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Star Wars: Intellectual Property Strikes Back – Article by Matthew McCaffrey

Star Wars: Intellectual Property Strikes Back – Article by Matthew McCaffrey

The New Renaissance HatMatthew McCaffrey
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IP Deflates the Expanded Universe

Star Wars: The Force Awakens is already one of the most successful films of all time, and the Star Wars franchise is poised to grow at .5 past light speed for the foreseeable future. Yet, while Disney rapidly develops new chapters for the saga, it’s also quietly deleting some old ones: in 2014, Lucasfilm announced that to make way for the new films, the Star Wars Expanded Universe (or EU) would no longer be considered canon, a decision that disappointed many longtime fans.

The EU refers to the vast number of novels, short stories, comics, and games that explore the Star Wars universe outside the major films. These works enjoy an enormous following but are now consigned to a kind of alternate universe called Star Wars Legends. In other words, they will be disregarded by Lucasfilm’s officially licensed material, and any new Star Wars stories will have to fit the new canon. The original EU is discontinued, which understandably has fans feeling abandoned.

Why should the EU pose a problem, though? Why can’t artists and fans simply continue developing the canon they love, while Lucasfilm does the same? The answer is simple: intellectual property law.

Disney’s ownership of Lucasfilm allows it to license the Star Wars brand and all related intellectual property rights, especially its copyrights and trademarks. Anyone adding to the universe can only do so with permission, giving Lucasfilm power over any content within the universe or even similar to it.

In fact, Lucasfilm has a long history of aggressively litigating its IP, suing everyone from small businesses to major corporations. One of the most infamous cases was brought against the original Battlestar Galactica TV series, which was accused of copying at least 34 distinct ideas from Star Wars. These included such astonishingly original concepts as a friendly robot, an imprisoned heroine, and a movie ending with an awards ceremony.

Returning to the EU, it does make some artistic and financial sense for Disney to steer the franchise in a new direction by discontinuing older content. At the same time, artists and fans want to enjoy the EU they already know and love, something Lucasfilm legally prohibits by enforcing its IP.

My point is not that one stream of content is objectively better, but that it’s vital for all involved to freely choose the kind of content they want to create and sell. By increasing costs to both consumers and innovators, IP has already played a role in the decline of art forms like classical music, and copyrights and trademarks have similar effects in the world of pop art.

For Star Wars, original content mainly revolves around trademark rights, of which Lucasfilm owns many. Its usual defense of these properties is that unlicensed content causes confusion: without legally enforceable restrictions, consumers might think they’re buying “genuine” products when they’re actually getting cheap imitations. Furthermore, products similar to those created by Lucasfilm might be used to earn profits for noncreators who capitalize on confusion. A licensing deal from the original source ensures people won’t be taken in by unskilled or unscrupulous artists.

Assuming this is the real motivation for trademark protection, the argument is still weak. Like many consumer-oriented regulations, trademark law is patronizing: its basic assumption is that people are too dim to distinguish between official products and knockoffs or other free riders on the brand. But consumers, especially the kind of devoted fans Star Wars inspires, are perfectly capable of figuring out for themselves which content they prefer. The real issue boils down to revenue: Lucasfilm doesn’t want other businesses profiting from ideas it “owns,” and it’s perfectly happy to use monopoly privileges to protect its bottom line.

But Lucasfilm doesn’t need to litigate its trademarks to preserve profits or brand identity, which would likely be stronger in the long run without IP. For example, without trademarks, Lucasfilm would continue to officially sanction content it approves of and let consumers know which works are not “official.” If fans respect its judgment, the official Star Wars brand would thrive as people adopted Lucasfilm’s endorsement as a benchmark for quality and narrative continuity.

Competition for fan loyalty would drive official and unofficial creators alike to produce high-quality content. Different groups of creators would specialize in their own alternate universes that would succeed or fail based on their ability to satisfy fans. This would also eliminate the uncertainty surrounding fan fiction, which exists in the complex gray area of “fair use” laws. Most importantly, we’d all be able to decide for ourselves which works we treat as canon and which we abandon to the garbage masher of history.

The only truly expanded universe — one that’s creative, innovative, and prosperous — is one without IP protectionism. When we embrace genuine competition in ideas instead of competition through legal privilege, then, as Obi-Wan Kenobi would say, we’ve “taken a first step into a larger world.”

Matthew McCaffrey is assistant professor of enterprise at the University of Manchester and editor of Libertarian Papers.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

The Hoverboard’s Patent Problem – Article by Jeffrey A. Tucker

The Hoverboard’s Patent Problem – Article by Jeffrey A. Tucker

The New Renaissance HatJeffrey A. Tucker
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Who has the right to make a “hoverboard”?

Shane Chen of Portland, Oregon, owns the patent to one of the hottest holiday gifts this season. It is a kind of hoverboard, a small item that keeps its user upright using infrared sensors, gyroscopes, and motors. You have probably seen them all over your city. You might even have been approached by a street seller.

The authorized version — licensed by Chen himself — is being made and distributed by Razor USA. Prices started at $1,000 and up, but competition from cheap knockoffs, selling for as low as $200, has brought the price for the authorized version to $600. Still, there are places online where you can get them for $200. If experience in new products in a guide to the future, in a year, they will be available for less than $100.

And truly, these knockoffs are everywhere. Small entrepreneurs are importing them from small manufacturers by the thousands and selling them on the streets. They are making and selling so fast that quality control has been… lax. There are anecdotal reports of explosions and sudden acceleration (parodies on this Saturday night live skit). Amazon has refused to sell many brands.

The patent has proven difficult to enforce. Razor is spending up to $1 million per week to sue unauthorized manufactures. It’s a reminder: it’s never enough just own the government-granted monopoly rights to produce something. It always costs money to enforce it. You have to investigate. You have to litigate. You have to win. And by the time that day comes, you might have lost vast market share.

If the product is popular enough, the task is essentially hopeless. The resources and time expended on patent enforcement might instead of gone to innovation and marketing toward actually making profits. Enforcing a monopoly isn’t necessarily the same as making money. Indeed, it is the opposite.

The Case of Eli Whitney
The hoverboard saga brings to mind the history of one of the 19th-century’s most famous inventions: the cotton gin. The holder of the patent was Eli Whitney. A year after his graduation from Yale, he designed and constructed an improvement in the cotton gin — a technology that had existed since the ancient world. He obtained the patent on a single feature, a brush-like extension that improved the way the seeds were extracted from the cotton.

According to Boldrin and Levine, Eli and his partner Phineas Miller has dreams of getting rich with a monopoly pricing scheme. They would install their machines throughout the South and ask a royalty of two fifths, payable in ginned cotton. This prospect seriously annoyed farmers throughout the region, understandably.

So it became a common practice for farmers to reverse engineer the innovation — not a difficult thing to do. Rather than lease the Whitney machine, they would just make their own. Does this violate anyone’s rights? Of course not. A design of a contraption is made scarce and “owned” only by legislation. To forcibly prevent farmers from making their own machines is actually an invasion of their rights.

Still, with the prospect of riches dancing in his head, Eli and Phineas set out to sue every farmer who reverse engineered their design. “Whitney and Miller spent a lot of time and money trying to enforce their patent on the cotton gin, but with little success,” write Boldrin and Levine. “Between 1794 and 1807 they went around the South bringing to court everyone in sight, yet received little compensation for their strenuous efforts.”

Meanwhile, the gin led to vast increases in productivity. The cotton industry boomed. But the holders of the patent became ever poorer.

Fortunately, the story ends well. Whitney learned that suing people is less profitable than actually marketing products. His next project was to invent a machine that created interchangeable parts for muskets. Having learned his lesson, he did not seek a patent for his innovation. He just got busy right away and began selling. (His main customer, as it turns out, became the US Army.)

He finally did strike it big. As Boldrin and Levine summarize the lesson: “It was not as a monopolist of the cotton gin, but rather as the competitive manufacturer of muskets that Whitney finally became rich.”

Will Shane Chen Learn the Lesson?
The hoverboard, like the cotton gin, is in enormous demand. All the government power is the world will not prevent hundreds of manufacturers from making them, driving the price down and down until everyone can afford one. That one million per week that Razor is spending on trying to stop copycats is probably better spent on marketing and innovation — actually selling stuff rather than trying to prevent others from selling stuff.

Absent the government regulation, how can innovators make money? They have the first-mover advantage. This is what provides a period of high profitability before others get in on the act. This is the competitive market at work, inspiring everyone to serve the customer ever more faithfully through lower prices and better products.

Another factor that gives advantage to the innovators is trust. Even now, you can go to the drug store and see name-brand products living alongside store-branded products. Both make money. Both appeal to certain market segments. One producer’s gain does not necessarily come at the expense of other producers, unless the government intervenes.

It is common wisdom to say that the patent system is broken. But what is broken about it? It’s not that the system is abused. It is that it is used at all. Industrial monopolies achieved through government grants of special privileges create waste — and the ongoing lawsuits concerning the hoverboard are a case in point.

Whether it is ginning cotton or zipping around on city sidewalks, a true innovative society encourages as much production and innovation as possible, in service of the masses who love the newest and coolest thing.

Jeffrey Tucker is Director of Digital Development at FEE, CLO of the startup Liberty.me, and editor at Laissez Faire Books. Author of five books, he speaks at FEE summer seminars and other events. His latest book is Bit by Bit: How P2P Is Freeing the World.  Follow on Twitter and Like on Facebook. 

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

The Poison Apple Called TPP – Article by Jeffrey Tucker

The Poison Apple Called TPP – Article by Jeffrey Tucker

The New Renaissance HatJeffrey A. Tucker
October 14, 2015
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Let’s say you have a trade deal that completely eliminates 18,000 existing tariffs between 12 countries that are otherwise hectoring each other with punishing trade barriers. To a person with a brain, this sounds amazing. Unless you are a luddite, a nativist, or a unionist, there seems to be every reason to support it. Trade is good. Global commerce is good. Fewer trade barriers are a good thing.

But let’s say that this same treaty binds all 12 signatory nations to an egregious imposition of government privileges for reactionary corporations who are paying to keep their cartels in place. I’m speaking here of big media, big music, and big pharma. They all live and breath to keep their “intellectual property” and to crush and destroy what they call “piracy,” which is actually the same thing as free-market competition.

What if this wonderful trade treaty was just a stalking horse for the dramatic expansion of these corporate monopolies? What if the whole point of the treaty were to use the language of growth and globalism to fight and crush the pressures toward universal information sharing that are inherent in the digital age?

I’m speaking here of the Trans-Pacific Partnership. Like the Nafta and WTO battles before it, the TPP is being marketed as a free-trade agreement. The partisans have lined up for and against it on that basis. But this is all so much distraction. The true core of the treaty is protectionist in the extreme. It protects a handful of powerful industry players against genuine market competition.

The rumors about the Intellectual Property provisions have been flying for years. But no one had seen the results of the endless and secretive negotiations. Then Wikileaks got involved. It released the full draft text of the IP sections. It turns out to be far more than the usual prattle and the expected sop to a few deep-pocketed industries.

The IP sections of the TPP attempt to impose — by force of blackmail  — the worst of American law as it applies to copyright, patent, and trademark, and do so in industries where there is otherwise some freedom left in the system.

The Digital Millennium Copyright Act, for example, puts the burden of proof on websites and internet service providers to make sure their content does not violate copyright. The book could be 75 years old and completely out of print but if a web bot discovers a PDF on the site, the government can force its immediate shutdown. This system pertains in the US right now but the TPP guarantees its enforcement in 12 countries in the Pacific Rim — some of whom host sites that are major sources of free information on the planet today.

The biggest revelation from the leaked document concerns big pharma. Their dream is pretty simple: they want to end generic drugs and the manner in which they distribute copies of named-brand products at much lower prices. In foreign countries, generics are a key to life. They are the way that people benefit from improved medical technology without paying exorbitant US prices.

The TPP would go a long way toward illegalizing generics for a whole class of pharmaceuticals. It all comes down to the rules that are used to decide whether generics can be produced at all. In the US, there is a practice called “linkage” that makes it impossible to produce drugs if there are any unresolved patent disputes. Linkage does not apply in most nations party to the TPP.

Politico explains:

Some of the most contentious provisions involve “patent linkage,” which would prevent regulators in TPP nations from approving generic drugs whenever there are any unresolved patent issues. The TPP draft would make this linkage mandatory, which could help drug companies fend off generics just by claiming an infringement…. In an April 15 letter to Froman, Heather Bresch, the CEO of the generic drug company Mylan, warned that mandatory patent linkage would be “a recipe for indefinite evergreening of pharmaceutical monopolies,” leading to the automatic rejection of generic applications. The U.S. already has mandatory linkage, but most other TPP countries do not, and Bresch argued that U.S. law includes a number of safeguards and incentives for generic companies that have not made it into TPP.

What’s even more remarkable is how the TPP would actually expand linkage to cover new classes of drugs in the US.

Politico explains again:

The opponents are also worried about the treaty’s effect on the U.S. market, because its draft language would extend mandatory patent linkage to biologics, the next big thing in the pharmaceutical world. Biologics can cost hundreds of thousands of dollars a year for patients with illnesses like rheumatoid arthritis, hepatitis B and cancer, and the first knockoffs have not yet reached pharmacies. The critics say that extending linkage to biologics—which can have hundreds of patents—would help insulate them from competition forever.

The costs of this treaty, then, will not just be felt abroad. The costs will further institutionalize the pharmaceutical monopoly in the US, making people pay far more for drugs than they currently do, and even curbing research and development beyond what the major industry players are willing to endure to bring a product to market.

And it’s not just about the US. It’s about the countries party to this agreement. They are being blackmailed by the American ruling class, badgered and bribed to accept bad law in exchange for market access. This is not how trade is supposed to work.

But from the ruling-class point of view, this is the whole point of trade treaties. Any country can have free trade anytime it wants. It only needs to stop punishing imports and start making good stuff that others want to buy. You have to ask yourself: what is the real point of these thousand-page documents, the years of negotiations, and all this secrecy? Why did the first public appearance of any aspect of the TPP have to be released on Wikileaks?

What is it that they don’t want us to know?

Patent attorney Stephan Kinsella explains: “What is happening here is that the US, at the behest of the American RIAA (music industry), MPAA (Hollywood), and Big Pharma industry, is using its hegemonic/superpower status to foist American-style IP law onto other countries, for the benefit of these special interests. This has been going on for decades now… Once TPP is ratified, as I expect it will be, US-style draconian IP law will be put into force in countries that comprise about 40% of world GDP.”

Adam Smith nailed it: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

Those who have watched these negotiations say that the American negotiators have basically operated as lobbyists from the American pharmaceutical industry. This is why Doctors without Borders has come out so strongly against TPP. And this is also why the Electronic Freedom Foundation has come out so strongly against it as well.

The best case for the TPP is that many bad guys are against it. But that doesn’t mean that true liberals should be for it. In politics, what looks like a shiny red delicious apple can be poisoned to the very core.

Jeffrey Tucker is Chief Liberty Officer of Liberty.me (http://liberty.me/join), a subscription-based, action-focused social and publishing platform for the liberty-minded. He is also distinguished fellow of the Foundation for Economic Education (http://fee.org), executive editor of Laissez-Faire Books, research fellow of the Acton Institute, founder of the CryptoCurrency Conference, and author of six books. He is available for speaking and interviews via tucker@liberty.me.

Writers Can Prosper Without Intellectual Property (2010) – Article by G. Stolyarov II

Writers Can Prosper Without Intellectual Property (2010) – Article by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
Originally Published January 13, 2010
as Part of Issue CCXXXI of The Rational Argumentator
Republished July 22, 2014
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Note from the Author: This essay was previously published as part of Issue CCXXXI of The Rational Argumentator on January 13, 2010, using the Yahoo! Voices publishing platform. Because of the imminent closure of Yahoo! Voices, the essay is now being made directly available on The Rational Argumentator. The fundamental concepts in this article remain sound, but the specific references to content sites – such as Associated Content, Helium.com, and Today.com – which previously allowed writers to monetize their works, are now obsolete, due to the closures of these sites. This should be a lesson to writers: utilize external sites for revenue generation if you need to, but always keep all of your writings hosted on sites you control as well!
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~ G. Stolyarov II, July 22, 2014
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(This article was originally published by the Ludwig von Mises Institute. A free MP3 audio file of this article, read by the author, is available for download.)
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It is commonly supposed that, whatever its moral and theoretical standing, intellectual property is necessary for creators of written works to make a living and – even more importantly – to continue to create. Here, I will set aside the theoretical status of copyright, which is amply discussed in Stephan Kinsella’s Against Intellectual Property and Michele Boldrin and David Levine’s Against Intellectual Monopoly. I will focus on existing and emerging possibilities for writers to earn a living in a world where no copyrights exist.

By way of real-world examples and suggestions based on observations of existing and historical practices, I seek to assure writers and other intelligent laymen of all persuasions that writers would not starve, and writing would continue to flourish, if copyrights disappeared off the face of the Earth tomorrow. I hope to foster an appreciation of the breadth of human creativity and the multitude of possibilities for innovative endeavors.

The popular, copyright-inspired model of revenue generation for writers entails contracting with a publishing company for a combination of payments: (1) a modest initial advance on the written work, typically paid at or prior to publication, and (2) a continual stream of royalties, typically paid as a proportion of the written work’s earnings. The royalties comprise the greatest share of revenue for most “traditionally” published writers under the copyright system; most authors and publishers within this system perceive copyright as necessary to ensure that the royalties continue for a prolonged period of time.

Even without copyright, there is a first-mover advantage to simply having released a work to market before anyone else could. Moreover, if the work is reasonably priced and attractively presented, there would be little reason for potential buyers to feel dissatisfied with it in a manner that would render it lucrative for competitors to enter the market.

For competitors, the investment of publishing the book and the considerable risk in competing with an established producer would cause them to think twice before undertaking this venture. Unless the original publisher has failed significantly in packaging, marketing, and pricing the book, its first-mover advantage is likely to last far into the future.

As for digital downloads of the book, considerable evidence exists that these do not cannibalize hard-copy sales. Indeed, book sales have skyrocketed since the emergence of easy copying possibilities on the Internet. Downloads likely also furnish a marginal gain to the author’s reputation in excess of the marginal costs of any revenue foregone directly due to a download – especially if those who download a book today would likely not have purchased it if it were not available for free online.

But suppose that the defenders of copyright are correct in their assumption that the first-mover advantage is ephemeral. Suppose that this advantage could not be relied on as the competition seized on a good work and began to market it at equally advantageous, or more-advantageous terms than the initial publisher. What other recourse could writers have?

1. More Frequent Publication of New Works

If there is a first-mover advantage that lasts several months or years, irrespective of whether intellectual property exists, then a given author who chooses to adhere to the “traditional” publishing system could pursue the strategy of writing and publishing a new work every time the first-mover advantage of the previous work has been exhausted. This would lead to a necessary change in expectations: an author could not expect to live off the royalties from a single work – even a widely popular work – forever but would need to keep creating in order to maintain his revenue stream.

Nonetheless, this is not far off from the current situation; after all, most published books do not sell nearly well enough to assure the authors even a modest stream of lifetime earnings. Moreover, such a system would incentivize creation of further works.

Indeed, prior to the introduction of copyright, European classical composers found it necessary to continually create music, as their older and already-famous pieces were often performed internationally without any compensation given to them. Even so, some of these composers managed to be phenomenally prosperous as well as prolific.

The most famous composer of the early 18th century, and one of the most prosperous, was Georg Philipp Telemann (1681-1767), who is thought by some to be the most prolific composer in human history, with over 3000 works to his name. Telemann’s status is rivaled by Simon Sechter (1788-1867), who wrote over 8000 works, many of them short fugues, and who endeavored to create at least one short composition every day. Neither composer lived under a copyright regime.

Indeed, virtually all of the big names of classical music – Bach, Vivaldi, Haydn, Mozart, Beethoven, Schubert, Chopin, Brahms, Berlioz – composed without copyright and were not dismayed when their works were performed without their participation or consent. Composers through the Romantic era would often borrow passages from their peers and predecessors and develop creative orchestrations and variations thereof. This was not considered to be theft but rather the ultimate compliment: a demonstration that a composer had been able to cultivate a musical idea that could now thrive independently of his efforts.

If composers could set still-unmatched records of productivity without copyrights while managing to earn a living, imagine what writers could do in an environment that did not give them the hope of forever subsisting off past accomplishments.

2. Larger Initial Advances

Writers seeking to publish their works via the “traditional” system could come, in an environment of no copyright, to expect larger initial advances from publishers as a tradeoff for smaller, less stable, and generally diminishing royalty streams. There is no reason why this could not be lucrative for publishers. The publisher could pay the writer a larger one-time fee, getting in exchange the first-mover advantage over the competition.

When the competition catches up and resorts to publishing a book that has been well received by the public, the original publisher has at least the potential of competing on even terms with regard to expenses; the competitors would not need to pay a substantial fraction of their earnings to the author, and neither would the original publisher.

The tremendous proliferation of British novels in the United States during the 19th century can give us a glimpse of what such a world might be like. British authors had copyright on their works in Britain since the enactment of the Statute of Anne in 1710, and American authors had copyright on their works in the United States since the passage of the Copyright Act of 1790.

However, as the era of international copyright had yet to be inaugurated (via the Berne Convention of 1886), British authors did not have copyright on their works in the United States; instead, they typically sold the rights to a first printing of their work in the United States. Thereafter, the original US publishers of these authors would not owe them royalties and would therefore not be obligated to pay this additional expense, putting them on par with potential later publishers of the same works. The British authors made more money selling their works in the US in this manner than they did under the copyright and royalty system in Britain. Moreover, their works became significantly more popular in the United States than those of their American contemporaries.

3. Patronage 2.0

Some of the greatest works in history have been created by writers and artists working under the patronage system, in which wealthy and influential individuals supported creators in exchange for a consistent and high-quality output, often used to advance the patrons’ interests and public image. The historical patronage system also exhibited numerous genuine flaws, including significant restrictions on the creativity of artists by overbearing patrons. Yet the flaws of the system were due not to the institution of patronage per se, but to the structure of preliberal, preindustrial Western societies.

Patrons were extremely scarce, and most of them had financial resources not due to personal merits or economic achievements, but due to political power. For writing in particular, this was a hindrance, as writing for a patron typically meant avoiding the expression of ideas that would upset the established political order, on which the patron built his wealth and power. On the other hand, if one’s patron was subversive of the established order, like the Earl of Shaftesbury (1621-1683), the patron and sole patient of John Locke, some radically provocative work could result.

Some creators were fortunate to find reasonable and enlightened patrons, but even these had idiosyncrasies that needed to be catered to. This bred extensive resentment of the patronage system and inspired a reaction and shift to its polar opposite: mass marketing to as broad a consumer base as possible. Yet this approach, too, has numerous evident shortcomings.

In our time, the fundamental flaws of the historical patronage system need no longer persist, because the distribution of potential patrons is so much greater. Indeed, most people who are established in “white-collar” occupations can afford to become patrons of the arts today. In addition, because of computers and the Internet, writing and publication cost very little except for the time and effort spent actually putting the words and ideas together. Not only has the capacity of most people to fund writers increased dramatically, but the exertions and materials required for writing have diminished considerably as well.

Any patronage system would necessitate some manner of creator compliance with the patron’s wishes; that is what the patron is paying for. However, with a large number of potential patrons on the market, a given writer does not need to feel dependent on financial arrangements with a particularly disagreeable patron; he is free to find another patron – or even to work for a multitude of patrons simultaneously.

Patronage can be expressed monetarily, but it need not be. In-kind patronage – such as that performed by numerous online magazines that publish essays by contributing authors – is another mechanism by which writers can find resources to support their endeavors.

4. Self-Patronage

“Self-patronage” is a concise way of expressing the concept of writing during one’s leisure time while pursuing another occupation as a primary income generator. If another person with an above-average income can serve as a patron for a writer, then it is just as easy for the writer himself to earn an above-average income in a profession of his choice and then use it to subsidize his writing.

This is a promising option for many writers today, myself included, and it should not be dismissed as a viable long-term model for the creation of quality output. Self-patronage is tremendously efficient; it frees the writer from having to get clearance from any external entity to write or publish what he pleases. Moreover, it frees the writer from needing to satisfy a mass audience; he can make his works as sophisticated, specialized, or controversial as he pleases. If they gain notice and admiration, this can result in some added bonuses for the writer; if they fail to catch on, he is not endangered in his livelihood and can always try again.

With the ability to publish for free on the Internet, writers no longer require access to large institutions or wealthy individuals in order to spread their ideas to a large audience. They do, of course, need to compete with a much larger pool of creators than has ever existed – and this may result in difficulties for quality work in getting notice commensurate with its merits. However, because self-patronage eliminates the costs of getting external clearance, a writer can be as productive as he is motivated to be. By releasing vast quantities of works, he greatly enhances the probability that one of these will be noticed and will motivate some readers to explore his other works.

5. Online-Content Sites

A remarkable development on the Internet in recent years has enabled hundreds of thousands of writers to earn modest income streams from advertisements that appear on the pages where their work is published. (In reading this section, some might wonder about the frequent mentions of my activity on the various sites to which I refer. This is done in part to comply with the Federal Trade Commission’s recent guidelines on the disclosure of writers’ institutional affiliations. Thank you, FTC, for requiring me to boast of my work more than I otherwise would have.) Large commercial websites typically contract with numerous advertisers and establish an infrastructure for writers to conveniently publish a variety of works. Associated Content, where I have been publishing my writings for over three years [2007-2010], [formerly paid] contributors both initial small advances for articles that pass editorial review and performance payments on the basis of how many page views contributors’ content receives. The performance payment is not enough to earn a living – $2.00 per 1000 page views – but several hundred articles can provide a decent supplement to one’s monthly income.

Helium.com, another site where I have published, [formerly invited] authors to write competing articles under a given title and then to rank other authors’ contributions. The authors who regularly participate [formerly received] a bonus based on the page views their articles receive. Yet another site, Today.com, the [former] host of my blog, The Progress of Liberty, [formerly paid] some bloggers a dollar for one post on any given day and supplements this with a performance payment based on visitation. Other commercial enterprises with a variety of compensation mechanisms have evolved over the last several years to enable layman writers to earn small revenues from their work without needing to have expertise in marketing or salesmanship.

The above methods of income generation, too, have their shortcomings in terms of which kinds of writing are most rewarded. But they are still in their infancy, and six years ago they did not exist at all. Within several decades at most, it will surely be possible for large numbers of authors to earn a living by writing and publishing their works on the Internet without being members of any syndicate or media organization’s staff – unless, that is, established interests successfully lobby governments for restrictions on creative Internet activities.

6. The Best Option

The best option for promoting a writer’s creativity while assuring him a stable and adequate income is a combination of the approaches above. Each approach, like most techniques in life, has its strengths and its shortcomings. For instance, patronage might result in the need to meet idiosyncratic tastes, while online-content sites that pay on the basis of unique visitors might incentivize writers to focus on breadth of appeal rather than depth. Self-patronage, on the other hand, is limited by the writer’s existing resources and technical training in other fields.

In a relatively advanced, quasi-market economy with widely available, remarkable publishing technologies, it is possible to viably combine these approaches for an overall strategy that keeps one both fed and writing. Moreover, as the marketplace continues to evolve, and technological possibilities combine with human creativity to render new options available, writers should be willing to experiment with yet more ways of delivering their content to audiences and receiving corresponding compensation.

As is typical with markets, it is virtually impossible to exactly predict the way in which patterns of behavior will emerge, especially as one looks out into the long-term future. But this should not discourage writers; indeed, it should highlight to them the importance of being open to new possibilities. They should not simply expect that existing business models – such as the copyright-based, royalty-heavy compensation system of “traditionally” published authors – will continue in perpetuity as a matter of right for the parties involved.

It is never necessary to cling to a single legal mechanism or institution as the sole path for any given peaceful and productive human activity. Human beings are much more inventive and resilient than the defenders of copyright would suggest.

Click here to read more articles in Issue CCXXXI of The Rational Argumentator.

Advancing Pharmaceutical and Medical Technology Does Not Depend on Patents – Article by Nathan Nicolaisen

Advancing Pharmaceutical and Medical Technology Does Not Depend on Patents – Article by Nathan Nicolaisen

The New Renaissance Hat
Nathan Nicolaisen
January 1, 2014
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Pharmaceutical drug manufacturers are often regarded as the successes of the intellectual property regime. It is assumed that their willingness to take risks by investing heavily in R&D is justified by the awarding of patents over their lifesaving discoveries. Proponents of intellectual property claim that without patents many lifesaving drugs would not exist. They assert that generic drug manufacturers would diminish profit margins and dissipate the original manufacturer’s market share and innovation would come to a virtual standstill. Further, manufacturers once willing to create new drugs will no longer do so without sufficient returns on investment. Research into the matter suggests, however, that patent protection may not be required for medical advances.

Unpatented Medical Technologies

The notion that unpatented medical technologies are not feasible is historically false. Surveys of important medical breakthroughs provide insight into whether patents are absolutely necessary and conducive to innovation in medicine. In 2006, the British Medical Journal challenged its readership to submit a list of the most noteworthy medical and pharmaceutical inventions throughout history. The original list contained over 70 different discoveries before being narrowed down to 15. The list goes as follows in no particular order: penicillin, x-rays, tissue culture, ether anesthetic, chlorpromazine, public sanitation, germ theory, evidence-based medicine, vaccines, the pill, computers, oral rehydration therapy, DNA structure, monoclonal antibody technology, and smoking health risk. Of these discoveries, only two of them have remotely anything to do with patents, chlorpromazine and the pill.[1] In another survey conducted by the United States Centers for Disease Control the results are strikingly similar. Of the ten most important medical discoveries of the twentieth century, none of them had anything to do with patents.[2]

Natural Market Advantages and Trade Secrecy

Contrary to popular belief, large pharmaceutical companies may maintain significant market share advantages after the introduction of generics through the help of natural barriers to entry. Large pharmaceutical companies have a first-mover advantage and an established internal and external structure that competitors, large and small, do not. Regardless of how fast competitors can manufacture a generic drug (never mind the fact that they must hire new labor, train new employees, buy raw materials, establish suppliers, organize logistics, create a marketing and advertising plan, and set up competitive shelf space), it can be extremely difficult to make a dent in the market dominance of an already-established drug. Competition data from India suggests that it takes approximately four years for generic drugs to enter the market.[3] In addition, the Congressional Budget Office calculated that an original drug manufacturer could still maintain a market share of more than 20 percent after the introduction of generics. Expanding the scope of research beyond pharmaceutical drugs, a survey of R&D labs and company managers revealed that between 23 percent and 35 percent believe a patent is an effective way of getting a return on investment. At the same time 51 percent believe trade secrets to be an effective way of ensuring returns.[4]

The Truth about R&D Costs and Generic Drugs

Pharmaceutical drug manufacturers enjoy large margins in spite of large R&D. The claim that R&D for pharmaceuticals is high is not unfounded. The cost to bring a new drug to market varies between estimates of $402 million on the lower end and $800 million on the upper end.[5],[6] Regardless of high R&D costs, drug companies still command high margins. For the past two decades pharmaceutical drugs have been one of the most profitable industries in the United States, never dropping below third place.[7] The profitability of pharmaceuticals can be explained away under the assumption that people are living longer and consuming more pharmaceutical drugs. It may also be suggested that the human population is less healthy than in the past and the demand for pharmaceutical drugs is inelastic. But, analysis of the profit margin on pharmaceutical drugs and lack of any serious innovation suggests that this is not always the case.

The pharmaceutical industry globally maintains about a 25 percent operating margin as opposed to 15 percent for consumer goods. In the United States, this number achieved its zenith at almost 35 percent. The high margin on the drugs may not be due directly to high R&D costs, either. As of 2006, the ratio of R&D to sales revenue was about 0.19.[8] Further, the top 30 pharmaceutical firms in the world incur costs for promotions and advertising that are nearly double the costs of R&D. This is not to imply that there is a perfect amount of R&D spending each firm must do, rather it is to show that the inability to recoup R&D costs is greatly exaggerated.

Generic drugs are not just manufactured by small companies that seek to ride on the coattails of the giants. It is believed that generics add nothing innovative to the realm of lifesaving drugs, they merely manufacture competing drugs that are already in the public domain; the real innovation comes from the companies willing to invest in research and development. The National Institute of Health Care Management conducted a survey of drugs that received approval from the FDA from 1989 to 2000 with revealing results. Just over half the drugs in the survey, 54 percent, were using active ingredients that were already in use in the market. Of the drugs that were approved by the FDA, 23 percent were given a priority rating on the basis that they were a sufficient clinical improvement compared to existing alternatives. As a corollary, 77 percent of the approved drugs did not exhibit any kind of significant clinical improvement.[9] In other words, these drugs are functionally generic drugs, offering no kind of advantage over existing treatments. Large drug companies are ironically engaging in the kind of behavior they abhor by developing functionally generic drugs while wasting valuable R&D resources.

Conclusion

In a truly free market, whoever has the resources to manufacture an invention is permitted to do so, and the firms that enter the market first with a new drug enjoy a significant advantage. Moreover, the fact remains that the best way to protect an idea is to keep it a secret, which is why the trade-secret method remains effective. The federal government, however, has made it profitable to conclude that the best way to protect an idea is twisting the wrists and shoulders of one’s competitors with government force. Yet in spite of overwhelming federal-government intervention, innovation and ingenuity prevail, even if to a lesser degree.

Nathan Nicolaisen is a senior at Luther College in Decorah, Iowa studying business management and mathematics. 

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Notes

[1] This means that the inventions were not patented, due to some previous patent, or discovered out of desire to obtain a patent. Michele Boldrin and David K. Levine, Against Intellectual Monopoly, (Cambridge University Press, January 2010), 258, 259.

[2] ibid, 259.

[3] ibid, 266

[4] ibid, 186

[5] $402 million is in 2000 dollars. James Bessen and Michael J. Meurer, Of Patents and Property, Boston University Shool of Law, 2008), http://object.cato.org/sites/cato.org/files/serials/files/regulation/2008/11/v31n4-4.pdf

[6] $800 million is in 2000 dollars. Michele Boldrin and David K. Levine, Against Intellectual Monopoly, (Cambridge University Press, January 2010), 241.

[7] ibid, 256

[8] ibid, 255

[9] ibid, 261

The FDA: A Pain From the Neck to the Big Toe – Article by Mark Thornton

The FDA: A Pain From the Neck to the Big Toe – Article by Mark Thornton

The New Renaissance Hat
Mark Thornton
October 25, 2013
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I recently experienced severe pain in my feet, particularly in the big toes. In my imagination it felt like my feet had been run over by a truck and that several of my toes had been broken. But I knew that was not the case, and that the pain came on slowly at first, and then spread to other parts of my feet until I could barely walk.

My first approach was to take some ibuprofen to relieve the pain and swelling. When this did not resolve the matter, I thought perhaps a new pair of soft shoes might work. That idea also failed, and with a little internet research I realized I had a classic case of the gout. I was soon off to see my doctor to determine what the problem was and to get it solved with the powers of modern medicine.

The doctor confirmed that I had the gout. I was not pleased to find out, that in my case, the gout was probably brought on by another drug that I had been taking daily, against my better judgment. However, I was pleased to learn that I would no longer have to take it, that as part of my treatment I was being prescribed an ancient and natural drug, and that I would only have to take this drug “as needed.”

I was off to get my prescription filled at the pharmacy when a thought came to mind: if this drug was as natural and ancient as advised by my doctor, why did I need a prescription in the first place? Upon inspection the prescription was for Colcrys, the brand name of the drug colchicine. Furthermore, when I picked up my prescription the price was much higher than I anticipated given that it was a natural drug. When questioned, the pharmacy technician replied that the actual price was much higher and that my insurance paid for more than three-quarters of the bill. The cash price (without insurance) was $198.99 which is $6.63 per pill if taken daily, or nearly $20 per dose if used to treat flare-ups.

An extremely high price for an ancient natural drug? I knew I had a new case to solve and that the solution was probably the same old answer.

After conducting some research on Wikipedia, I learned the following: Colchicine can be used to treat gout, Behcet’s disease, pericarditis, and the Mediterranean fever. It has been in use as a medicine for over 3,000 years. After serving as ambassador to France, Benjamin Franklin brought colchicum plants back to America in order to treat his own gout. Modern science has further refined the drug for better medicinal use.

Colcrys has been used to treat gout for a very long time, although the Food and Drug Administration (FDA) had not approved Colcrys specifically for the treatment of gout prior to 2009. Alternative drugs, such as Allopurinal, are also used to treat gout and related ailments. Until recently, you could treat your own gout using one of these medicines for pennies a day.

In the summer of 2009, the Food and Drug Administration approved Colcrys as a treatment for gout flare-ups and the Mediterranean fever. The FDA gave pharmaceutical company URL Pharma an exclusive marketing agreement for selling Colcrys in exchange for completing studies on Colcrys and paying the FDA a $45 million application fee.

This deal effectively created a patented drug with no generic alternative. Therefore it gave the company a monopoly for the duration of the agreement. URL Pharma immediately raised the price from less than a dime to nearly $5 dollars per pill. Comprehensive medical insurance does substantially reduce the price to consumers, but it does not reduce the cost. Insurance only spreads the cost-burden across policy holders.

At the same time, doctors are encouraged by pharmaceutical companies to employ more expensive and profitable treatments. As a result the overall cost burden increases. Evidence suggests that doctors are prescribing Colcrys in large volumes to treat gout flare-ups and as a long-term preventative measure.

Once again the federal government has taken something that was both cheap and beneficial and turned it into a monopoly that hurts the general public and drives up the cost of medical care to the benefit of Big Pharma.

Note: Just because it is natural and produced in a pharmaceutical environment, does not mean that Colcrys is harmless. It can be considered toxic in large amounts, has a long list of possible side effects, and is not recommended for people with certain conditions.

Mark Thornton is a senior resident fellow at the Ludwig von Mises Institute in Auburn, Alabama, and is the book review editor for the Quarterly Journal of Austrian Economics. He is the author of The Economics of Prohibition, coauthor of Tariffs, Blockades, and Inflation: The Economics of the Civil War, and the editor of The Quotable Mises, The Bastiat Collection, and An Essay on Economic Theory. Send him mail. See Mark Thornton’s article archives.

You can subscribe to future articles by Mark Thornton via this RSS feed.

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Against Monsanto, For GMOs – Video by G. Stolyarov II

Against Monsanto, For GMOs – Video by G. Stolyarov II

The depredations of the multinational agricultural corporation Monsanto are rightly condemned by many. But Mr. Stolyarov points out that arguments against Monsanto’s misbehavior are not valid arguments against genetically modified organisms (GMOs) as a whole.

References

– “Against Monsanto, For GMOs” – Essay by G. Stolyarov II
– “Monsanto – Legal actions and controversies” – Wikipedia
– “Copyright Term Extension Act” – Wikipedia
– “Electronic Arts discontinues Online Pass, a controversial form of video game DRM” – Sean Hollister – The Verge – May 15, 2013
– “Extinction” – Wikipedia

Against Monsanto, For GMOs – Article by G. Stolyarov II

Against Monsanto, For GMOs – Article by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
June 9, 2013
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                The depredations of the multinational agricultural corporation Monsanto are rightly condemned by many. Monsanto is a prominent example of a crony corporation – a company that bolsters its market dominance not through honest competition and innovation, but through the persistent use of the political and legal system to enforce its preferences against its competitors and customers. Most outrageous is Monsanto’s stretching of patents beyond all conceivable limits – attempting to patent genes and life forms and to forcibly destroy the crops of farmers who replant seeds from crops originally obtained from Monsanto.

                Yet because Monsanto is one of the world’s leading producers of genetically modified crops, campaigners who oppose all genetically modified organisms (GMOs) often use Monsanto as the poster child for the problems with GMOs as a whole. The March Against Monsanto, which took place in cities worldwide in late May of 2013, is the most recent prominent example of this conflation. The blanket condemnation of GMOs because of Monsanto’s misbehavior is deeply fallacious. The policy of a particular company does not serve to discredit an entire class of products, just because that company produces those products – even if it could be granted that the company’s actions result in its own products being more harmful than they would otherwise be.

                GMOs, in conventional usage, are any life forms which have been altered through techniques more advanced than the kind of selective breeding which has existed for millennia. In fact, the only material distinction between genetic engineering and selective breeding is in the degree to which the procedure is targeted toward specific features of an organism. Whereas selective breeding is largely based on observation of the organism’s phenotype, genetic engineering relies on more precise manipulation of the organism’s DNA. Because of its ability to more closely focus on specific desirable or undesirable attributes, genetic engineering is less subject to unintended consequences than a solely macroscopic approach. Issues of a particular company’s abuse of the political system and its attempts to render the patent system ever more draconian do not constitute an argument against GMOs or the techniques used to create them.

                Consider that Monsanto’s behavior is not unique; similar depredations are found throughout the status quo of crony corporatism, where many large firms thrive not on the basis of merit, but on the basis of political pull and institutionalized coercion. Walt Disney Corporation has made similar outrageous (and successful) attempts to extend the intellectual-property system solely for its own benefit. The 1998 Copyright Term Extension Act was primarily motivated by Disney’s lobbying to prevent the character of Mickey Mouse from entering the public domain. Yet are all films, and all animated characters, evil or wrong because of Disney’s manipulation of the legal system instead of competing fairly and honestly on the market? Surely, to condemn films on the basis of Disney’s behavior would be absurd.

                Consider, likewise, Apple Corporation, which has attempted to sue its competitors’ products out of existence and to patent the rectangle with rounded corners – a geometric shape which is no less basic an idea in mathematics than a trapezoid or an octagon. Are all smartphones, tablet computers, MP3 players, and online music services – including those of Apple’s competitors – wrong and evil solely because of Apple’s unethical use of the legal system to squelch competition? Surely not! EA Games, until May 2013, embedded crushingly restrictive digital-rights management (DRM) into its products, requiring a continuous Internet connection (and de facto continual monitoring of the user by EA) for some games to be playable at all. Are all computer games and video games evil and wrong because of EA’s intrusive anti-consumer practices? Should they all be banned in favor of only those games that use pre-1950s-era technology – e.g., board games and other table-top games? If the reader does not support the wholesale abolition, or even the limitation, of films, consumer electronics, and games as a result of the misbehavior of prominent makers of these products, then what rationale can there possibly be for viewing GMOs differently?

                Indeed, the loathing of all GMOs stems from a more fundamental fallacy, for which any criticism of Monsanto only provides convenient cover. That fallacy is the assumption that “the natural” – i.e., anything not affected by human technology, or, more realistically, human technology of sufficiently recent origin – is somehow optimal for human purposes or simply for its own sake. While it is logically conceivable that some genetic modifications to organisms could render them more harmful than they would otherwise be (though there has never been any evidence of such harms arising despite the trillions of servings of genetically modified foods consumed to date), the condemnation of all genetic modifications using techniques from the last 60 years is far more sweeping than this. Such condemnation is not and cannot be scientific; rather, it is an outgrowth of the indiscriminate anti-technology agenda of the anti-GMO campaigners. A scientific approach, based on experimentation, empirical observation, and the immense knowledge thus far amassed regarding chemistry and biology, might conceivably give rise to a sophisticated classification of GMOs based on gradations of safety, safe uses, unsafe uses, and possible yet-unknown risks. The anti-GMO campaigners’ approach, on the other hand, can simply be summarized as “Nature good – human technology bad” – not scientific or discerning at all.

                The reverence for purportedly unaltered “nature” completely ignores the vicious, cruel, appallingly wasteful (not even to mention suboptimal) conditions of any environment untouched by human influence. After all, 99.9% of all species that ever existed are extinct – the vast majority from causes that arose long before human beings evolved. The plants and animals that primitive hunter-gatherers consumed did not evolve with the intention of providing optimal nutrition for man; they simply happened to be around, attainable for humans, and nutritious enough that humans did not die right away after consuming them – and some humans (the ones that were not poisoned, or killed hunting, or murdered by their fellow men) managed to survive to reproductive age by eating these “natural” foods. Just because the primitive “paleo” diet of our ancestors enabled them to survive long enough to trigger the chain of events that led to us, does not render their lives, or their diets, ideal for emulation in every aspect. We can do better. We must do better – if protection of large numbers of human beings from famine, drought, pests, and prohibitive costs of food is to be considered a moral priority in the least. By depriving human beings of the increased abundance, resilience, and nutritional content that only the genetic modification of foods can provide, anti-GMO campaigners would sentence millions – perhaps billions – of humans to the miserable subsistence conditions and tragically early deaths of their primeval forebears, of whom the Earth could support only a few million without human agricultural interventions.

                We do not need to like Monsanto in order to embrace the life-saving, life-enhancing potential of GMOs. We need to consider the technology involved in GMOs on its own terms, imagining how we would view it if it could be delivered by economic arrangements we would prefer. As a libertarian individualist, I advocate for a world in which GMOs could be produced by thousands of competing firms, each fairly trying to win the business of consumers through the creation of superior products which add value to people’s lives. If you are justifiably concerned about the practices of Monsanto, consider working toward a world like that, instead of a world where the promise of GMOs is denied to the billions who currently owe their very existences to human technology and ingenuity.

The Patent Bubble and Its End – Article by Jeffrey A. Tucker

The Patent Bubble and Its End – Article by Jeffrey A. Tucker

The New Renaissance Hat
Jeffrey A. Tucker
February 3, 2013
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“Then they pop up and say, ‘Hello, surprise! Give us your money or we will shut you down!’ Screw them. Seriously, screw them. You can quote me on that.”

Those are the words of Newegg.com’s chief legal officer, Lee Cheng. He was speaking to Arstechnica.com following a landmark ruling that sided with a great business against a wicked patent troll company called Soverain.

What is a patent troll? It is a company that has acquired patents (usually through purchases on the open market) but does not use them for any productive purpose. Instead, it lives off looting good companies by blackmailing people. The trolls say, “Pay us now or get raked over the coals in court.”

Soverain is one such company. Most companies it has sued have paid the ransom. Soverain has collected untold hundreds of millions in fines from the likes of Bloomingdale’s, J.C. Penney, J. Crew, Victoria’s Secret, Amazon, and Nordstrom.

It sounds like a criminal operation worthy of the old world of, say, southern Italy (no offense, guys!). Indeed, but this is how it works in the U.S. these days. The looting is legal. The blackmail is approved. The graft is in the open. The expropriation operates under the cover of the law. The backup penalties are inflicted by the official courts.

To be sure, the trolls may not be as bad as conventional patent practice. At least the trolls don’t try to shut you down and cartelize the economy. They just want to get their beak wet. Once that happens, you are free to go about your business. This is one reason they have been so successful.

Soverain’s plan was to loot every online company in existence for a percentage of their revenue, citing the existence of just two patents. Thousands of companies have given in, causing an unnatural and even insane increase in the price of patent bundles. Free enterprise lives in fear.

Let me add a point that Stefan Molyneux made concerning this case. The large companies are annoyed by the patent-troll pests but not entirely unhappy with their activities. The large companies can afford to pay them off. Smaller companies cannot. In this way, the trolls serve to reduce competition.

[Stefan made his comments on an edition of Adam v. The Man, in which we were both guests. you can watch the entire show here.]

When Soverain came after Newegg’s online shopping cart demanding $34 million, a lower court decided against Newegg, but only imposed a fine of $2.5 million. Newegg examined the opinion and found enough holes in the case to appeal. It was a gutsy decision, given the trends. But as Cheng told Ars Technica:

“We basically took a look at this situation and said, ‘This is bull****.’ We saw that if we paid off this patent holder, we’d have to pay off every patent holder this same amount. This is the first case we took all the way to trial. And now nobody has to pay Soverain jack squat for these patents.”

It’s true. The case not only shuts down the Soverain racket. It might have dealt a devastating blow to the whole patent hysteria and the vicious trolling that has fueled it all along.

And truly, the patent mania has become crazy. No one 10 years ago would have imagined that it would go this far.

“It’s a sign of something gone awry, not a healthy market,” attorney Neil Wilkof told Gigaom.com, with reference to the utterly insane amounts that well-heeled tech giants have been paying for patents. “I think we’re in a patent bubble in a very specific industry. It’s a distorted market and misallocation of resources.”

[Note: This entire racket is anticipated and debunked in the pioneering work on the topic. The new edition of Stephan Kinsella’s Against Intellectual Property is now available for free to Club members.]

Earlier this year, Google shelled out $12.5 billion for the acquisition of Motorola Mobility. Facebook threw down $550 million for AOL’s patents. Apple and Google spent more last year on patent purchases and litigation than on actual research and development. The smartphone industry coughed up $20 billion last year on the patent racket. A lawsuit last year against Samsung awarded Apple $1 billion in a ridiculous infringement case.

These are astronomical numbers — figures that would have been inconceivable in the past. Everyone seems to agree that the system is radically broken. What people don’t always understand is that every penny of this is unnecessary and pointless. This market is a creation of legislation, and nothing more. The companies aren’t really buying anything but the right to produce and the right not to be sued, and that is not always secure.

Let’s back up. Why are there markets in anything at all? They exist because goods have to be allocated some way. There are not enough cars, carrots, and coffee to meet all existing conceivable demand. We can fight over them or find ways to cooperate through trade. Prices are a way to settle the struggle over goods that people grow or make, or services people provide, in a peaceful way. They allow people to engage to their mutual benefit, rather than club or shoot each other.

But what is being exchanged in the patent market? It’s not real goods or services. These are government creations of a bureaucracy — an exclusive right to make something. They are tickets that make production legal. If you own one, there is no broad market for it. It has only a handful of possible buyers, and the price of your good is based entirely on how much money you think you can extract from deep pockets. Sometimes, you actually force people to buy with the threat that you will sue if they don’t.

That’s not how normal markets operate. There was a time when patents didn’t even apply to software at all. The whole industry was built by sharing ideas and the spirit of old-fashioned competition. Companies would work together when it was to their mutual advantage and hoard competitive reasons when it was not. It seemed to work fine, until legislation intervened.

Today the entire fake market for patents is sustained by the perception that courts will favor the patent holders over the victims. The Newegg case changes that perception, which is why it has been the most closely watched case in the industry. This might signal the end of the reign of terror, at least one form of it.

But, you say, don’t creators deserve compensation? My answer: If they create something people are willing to pay for, great. But that’s not what’s happening. Soverain’s bread and butter was a handful of patents that had been on the open market, changing hands through three different companies over the course of 10 years, until they landed in the laps of some extremely unscrupulous wheeler-dealers.

In other words, patents these days have little to nothing to do with the creators — any more than mortgage-backed securities at the height of the boom had anything to do with the initial lender and its risk assessments. Once a patent is issued — and they are not automatically valid, but rather have to be tested in litigation — it enters into the market and can land anywhere. The idea that the patent has anything to do with inspiring innovation is total myth. It is all about establishing and protecting monopolistic weapons with which to beat people.

Many people have been hoping for patent reform. It probably won’t happen and might not even need to happen. If this case is as significant as tech observers say, a sizeable portion of this fake industry could be smashed via a dramatic price deflation. When something is no longer worth much, people stop wanting it.

Patents date from a time when a great industrial innovation made the headlines just because it was so rare. That’s not our world. Government has no business allocating and centrally planning ideas. Here’s to Newegg: Take a bow. Someone had the guts to say no. This time, for once, it worked.

Yours,
Jeffrey Tucker

Jeffrey Tucker is the publisher and executive editor of Laissez-Faire Books, the Primus inter pares of the Laissez Faire Club, and the author of Bourbon for Breakfast: Living Outside the Statist Quo It’s a Jetsons World: Private Miracles and Public Crimes, and A Beautiful Anarchy: How to Build Your Own Civilization in the Digital Age, among thousands of articles. Click to sign up for his free daily letter. Email him: tucker@lfb.org | Facebook | Twitter | Google.

This article has been republished pursuant to a Creative Commons Attribution 3.0 License.

Defeating the Special Interests Behind Draconian Copyright Laws – Article by G. Stolyarov II

Defeating the Special Interests Behind Draconian Copyright Laws – Article by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
December 14, 2012
******************************

In November 2012, it appeared for a day that some influential Republicans in the U.S. House of Representatives, chastened by their party’s defeat in the 2012 elections, were actually looking for innovative ways to reform the American political system and their own tainted image. Yet, in the area of copyright reform, Mike Massnick of Techdirt writes that it took these same Republicans a mere day to cave into the usual special-interest pressures from recording-industry and film-industry lobbying associations.

Although the Republican Study Committee (RSC) initially produced a promising report on copyright reform (fortunately saved on an external site prior to its prompt removal from the RSC website), its retraction was far more revealing than the report itself. If anything, this episode seems to show how beholden the Republican Party is (as is the Democratic Party) to Hollywood lobbyists, which are possibly the most pernicious and damaging lobbyists in the US, if not the world, today (in close competition with the “security” lobby of the military-industrial complex). To pull a report after it has already been released smacks of behind-the-scenes lobbying influence of the greatest impropriety – the same backroom machinations that brought us one failed attempt after another at draconian Internet censorship: COICA, SOPA, PROTECT IP, ACTA, and surely more to come.

It is possible that both major parties might marginally improve if certain lobbying blocs were weakened or disregarded. However, I doubt that these effects are possible to achieve by politicians. Rather, civil society needs to exert pressure on the lobbyists and expose their machinations to the sunlight of transparency. Even the retracted report can be used to spread an understanding among the general public that the politicians themselves recognize the absurd and repressive nature of the current system of copyright law – if they are allowed a moment to think for themselves without being lied to, threatened, and cajoled by the Recording Industry Association of America (RIAA) and Motion Picture Association of America (MPAA). Furthermore, technological changes and institutional innovations need to occur so as to disempower the traditional lobbying blocs – particularly Hollywood (RIAA, MPAA, et al.) and the military-industrial-security complex.

Public sentiment against draconian copyright laws has indeed been heightened by the recent movements against SOPA and the PROTECT IP Act in the United States and against ACTA in Europe. But it is also likely that the majority of people in the Western world who use the Internet have long considered current copyright law to be unreasonable – hence the extent of online piracy that otherwise law-abiding persons engage in. If politicians were responsive to broader public opinion (as opposed to special-interest influence), then the proposals to reform copyright law would have been seen as no-brainers. Indeed, copyright terms would never have been lengthened in the first place, and copyright terms would have probably remained close to the original 14 years, while prosecution and litigation for non-commercial use of copyrighted works would never have occurred. The key challenge in the copyright wars is to dislodge the power of the special-interest lobbies, which exert undue pressure on the politicians and lead politicians to largely ignore public opinion – with the recent exception of massive campaigns of outrage at attempts to censor the Internet in the name of copyright protection.

So, while public pressure on politicians should certainly continue (especially acute pressure that derails pernicious legislation or achieves incremental improvements), the long-term solution  must work to undermine the very influence of the special interests that push for longer copyright terms. This should be done not just through spreading improved information and arguments on the subject, but also through a change in consumption patterns away from the “traditional” 20th-century forms of media and toward the more decentralized, participatory media available via the Internet – as well as away from the creations of large recording and movie studios and toward works by much smaller-scale independent creators who are roughly equal with their consumers in terms of bargaining power.  These independent creators are much more likely to market their works under a “copyleft” (e.g., Creative Commons) license or even to release them into the public domain. They are also much less likely to viciously persecute their consumers, and are thus appealing enough to enable people to want to pay them.

In order for this cultural and consumption shift to occur, many more people must begin to use the Internet for much of their entertainment. This is the key behavior that many in the younger generations have already adopted – but, unfortunately, too much aversion to computers and the Internet still persists among many older Americans (of course, exceptions abound, but the statistical generational divide is nonetheless vast), whose consumption of the obsolete 20th-century media supports the special-interest lobbies. If all of these people were to become proficient with the Internet overnight, then the agenda of the draconian pro-copyright lobbies would instantly become a non-starter. This thought offers another promising way forward: for every one of our acquaintances, friends, and relatives whom we persuade to use the Internet extensively for the first time – and to like it – we make the special-interest lobbies incrementally weaker, gradually sapping the financial resources available to them for combating common-sense liberalizations of copyright law.