Against Monopoly

defending the right to innovate

Monopoly corrupts. Absolute monopoly corrupts absolutely.

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Study with the Leader of the Resistance

Following is Jeff Tucker's recent Mises Blog post:

Study with the Leader of the Resistance


I am very happy that Stephan Kinsella is finally teaching a class on intellectual property, which is surely one of the most important issues of our time. We need desperately to spread education about this topic, which is a difficult one. It is not one of the "armchair" issues that you can solve without much thought or serious study.

Let me try to give a flavor of what we are dealing with here.

Last week, I had to haggle with an authors' consortium in Britain concerning a 1946 text. The author had no children and he died before the copyright on the book expired. Someone swept in a renewed the thing, thereby taking it off the market. It hasn't been in print for some 40 years. A paralegal helped me discover the owner, which turns out to be some scam operation that preys on people who want to reprint books. I asked to distribute the thing online. The consortium never seem to have heard of the internet. They wanted a fee for $1 per book with a contract that lasted 2 years and a limit on our sales. None of this works for us. So we said no. As a result, the book, which is not that mission critical, goes back to its eternal resting place, all because of "intellectual property" which is just so obviously a hoax and a violation of human rights.

This is only one of dozens of cases I've dealt with. And there are actually millions of books in this condition, effectively burned and destroyed by IP law. The most exciting innovation in human history is the internet and digital distribution, which offers the ultimate thing, the possibility of universal distribution of knowledge, the dream of every intellectual from the ancient world to the present. And yet this is being stopped by laws administered by fools, in complete violation of the rights of the creators themselves. This strikes me as completely indefensible and yet it is the reality of our times.

Texts published after 1963 and before 1995 when things started going online are as good as gone. By the time these books enter the public domain, their value will be dramatically reduced. Meanwhile, they are being forced into death by the state and its laws, even though we have the technology to liberate them all right now. This is a travesty. Imagine a marauding band of terrorists in the 16th century that smashed every printing press it could find on grounds that it threatened the livelihood of scribes. This is exactly what is going on right now.

The level of ignorance out there concerning copyright is amazing to watch. People hear things on the street and pass them on, while knowing nothing about the actual realities of the law, which is the craziest, mixed up mess of nonsense you will find in the statute books of all human history. There is no one rule that helps you find out what is and what is not available for digitizing. Congress changed its mind every decade or so, to the point that now texts can be tied up in the physical world for as long as 170 years. Authors are constantly tricked into going along with this cockamamie system in the hope of royalties that never arrive. The state has set up a moral hazard and authors keep falling for it.

Authors are often unaware of what they are doing and signing. Just a bit ago, I had an author tell me that all is well because he retained copyright to a book. In fact, this means nothing because when he published, he signed his rights away by making the publisher the administrator of his rights, a status which lasts as long as the book is in print. Guess what? Books never go out of print these days. His book is as good as dead as regards digital media. He had no idea. Even though he is a creator, his rights are being violated in the name of "intellectual property" and he remains totally flummoxed about how this happened.

Most people have no idea just how bad the situation truly is.

Nor have most people considered just how flimsy and ridiculous the foundation of "intellectual property" really is. If the law were actually applied consistently, so that we had to negotiate rights over every idea we use, the whole of society as we know it would come to a screeching halt. Learning and influencing would be against the law. Every generation would start over, having benefited not at all from the experiences of the previous one.

People are constantly fooled over this subject. After my review of Social Network, my in-box filled with questions about my claim that Mark Zuckerberg did not owe the Winklevoss twins anything. The claim is that Zuckerberg took their idea of a Harvard-wide social network, so why should he be forced to pay? Well, consider: what if Zuckerberg's ideas never really went anywhere and Facebook ended up being a huge financial failure. What Zuckerberg have been able to foist his liabilities off on the Winklevoss twins? If ideas are property and Zuckerberg owed his success to them, it makes sense that they would also bear the liability for failure. But no one seriously suggests this, which tells me that the same people don't take their claims literally.

I also have to laugh about people who wrote me to say that they saw the movie on my recommendation and liked it but do not agree with Kinsella on IP. Well, wait just a minute: they took my idea and saw the movie, so shouldn't they be forced to pay me money? Haven't they robbed me of my idea of seeing a movie? Think about this and see how preposterous this truly is. The reality is that 1) I put my idea out there, 2) ideas can be copied without stealing them, 3) the whole of life itself is made possible via the extraction and application of the ideas of others.

I love the movie Social Network because it shows how real life works in the world of entrepreneurship. Entrepreneurs are specialists in extracting information to inform their judgements about the world. They are great learners, great copier, great implementers of the ideas of others, improving them and testing them against the reality of economic life. Ideas alone pay nothing. Only the doing pays returns (or losses). As Rothbard says, a real entrepreneur is not just a thinker but a capitalist who takes risks.

But you say that Zuckerberg had a contract with the twins to do work for them? In fact, there was no contract, and anyone who says that Zuckerberg did anything wrong wouldn't last a day in the real world. It is common in every aspect of life, particularly in the world of geeks and code monkeys, for people to agree in principle and then not come through. It happens with four out of five people I approach about working on Mises.org, for example. That's not contract breaking; it is just the way life is. Zuckerberg had a better idea than to waste time on the twins' project, and good for him. We are all better off.

Try an experiment sometime. Imagine that ideas really are property, and that every time you learn something or discover something or hear something that influences your later actions, you have to pay some money or else you are a thief. Try it tomorrow when you wake up and just see what happens. You will discover that you will either be bankrupt by noon or rendered senseless and motionless. We cannot get by this way.

The beauty, the glory, the magic, the mystery and magnificence of ideas as versus real property is precisely that they are infinitely copyable, malleable, transferable, and spread in unpredictable ways. They are the very energy and life of civilization itself, the means by which we build, grow, and navigate this world of scarcity in ever more successful ways.

There is no greater illustration of the arrogance and pretensions of the state that it imagines that it can bottle these up and buy and sell them, becoming a global mind reader of everything we see and hear, all in the name of property-rights enforcement. The bitter irony is that the state is doing the opposite of enforcing property rights; it is violating them through its attempt to restrict the unrestrictable.

IP consistently applied can destroy the whole world as we know it. As it is, IP is enforced only intermittently and thank goodness for that. What is troubling is that most people are clueless about where they stand on this issue. They figure that it doesn't really matter for them, just as slavery didn't matter to most people in the year 1800, so why should we care? We must care. Everything is at stake in this battle.

But let's say that you don't agree with Kinsella that IP is a myth that must be shattered. Will you benefit from this class? Absolutely. It will help you think, and think hard about this subject. He is a world expert, a patent attorney and a great thinker, surely one of the most important living intellectuals today. He has made himself available to you through the Mises Academy. I don't believe that this class will settle all things but it will help you think and learn and gradually come to a coherent position on this issue.

If we all had our priorities straight, the Mises Institute would need to close the class at 1000 students. I don't think we will have that many but we should. In 500 to 1000 years, students will be studying our generation and wonder who the dunderheads were who slammed on the breaks of social progress by crushing innovation, burning books, fining innovators, jailing teenage file sharers, prosecuting good learners, smashing art and music, and using government force to prop up losers, scam artists, and reactionary forces in society. They will laugh at us.

At least they will see that some people refused to go along. Kinsella is the leader of the resistance, and he is here for you, willing to be a teacher and helping everyone to understand and see the light.


You wrote: "The level of ignorance out there concerning copyright is amazing to watch." Quite true. But there is also the historical dimension that needs to be emphasized. That is, each incremental change in copyright has moved in the direction of being "stronger". Yet when analyzing copyright, it tends to be from the perspective that copyright has always been this way.

It hasn't it has been a growing incremental "land grab". In combating the ignorance concerning copyright with education, the historical trend must be recognized.


You wrote: "There is no greater illustration of the arrogance and pretensions of the state that it imagines that it can bottle these up and buy and sell them, becoming a global mind reader of everything we see and hear, all in the name of property-rights enforcement." From my perspective, the dynamics of this statement are "wrong". True, the State makes the laws. But the problem is that these so-called "property-rights" are being "created" by corporate entities suing each other. The also buy favorable legislation from the congressional supermarket. I would advocate that if it weren't for corporate interference the State would have NO interest in "protecting" so-called intellectual property.

That historical trend is just more evidence in favor of the abolitionist position, as it shows that even weak copyright is a thin edge of a wedge that is swiftly driven deep by means of regulatory capture.
Korekiyo Takahashi was the first commissioner of the Japan Patent Office. He was later president of the Bank of Japan, minister of agriculture and industry, minister of finance and prime minister of Japan.

During a visit to the US Patent and Trademark Office in the early 1880s he is reported to have said: "We have asked, 'What is it that makes the United States such a great nation?' and found that it was patents, and so we will have patents."

On 18th April 1885 he introduced Japan's first patent system by promulgating the Patent Monopoly Act. With this Act, Takahashi began the transformation of Japan into a technology-based nation and one of the largest users of the international intellectual property system.

Nice little anecdote, Lonnie, but correlation does not imply causation, as you should well know by now.

Correlation does not imply causation, but neither does it preclude causation. In this particular case, the Japanese studied the United States fairly carefully before adopting the U.S. system. Japan is also the country that recognized the value of Deming, Six Sigma and Kaizen well before the United States (and much of the rest of the world).

It doesn't, in and of itself, suffice to infer causation; and lots of people have studied the United States fairly carefully and still been wrong about the direction of that particular causal arrow.

Yes, there has been a lot of study of the U.S. patent system. There have also been studies of the U.K. and the U.S. patent systems and how the implementation of the patent system appears to have been the catalyst that set these two countries apart from the rest of the world technologically and enabled great leaps forward when numerous other countries had the similar opportunities.

I think it is fair to say that one of the reasons that most other countries ultimately adopted a patent system is because of the patent systems of the United States and the United Kingdom and the combination of analysis and perception that this one factor was a primary reason that the U.S. and the U.K. led the world in the industrial revolution.

Nonsense. The only actual scientific studies that have been done have shown an at-least-mild negative impact of patents on innovation.

As for why other countries adopted patent systems, a mixture of lemming syndrome and political pressure from countries like the US would seem to suffice as an explanation.


I would be interested in the scientific studies. Can you provide links?

Sure: http://www.againstmonopoly.org -- perhaps you'd heard of it? Also www.techdirt.com. Both sites have linked to such studies several times.

Unfamiliar with Techdirt's links. I have yet to see the links here. Perhaps I can go back through some articles to find them.

There are a number of studies that directly link the growth of industrial R&D and innovation to patent systems. Among these are "The Boundaries of U.S. Firms in R&D" by D.C. Mowery, "The Making of American Industrial Research" by L.S. Reich, and "Edison and the Business of Innovation," by A. Millard.

Additional studies indicate that some industries find that patents and innovation are related in some industries, but not in others, as reported in by R.C. Levin, A.K. Klevorick, R.R. Nelson, and S.G. Winter in "Appropriating the Returns from Industrial R&D" and by W.M. Cohen, R.R. Nelson and J.P. Walsh in "Protecting Their Intellectual Assets: Appropriability Conditions and Why US Manufacturing Firms Patent or Not."

There are secondary issues as well. While some people like to disagree, a number of studies, for example "When Does Start-Up Innovation Spur the Gale of Creative Destruction?" by J. Gans, D.H. Hsu and S. Stern found that patents were high on the list of requirements to obtain funding from venture capitalists. An increasing number of companies are also using patents as a source of information, as documented in "Business Patenting and Licensing: Results from the OECD/BIAC Survey" by J. Sheehan, D. Guellec and C. Martinez.

I am unable to quickly lay my hands on several studies related to adoption of patent systems and technological growth, but in addition to the United States, there is evidence that South Korea, Taiwan, and the PRC all accelerated their technological growth rapidly after the adoption of patent systems. I think there were other countries noted, but those are the only three I remember.

There is some work under way that compares and contrasts India's ability to attain technological growth due to its poor protection of intellectual property. What I think is interesting is that the very industries that Levin and Cohen reported as receiving little or no benefit from intellectual property are exactly those industries that seem to be doing well in India, and those industries that report that intellectual property leads to innovation are those industries that have little or no growth in India.

I look forward to acquiring the other studies you mentioned.

Thank you!

See this post : Yet Another Study Finds Patents Do Not Encourage Innovation
There are a number of studies that directly link the growth of industrial R&D and innovation to patent systems.<\blockquote>

More correlations. What evidence have you for the direction of the causal arrow?

Stern found that patents were high on the list of requirements to obtain funding from venture capitalists.

Artificial requirements. Abolish patents and, obviously, venture capitalists won't expect startups to have them. Techdirt claims that it's a myth that startups need patents to receive funding, anyway.

There is evidence that South Korea, Taiwan, and the PRC all accelerated their technological growth rapidly after the adoption of patent systems.

Their growth was fueled by foreign investment that was, unfortunately, often predicated on their adopting Western IP laws. Basically the same thing as the startup capital, except on a vastly larger scale. Get rid of patents worldwide and such artificial requirements for being let into the international trade club would go away.

What I think is interesting is that the very industries that Levin and Cohen reported as receiving little or no benefit from intellectual property are exactly those industries that seem to be doing well in India, and those industries that report that intellectual property leads to innovation are those industries that have little or no growth in India.

Easy to explain if IP is evil: the industries that report that IP leads to innovation are, of course, the industries that are dominated by an incumbent cartel that have used IP to stifle competition (e.g. big pharma) and said cartel also refuses to establish branches in and do business in countries that don't toe their line on IP. So those industries seem to do poorly in India as the big multinationals in those industries refuse to do much business there and, at the same time, use the patent laws in other countries to block importation of products made by Indian pharma (and etc.) companies. The result is India lacks multinational presence in those industries, and its domestic businesses in those industries sell mainly domestically, which limits their growth somewhat (though with a domestic population in the nine figures, maybe not all that much even if they're poorer on average than the mere couple hundred million potential customers in the States) and moreover effectively flies them beneath western radar -- if we don't see their imports on our store shelves and don't travel there ourselves we don't notice them and so we think India has little industry in that sector. We notice Indian call centers when we phone tech support because our DSL keeps going on the fritz but we don't notice Indian pharma because everything on our local drugstore shelves is from Bayer and Pfizer and GlaxoSmithKline.


I am trying to digest your numerous comments.

One comment caught my eye that took me a bit to understand, and I think I do, now. I think I mis-wrote or misinterpreted Cohen and Levin's comments.

Indian pharmaceutical companies are doing phenomenally well and comprise the second largest pharmaceutical industry in the world. I thought Cohen and Levin were predicting that the lack of patents would hinder growth of these industries, though Cohen specifically seems to indicate that lack of patents would decrease investment in pharmaceuticals, based on early phrasing in the paper.

However, reading Cohen more carefully, the paper explains that lack of patents in pharmaceuticals would decrease the incentive for investment in R&D and therefore would lead to minimal (or no) innovation.

The Indian pharmaceutical industry exports to numerous countries, including the United States. The industry is also growing at a very respectable 17% rate. However, innovation is extremely low. Indian pharmaceutical companies focus on reverse-engineering the drugs of other countries rather than developing their own drugs or improving existing drugs. There currently appears to be little or no effort to focus on innovation in the Indian pharmaceutical industry, which Cohen and Levin would predict by weak or non-existent protection of intellectual property.

Yes, they will be able to export generics of older drugs (and smuggle via Internet pharmacies).

As for innovation, there's probably a lot of process innovation, if not drug discovery, and there isn't much drug discovery by western Big Pharma right now -- because the low-hanging fruit have been picked now. All the easy wins in areas like antidepressants, antibiotics, and so on have been had. The medical renaissance is moving into cell therapies, prosthetics, and, eventually, nanotech; what we can accomplished by cutting and pasting existing body parts and by pumping assorted small molecules into bloodstreams has pretty much all been accomplished now.

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