The Case Against Intellectual Property

dhilvert writes "David Levine and Michele Boldrin argue that current IP laws encourage an inefficient rent model and stifle the potential for innovation without intellectual monopoly. Levine teaches at UCLA and maintains an Economic and Game Theory page."

Comments

It's even worse now...

[occam]

Now, the wolves are guarding the hen house. In the early 90's, when Bruce Lehmann hosted the USPTO's sham hearings on whether to institutionalize s/w patents, his panel was comprised entirely of lawyers.

IOW, lawyers chose to instititionalize s/w patents in spite of strong protests from individuals throughout the software industry.

From that point on, it has been accepted that lawyers have the right to reap profits and taxes off of so-called innovation in software. It's a huge inefficiency, impossible to enforce, and impossible for anyone to prove virtually any software is unencumbered by patent conflicts. It's ridiculous.

The USPTO loves it though. They just increased their staff to handle their backlog which will forever increase since software patents are prolific and easily twisted into patent submissions.

Better yet, lawyers are having a heyday. The more lawsuits, the better. They get wealthy while the software industry grinds to a halt. It's obscene and a severe conflict of interest that they should have instituted s/w patents over all reason from the s/w industry itself.

I'm not even sure it's legal. I wonder what authority the USPTO head, Bruce Lehmann, really had. Was he appointed, and by whom? He certainly wasn't a member of Congress where laws should be created.

S/w patents should be abolished.

Re:Thing thats bothered me about Software PAtents.

[bm_luethke]

"The point is when does intelectual property become a rediculous concept, or is it a rediculous concept from the very begining?"

That is a really difficult question. At what point does an algorithm become a mathematical equation. At what point does patenting it become a detriment to society.

To use medical stuff as a starting point the theory (and it is well played out in reality) is that the development cost is huge, manufacturing cost is tiny - same is true in CS. In order for them to recoupe costs (and therefore make them want to do the research) they are given a period of unilateral controll of sales. In the end it drives progress, for a few years only a select few get the rewards, in the long run the poorest are extremely elevated.

Software, unfortunatly, does not have the much harder line that a pill does (not really a physical product from quicksort). Is a windowing system patentable? is Quicksort?

Ultimatly the question is "does this help advance society". We, in many cases, are quite capable of answering this question. That question is supposed to be the job of the courts or the patent office. Unfortunatly they want an expert system type of decision making. A simple yes/no based on a simple given input written in a few pages of documentation. Patenting online sales in our current date is idiotic, but it passes thier simple "yes/no algorithm". Patenting a new extremely low latency/high throughput network interconnect is patentable (and really should be).

The next question is length of patents. In our industry a 5 year patent is really "in the past" let alone our current patent system. If you can't make a profit in 5 years in CS a ten year patent will not make you a profit, nor will a longer one. On the other hand it seriously dampens societies progress.

Patents are supposed to be, and should be, a balance between the need of society to benefit from advances in tech, and the people who invented the tech (or corperation) need to profit from the tech. When one is given great priority over the other the system gets screwed. It generally takes a person, capable of rational thought, to find that line, not a simple "yes/no" solution. Plus they need to realise the line is not necessarily in the same place each time (and some may disagree), that is why there is such a thing as "comprimise" (which is where neither side is happy, and neither side is greatly unhappy :) ).

Lawyer Fodder

[anubi]

After reading the article on Watt and his steam engine, I am even more convinced that most of this patenting process is mostly contrived to feed lawyers.

Does this really protect the individual who actually *invented* something or protect the ones who say they have the rights to it and have the resources to protect it.

The post before mine recognizing Newton/Leibnitz and the possiblilty of "patenting" calculus drives the point home.

This seems to me just to be another excuse not to work. My whole country seems to be doing this. It seems everyone is out not to produce anything per se, but to tie up anybody trying to do anything and exact a fee. Somehow this system passes as "free enterprise".

Now, if the patent protection lasted for seven years or so, I would consider it much more appropriate. That way one could profit during the market window, but not tie the works up in perpetuity.

Adam Smith and *Intellectual monopoly*

[NZheretic]

last posted back in October, but IMO still of relevance to the topic...

From The Relevance of Adam Smith by Robert L. Hetzel.
With added commentary by yours truly...

MONOPOLY AND GOVERNMENT SUBSIDIES: The principal theme set forth in The Wealth of Nations is that a country most effectively promotes its own wealth by providing a framework of laws that leaves individuals free to pursue the interest they have in their own economic betterment. This self-interest motivates individuals? propensity to truck, barter, and exchange one thing for another and thereby leads them to meet the needs of others through voluntary cooperation in the market place:

...man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and shew them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. (p. 14)

Everyone realises and acknowledges that Microsoft is a business, there to make a profit to share with it's marjor stakeholders, from it's shareholders to it's employees. However ...

Smith also argues that the harmony between private goals and larger socially desirable goals promoted by voluntary cooperation between individuals in the market place is interfered with by monopoly and government subsidies. In contrast to competition, monopoly and government subsidies cause individuals to devote either too few or too many resources to particular markets:

....the private interests and passions of individuals naturally dispose them to turn their stock towards the employments which in ordinary cases are most advantageous to the society. But if from this natural preference they should turn too much of it towards those employments, the fall of profit in them and the rise of it in all others immediately dispose them to alter this faulty distribution. Without any intervention of law, therefore, the private interests and passions of men naturally lead to divide and distribute the stock of every society, among all the different employments carried on in it, as nearly as possible in the proportion which is most agreeable to the interest of the whole society.

All the different regulations of the mercantile system, necessarily derange more or less this natural and most advantageous distribution of stock. (pp. 594-5)
Every derangement of the natural distribution of stock is necessarily hurtful to the society in which it takes place; whether it be by repelling from a particular trade the stock which would otherwise go to it, or by attracting towards a particular trade that which would not otherwise come to it. (p. 597)

.... sometimes, because of the overiding profit motive, the end consumer can be put at a disadvantage, and the natural model can become unbalanced. This often happens in tha case of several types of monopoly...

Smith describes the actions of monopolists as follows:

The monopolists, by keeping the market constantly under-stocked, by never fully supplying the effectual demand, sell their commodities much above the natural price, and raise their emoluments, whether they consist in wages or profit, greatly above their natural rate. (p. 61)

The natural price is the lowest which the sellers can commonly afford to take, and at the same time continue their business. (p. 61) Today we would use the word competitive for natural. The effectual demand is the demand of those who are willing to pay the natural price of the commodity. (p. 56) Monopoly, as well as a governmentally subsidized activity, contrasts with a competitive market where a commodity is...sold precisely for what it is worth, or for what it really costs the person who brings it to market. (p. 55)
The Wealth of Nations contains three general kinds of criticism of monopolies. The first is that the higher prices in a monopolized market reduce the welfare of consumers:

If...capital is divided between two different grocers, their competition will tend to make both of them sell cheaper, than if it were in the hands of one only; and if it were divided among twenty, their competition would be just so much the greater, and the chance of their combining together, in order to raise the price, just so much the less. Their competition might perhaps ruin some of themselves; but to take care of this is the business of the parties concerned, and it may safely be trusted to their discretion. It can never hurt either the consumer, or the producer; on the contrary, it must tend to make the retailers both sell cheaper and buy dearer, than if the whole trade was monopolized by one or two persons. (pp. 342-3)
In every country it always is and must be the interest of the great body of the people to buy whatever they want of those who sell it cheapest. The proposition is so very manifest, that it seems ridiculous to take any pains to prove it; nor could it ever have been called in question, had not the interest sophistry of merchants and manufacturers confounded the common sense of mankind. Their interest is, in this respect, directly opposite to that of the great body of the people. As it is the interest of the freemen of a corporation to hinder the rest of the inhabitants from employing any workmen but themselves, so it is the interest of the merchants and manufacturers of every country to secure to themselves the monopoly of the home market. (p. 461)

.... like deals made between vendors to set prices, which RAND "reasonable" licensing systems effectively does.

The second criticism of monopoly is that it engenders inefficient management:

Monopoly...is a great enemy to good management, which can never be universally established but in consequence of that free and universal competition which forces everybody to have recourse to it for the sake of self-defence. (p. 147)

For example, Microsoft's Internet Explorer containscurrently 20 unpatched vulnerabilities , a disproportionately high number in comparison to all the other browers on the market today. Also, because of a general disregard for security in the past, many of those same vulnerabilities are exploitable though other Microsoft applications.

The third criticism of monopoly is that it is inequitable because it increases arbitrarily the inequality in individuals? incomes:

...The policy of Europe occasions a very important inequality in the whole of the advantages and disadvantages of the different employments of labour and stock, by restraining the competition in some employments to a smaller number than might otherwise be disposed to enter into them. (pp. 118-19)

And there is many a CIO discovering that the new Microsoft enterprise licensing agreement is far more expensive than before.

Monopoly has always been a contentious issue in debates on public policy in the United States. It is interesting to examine the way in which the ideas of Smith appear in current debates over monopoly. In general, proponents of government intervention in the market place argue that monopoly is endemic in capitalism and that its elimination requires significant intervention by the government in the market place. An opposing group argues that free markets effectively restrain monopoly power and that it is in fact government intervention in the market place that is chiefly responsible for monopoly. The first group assumes that large size, fewness of firms, and operation over an extensive geographic area automatically imply monopoly power and thus supports its position by citing the existence of industries dominated by a few large firms and the existence of multinational corporations. The opposing group supports its position by trying to show that where monopoly power exists it is made possible by particular governmental actions, e.g., in the United States by marketing orders that fix the price of milk above what it would be otherwise, or FCC regulations restricting the growth of cable TV, thereby preventing competition with the established networks.

The view of the world suggested in The Wealth of Nations is that monopoly power cannot persist without the assistance of government. The specific examples of monopoly that Adam Smith attacked required the police power of the state for their maintenance. These monopolies were of three kinds. One kind of monopoly depended upon the mercantilistic system of laws which England used to monopolize trade with its colonies: Monopoly of one kind or another, indeed, seems to be the sole engine of the mercantile system. (p. 595) Another kind arose from the monopoly power granted guilds (referred to by Smith as corporations), which allowed them exclusive rights to produce a given commodity:

The exclusive privilege of an incorporated trade necessarily restrains the competition, in the town where it is established, to those who are free of the trade. To have served an apprenticeship in the town, under a master properly qualified, is commonly the necessary requisite for obtaining this freedom. The bye-laws of the corporation regulate sometimes the number of apprentices which any master is allowed to have, and almost always the number of years which each apprentice is obliged to serve. The intention of both regulations is to restrain the competition to a much smaller number than might otherwise be disposed to enter into the trade. The limitation of the number of apprentices restrains it directly. A long term of apprenticeship restrains it more indirectly, but as effectually, by increasing the expence of education. (p. 119)
The government of towns corporate was altogether in the hands of traders and artificers; and it was the manifest interest of every particular class of them, to prevent the market from being overstocked, as they commonly express it, with their own particular species of industry; which is in reality to keep it always understocked. (p. 124)

A final kind of monopoly depended upon tariffs and quotas that prevented foreign producers from competing with domestic producers:

The superiority which the industry of the towns has every-where in Europe over that of the country, is not altogether owing to corporations and corporation laws. It is supported by many other regulations. The high duties upon foreign manufactures and upon all goods imported by alien merchants, all tend to the same purpose. Corporation laws enable the inhabitants of towns to raise their prices, without fearing to be under-sold by the free competition of their own countrymen. Those other regulations secure them equally against that of foreigners. (p. 127)

Competitive markets restrain monopoly because the above-average profits associated with the exercise of monopoly power attract new producers who increase output and thereby lower prices:

When by an increase in the effectual demand, the market price of some particular commodity happens to rise a good deal above the natural price, those who employ their stocks in supplying that market are generally careful to conceal this change. If it was commonly known, their great profit would tempt so many new rivals to employ their stocks in the same way, that, the effectual demand being fully supplied, the market price would soon be reduced to the natural price.... Secrets of this kind, however, it must be acknowledged, can seldom be long kept; and the extraordinary profit can last very little longer than they are kept. (p. 60)

The next section is very IMPORTANT.

Monopolists can preserve their favorable position only if the government prevents potential competitors from entering the monopolized activity:

The exclusive privileges of corporations, statutes of apprenticeship, and all those laws which restrain, in particular employments, the competition to a smaller number than might otherwise go into them, have the same tendency...They...may frequently, for ages together, and in whole classes of employments, keep up the market price of particular commodities above the natural price, and maintain both the wages of the labour and the profits of the stock employed about them somewhat above their natural rate.

Such enhancements of the market price may last as long as the regulations of police which give occasion to them. (pp. 61-2)

In fact, the term "intellectual property" is a misnomer, a more correct term would be intellectual monopoly. Patents, Copyrights and even Trademarks are a government granted monopoly, they do not occur naturally. That does not mean that they are a bad thing per-say, but their use should be dictated by the benefit to socitety in general, with approprate limits so their use cannot be abused.
These statutes give the power that the ol' Mercantile laws gave to those monopolies. There is no true effective choice in the market. Compainies like Microsoft are sustaining it's dominate position in the markerplace by using a state-constructed and granted monopoly, which gives Microsoft the monopoly over it's protocols , effectively just as restrictive as the East India Trading Company trading zone monopoly of the Orient.

Free markets make the formation of monopoly difficult because monopoly requires the adherence of all actual and potential sellers in a market. Self-interest makes achievement of such adherence difficult because each seller has an incentive to undercut the monopoly price in order to increase his share of the market. Monopoly power is increased or made possible if enforced by the government. In the following passage Smith refers to the guilds, or corporations, of his day:

An incorporation...makes the act of the majority binding upon the whole. In a free trade an effectual combination cannot be established but by the unanimous consent of every single trader, and it cannot last longer than every single trader continues of the same mind. The majority of a corporation can enact a bye-law with proper penalties, which will limit the competition more effectually and more durably than any voluntary combination whatever. (p. 129)

Smith?s ideas appear in current public debate over monopoly. Advocates of deregulating the transportation and communications industries by eliminating or reducing the power of Federal regulatory agencies argue that these agencies promote monopoly by limiting the entry of new firms and by fixing prices for all producers. Government regulations enforced upon all firms in an industry have the effect of allowing producers to eliminate competition and to raise prices. At the same time, lack of competition reduces incentives for efficient production.

Proactive IP regulation & Patent Busting

[kscguru]

The problem is that IP "regulation" is reactive instead of proactive. Two large companies want to merge, they have to get regulator approval beforehand. But if I want to own a piece of IP, I just claim it (copyright) or come up with an obscure description and pay a small fee (patent); I basically own it until someone proves I don't - the onus is on YOU to challenge MY ownership. And I can threaten all sorts of lawsuits until you succeed in that challenge. If I hold a patent that's "obvious", guess what - you've got to sue to break my monopoly.

The solution I'd like to see, instead, would be the government taking a proactive stand. Instead of granting patents and waiting for the mess to sort itself out, I want the government to go out and bust patents. Presidents like to portray themselves as trustbusters; well, "patent cartels" are one large trust that's never been busted. If some technology covered by a patent becomes truly umbiquitous - that is, so widely used that the inventor has ALREADY recouped his R&D investment - I'd like to see the government force the patent into the public domain. Example: CD-ROMs... Philips hold the patent, and has been very generous with it. But the technology protected by that patent is SO widespread that any abuse of the CD-ROM patent would ruin the technology sector. Think of how much some companies (or the RIAA, to supress non-DRM formats) would pay to control that patent - the value is inconceivable.

At this point, CD-ROM technology ceases to be a useful patent and starts to become something that the general public has a vital interest in... and here's the point where the government should "seize" the patent and turn the IP over to the public BEFORE the patent expires of its own accord. A widely used piece of IP (or any of the "obvious" patents we regularly complain about here on Slashdot) has passed the point where the inventors NEED a monopoly to protect their idea and has reached the point where the only purpose of that patent is profit at the expense of the public.

Monopolies are useful, but powerful monopolies are not; patents are useful, but exploitable patents are not. The government has an active role in regulating all other monopolies; it needs to take an active role in regulating IP monopolies as well.

Obvious patents = theft

[ctellefsen]

A patent is not a right one person gets when he patents something, it is a right everyone else loses. If Amazon had not patented the obvious one-click order, everyone could do it. I think that taking away the right of every person (save one) in the entire world to do some action is a very serious thing to do.

Therefore, patent granting should be very restrictive - not like today, when you can patent obvious bits of code, obvious business processes, DNA sequences, the wheel, swings, whatever.

When the patent is obvious, patenting is theft - taking from all and giving to one.

Re:Thing thats bothered me about Software PAtents.

[anubi]

Yes, I am seeing this.

And it scares the kerpookie out of me.

No matter how you design or code anything, you are sure to step on something someone has documented. I mostly do analog design.. now there are several circuit topologies for switching power supply design.. but are any of them safe to use outside of an academic lab? Or as mentioned, can one even use a quicksort algorithm without the risk of the letter in the mail? What if I use a m-way search tree in a custom mini-database which keeps track of some activities my robots are doing... can I expect somewhere someone is going to see I am using an m-way tree and hold my company ransom for it?

I can only imagine what it is like in the biochemical industry. I have seen my share of organic synthesis books.. and how similar organic molecules are. You can darned interpret anything you want if you get Congress to back your patent. Its like coming to the building industry because they used copper wire, copper pipe, bricks, nails, whatever in the construction of the building, and you have your lawyers hold them hostage for it.

Scary indeed...

But then my great hope is the Chinese. Hopefully they will look at us and learn. They will be able to innovate and construct and hopefully use their resources for production instead of litigation. It won't bode well over here in the States, but then Congress may have another thing to consider, how do you control the masses of people once they have lost their homes and no longer have money or jobs to pay rent. I do not like to be a fat man in the presence of hordes of hungry wolves.