patents
In the fall of 1964, I audited a course in medieval history at UCLA. It was taught by Lynn White, Jr. His book, Medieval Technology and Social Change (1962), was of interest to me. It was an important book in 1962 because it told a different story from what had been the common message of humanist historians ever since the Renaissance. It showed that the medieval era in Western Europe was a time of tremendous invention and discovery. The book is still quoted as a reliable study. Few academic books that old survive with their reputations intact.
There was no intellectually or legally developed concept of intellectual property in medieval Europe. Innovations were imitated whenever they proved to be productive. Some of the greatest innovators in farming were monks. Medieval monasteries were filled with men who were highly disciplined. They worked long hours. Any profits made by the monastery from the sale of its output were used either for charity or for capital development. There were exceptions, of course. Some of the monasteries became rich. Then there would be a period of monastic reform imposed by the church. But there is no question historically that the monasteries pioneered agricultural techniques that increased food production. The monks were happy to share their knowledge with members of other monasteries, or at least those in the same religious orders. An innovation developed in one monastery spread across Western Europe. Other monasteries were what is known today as early adopters. Travelers from other monasteries could come from across Western Europe to visit a monastery that had made a discovery. They could see the results of a specific innovation. They could then take their stories home with them. Local people in their communities could then begin to experiment on a small scale to see what the results were of an innovation.
The same transmission of information took place when a discovery was made on a fief. If a Lord’s serf made a discovery, the Lord could lawfully keep it for himself and his domain, but word of profitable innovations always gets out. Travel was circumscribed in the medieval era, but it did take place. Also, there was a common language of scholarship that unified all of Western Europe: Latin. An investigator who made a discovery could transmit this information to other scientists by letter. There was continual scientific discovery during the Middle Ages. There was a systematic development of theoretical physics. This was not known until it was discovered by Pierre Duhem. It was not known by historians until the mostly posthumous publication of his ten-volume work, Le Système du Monde (1913–1959). He died in 1916. The first five volumes appeared in 1913, 1914, 1915, 1916, and 1917. Humanists in France’s academic guild kept the next five volumes from being published until 1954. It took his daughter’s threat of a lawsuit against his publisher to get the long-suppressed manuscripts into print. This is one of the most flagrant cases of academic suppression in history.
There were a few patents in medieval Europe: in the early 1330s in England. The king issued them. But in the rest of Europe, there was no way legally for an inventor to keep another inventor from making use of his idea. There was no presumption that the civil government had any authority to restrict the spread of technological innovation except with respect to weapons. This was a liberating factor in the development of technology in Europe that continued for a millennium. The Renaissance state reversed this tradition.
The common assumption by Medieval Christian ethicists was that God could reveal to anyone important information about the operations of the world of nature. No one had the right to prevent others from putting this information to profitable use. Someone had the legal right to conceal a discovery if he wanted to, but he had no right to call on the state to suppress the spread of his idea, once others observed the results of his discovery and imitated the procedures he had used to attain benefits.
Specialized producers in the ancient world attempted to keep secret their production methods. This was especially true of smelters. They were a guild. This was also true of healers. The original Hippocratic oath began with a promise to maintain trade secrets. Professional healers did not want outsiders to gain knowledge that would enable them to heal more people. It was not in the guild members’ economic self-interest to have other healers reduce the number of sick and injured people. Here are the opening words of the Hippocratic oath. “I swear by Apollo the physician, and Asclepius, and Hygieia and Panacea and all the gods and goddesses as my witnesses, that, according to my ability and judgement, I will keep this Oath and this contract: To hold him who taught me this art equally dear to me as my parents, to be a partner in life with him, and to fulfill his needs when required; to look upon his offspring as equals to my own siblings, and to teach them this art, if they shall wish to learn it, without fee or contract; and that by the set rules, lectures, and every other mode of instruction, I will impart a knowledge of the art to my own sons, and those of my teachers, and to students bound by this contract and having sworn this Oath to the law of medicine, but to no others.” This oath goes back approximately to 400 B.C. There is no record of any Greek city-state that enforced this oath in its courts. The oath was policed by the guild’s members. We do not know what negative sanctions were applied to oath-breakers, or how they were applied. We do know that no Greek city-state enforced this oath.
There is some evidence that one Greek city-state did issue patents for minor discoveries, such as food recipes. This was Sybaris, which was in Sicily. The patents lasted for one year.
During the Renaissance, the Italian city state of Venice began issuing patents, beginning in 1450. These patents protected producers for a period of ten years. A century later, the king of France began issuing patents. Patents also became common in England at this time. The king issued patents as a way to establish monopolies for men favored by the crown, or for people who paid to get a patent issued. It was a fund-raising device for the crown. This was the origin of the modern nation-state.
In 1624, England’s Parliament passed the Statute of Monopolies. This was the first statutory law governing the creation of monopolies. It was an assertion of power against King James I. There is no question that Parliament understood patent law as a means of creating monopolies. The state was the source of these monopoly privileges. The benefits obtained by these patents came as a result of a deliberate policy by the state to redistribute wealth away from consumers and into the bank accounts of the producers. The producers used these grants of monopoly privilege to keep prices high. They could keep out competitors who would offer identical or improved goods at lower prices.
1. Monopoly vs. Innovation
A standard argument used in defense of patents is this one: the existence of patent protection is an incentive for inventors to come up with new inventions that will benefit the public. In other words, the existence of a monopoly grant from the state is the basis of innovation, wealth creation, and consumer benefits.
In cases except patents, public utilities, and central banks, economists regard monopolies as an infringement on consumer authority. Economists correctly argue that monopolies reduce consumer authority by reducing competition. Almost all economists argue that monopolies are negative factors in wealth creation. There are some economists, probably most economists, who argue that there should be statutes prohibiting monopolies. They do not acknowledge that in almost all known cases, the origin of monopoly is some form of state interference into the market process. There is therefore no economic necessity for the state to pursue a monopoly in court. Politicians need only to revoke the law that has created the monopoly. This was the insight of Murray Rothbard in the early 1960s. It was not shared by most economists. One of the few exceptions was a book written by Dominic Armentano in 1972. It opposed antitrust laws. Armentano was a follower of Rothbard. More economists have adopted Rothbard’s argument over the years, but it is still a minority view. There has been no systematic attack by economists on government laws against monopoly. The economists’ acceptance and even support of patent laws are inconsistent with their analyses of all other forms of monopoly, with the main exception of banking.
The simplest economic argument against patent laws is the argument offered by Frédéric Bastiat in 1850, which is known as the fallacy of the thing not seen. We see the benefits of government spending on a public works project. We do not see the benefits of all of the smaller projects that would otherwise have been launched by entrepreneurs to serve consumers if consumers had not been taxed to pay for the state’s public works project. Bastiat’s approach to understanding public works projects was ignored by economists for almost a century. Henry Hazlitt resurrected it in his 1946 book, Economics in One Lesson. I used it in my 2015 book, Christian Economics in One Lesson.
Here is my application of Bastiat’s point. By subsidizing one company by means of a monopoly created by a patent, the government restricts the widespread production of products that would have been developments of the patented idea. Consumers are not able to buy whatever is not produced. We do not see these missing products. We should nevertheless consider them in our economic analysis. The state is not a creator of wealth. With respect to patents, it is a destroyer of wealth. It is a destroyer of wealth that is unseen.
In a series of articles and a book written by a pair of economists who oppose patents, Michele Boldrin and David Levine, we learn the following. Beginning with James Watt’s innovation of existing steam engine technology in 1768, the British government’s granting of patents to him restricted innovation rather than encouraged it. Watt was able to secure a patent that was renewed, totaling 32 years. It did not expire until 1800. Almost immediately after it expired, a series of major economic innovations utilizing steam power were invented. These included the locomotive in 1803 and the steamship in 1807. For over three decades, Watt had prospered from royalty payments based on his steam engine. He made no further innovations. The great benefits of his invention would have been available to the public three decades earlier, had it not been for a pair of monopoly grants of privilege to him. The authors go on to show that this pattern has repeated itself again and again, right up to 2010. The major profits from an invention come in the first few years of the innovation. Only when a product or an industry has moved into a phase in which it is no longer innovative do the companies begin to file lawsuits against patent violators.
People make an assumption: the state can create wealth by granting patent monopolies. There is no proof of this assumption. There is evidence against it.
2. My Gain Is Not Your Loss
If I steal physical property from you, my gain is your loss of something you legally owned. I have redistributed your property without your permission. You are God’s economic agent. Your property is God’s property. This is why God prohibits theft. This theory of ownership rests on morality. All economic theory rests on morality.
If you come up with a good idea, and you share that idea with me, you still retain full use of your idea. You have not suffered a loss. I have not redistributed your property. But I gain use of your idea. That idea serves as capital for me. I will use it to increase my production. I will be better able to serve customers. I have benefitted from your willingness to share that idea with me. So have my customers. Perhaps I paid you to share this idea. This was the situation in ancient Greece when someone paid a physician to share ideas with him regarding healing.
If I choose to share that idea with somebody else, that person owes you nothing. He has no legal relationship with you. There was no contract between you and him. If I swore that I would not share your idea, as was the case in ancient Greece’s guild of healers, then your claim is against me for having shared your idea, but you have no legal claim against the person with whom I shared your idea. If the other person wishes to sell your idea, that is his decision. Unless you have been granted a monopoly by the state, you have no legal claim against him. The state has created a property right that the free market did not create or acknowledge. This property right did not exist in most societies until fourteenth-century England, and then only sporadically in the West for centuries.
In order to enforce your claim against me, you have to sue me in a civil court. That is expensive. It eats up court resources, which are not free. Access is limited. It is allocated by forcing plaintiffs to stand in line. You must wait your turn. Also, you will have to hire an expensive lawyer. I will also hire a lawyer. We will both spend a great deal of money on lawyers. You will not risk this for a minor idea. You will simply let it go. Or, more likely, you will not share it in the first place. You will profit from it as a legitimate monopolist who has not gained his monopoly from a grant of privilege by the state.
A common phrase for such a chain of events is this: the genie is out of the bottle. It is difficult to keep secrets. Once the secret is out, it will spread rapidly if it is profitable. The person who invented the process can still legally sell his output at a profit, but his profit will be not be based on monopoly returns. It will not be based on the use of the coercive power of the state to prevent other producers from meeting consumer demand at prices consumers are willing and able to pay. The consumers are clearly the beneficiaries. This is consistent with economic analysis of monopolies. Monopolies reduce the benefits available to consumers.
Somebody who has an intellectual secret is like a person who has a hidden treasure. It is under lock and key. It is his responsibility to keep others away from his treasure. There are a few companies that have done this for centuries. Perhaps the longest and most successful monopoly has been enjoyed by the Zildjian company. It manufactures cymbals. It dominates the world market. Only two people know the secret of the metal’s formula: the existing head of the company and his eldest son. This has been going on since 1623. It began in Armenia. The company relocated to America in 1929. Next, the most famous monopoly in America is Coca-Cola. Its formula is a closely held secret. It was invented in 1886. There are also companies that use price competition to maintain their control of an entire market. The only brand of baking soda that Americans know is Arm and Hammer. It probably controls 95% of the American market. It is highly price competitive, so it does not pay competitors to enter the market to try to take away any of its market share. None of these firms was ever granted a patent.
3. Arbitrary Term Limits
Policy-makers in the United States have assumed that a 20-year patent creates wealth. But there was a time when this was 14 years: before May 13, 2015. Why the change? It is not surprising that companies that have obtained patents then have a lot of money to spend on lobbyists who persuade politicians to extend the terms of the patents.
In order for anything remotely resembling a plausible argument in favor of the ability of patents to create wealth for the entire nation, and not just for benefitted companies, there has to be some theory of economics that identifies the proper length of the patent monopoly. There is no such body of economic literature.
According to humanistic economic theory, there cannot be such an estimate, scientifically speaking. This is because it is impossible for policy-makers to compare the subjective utilities of many different people. Why not? Because there is no common objective scale of value. Policy-makers would have to estimate the net subjective utilities of all the consumers who would have bought a particular product or service at a lower price, but who are not permitted to do so for 20 years because a patent protects the original company from competition. Economists also should be able to show how policy-makers can estimate the net benefits to society of inventions that would not otherwise have been invented, had there not been patent protection offered by the government. The existence of the patent system subsidizes research and development programs for products that can legally be patented. For example, pharmaceutical companies do not invest research money on medicines that could be made solely with products available in nature. Because they cannot patent products that are available in nature, they do not make such investments in such medical research.
There is no developed economic theory of the costs and benefits of patents. There never has been. The entire system of patents is simply assumed to be a net benefit to society, and this assumption is widely shared. But there is no empirical evidence that proves it, and there is no theory that proves it. In contrast, there is a plausible theory that disproves it. I shall now present it.
4. Enforcement
In order to secure a patent, a person must apply for it. He has to pay money to get it considered. He will need a lawyer to do this. Then he must wait years for the granting of the patent. His future monopoly rests on the decision of one or more bureaucrats in a government office. The government is therefore the adjudicator initially with respect to who gets a patent and who does not.
Once granted, if the patent application reveals all of the manufacturing details, it can be copied by any large company anywhere in the world. The company can begin to produce the item. To get the company to stop, the person who owns the patent must hire lawyers. The larger and richer the violating company, the more likely that the patent holder will not be able to collect a judgment against that company.
The stealing company may be able to delay the trial long enough so that the primary benefit of the patent is gone. Most of the money made from a new invention is made by early positioning. The public associates the name of the producer with the benefit associated with the invention. The company establishes its market, and then it attempts to keep that market through innovation. This is why there is no guarantee that a person laboring in obscurity without a lot of money will ever be able to profit from his invention except through developing a local market, irrespective of any patent. The major patent battles are fought by large companies against each other. The common man is economically incapable of defending his patent. The only way that he can profit from it is by selling it to a large company that has enough money to defend the patent in court against other large companies.
It is not surprising that patents are granted on the basis of schematics that are not complete. Companies submitting patents requests do not submit complete schematics. They do not wish to see their inventions stolen by a company that is known to have lots of money to pay lawyers.
Companies that develop a new invention then face the potential of constant litigation from other companies that claim patent infringement, even when there was none. This restricts productivity.
Another strategy of companies is to look at a new patent and figure out ways that the patent can be developed in the future to reach a larger market. The company then pays its engineers to develop techniques to head off such developments. The company then submits patents on these potential developments, which the first company has not foreseen. This keeps the original company from developing new applications without paying royalties to the patent-submitting company.
I now come to what I think is the crucial economic factor. Patents on anything related to information are going to prove decreasingly valuable. This includes software of all kinds. It includes applications of important ideas. The big money is in the ideas, not the manufacturing. As manufacturing becomes more decentralized because of the development of 3-D printing technologies, it will become possible for small-scale local producers anywhere in the world to produce all kinds of items in small workshops. It will prove economically impossible for a patent holder to sue all of the companies that will put their ideas to productive uses on the small-scale basis. Patents will be enforceable in large-scale manufacturing processes, but these will be a decreasing share of the market. High-value innovation is associated with ideas, not physical production. Ideas can be transferred free of charge across the invisible boundaries known as national borders. The Internet recognizes no borders. This is why the market value of ideas protected by patent laws is going to fall. People will be able to appropriate these ideas and implement them around the world in small scale production. The output will be sold mainly to residents in local communities. The output may be sold through retailers in nations that do not bother to enforce the laws associated with intellectual property. This is the case of China today. There is not much that politicians in countries that enforce these laws more aggressively can do about what goes on in China. They can give speeches. Speeches do not change the legal standards in China.
If one nation, however small, decides not to cooperate with the World Trade Organization, and it allows profit-seeking companies or patent hijackers to publish full schematics on websites registered in the country and hosted on computers in the country, there is virtually nothing that a patent holder will be able to do to prevent the schematics from being downloaded anywhere in the world. If the schematics can be used for 3-D printing-based manufacturing, consumers will be able to buy the products locally that rely on the original patent. This is the wave of the future in manufacturing. It will surely be the case if nanotechnology ever becomes viable commercially.
Open source patents are becoming increasingly competitive. These are patents released into the public domain under the creative commons licensing. Anybody can use them without the payment of a royalty. This is an international phenomenon. The most obvious product is the Android smart phone technology promoted by Google. The Android operating system is used by 75% of the smart phones in the world. Outside of the United States, Android has an even greater market share. Apple’s proprietary operating system controls 23%.
I am arguing that international economic development, especially development related to reducing the cost of communication, is moving the world in the direction of the original biblical model in which there is no such thing as intellectual property. As decentralization increases, and as customized production by means of small-scale manufacturing that is based on 3-D printing technologies increases, the cost of enforcing patents will rise in relationship to the benefits of securing a court injunction against a particular firm’s manufacturing process.
This is already happening in the field of music. But music is not an aspect of patents. It is an aspect of copyrights. I therefore turn to the issue of copyrights.
Copyright monopolies came in Great Britain about the same time that patent monopolies became a source of income for the crown. They did not come for economic reasons, however. They came for political reasons. Queen Elizabeth I wanted to restrict publication of what she regarded as seditious literature. The nation-state of Great Britain was coming into existence, and it needed protection against ideas hostile to the creation of this nation-state.
1. Enforcement
A guild of publishers was established by self-interested businessmen in 1403: the Worshipful Company of Stationers. In 1557, under Queen Mary, the guild was granted a charter. Her government granted the Stationers a monopoly over publishing that held until the Copyright Act of 1710. They policed the publication of most printed books. This was not a total monopoly. There was another monopoly: the King’s ownership of the Authorized Bible of 1611. He granted it to the royal printer, but also shared it with Oxford University and Cambridge University. That monopoly prevailed in English-speaking North America until the American Revolution. No other Bible was allowed to be published in North America. There was only one exception: a translation of the Bible into the Algonquin language in 1663. This copyright restriction ended in 1782: Robert Aitken’s edition of the Bible. Legally, the king and the colonies were still at war. This was settled by treaty in 1783. In Great Britain, production of the King James Bible is still under copyright, as is the Book of Common Prayer. This is enforced under royal authority.
The heart of copyright law was described well by John Perry Barlow in 1994. He had been a songwriter for the rock group, the Grateful Dead. The Grateful Dead had a policy of allowing people to record their concerts on tape. This was a marketing decision. Fans circulated copies. Then they bought records and later CDs. This policy produced one of the most profitable bands in history. Barlow was also a founding member of the Electronic Frontier Foundation, a libertarian group promoting Internet freedom. In March 1994, his article on copyright, “The Economy of Ideas,” appeared in Wired magazine, which was the most important English-language publication devoted to the digital revolution. This was less than a year after the introduction of the Mosaic Web browser, and nine months before the Netscape Navigator browser, which transformed the Internet into a mass phenomenon.
Barlow quoted Thomas Jefferson to begin his article. This quote deserves reprinting.
If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea, which an individual may exclusively possess as long as he keeps it to himself; but the moment it is divulged, it forces itself into the possession of everyone, and the receiver cannot dispossess himself of it. Its peculiar character, too, is that no one possesses the less, because every other possesses the whole of it. He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me. That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature, when she made them, like fire, expansible over all space, without lessening their density at any point, and like the air in which we breathe, move, and have our physical being, incapable of confinement or exclusive appropriation. Inventions then cannot, in nature, be a subject of property.Barlow offered this profound insight into the nature of copyright. “Copyright worked well because, Gutenberg notwithstanding, it was hard to make a book. Furthermore, books froze their contents into a condition which was as challenging to alter as it was to reproduce. Counterfeiting and distributing counterfeit volumes were obvious and visible activities—it was easy enough to catch somebody in the act. Finally, unlike unbounded words or images, books had material surfaces to which one could attach copyright notices, publisher's marques, and price tags.” Copyright laws have been enforceable mainly because of physical monitoring of printers. Enforcement was economically feasible only because printing had to be done by a conspicuous process: consuming paper and ink. “Thus, the rights of invention and authorship adhered to activities in the physical world. One didn’t get paid for ideas, but for the ability to deliver them into reality. For all practical purposes, the value was in the conveyance and not in the thought conveyed.”
He then offered a brilliant analogy. He compared an idea with wine. Wine must be delivered in a container in order to be marketable. The authorities can monitor the container. He said that copyright law applied to the bottle, not the wine: “the bottle was protected, not the wine.” This delivery system was about to end. “Now, as information enters cyberspace, the native home of Mind, these bottles are vanishing. With the advent of digitization, it is now possible to replace all previous information storage forms with one metabottle: complex and highly liquid patterns of ones and zeros.”
He understood the implications of the Internet. He also understood just how fast it would spread across the globe. “While the Internet may never include every CPU on the planet, it is more than doubling every year and can be expected to become the principal medium of information conveyance, and perhaps eventually, the only one. Once that has happened, all the goods of the Information Age—all of the expressions once contained in books or film strips or newsletters—will exist either as pure thought or something very much like thought: voltage conditions darting around the Net at the speed of light, in conditions that one might behold in effect, as glowing pixels or transmitted sounds, but never touch or claim to ‘own’ in the old sense of the word.” The bottles would soon be replaced. The wine would soon flow across borders. “Additionally complicating the matter is the fact that along with the disappearance of the physical bottles in which intellectual property protection has resided, digital technology is also erasing the legal jurisdictions of the physical world and replacing them with the unbounded and perhaps permanently lawless waves of cyberspace.” This has happened as he foresaw. The process is accelerating. It cannot be turned back. Copyright laws cannot reverse it.
2. A Handful of Beneficiaries
The percentage of people who can earn a living based on the sale of their books has always been tiny. The number of people who get rich off of book royalties is extremely small. The revenues of the publishing industry have always been based on this tiny handful of individuals whose books generate sufficient income to sustain the entire industry’s attempts to make a net profit. The overwhelming majority of books that have ever been printed have gone out of print after one edition. Today, the Internet enables readers to locate a growing number of these long-forgotten books. They are available online for free. Copyright laws no longer protect them. Most of them will remain unread, for good reason. Most of the music ever written will remain unheard, as always. Most music ever recorded will remain unheard, as always.
The book publishing industry and the music industry have been transformed by digital communications. The music industry refers to this as piracy. It has been unable to stop the spread of copies of digital music. Millions of songs have been uploaded onto YouTube. There are websites on which people can download music files for free. Because some listeners wish to save time and trouble, they buy digital music at low prices online. This has enabled the music industry to recapture some of its forfeited income, but not all of it.
Traditional book publishing is centralized. It relies on marketing. It must get books into large bookstores. Only about 1% of all printed books get into these stores. Old book titles take up most of the shelf space. Few new book titles make it onto the shelves. To persuade a publisher to sign a contract, the prospective author must have a book agent who works on commission. Agents are difficult to persuade.
Book publishing has now been decentralized. Books can be published inexpensively by anybody who submits a PDF of the typeset book. The computerized system receives an online order for one copy of a book. It prints the book, prints the cover, binds the book, puts it into a cardboard mailing box, puts postage on the box, and mails it. The software sends the author a royalty as large as a conventional publisher would, and maybe more. The trick is to get that online order. The most common way is to sell through Amazon. Millions of hopeful writers are finding today what writers have always found: most people will not purchase their books. Writers have their books and articles copyrighted automatically in the United States as soon as they publish them online, but this does not matter economically. Almost nobody buys their books or steals their books. But at least their books are available for search engines to discover. The digital wine trickles out to consumers.
The same economic restraints apply to the enforcement of copyrights that apply to patents. The cost of enforcing a copyright is extremely high. Only best-selling books are worth defending. There is something else to consider. There are still best-selling books that make fortunes for authors, but Amazon’s secondary market for used books is such that people can find good copies of most used books for a fraction of the original publication price. The publishers receive no income from these sales, and the authors receive no royalties. This holds down the price of printed books.
Today, the copyright system protects a tiny handful of authors who get rich from royalties. As the copyright enforcement system fades, there will be fewer of these rich authors, but there will be readers of millions of articles and books whose authors would never have reached their targeted audience in the pre-Internet era. A few journals and news outlets will be able to profit by restricting readership to paid subscribers, but the great masses of Internet readers will not pay these fees. They will spend their time reading free materials that are offered by authors who wish to share their ideas with as many people as possible. The authors who produce the ideas that reach these people will shape the future. The authors who cling to copyright protection will not. In the trade-off between time and money, time is winning. As music files and reading materials become ever-cheaper, the value of readers’ available time will rise.
Amazon is replacing traditional book publishers. Authors receive royalties from Amazon. Amazon honors copyright laws. But it would pay its authors even without copyright laws. Payments lure authors into Amazon’s book-distribution program. Amazon pays far higher royalties than traditional book publishers pay. For electronic books within a price range, the royalties are 70%, not 10% or 15%, which traditional publishers pay on sales of printed books. Outside this price range, Amazon pays 30%. What I write about Amazon applies in China to Alibaba. Copyright laws are becoming economically obsolete for book production.
I end with a rhetorical observation by law professor Butler Schaffer. He wrote the following in his mini-book, A Libertarian Critique of Intellectual Property (2013): “I am unaware of any copyrights having been issued to writers such as Aeschylus, Homer, Shakespeare, Dante, or Milton; or composers such as Beethoven, Bach, Mozart, Wagner, or Tchaikovsky; or artists such as Van Gogh, Michelangelo, da Vinci, Rembrandt, or Renoir” (p. 27). A PDF of the book is available free of charge on the Mises Institute. All of the Mises Institute’s books are available in PDF format free of charge. This policy has been instrumental in the highly successful publication program of the Mises Institute. The demand for its printed books is directly related to the interest created by the PDF’s.
3. The Movie Industry
The main industry that will be seriously threatened by the erosion of copyright laws is the movie industry. This is a great irony. The industry is associated with Hollywood. The men who made the movie industry moved to Hollywood before World War I because it was across the country from New Jersey. New Jersey was the headquarters of Thomas Edison, whose company held the patents to movie cameras. The innovators who fled to Hollywood did not want to pay the royalties that Edison was demanding.
It is not clear how the movie industry would survive if there were no copyright protection. It costs a great deal of money to produce a movie. If Web-based distributors put these movies online for free within a few days of their release, the producers would lose their investments. Hollywood’s demise would be a small price for society to pay for the abolition of copyright. It would help slow down the moral erosion of the West. What I write here about movies would also apply to cable television, other than live sports events that do not rely on income from licensing re-runs.
As the costs of computerization fall, it will be possible for creative people anywhere in the world to produce low-budget movies with skilled but unknown voice-over specialists. Creativity is the great barrier to entry. As the cost of movie production falls the value of creativity will rise. The power of the narrative will drive the movie industry, just as the power of plot lines drives fiction book publishing. Creative people want to create. They do not create because they want to get rich. The demise of copyright will see to it that they will not get rich. But consumers will be richer as a result. The consumers will have greater choices as a result. Remove state-created monopoly, and consumers benefit.
Trademarks are justified on the basis of the third commandment: God’s protection of His own name. He named Adam. Adam named Eve. They name their children. The process of naming is judicial. It establishes legal responsibility. When people come to adulthood, their lives are associated legally and historically with their names. This extension of personal responsibility to every individual by means of his name is basic to civilization. There is no civilization without naming.
When an adult signs his name on a document, it is a legal document. Unless he has signed over the power of attorney to someone else, nobody can put his name on the document. It would not be legally binding. All of history is a development of an association between each individual’s name and life. This is why covenant-keepers’ names are in the Book of Life.
This is a theological and judicial basis of trademarks. When someone puts his name on a product, buyers can identify who is responsible for this product. This lowers the cost of tracing responsibility back to the producer. This is a judicial issue. Therefore, trademarks should be issued on a permanent basis. No one should be allowed to counterfeit someone else’s trademark. This would break the trail of ownership. Brand-name products are an extension of the name of the individual or the company that has produced and sold the products. There is no escape from personal responsibility. An individual who claims to be another individual has violated the law. This is a matter of fraud. Fraud is a violation of property rights. Specifically, it is a violation of another person’s name and reputation. It is a way to deceive consumers. It is therefore illegal.
The market value of a popular brand is high. It is legitimate for a company to defend its brand name from counterfeiters. The counterfeiters are stealing something of value that is the product of market evaluation. This is why it would be illegal for somebody to steal another man’s manuscript and place his own name on it. It is not that the ideas of the book are legally granted a monopoly by the state. What is granted a monopoly by the state is a person’s name. This is a monopoly that is granted by God. The state simply honors that original grant of monopoly, as declared judicially by parents. The founders of a business have the responsibility of naming it. Names are legal titles of ownership/responsibility. The state doesn’t create this title; the state enforces it. It is permanent. It extends into eternity for people. History is culminated by a permanent separation that is based on whether a person’s name is in the book of life or not. God enforces this title. This title is the judicial basis of the transfer of each covenant-keeper’s ownership of the property he or she has accumulated in history, including wisdom, which is the supremely valuable form of property: the knowledge of good and evil.
The Bible does not authorize the civil government to extend temporary monopolistic privilege to the works of the mind. This includes patents. It includes copyrights. Trademarks are different. These are not a grant of privilege. They are also not temporary.
The economic case for patents and copyrights is weak. There is no widely accepted theory of copyrights and patents. Most economists have avoided the topics. Patents and copyrights are a product of special-interest legislation to benefit large, well-organized guilds of producers at the expense of unorganized consumers. This is done in the name of protecting private property and fostering economic growth. The concept of intellectual property is an intellectual sham.
Politicians in the West have granted monopoly favors to individuals and companies ever since the fourteenth century. This has been a matter of political favoritism. This extends positive sanctions to a few individuals, sanctions which are paid for by the violation of property rights of the masses. This transfers economic authority from consumers to producers. It creates profits on the basis of political coercion. This system undermines the free-market principle of high bid wins. It therefore undermines consumer authority, which is in turn based on the ownership of money, the most marketable commodity.
The exponential decline in the cost of data transmission, data storage, and data analysis is steadily undermining the system of patents and copyrights. Artificial intelligence is accelerating and will continue to do so. The key to economic success today for high tech firms is the speed of market penetration of a new technology. This works against income generated by patents. By the time a company attains a patent victory in the courts, which takes years, the technology may be obsolete. The temporal window of opportunity for a new technology to achieve market dominance is getting shorter. This is why the patent system of monopoly privilege granted by the state, which has prevailed for half a millennium, is unlikely to survive intact for another half century. The reduction of communications costs, when coupled with the reduction of the size of manufacturing enterprise, will eliminate most of the monopolistic gains that are today available to a handful of manufacturers, a handful of inventors, a handful of publishers, a handful of writers, and a handful of musicians. The vast majority of the world’s population will benefit as a result of the steady shrinking of the temporary monopoly returns granted by governments in the form of patents. The rate of innovation will increase. The dominion process will extend its reach. Price competition will reduce the effects of the curse of the ground.
The principle of ownership described in the Bible never protected ideas. It never established a legal principle that would allow the state to enforce the right of someone to profit from his idea by threatening non-paying users of his idea. Copyright was a product of the early nation-state, and its origin was political, not economic. The system was established to suppress ideas, not to promote them. The system broke down temporarily in Great Britain during the Civil War, from 1642 to 1649. Neither the king nor the Parliament could control printers outside their military jurisdictions, which kept shifting. That launched the first great wave of political pamphleteering in world history. There were too many bottles for the genies of political dissent to be controlled.
Today in the United States, copyright privilege lasts 75 years beyond the death of the author. Economically, this time frame is irrelevant. First, the vast majority of books published by traditional book publishers go out of print after the first edition. Second, of the tiny handful of books that go into to a second printing, most of them are not sufficiently profitable to sustain the publisher. The success of traditional book publishing is based on the sales of the top 1% of books published. These are the bestsellers that generate sufficient income to sustain the publishing firms. Third, these companies are no longer necessary for the distribution of books. They no longer offer a significant competitive advantage to new authors. New authors can publish online. They can sell their books through print-on-demand publishing. Fourth, a new author can select a niche market, which is the key to success for most businesses. There is no way that a conventional publishing house can master all of the niche markets that are available. They offer no advantages to authors. Fifth, for every book sold in a niche market, there is less time for the reader to buy and read a best-selling, mass-market book. The reader’s limited time is the great barrier to book sales, not the reader’s limited money.
Self-publishing through print-on-demand books is eating into the retail markets that had traditionally been available only to a handful of publishers. Their pre-Internet business model is doomed. The copyright system made possible that business model. Without corporate lawyers, the copyright system cannot protect authors. But it only protected the high income of about 1% of the authors before the Internet. This is why copyrights are no longer significant factors in the restriction of the spread of information. The book distribution system that was built on the basis of copyright law cannot function profitably in a world of digital transmission.
The key to success in publishing has always been marketing. Marketing has changed radically with the demise of bookstores and the rise of Amazon. Book publishing companies may publish the books, but Amazon is going to sell most of the books that they publish, and Amazon will get most of the profits. This is the wave of the future. Traditional book publishers are steadily going out of business. They had the lawyers on retainer to threaten those small printers who violated the copyright rules. But the genie is out of the bottle. That is, the digits are out of the bottle. It only pays firms to sue medium-size pirate companies that are violating the copyright law, and only those companies that are inside the legal jurisdiction of the nation in which both publishers reside. If a violator’s business is based on a website in a country that does not prosecute copyright violators, there is essentially nothing that a book publisher can do about this.
Copyright laws were always a violation of the biblical concept of property. They are now becoming economically obsolete. They will no doubt remain on the law books in Western nations, but they will be increasingly unenforceable in a world of digital technologies. Publishing success will be based on the development of mailing lists and websites, not lawyers. Of those authors who are ever paid royalties, they will be paid, not because they own copyrights, but because they sell their books online through the services of Amazon, Alibaba, and similar mass-market online retailers that are replacing the copyright-based traditional publishing industry.
Trademarks are likely to survive. Trademarks protect mass-market goods that are sold by retailers. Customers buy certain brands because they trust them. They go out of their way to make certain that they are not buying counterfeits. Customer loyalty is the basis of brand-name retailing. This is customer-based policing, not state policing. It is far more efficient than state policing. Retailers act as economic agents of customers to make certain that the products are not counterfeit. This will not change in the future. Trademarks are consistent with the Bible’s concept of inviolable naming. Names matter for biblical law. Names matter for biblical economics. The market system will uphold this relationship. It is in the self-interest of customers to uphold it.
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The complete manuscript is here: https://www.garynorth.com/public/department196.cfm