IP as Contract

0:00Against Intellectual Property by Stefan Kinsella Intellectual property as contract, the limits of contract. The law, then, should protect individuals' rights to one's body and to legitimately acquired scarce resources, property. There is not a natural right to ideal objects, to one's intellectual innovations or creations, but only to scarce resources. Many opponents of IP rights typically support only contractual arrangements to protect ideas and innovations, private contracts between property owners. Suppose, for example, that A writes a book and sells physical copies of it to numerous purchasers, B1, B2, BN, etc., with a contractual condition that each buyer, B, is obligated not to make or sell a copy of the text.

0:56Under all theories of contract, any of the buyer's B becomes liable to A, at least for damages if he violates these provisions. But the advocates of the contractual approach to IP are mistaken if they believe that private contract can be used to recreate the same type of protection afforded by modern IP rights. Patent and copyright are good against all third parties, regardless of their consent to a contract. They are real rights that bind everyone, in the same way that my title to a parcel of land binds everyone to respect my property, even if they do not have a contract with me. A contract by contrast binds only parties to the contract. It is like private law between the parties. It does not bind third parties, i.e. those not in privity with the original parties.

1:52Thus, if the book purchaser B relates to third parties T, the plot of a purchased novel, these third parties T are not bound in general by the original contractual obligations between A and B. If I learn how to adjust my car's carburettor to double its efficiency, or if I learn of a poem or movie plot someone else has written, why should I have to pretend I have not obligated myself by contract to the Creator. I do not deny that contractual obligations can be implicit or tacit, but there is not even an implicit contract in such situations, nor can it be said as a general matter that I have stolen or fraudulently acquired the information, as there are many legitimate ways for individuals to acquire information.

2:47Artistic works, by their very nature, typically are made public. Scientific discoveries and innovations likewise can become known beyond the parties to confidentiality agreements. And it certainly cannot be said that my use of my carburettor, or writing a novel using the same plot, physically interferes with the creator's use of his own tangible property. It does not even prevent the creator from using his own carburetor idea to improve his own car or others, or from using that plot. So, my adjusting my carburetor is not a breach of contract, it is not theft, and it is not physical trespass on the inventor's tangible property. Twiddling my carburetor does not violate the inventor's rights.

3:35At most, my use of his idea will diminish its value to the inventor by hampering his ability to monopolistically exploit it. As we have seen, however, one cannot have a right to the value of one's property but only to its physical integrity. Thus, the use of contract only gets us so far. A book publisher may be able to contractually obligate his purchasers not to copy his book, Contract vs. Reserved Rights

4:32If you are not really using his ideas, it is difficult to use standard contract law to prevent third parties from using ideas they glean from others. Perhaps, sensing this problem, some quasi-IP advocates shift from a purely contractual approach to a reservation-of-rights approach, in which property rights in tangible resources are seen as a divisible bundle of rights. For example, under the standard bundle of rights view, a landowner can sell the mineral estate to an oil company while retaining all rights to the surface, except for an easement, servitude, granting passage to a neighbour, and a life estate, usufruct, granting use of the surface estate to his mother. Drawing on the bundle of rights notion, the reservation of rights approach holds that a type of private IP can be privately generated by creatively reserving rights to reproduce tangible items sold to purchasers.

5:31Rothbard, for example, argues that one can grant conditional ownership of knowledge to another while retaining the ownership power to disseminate the knowledge of the invention. Or, Brown, the inventor of an improved mousetrap, can stamp it copyright, and thereby sell the right to each mousetrap except for the right to reproduce it. Like the real rights accompanying statutory IP, such reservations allegedly blind everyone, not just those who have contracted with the original seller. Thus, third parties who become aware of, purchase or otherwise come into possession of the restricted Item also cannot reproduce it, not because they have entered into a contract with Brown, but because no one can acquire a greater property title in something than has already been given away or sold. In other words, the third party acquires a tangible thing, a book or a mousetrap, say, but it is somehow missing the right to copy part of the bundle of rights that normally constitutes all rights to the thing.

6:40The third party acquires ownership of information from a person who did not own the information and thus was not entitled to transmit it to others. But surely something is amiss here. Suppose that A writes a novel and sells a first copy, book 1, without restriction, i.e. without a reservation of rights, to be one. And a second copy, book two, to be two, but reserving the book's inherent right to copy. The two books, book one and book two, appear to third parties to be otherwise identical, yet they are not. One is incomplete, the other somehow contains more mystical rights essence within its covers.

7:26Books B1 and B2 leave these books on a park bench where they are discovered by third-party tea. According to Rothbard, Book 2 is missing the right to copy, much like an electronic toy that is sold batteries not included. It is as if there is an invisible mystical tendril of reproduction ownership stretching from Book 2 back to its true owner, A, wherever Thus, even if T finds and homesteads the abandoned book II, this book simply does not contain, within itself, the right to permit the owner to copy it. It is continually being siphoned away by a rights wormhole which connects the item to owner A. Thus, if T homesteads the book, he still homesteads no more than he acquires.

8:16T. Homestead's only a book without a right to copy built in, and thus does not have the right to copy book too. The same is true for subsequent third parties who come to possess the book. Is such a view really tenable? Can we conceive of property rights working in this way? in this way? Even if we can, would it really achieve the desired end result here, preventing third parties from using the protected ideas? It is difficult to maintain that rights can be reserved in this manner. One function of property rights, after all, is to prevent conflict and to put third parties on notice as to the property's boundaries. The borders Borders of property must necessarily be objective and intersubjectively ascertainable. They must be visible. Only if borders are visible can they be respected and property rights serve their function of permitting conflict avoidance. Only if these borders are both visible and objectively just, justifiable in discourse, can they be expected to be adopted and followed.

9:28But think of the two books, Book 1 and Book 2. How could one tell the difference between them? How could one see the right tendril connected to the latter but not to the former? How can third parties be expected to respect an amorphous, invisible, mystical, spooky, possibly unknown and unknowable property border? The implications of such a view are troubling. Palmer writes, The separation and retention of the right to copy from the bundle of rights that we call property is problematic. Could one reserve the right, for example, to remember something? Suppose that I wrote a book and offered it to you to read, but I had retained one right, the right to remember it.

10:13Would I be justified in taking you to court if I could prove that you had remembered the name of the lead character in the book? in the book. Here the author includes a footnote citing Palmer, Are Patents and Copyrights Morally Justified, page 853. Palmer also quotes the following illuminating passages. Hegel argued, The substance of an author's or an inventor's right cannot in the first instance be found in the supposition that when he disposes of a single copy of his work, He arbitrarily makes it a condition that the power to reproduce facsimiles as things, a power which thereupon passes into another's possession, should not become the property of the other, but should remain his own.

10:59The first question is whether such a separation between ownership of the thing and the power to produce facsimiles which is given with the thing is compatible with the concept of property, or whether it does not cancel the complete and free ownership on which there There originally depends the option of the single producer of intellectual work to reserve to himself the power to reproduce, or to part with this power as a thing of value, or to attach no value to it at all and surrender it together with the single exemplar of his work. Hagel's Philosophy of Right, page 55, quoted in Palmer, Our Patents and Copyrights Morally Justified, page 853 And, as Kant noted, Those who regard the publication of a book as the exercise of the rights of property in respect of a single copy, it may have come to the possessor as a manuscript of the author, or as a work printed by some prior publisher, and who yet would, by the reservation of certain rights, go on to restrict the exercise of property rights, maintaining the illegality of reproduction, will never attain their end.

12:11For the rights of an author regarding his own thoughts remain to him, notwithstanding the reprint, and there cannot be as distinct permission given to the purchaser of a book for, and a limitation of, its use as property. How much less is a mere presumption sufficient for such a weight of obligation? From Immanuel Kant, Was ist ein Buch? in Die Metaphysik des Sitten, edited by W. Weisschedl, Frankfurt am Main, Sohrkamp Verlag, 1977, page 581, translated and quoted in Palmer, Our Patents and Copyrights Morally Justified, page 853. But third parties still pose a problem for this theory.

12:59Even if a seller of an object could somehow reserve certain use rights with respect to the sold object, how does this prevent third parties from using information apparent from or conveyed in that object? Reserved rights proponents say more than that the immediate buyer, B1, is bound not to reproduce the book. For this result could be obtained by pointing to the implicit contract between seller A and buyer B. Let us consider a third-party T1 who finds and reads the abandoned book, thus learning the information in it. Alternatively, consider third-party T2 who never has possession or even sees the book. He merely learns of the information in the book from gossip, graffiti, unsolicited email and so forth.

13:49Neither T1 nor T2 has a contract with A, but both now possess certain knowledge. Even if the book somehow does not contain within it a right to reproduce, how can this prevent T1 and T2 from using their own knowledge? And even if we say that T1 is somehow bound by a contractual copyright notice printed on the book, an untenable view of contract, how is T2 bound by any contract or reserved Rights. Rothbard attempts to address this point as follows. A common objection runs as follows. All right, it would be criminal for Green, the buyer, to produce and sell the brown mousetrap, but suppose that someone else, black, who had not made contact with brown, happens to see Green's mousetrap and then goes ahead and Green produces and sells a replica.

14:45Why should he be prosecuted? The answer is that no one can acquire a greater property title in something than has already been given away or sold. Green did not own the total property right in his mousetrap in accordance with his contract with Brown, but only all rights accept to sell a replica. But therefore Black's title in the mousetrap, the ownership of the ideas in Black's head, can be no greater than Green's and therefore he too would be a violator of Brown's property even though he himself had not made the actual contract. There are several problems with this reasoning. First of all, Black merely sees Green's mousetrap. He does not see or have access to ideas in Green's head, nor does he need to have such Research Access in order to duplicate evident features of the mousetrap.

15:40Further, ideas in one's head are not owned any more than labour is owned, only scarce resources are owned. By losing sight of scarcity as a necessary aspect of a homesteadable thing and of the first occupancy homesteading rule as the way to own such things, Rothbard and others are sidetracked into the mistaken notion that ideas and labour can be owned. If we recognize that ideas cannot be owned, they are not scarce resources, that creation is neither necessary nor sufficient for ownership, first occupancy is, and that labour need not be owned in order to be a homesteader, then the trouble caused by these confused notions disappears.

16:25If Black somehow comes into possession of the ideas implicit in an item which Brown In Rothbard's example he happens to see it. It is irrelevant that the mousetrap may not have had a right to copy built into it. For Black does not need such permission to use his own property as he sees fit. How does happening to see the mousetrap make Black a trespasser or violator of Brown's rights? All action, including action which employs own scarce means, property, involves the use of technical knowledge. Some of this knowledge may be gained from things we see, including the property of others. We do not have to have a right to copy as part of a bundle of rights to have a right to impose a known pattern or form on an object we own. Rather, we have We have a right to do anything at all with and on our own property, provided only that we do not invade others' property borders.

17:27We must not lose sight of this crucial libertarian point. If I own a hundred acres of land, I can prance around naked on it, not because the land is imbued with some right to prance naked, But because I own the land and it does not necessarily violate the property rights of others for me to use my property in this fashion. Similarly, I am entitled to do what I want with my own property, my car, my paper, my word processor, including improving my car's carburettor or using my ink to print words on my paper. That is, unless I have contractually I do not have to first find in my property a right to use in a certain way, for all ways of using it, except those that cause invasions of others' properties, are already encompassed within the general right to use my property.

18:25In libertarianism, we live by right, not permission. We do not need to find permission to take actions with our own property. Contrary to practice in totalitarian societies, all things that are not forbidden are permitted. The reservation of rights view would reverse this by assuming that every use of property is valid only if that particular use right can be somehow found or located in the property. Consider the following analogy. Farmer Jed discovers oil under his land. No one for miles around knows about the black gold. Jed plans to buy his neighbour's property for a song. They'll sell it cheap, too, since they don't know about the oil. In the middle of the night, his nosy neighbour, Kuta, suspicious over Jed's recent good spirits, sneaks on to Jed's land and discovers the truth.

19:20The next morning, at Floyd's Barber Shop, Coutre spills his guts to Clem and the boys. One of them promptly runs to a payphone and gives a tip to a reporter at the Wall Street Journal who happens to be his nephew. Soon it is common knowledge that there is oil in the vicinity. The neighbours now demand exorbitant prices for their land, thus spoiling Jed's plans. Let us grant that Coutre can be prosecuted for trespass and harms flowing therefrom. The question is, can Jed's neighbours be prevented from acting on their knowledge? That is, may they be forced to somehow pretend that they do not know about the oil and sell their land to Jed for what they would have sold it when in ignorance?

20:07Of course they may not be so forced. They own their land and are titled to use it as they see fit. Unlike tangible property, information is not ownable, it is not property. The possessor of a stolen watch may have to return it, but so long as the acquirer of knowledge does not obtain that knowledge illicitly or in violation of a contract, he is free to act upon it. Note, however, that according to the reservation of rights view, the neighbours would not be be permitted to act upon their knowledge, because they obtained it ultimately from Coutre, a trespasser who had no title to that knowledge. Thus they could not have obtained greater title to it than Coutre himself had. Note also that others, such as geological surveyors mapping oil deposits, cannot include this information in their maps. They must feign ignorance until given permission by Jed. This imposed ignorance correlates with the unnatural There is clearly no warrant for the view that reserved rights can somehow prohibit third-parties from using knowledge they acquire.

21:13It is simply not legitimate to restrict the use to which an owner of property can put it unless that owner has contractually obligated himself or has otherwise acquired the information by a violation of the information-holder's rights. Talk of reserving the right to copy is merely a form of manipulation. has acquired the information by a violation of the information holder's rights. Talk of reserving the right to copy is merely a way to avoid the contractual notion that only parties to a contract are bound by it. Here, in a footnote, the author adds, Of course, in anarcho-capitalism it is difficult to predict what extensive contractual regimes, networks and institutions will arise. Various enclaves or communities may well require their Therefore, as a general matter, purchasers can be bound by a contract with sellers to to not copy or even resell the thing. However, once third parties become aware of the ideas underlying the invention or literary work, their use of that knowledge does not in general violate any recognisable property rights of the seller. Given this view of scarcity, property

22:43and contract, let us examine the legitimacy of common forms of intellectual property. Copyright and Patent As should be apparent, copyright and patent seek to prevent the owners of tangible property – scarce resources – from using their own property as they see fit. For example, they are prohibited under patent law from practicing patented methods, using their own property, or from shaping their own property into patented devices, even if they independently invent the method or device. By copyright law, third parties who have not contracted with the author are prevented from copying or profiting from the author's original work.

23:30Clearly, sellers of novel devices or literary works can contract with buyers to prevent these buyers from reproducing or even reselling the item. These contractual webs can be elaborate. A novel writer can license his story to a movie studio on the condition that the studio require all movie theatres to require customers to agree not to reproduce the plot of the movie, and so on. Yet, once third parties not bound by a contract acquire this information, they are free to use it as they see fit. The reserved rights approach does not change this. Thus, it would probably be difficult to maintain anything similar to our present patent and Trade Secrets Trade secrets are easier to justify than patent or copyright. Palmer argues that they emerge from common law type rights and are thus legitimate. Trade secret law allows damages to be obtained for or an injunction to be This can be applied against the person who has improperly acquired the trade secret or who divulges the secret contrary to a contractual obligation, and also against others who know that they are obtaining the secret from such a person.

24:56Suppose employee A of company X has access to X's trade secrets, such as its secret formula for a soft drink. He is subject to an employment agreement obligating him to keep this formula secret. He then jumps to X's competitor Y. Y wants to use the formula it learns from A to compete with X. Under current law, so long as the secret formula has not been made public, X can get a court order to stop A from revealing the secret to Y. If A has already revealed For the secret to Y, X can also get an injunction to stop Y from using or publicizing the formula. Clearly, the injunction and damages against A are proper because A is in violation of his contract with X. More questionable is the injunction against Y because Y had no contract with X. In the context in which situations usually arise, however, where the competitor If competitor Y wants the trade secret and knows the defecting employee is in breach of contract,

26:04it could be argued that the competitor Y is acting in conspiracy with or as an accomplice of employee A to violate the contractual rights of trade secret holder X. This is because A has not actually breached his trade secrecy agreement until he reveals trade secrets to Y. If Y actively solicits A to do this, then Y is an accomplice or co-conspirator in the violation of X's rights. Thus, just as the driver of a getaway car in a bank robbery or the mafia boss who orders an assassination are properly held liable for acts of aggression committed by others with whom they conspire, third parties can, in narrowly defined cases, be prevented from using a trade secret obtained from the trade secret thief.

26:57Trademarks Palmer also argues that trademark law is legitimate. Suppose some Lachmanian changes the name on his failing hamburger chain from Lachman Burgers to Rothbard Burgers, which is already the name of another hamburger chain. I, as a consumer, am hungry for a Rothbard burger. I see one of the fake Rothbard burger joints run by the stealthy Lachmanian and I buy a burger. Under current law, Rothbard, the owner of the Rothbard Burgers trademark, can prevent the Lachmanian from using the mark Rothbard Burgers to sell burgers because it is confusingly similar to his own trademark. That is, it is likely to mislead consumers as to the true source of the goods purchased.

27:45The law, then, gives a right to the trademark holder against the trademark infringer. In my view, it is the consumers whose rights are violated, not the trademark holders. In the foregoing example, I, the consumer, thought I was buying a Rothbard burger, but instead got a crummy Lachman burger with its weird kaleidoscopic sauce. I should have a right to sue the Lachmanian for fraud and breach of contract, not to mention intentional infliction of emotional distress and misrepresentation of praxeological truths. However, it is difficult to see how this act of fraud perpetrated by the Lachmanian on me violates Rothbard's rights. The Lachmanian's actions do not physically involve Rothbard's property.

28:33He does not even convince others to do this. At most he may be said to convince third parties to take an action within their rights, namely to buy a burger from the Lachmanian instead of Rothbard. Thus, it would appear that under libertarianism, trademark law should give consumers, not trademark users, the right to sue trademark pirates. Moreover, more novel extensions of trademark, such as rights against trademark dilution There is, of course, nothing wrong with being the first to acquire a domain name and thereafter for Selling it to the Highest Bidder.