The Intellectual Property Quagmire, or, The Perils of Libertarian Creationism

The Intellectual Property Quagmire or The Perils of Libertarian Creationism Stephan Kinsella www.StephanKinsella.com Austrian Scholars Conference 2008 Ludwig von Mises Institute, Auburn AL March 13, 2008

A Type of Property?
Real property (land)
Personal property (cars, apples, gold)
Intellectual Property?
Patents
Utility patents, Plant patents, Design patents
Copyrights
Databases (collections of information)?
Boat Hull designs
Mask works for integrated circuits
Trademarks
Trade secrets

What is a Copyright?
Protects “ original works of authorship” that are fixed in a tangible form of expression
Examples: song lyrics, novels, paintings
Author given the exclusive rights to:
reproduce the work
prepare derivative works , or
to perform or present the work publicly
Term: life of the author plus seventy years , or 95 years if a work for hire.

What is a Copyright?
Copyright Secured Automatically upon Creation
No publication, registration, or “copyright notice” is necessary
Common misconception

I have a copyright in this page.
And a self-referential one at that!
You can’t copy me and I can’t be “copyrighted”
(Copyright is a noun, not a verb)

What is a Patent?
Utility, plant, and design patents
Utility patents: for inventions
Obtain by filing a “patent application” with a government agency
It’s examined by an “Examiner” and then later “issues” as an issued patent
Gives patentee “the right to exclude others from making, using, offering for sale, or selling ” the invention in the United States or “ importing ” the invention into the United States.
What is granted is not the right to make, use, offer for sale, sell or import, but the right to exclude others from making, using, offering for sale, selling or importing the invention.

Toe puppet

Sealed Crustless Sandwich

Pumpkin Garbage Bag

Hyper-light-speed antenna
All known radio transmissions use known models of time and space dimensions for sending the RF signal. The present invention has discovered the apparent existence of a new dimension capable of acting as a medium for RE signals. Initial benefits of penetrating this new dimension include sending RF signals faster than the speed of light, extending the effective distance of RF transmitters at the same power radiated, penetrating known RF shielding devices, and accelerating plant growth exposed to the by-product energy of the RF transmissions. … The present invention takes a transmission of energy, and instead of sending it through normal time and space , it pokes a small hole into another dimension , thus , sending the energy through a place which allows transmission of energy to exceed the speed of light.

More ridiculous patents …
Just this week…
Gibson says Guitar Hero violates patents, Activision says nuh -uh
Apple sued over foundation to iPod + iTunes franchise
Manuel Lora: “At the PHL airport I saw a massage chair and a giant placard that said PATENT PENDING ”

More ridiculous patents (cont’d)
Amazon’s “one-click” patent , asserted against rival Barnes & Noble, allows repeat online customers to place orders without re-entering credit card or address information
Cendant’s patent, asserted against Amazon , for violating Cendant’s patent on recommending books to customers ;
Bush’s Top Economist Seeks Patent on His Own Tax Strategy – patent 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.”
Apple’s patent application for digital Karaoke – MP3 player plays music and outputs/displays synchronized lyrics

More ridiculous patents … (cont’d)
The suit against Facebook re patent for “ System for creating a community for users with common interests to interact in ”;
Blackboard’s patent for common uses of technology if that technology is employed in the context of education – e.g., client-server online courses in which users are defined as either students or instructors; the use of online drop boxes in an instructional setting, online grade books, online assessments;
Compton’s (now Encyclopedia Britannica’s) patent that “ broadly cover[s ] any multimedia database allowing users to simultaneously search for text, graphics, and sounds—basic features found in virtually every multimedia product on the market”;
Acacia’s patent for putting a unique transaction number on a receipt (Acacia has collected settlement amounts—rumored to be between $50K and $400K each—from a very long list of licensees)

The Supreme Court in the 1882 case Atlantic Works v. Brady lists examples of patents issued to “gadgets that obviously have had no place in the constitutional scheme of advancing scientific knowledge… the simplest of devices”. These included:
Doorknob made of clay rather than metal or wood, where different shaped doorknobs had previously been made of clay;
Rubber caps put on wood pencils to serve as erasers ;
Making collars of parchment paper where linen paper and linen had previously been used;
A method for preserving fish by freezing them in a container operating in the same manner as an ice cream freezer;

More from Atlantic Works v. Brady :
A stamp for impressing initials in the side of a plug of tobacco;
A hose reel of large diameter so that water may flow through hose while it is wound on the reel;
Putting rollers on a machine to make it movable;
Using flat cord instead of round cord for the loop at the end of suspenders;
Placing rubber hand grips on bicycle handlebars;
An oval rather than cylindrical toilet paper roll, to facilitate tearing off strips.

Patent Suits, Awards, Threats
As of March 2003, the top 5 patent infringement damage awards ranged from $873 million to $204.8 million
The top 5 patent settlements ranged from $1 billion to $300 million.
Recent $156 million patent infringement verdict against AT&T (might be trebled)
New Jersey doctor awarded $432 Million as a reasonable royalty against Boston Scientific

Sprint won $69.5 million against Vonage
settled for $80 million due to injunction threat
Qualcomm enjoined from importing chips that help conserve power in cellphones
Canon/Toshiba revolutionary “SED” TV design postponed, maybe dead—prolonged patent lawsuit with Nano-Proprietary

BlackBerry paid $612.5 million—NTP patent injunction threat
even while patents were on appeal
$ 1.5 billion jury award against Microsoft—Alcatel-Lucent MP3 patent

Patent Costs
Perhaps $31 billion annually in US
Or more

Patent Suits and Awards
As of March 2003, the top 5 patent infringement damage awards ranged from $873 million ( Polaroid v. Kodak , 1991) to $204.8 million ( Hughes Tool v. Smith International , 1986).
The top 5 patent settlements ranged from $1 billion to $300 million.
The recent $156 million patent infringement verdict against AT&T —which could possibly be trebled by the judge
Qualcomm enjoined from importing chips that help conserve power in cellphones;
New Jersey doctor awarded $432 Million as a reasonable royalty against Boston Scientific for infringing his “Method and Apparatus for Managing Macromolecular Distribution”

Patent Suits and Awards (cont’d)
Suits immediately filed against Apple, Nokia, RIM, Sprint, AT&T, HP, Motorola, Helio, HTC, Sony Ericsson, UTStarcomm, Samsung … for patent on smartphones (a mobile phone with removable storage, an Internet connection, a camera and the ability to download audio or video files)
Monsanto sues farmer for patent on “saving seeds” after a harvest to plant the next season… even though “the practice of savings seeds after a harvest to plant the next season is as old as farming itself”;
Utah couple sue Apple and Starbucks over ‘Song of the Day’ promotion--Starbucks customers get an iTunes gift card for a free, pre-selected song download;
Apple Sued Over Caller ID On The iPhone (patent on matching up the phone number of an incoming call with a local contact database to display who is calling)

New 802.11n Wi-Fi standard (which promises to significantly increase Wi-Fi speed and range) in jeopardy due to patent threats;
Tivo’s patent for “time warp” DVR technology threatening competitor Echostar;
U R SUED: Patent holding company targets 131 companies over SMS patents , ars technica (Nov. 13, 2007);
The International Trade Commission (ITC) may ban imports of many popular hard drives that “are alleged to infringe on patents owned by California residents Steven and Mary Reiber related to a ‘Dissipative ceramic bonding tool tip’”;
Sprint recently won a patent case against Vonage in which $69.5 million was awarded in damages; Sprint planned “to ask the court to permanently ban Vonage from using its patented technology,” but the case was subsequently settled for $80 million.
In a separate patent lawsuit between Verizon and Vonage, the jury found that Vonage had violated three Verizon patents, and awarded Verizon $58 million in damages plus ongoing royalties;

After Kodak sought more than $1 billion in damages from Sun Microsystems for patent infringement, Kodak finally settled for $92M
verdict resulted “in the immediate shut-down of Kodak’s entire instant photography division, with the immediate loss of 800 jobs. And, some say, the eventual failure of Polaroid due to lack of any real competition to keep them on their toes!”;
Freedom Wireless obtained a $150M damages award against Boston Communications Group, Inc. , which at the time had revenues of only about $100M;
Smith International was forced to pay Hughes Tool Company $205.4 million for infringement upon Hughes’s patent for an “O-ring seal” rock bit, which led to Smith filing for Chapter 11 bankruptcy protection (this was in 1986, when $200M was considered a large patent verdict).

Copyrights Gone Wild
RIAA pushing for damages of $1.5 million for copying a CD with ten songs;
Ford Motor Company claims that they hold the rights to any image of a Ford vehicle, even if it's a picture you took of your own car;
NFL prohibits churches from having Super Bowl gatherings on TV sets or screens larger than 55 inches);

Copyrights Gone Wild (cont’d)
British proposal to punish individuals who illegally download music by banning them from the Internet;
Court says you can’t re-post a cease-and-desist letter
$220k verdict against Jammie Thomas for sharing 24 songs ($9,250 per song for 24 songs; could have been up to $150,000 per song, or $3.6M)

John Tehranian: In one day, normal user infringes the copyrights of emails, paintings, articles, photos, etc.
at least eighty-three acts of infringement; liability in the amount of $12.45 million (plus possible criminal charges ).
$4.5 billion in potential damages each year

“ CD Liner Notes of the Distant Present”

The International Music Score Library Project (IMSLP) was creating one of the world’s largest virtual library of sheet music, but was forced to close down due to copyright protection for the pieces;
Inventor of the iconic dance ‘electric slide’ sued the Degeneres Show for compensation as a result of airing actress Teri Hatcher dancing the dance;
The Bell companies lobbied against Hollywood for a 1997 “safe harbor” for for Internet service providers; if not for this exemption from copyright liability, there would probably be no YouTube today, no free blog sites, and maybe not even Google or Web 2.0
Due to threats of copyright infringement lawsuits, bakery now refuses to customize birthday cakes with the kids' beloved images, e.g. Nemo.

Trademarked Insanity
American Budweiser sues original Czech brewer of “Budweiser” to stop them from using name
Guy who criticized a company’s attempt to trademark word “freecycle” sued for trademark infringement and preliminary injunction issued (reversed on appeal)
LSU asked Congressman Bobby Jindal to stop distributing his “Tigers for Jindal” bumper sticker, and object to the association of the word “tiger” with the color purple and gold

Trademarked Insanity (cont’d)
BMW gains trademark on the letter “M”
Apple denies infringement of Cisco’s trademark in “iPhone”, yet sent cease-and-desist letters to all others who use the word “pod”, while they only have the trademark to “iPod”
In Europe, "Parmesan" can only be used for Parmigiano Reggiano manufactured in a limited area in Northern Italy; so manufacturers have to use other names, such as Kraft's "pamesello italiano"

Differences Between IP and Property
Normal property is perpetual, exclusive, inviolate, based on natural rights
IP is legislatively created
Term for IP is limited

Differences-IP v. Property (cont.)
IP not completely exclusive
Fair use exception for copyright, other exemptions and compulsory licenses
Patent law’s experimental use defense and various exceptions (e.g., restrictions on enforcement of medical procedure patents, prior user rights for business methods)

Goal: all tangible resources should be owned
But IP rights should only created to address perceived market failures
Patent law excludes protection for abstract concepts and scientific principles.
Copyright law does not extend to unoriginal compilations, even when they require substantial effort (“sweat of the brow”—maps, databases).
Patent and copyright aspire for knowledge to be unowned (public domain) after their term has expired.

Another difference: everyone has some basic notions about tangible property
Even dogs recognize others’ territory
But almost no one understands what IP really is
Trademark, copyright, and patents
Rand’s confusion
Thought US had first-to-file system so then came up with a reason to justify it
Strange given that she said they were so important: “patents are the heart and core of property rights.”
Even Rothbard: take his copyright/patent mousetrap example

Constitutional Utilitarianism
Conventional rationale for IP: utilitarianism/wealth-maximization
To “stimulate” innovation and art

Patent Utility …
"No economist, on the basis of present knowledge, could possibly state with certainty that the patent system, as it now operates, confers a net benefit or a net loss upon society. If we did not have a patent system, it would be irresponsible, on the basis of our present knowledge of its economic consequences, to recommend instituting one. “
Machlup, 1958

Patent Utility (cont’d)
an economic analysis of the cost and benefits of intellectual property "is no more within our reach today than it was in Machlup's day [1950s]."
French researchers Francois Leveque and Yann Meniere

On average, the patent system discourages innovation .
Boston University Law School Professors (and economists) Michael Meurer and Jim Bessen

Patents Chilling Effect on Science , report: "The American Association for the Advancement of Science recently conducted a survey on the effect of patenting on the sciences. The results are frightening: 1/5th or more of all research projects in the United States are being chilled by patent holders. The sheer amount of research being canceled because of licensing issues is astounding, but at the same time many of these researchers hold their own patents and therefore contribute to the problem."

When Switzerland and the Netherlands abolished patent system, it increased innovation—more competition
Economic historian Eric Schiff
Countries without patent systems innovate just as much, if not more, than those with patent systems
Petra Moser

Patents skew innovation but do not increase it.
“ I find no evidence that patent laws increased levels of innovative activity but strong evidence that patent systems influenced the distribution of innovative activity across industries. Inventors in countries without patent laws concentrated in industries where secrecy was effective relative to patents, e.g., food processing and scientific instruments. These results suggest that introducing strong and effective patent laws in countries without patents may have stronger effects on changing the direction of innovative activity than on raising the number of innovations.”

“ There is little determinative empirical evidence to settle theoretical speculation over the optimal scope and duration of patent protection.”
Jonathan M. Barnett
patents and copyrights “do relatively little to promote fundamental research and development”
Tom W. Bell

Thomas F. Cotter, “Introduction to IP Symposium”: "[E]mpirical studies fail to provide a firm answer to the question of how much of an incentive [to invent] is necessary or, more generally, how the benefits of patent protection compare to the costs.";
Mark A. Lemley, Rational Ignorance at the Patent Office : “The patent system intentionally restricts competition in certain technologies to encourage innovation. Doing so imposes a social cost, though the judgment of the patent system is that this cost is outweighed by the benefit to innovation. … There is a great deal of literature attempting to assess whether that judgment is accurate or not, usually without success. George Priest complained years ago that there was virtually no useful economic evidence addressing the impact of intellectual property. … Fritz Machlup told Congress that economists had essentially no useful conclusions to draw on the nature of the patent system.”

Patent Utility … (cont’d)
F.A. Hayek, The Fatal Conceit : “it is not obvious that such forced scarcity [from patents and copyrights] is the most effective way to stimulate the human creative process. I doubt whether there exists a single great work of literature which we would not possess had the author been unable to obtain an exclusive copyright for it; it seems to me that the case for copyright must rest almost entirely on the circumstance that such exceedingly useful works as encyclopedias, dictionaries, textbooks, and other works of reference could not be produced if, once they existed, they could freely be reproduced. … Similarly, recurrent re-examninations of the problem have not demonstrated that the obtainability of patents of invention actually enhances the flow of new technical knowledge rather than leading to wasteful concentration of research on problems whose solution in the near future can be foreseen and where, in consequence of the law, anyone who hits upon a solution a moment before the next gains the right to its exclusive use for a prolonged period”.

Libertarian Creationism
Why do some libertarians accept the idea that patent and copyrights are legitimate forms of property?
Libertarian “Creationism”
“ creation” or “labor” is the “source” of property rights
“ whatever” you create is yours

The Labor Metaphor
Locke: we “own” our labor and therefore own resources we “mix our labor with”
Implies we own intellectual creations and reputations that we labor to create
Rand: IP protects a man's right to the product of his mind . …
Objectivist law prof Adam Mossof: “Property is the right to acquire, use, and dispose of the things that one has created through one’s labor . .. every person has a right to enjoy the fruits of one’s labors .”

Do We “Own” Our Labor?
Rothbard—no rights to “free speech” and “privacy”— only property rights
You don’t have a right to speak on another’s property
If you own property you can speak on it
They are just derivative of, or consequences of , the basic property right

Self-Ownership and Labor
Labor is an action : what we do with our bodies.
Ownership of bodies is sufficient to control, profit from, one’s labor
Just as ownership of one’s body and property is sufficient to allow one to “speak”, or engage in other actions

Homesteading and Property Rights
You own a homesteaded resource because your earlier use of it gives you a better claim to it than anyone else (latecomers).
This is the distinct libertarian view : property rights are recognized in first users, to permit conflict-free use of scarce resources.
Does not rest on the fiction that we “own” our labor.

Libertarian Creationism: Let There Be Rights
Creation or production is also not an independent source of rights
If you create a statue with my marble, you don’t own the statue you created
If you create a statue with your marble, you already owned the marble

Creation and Property Rights
Only two ways to acquire property rights:
appropriation of a previously- unowned resource
By contract from a previous owner
you can increase wealth by homesteading, contracting—or “ producing”
But “production” increases wealth by transforming already-owned property
It is not an independent source of property rights

Objectivists on Creation
Objectivists: You “create” your reputation, inventions, art; and it “has value” to you
David Kelley: “ the essential basis of property rights lies in the phenomenon of creat ing value . … for things that one has created, such as a new product , one's act of creation is the source of the right, regardless of scarcity.”
For tangible things, already own the factors; creation not necessary

Property Rights in Values?
Property rights in values: Rothbard & Hoppe: no right to value of property; only its physical integrity
Likewise, Rothbard denies reputation rights—you don’t own what others think about you.

Scarcity and Property Rights (cont.)
The purpose of rights is to permit conflict-free use of rivalrous (scarce) resources
Losing focus on this leads to deviations like
Creationism
over-emphasis on labor (like Marxists!)
property in value of things (reputation rights), and
intellectual property rights .

David Kelley: “ the essential basis of property rights lies in the phenomenon of creat ing value . … for things that one has created, such as a new product , one's act of creation is the source of the right, regardless of scarcity .”
for tangible (scarce) product, one already owned the factors, so creation unnecessary
For “intellectual” products—begs question

Objectivist law prof Adam Mossof: “Property is the right to acquire, use, and dispose of the things that one has created through one’s labor . .. every person has a right to enjoy the fruits of one’s labors .”
This relies on the fallacious notion that you have a property right in the value of your property.

Statism and IP Rights
Patent and copyright could never arise in a free society or common law system, any more than the ADA could
require a state and legislation (artificial law), and a government agency/bureaucracy
Objectivist attorney Murray Franck: “The common law often requires legislation to correct it (for example, in recognizing the rights of women). … The same minds that employ [reason to make] common law, can employ those methods to legislate universal laws . “

Dangers of Labor
Objectivist Diana Hsieh: “ producers deserve to be rewarded handsomely for their efforts ”
If labor “deserves” reward, what if patent monopoly isn’t enough?
Some have advocated replacing the patent system with a system for awarding taxpayer-funded prizes for innovations and inventions.
Stiglitz - "medical prize fund" that "would give large rewards for cures or vaccines for diseases," which "prizes could be funded by governments in advanced industrial countries."

Suggested Reform—Patent
Reduce the Patent Term
Reduce from ~17 to 5-7 years
Amazon CEO Jeff Bezos proposes a 3 to 5 year term for business method and software patents.
Remove Patent Injunctions/Provide Compulsory Royalties
Royalties are bad—like a tax; injunction is worse: can shut a company down
Threat of injunction can be used to wrangle huge settlements
$600 million RIM ( BlackBerry ) had to pay due to the threat of an injunction--even though the patents were under appeal at the PTO!
Royalty Cap/Safe Harbor
set a cap on the total amount of royalties that any one company would have to pay for compulsory patent royalties for a given product—e.g. 5%. Let patent vultures fight it out.

Suggested Reform—Patent (cont’d)
Reduce the Scope of Patentable Subject Matter
Software covered by copyright; exclude software from the scope of patentable subject matter.
Eliminate “business methods” patents
the most often example given to show that patents are needed is pharmaceuticals
So, let’s eliminate patents for anything except pharmaceutical compounds.
Provide for Prior Use and Independent Inventor Defenses
Copyright law permits it
A defense should be provided for those who are prior users of, or who independently invent, an invention patented by someone else

Suggested Reform—Patent (cont’d)
Instantly Publish All Patent Applications
Instead of at 18 months
Eliminate or Restrict Enhanced Damages
No treble damages for “willful” infringement; this is punitive
Working/Reduction to Practice Requirement
Would make it more difficult to obtain frivolous patents
Clear up issued patents if not worked
Provide for Advisory Opinion Panels
Similar to approach introduced in the UK a couple years ago
Losing Patentee Pays

Suggested Reform—Copyright
Radically reduce the term, from life-plus-70 years to 5 or 10 years;
Remove software from copyright coverage (it’s functional, not expressive);
Require active registration and periodic re-registration , plus copyright notice , to maintain copyright
today it is automatic
often impossible to determine, much less locate, the owner
Need to make it easier to use “ orphaned works ”

Suggested Reform--Copyright
Expand the “ fair use ” defense and clarify it to remove ambiguity;
Eliminate provisions of the Digital Millenium Copyright Act (DMCA) that criminalize technology than can be used to circumvent digital protection systems
Provide that incidental use (e.g., buildings or sculptures appearing in the background of films) is fair use;
Reduce statutory damages.

Suggested Reform--Trademark
Raise the bar for proving “consumer confusion”;
Abolish “anti-dilution” protection;
Abolish federal trademark law , as it is unconstitutional (the Constitution authorizes Congress to enact copyright and patent laws, but not trademark law).

Pattern Privileges
“ Intellectual Property”
“ Property” problematic
Schulman’s “Logorights”
Patents cover methods (recipes) and devices (designs)—“patterns”
Copyright covers artistic/creative works that have a pattern: music, paintings, writings
IP is a state-granted pattern privilege
Down with the state. Down with state law, and down with pattern privileges

The Intellectual Property Quagmire, or, The Perils of Libertarian Creationism

by Stephan Kinsella

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The Intellectual Property Quagmire, or, The Perils of Libertarian Creationism Presentation Transcript