That's What I Thought...
columnist: Gene DeNardo

Topic: Government Regulation
Proper Intellectual Property

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Our coercive system of patent and copyright protection is monopolistic in nature. Could this system be improved utilizing principles of the free market?

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by Gene DeNardo
(libertarian)
Thursday, September 3, 2009

As it stands today, intellectual property laws, those laws that govern patents and copyrights, are laws that ensure monopoly. They are blatant laws forbidding competition once the "creator" of the idea or the subsequent manufacturer performs certain required tasks and pays fees and costs involved to obtain the patent or copyright.

Any restriction or intrusion into the marketplace that limits competition also limits the freedom of the marketplace and intellectual property laws are no exception. Is it possible to deal with the complexities of intellectual property in a completely free market manner and not enable the "theft" of intellectual product?

To address the simpler aspects of Intellectual Property first, we should deal with "theft" of title and right to copy separately. Title to a new intellectual idea or product certainly justifies some protection. When an author writes an original book or a musician crafts an original song and subsequently registers their name as creator, their name should always be connected to the work. Registration should be simple and very low to zero cost and could be as basic as registering the work on a recognized webpage.  

Any claims that the work is not original could be settled between the conflicting parties by arbitration. Firms could offer products that "screen" the work for originality, helping to eliminate future conflict. There is really no reason to involve the government in the registration process, as this can be easily accomplished in the private sector.

Since at this initial point we are only addressing "title" to intellectual property, disputes would be relatively easy to resolve. Since monetary amounts are more closely tied to "theft" of the actual idea rather than "theft" of title to the idea, there would be much less incentive to claim ideas as your own that were created by others.  

Aside from title to ideas, the other dominant issue is that of the "right to copy". Obviously, current intellectual property laws do not prohibit us from copying everything. If they did, most human activity would be outlawed. We spend most of our days acting in ways they easily falls under the definition of "copying". What IP laws attempt to accomplish is the restriction of certain "copying" actions and the allowance of others.  

The question is whether any form of copying can logically be categorized as "theft". Theft can only involves the property of others and can only be considered theft if that property is "taken" rather than given with consent by the owner.

IP laws are similar to land property laws in that they attempt to allow the creator "exclusive" use of his ideas, just as land laws attempt to allow the owner exclusive use of his land. But, there is a grave difference between the two. Land laws do not prohibit the use of other’s land property. IP laws do just that.

In their attempt to protect IP, patent and copyright laws restrict the actions and control the private property of numerous third parties without their consent. When the creator of an idea attains his IP protection, he has gained the right to force others not to use their own minds to make use of his idea. He has also gained the backing of the government in order to be compensated for the physical product that results from the idea, whether it be a song, book or manufactured product and still restrict what the new owner can do with his own private property [copy it if they wish] that he has legally purchased. In effect, the government has become a party to a contract that should only include the buyer and seller. The power of the buyer has been limited and the power of the seller fortified.     

The manufacturing process itself is simply a process of copying. IP laws are successful in creating limits of the amount of copying permitted with regard to certain registered items. In this way, competition is eliminated and the price can be freely set by the producer. IP laws are simply monopoly control of the market by the producer through the state.

Keeping in mind the difference between what we refer to as "Intellectual Property" and property that exists in the material world maintains the separation that must survive to avoid confusion. Intellectual Property is an idea and has "potential" that can be realized, whereas "property" is the material reality.  

So, the real question is how does the creator obtain the "potential value" of his idea? Do we need laws, rules or regulations in order for this to be realized or can the market supply this value? For the market to be free, all actions in relation to the Intellectual Property must be consensual. This is in direct contrast to the current forced monopoly rule of government. Can the free market provide the creator with value and avoid the pitfalls and favoritism of government imposed monopoly?

Since the origin of the idea lies with the creator of the idea, he has some fundamental choices. He can always choose to "give" the idea away. In that case, the idea may be used by anyone in anyway without restriction other than the laws that apply to all activity.

He can also choose to "keep" the idea. Since the idea is of no use to anyone but himself as long as it doesn’t leave his mind, he can "hoard" the idea. In this way, no one can utilize it, until it is thought by another who may choose a different option.

More likely, he can "sell" the idea. He can ask whatever he wants from whoever he wants and receive whatever someone will pay.

If he chooses to sell the idea, he has several options. He could sell it outright to one buyer or many or he could "contract" the idea.

Even without patent and copyright law, there is no reason monopoly use or production of an idea cannot be contracted. If the creator desired monopoly contract, he could sell to one producer and require that all reproduction also be contracted to prohibit copy. Any purchase of the idea product from the contracted producer would be accompanied by a second contract that prohibited the copy of the good by the new owner. The creator could receive a lump sum for his creation or a remittance each time the item was reproduced by the contracted producer or some combination of compensation mutually agreed upon.

In contrast, manufacturers and buyers could also be permitted to copy through contract. The contract could secure a remittance or fixed amount back to the creator or producer or both whenever the product is copied. If it were a fixed amount, it would in effect set two prices for the item, a price for the item with restriction on copy and a higher price with no restrictions. The key is that although the contract calls for restrictions that encourage monopoly and restrict the use of private property by its owner, all parties have given their consent to the agreement.  

There are two great differences in "contractual monopoly" and "legal monopoly". The first is the lack of coercion. No one is restricted by law in the use of their legal property by contractual monopoly without their consent. The second is the transactional costs that "contract monopoly" instills in the product. The cost of limiting the right to copy becomes a part of the cost of the product, reducing its competitiveness against products without restrictions. The true cost of monopoly is no longer an externality paid by taxpayers and consumers through the institution of government agencies and market monopoly.  

With enforced monopoly eliminated, market factors fall into place. For example, the actual copy production cost of a CD, case and descriptive cover together run around a dollar or less, depending on the size of the production run. Yet, due to monopoly laws, Britney Spears is able to get $18 or more for her artistically beyond measure, new releases. What if Britney still had this monopoly choice through consensual contract rather than enforced law, but other artists might choose different routes?

Some artists might choose to directly market their unrestricted CD at a cost of $4 or $5, with the thought that no one would bother to copy at that price. Others might contract to several manufacturers with no contract restrictions on the purchase, obtaining a similar price due to competition between manufacturers, again limiting people willing to copy at such a low price. Some might contract to a couple of manufacturers to keep them honest and require a purchase contract and attempt to obtain a medium retail price. Some artists might sell the CD idea outright and let someone else deal with the choices. The choices are extremely diverse and control is back in the hands of those who create, produce or consume, rather than government agencies and whomever the government decides should benefit from the enforced monopoly.

Would innovation and new ideas be limited? Why? All options are available. We might guess that today’s ridiculous payouts wouldn’t occur except for exceptional ideas, but the overall payout would probably become much more balanced and equitable. The creator would have the option of marketing in any manner he sees fit, rather than the all or nothing choice that is available now.

This should encourage more innovation and creation, rather than less. The new idea wouldn’t have to be world changing or earth shattering, it could be just a decent new idea that today might not even be looked at by the few monopoly players that run the show. It is hard to determine what consumers would really choose when they are given real choices rather than predetermined government approved corporate programs.  

The question arises should any of the old monopoly rights be honored? The answer is no, with one exception: the idea for the new system itself.

I have completed all the necessary arrangements and coordinated efforts with all the appropriate government agencies. Approval has been granted and payoffs have been tendered.

I will soon receive a lump sum payment in an undisclosed amount. It will be sent directly from the federal patent office, in order to avoid disruption of our existing markets. I am not entirely certain that our government will utilize the new system, as there was some talk about, "waiting for the right time." But, they did assure me that they would, "take care of things". Besides, now that "I got mine", things will take care of themselves, won’t they?

In truth, there is a very small chance that these ideas are completely original. Thoughts like this have been floating around forever. Still it should be relatively easy to "litigate" the originality of the idea and fight off any challenges. After all, those with good original ideas rarely have the money to develop or protect them! I also plan to "incorporate" in order to protect myself with State chartered limited liability.

You just gotta love our "free market"!

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©2009 Gene DeNardo, all rights reserved. You must have written permission from the author in order to republish this work.
Published: Thursday, September 3, 2009
Last modified: Wednesday, December 23, 2009

The views expressed in this article are those of Gene DeNardo only and do not represent the views of Nolan Chart, LLC or its affiliates. Gene DeNardo is solely responsible for the contents of this article and is not an employee or otherwise affiliated with Nolan Chart, LLC in his/her role as a columnist.

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