Rethinking IP Completely

0:00I'd like to introduce the Murray and Rothbard Memorial Lecturer. It's a Stephen Kinsella. Stephen is General Counsel for Applied Optoelectronics in Houston and formerly a partner in the intellectual property group of the Philadelphia law firm Duane Morris. He is a registered patent attorney with over 15 years experience, having represented clients such as Intel, Lucent, General Electric, Motorola, Schlumberger and UPS. He received his LL.M. in International Business Law from King's College London and his law degree and B.S. and M.S. in Electrical Engineering from Louisiana State University. He has taught as adjunct professor at South Texas College of Law in Houston and has published numerous articles and books about intellectual property law and international law, Law, including International Investment, Political Risk and Dispute Resolution, A Practitioner's Guide, published by Oxford University Press in 2005. Other books include Trademark, Practice and Forms, World Online Business Law, Digest of Commercial Laws of the World, and Online Contract Formation. Stefan has also published articles on libertarian topics, such as rights

1:12theory, contract theory, legal theory and intellectual property law, and served for for several years as the book review editor for the Journal of Libertarian Studies. So it's my pleasure to give to you Stefan Kinsella.

1:32Thanks, Joe. For some reason all of a sudden I feel a little bit like I'm at a lawyer's anonymous meeting. Hi, I'm Norman. I am an intellectual property attorney. Jeff had titled this the Rethinking IP Completely, and I came up with a little bit more descriptive title here. And I'll come up with it in a little bit, but I spelled out what IP means. Apparently, a lot of people don't even know what IP is. So what I'm going to talk about is we live in an age of technological marbles, as we all know. I won't elaborate that. We have laser pointers, airplanes, computers, the Internet, plasma televisions. We have abundance of the arts, movies, film.

2:20Now, we libertarians would say this is because individual creativity in an unhampered free market or free enough has led to this. But many people say that's not sufficient. There's something else that's necessary for these intellectual creations to have occurred, which is intellectual property law, primarily patent and copyright law. Even libertarians have tended to accept this idea. After all, it's intellectual property, and we support property rights. It's a type of property. So is it? Well, I'm going to focus primarily tonight on patents and copyrights. Patents and copyrights, also mask works, trademarks, and trade secrets, are considered to be types of intellectual property. There are three types of patents, utility, plant, and design patents, and there's copyrights. And there's sort of related legislative rights like databases, which are pending, and boathole designs, which are of course very important.

3:18Design patents are similar to copyright, but no one really knows exactly how. So I'm going to just give a little bit of a background on what they are without boring you too much, and I'll give some funny examples in a minute to make it a little bit more interesting. But because most people, from what I've seen, especially on the pro-IP side, don't really know what IP is. is. I'll see trademark, copyright, and patent confused all the time. That's fine. It's specialized discipline. And yet they're in favor of this, even though they don't really know the difference. So a copyright protects original works of authorship that are fixed in a tangible form of expression. Songs, lyrics, novels, paintings, MP3 files. It's not just the right to copy. It's a bundle of rights, the right to reproduce or prepare derivative works, or to perform the work publicly in some other works as well.

4:12Now, the term of copyright nowadays is very long, 70 years after the life of the author, so it's practically infinite nowadays. One thing that's commonly misunderstood, and we'll talk about this in the panel tomorrow, Paul, copyright is secured automatically upon creation. You don't have to put a copyright notice on it. You don't have to register it. These are totally irrelevant. In fact, I have a copyright in this page right now, and it's self-referential as you can see. So what it means is you can't copy this without my permission, and copywriting is – sorry, it's a noun, not a verb. You can't copyright something. You just – once you write something original or create something original, federal law gives you a copyright, whether you want it or not. This is just a background of, I showed Jeff this the other day, this is a flow chart for figuring how long a copyright lasts.

5:05As you can see, this is clearly the product of natural law. Patents. We have utility, plant, design, and plant patents, and plant and design patents can mostly be ignored. Utility patents are what everyone thinks of. It's for inventions, things that have usefulness or utility. Now, you have to obtain this by filing a patent application with the Patent Office, a government agency. It's examined by an examiner and then later issues as an issued patent if you're lucky. And what it does is it gives you the right to stop other people from making, using, selling, importing, or offering for sale whatever is claimed in that patent. It doesn't give you the right to do it. It's the right to stop others.

5:53Now I'm just going to give you one quick example of a part of an actual issued patent so you can see what they look like. This is one I did for my company. It's on a spatially coherent surface emitting grading coupled quantum cascade laser with an unstable resonance cavity. The unstable is the key part. So this is the front page. It shows the title, the inventors, the company that owns it, the patent lawyer, the examiner, the patent office, a typical figure. And then there's several figures that illustrate the invention. Then you have a detailed description that explains it. Then it terminates in claim. This is where the property right is. Right here, claim one is the first claim. What is claimed is, and it's a sentence, starting with the word uh or the. That's just the way it works. So this is a unipolar surface emitting laser bulb that has the following features. Okay, it ends in a period.

6:44This is what a property – this is the meets and bounds of the patent. Again, clearly natural law. This is just some more – this is an example of the steps you go through when you prosecute a patent. Prosecuting is what you call going back and forth to the patent office to get a patent. This is an example of a flow chart we consult to determine whether a computer-implemented invention is patentable. Now, I'm going to give some examples of some patents just so you can see what was the outcome of this process of the government issuing patents. This is a patent for a bible-shaped bumper hitch. Otherwise, you better not rear end me. This is a toe puppet. Not a finger puppet, a toe puppet. Peanut butter and jelly sandwich with no crust. Pumpkin-shaped garbage bags.

7:38This is, now, if you ever swing on a swing and you go sideways instead of back and forth, you're infringing this patent. This is a Santa Claus-shaped Christmas watering tree stand. You know, it has two purposes, right? Decorative and... This is a way to initiate someone into Harvard.

7:58Okay? This is how you exercise a cat. You just chase it. If you ever do this with a cat, you're infringing this patent. And you can congratulate yourself for getting such a stupid patent with this one here. Pat on the back apparatus. Or if you're feeling guilty about it, you can kick yourself in the rear. User-operated amusement apparatus for kicking the user's buttocks. This is the Amazon one-click patent, which they sued Barnes & Noble for about four or five Christmases ago, You know, clicking once to order something instead of twice. Genius. This is something that people around here might like. You know, it speaks for itself. And this is the patent attorney who prosecuted that, by the way. He's in jail now for mail fraud.

8:49Totally unrelated, but interesting. A pooper scooper on the bottom of a pole. Who would have thought that one? Okay. For showing some cleavage in your pants. Now, in the old days, from what I hear, people were buried without being embalmed, and every now and then they would wake up. So this device was invented so that in case you wake up, you could pull the string and blow a horn and alert people. Seriously. This is old. 1891. Okay. I could use this one. This is a way of doing a creative comb-over. Okay. Anyone golfs here, do not hold your putter like this or you're in trouble.

9:35A better way of measuring bra size, just measure the breast directly. Sorry what I think about this. This is a design patent, by the way. This is a patent on the way this looks. This is, Hans might enjoy this, it's a smoking hood. This is one that bothers me. This is a method for drafting a patent application. It's really good. I just can't use it, unfortunately. Now, my wife has the new MacBook Air. It's wonderful. It has this great little drop-down, flip-down door with the ports. And, of course, they have patents on it.

10:20But, you know, when I saw this, I thought it reminds me of the overhead storage compartment on an airplane, right? Like we wrote today, and sure, they have a patent on that, too. So, okay. And there's plenty more ridiculous patents. I had about two, ten more pages of these, but we have to stop somewhere. So, the most recent one, just this week, Gibson says the guitar hero violates patents, Activision says no. Apple's been sued for the combination of iPod and iTunes, and Manuel told me at the Philadelphia airport, he saw the massage chair with the placards saying patent pending. I saw that too in the Houston airport today, by the way, too. So they're everywhere. Now let me talk about some of the – what people do with some of these patents. Again, there's another example almost every day, so let me just highlight a few. This is a study I saw as of March 2003.

11:10The top five patent infringement awards ranged from almost a billion dollars to 200 million, and settlements from a billion to 300 million. There's a recent judgment against AT&T for $156 million, which might be tripled. A New Jersey doctor was given $432 million as a royalty against Boston Scientific. Sprint recently won $70 million, and they settled for more because they were afraid they were going to get shut down by the patent injunction. Qualcomm has been enjoined from importing chips to help conserve power on cell phones. This new television design called SED, which is promised to be revolutionary, has been postponed for over a year or two now because of a patent lawsuit. It may just die on the vine because it's too late to compete with the other technologies. Black-Gray paid $600 million about a year and a half ago because of a patent injunction threat, even though the patents were being examined and likely to be overturned in the patent office because they could still get an injunction, so they paid that much.

12:04And Microsoft had a $1.5 billion jury award against it in a recent MP3 suit, which was reversed on appeal. I did an estimate, and others have done estimates. Patents probably cost on net $31 billion to the US economy alone or maybe more. This is just from hard numbers, looking at hard numbers. Now, in terms of copyrights, just a few examples of some apparent abuses of the copyright system. The RIA has been pushing for damages that would amount to about $1.5 million if you copy one CD with ten songs. For – and this is just a funny example. Ford recently – there was an enthusiast group of Ford owners, and they were posting pictures of their own cars to each other.

12:49Ford said you can't do that. We own the car. We own the design. NFL recently prohibited churches from having Super Bowl parties because the TV is more than 55 inches tall. This is true. There's a British proposal to ban you from the Internet if you illegally download music. There was one case where a guy got a cease and desist letter, and he posted it, and the company that sent him the letter said, oh, you have a copyright in that letter. You've got to take it down. And the court said yes. And finally, there was a kind of infamous case. There was a $220,000 verdict against Jami Thomas, this woman who just shared 24 songs, so it amounted to 9,000 bucks per song. It could have been up to $3.6 million. There's an interesting study by a guy named John Taranian, and he just kind of said, lookivid you do a typical set of things like we all do every day.

13:40No P2P downloading or anything like that, just sending emails to people, sending a few articles, sending a few pictures you find on the internet. He counted up to 83 acts of infringement with liability up to 12.45 million plus criminal charges. And if you multiply that for the rest of the year, that's one person. This is all of us, up to $4.5 billion of damages that you should owe if you're theoretically sued under all the copyright statutes. It's insane. This is a spoof CD liner, which says what you can do with this CD. It can be difficult to use this and not be arrested, but here's some things we think are acceptable. You can listen to it alone with a towel stuffed under the rock on the door, etc. This is just funny. So why would anyone favor this? Well, the typical rationale, as we all know, even for some libertarians, is more of a utilitarian or wealth-maximization rationale.

14:33The idea is that if you don't have IP rights, then IP will be understimulated or underproduced. So we need to stimulate innovation, creativity, and art by granting these rights. The interesting thing to me is that there seems to be almost universal belief on the part of economists who study this even from a utilitarian point of view. Almost everyone concludes that the patent system is either – you can't prove that it does any good or it's a net drain on the economy. I'm not aware of any study that concludes conclusively that the patent system is a net benefit. Everyone just seems to believe it. That's their argument, but they don't know. This is Mackleff back in 1958. He even said, you know, we can't know for sure. It'd be irresponsible to implement a patent system right now if we didn't have one.

15:21French researchers have concluded that even now we don't know anything more than we did back in the 50s. Recent professors, Boston Law School professors and economists, they have a book coming out I think this month. They concluded that the patent system discourages innovation on average. Some studies by economic historian Eric Schiff, he studied. He said when Switzerland and the Netherlands abolished patent law back in – I think in the 50s for a while, they actually measured that innovation was increased. There was more competition for the companies that had previously relied on the patent monopoly. And Petra Moser, she did a study of some World's Fair exhibits, and she concluded that countries without patent systems innovate just as much or more than those with patent systems.

16:06Now, these aren't conclusive, and they are utilitarian, but even by the utilitarian standards, all the studies seem to say this is just a big mess. No one knows. If you ask someone why are you in favor of the patent system, well, it encourages innovation. It helps to benefit the economy. You say, well, what does it cost? What are the benefits? What's the difference? They don't – they have no idea. They don't know. Just some more studies. Everyone includes the same thing. Now, what about libertarians who reject utilitarianism? Why do we favor it? How do we get started down this road of including intellectual property as a legitimate part of property rights? I'm calling this libertarian creationism. I think it stems from the notion that it snuck in the back door that creation is a source of rights.

16:54And this is sort of mixed up with the idea of labor and the Lockean idea of homesteading. So basically, if you believe the kind of simplistic idea that whatever you create with your labor is yours, then well, what's a whatever? Well, it could be anything. You can create a poem. You can create a field. You can create a house. So you own all those things, right? So the Lockean idea, we own our labor, and even Rothbard says this, and therefore, we own resources we mix our labor with. Now, to my mind, there's always been a problem with this. There's the idea that if you spit in the ocean, you own your spit, but then you lose the spit. You don't own the ocean, right? So just because you mix something you own with something else doesn't necessarily mean you own the thing you mix it with. But even if you did, do you own your labor actually? I'll get back to that in a second, but let me just – let me show how the objectivists really take off on this.

17:49As Ayn Rand said, IP protects a man's right to the product of his mind, and a recent quote from an objectivist law professor, Masafa. Property is the right to acquire, use, and dispose of the things that one has created through one's labor. Every person has a right to enjoy the fruits of his labor. So you see there's this focus on labor, creation. Now, let's think about what Rothbard said. Do we really own our labor? What do Rothbard say about free speech rights, for example? Is there really a right to free speech, standing alone, an independent right to free speech? No. There's a right to property. You can do what you want on your own property. So really, the right to own property is sufficient to let you speak on it if you want or not speak on it. But you don't have some independent free speech right that would let you speak on someone else's property.

18:36Although enshrining it as a right in the Constitution has in a way led to this, because the courts say that a private shopping mall has to let people speak there. So in a way, holding these things that are derivatives of real rights as independent rights infringes the rights that they're supposed to derive from. So what is – do we own labor? I think it's similar to the free speech idea. Labor is just an action. It's what we do with our bodies. You own your body. That's enough to give you the right to decide what to do with your body, right, to dispose of your labor, to sell it if you want, to bargain with it, to withhold it, to profit from it. But you don't own your labor, or to say that is misleading, it's an overuse of a metaphor. You can say it as long as you're aware that it really just means you own your body.

19:25It's not an independent right from your body. Speaking of labor, this is one more patent. This is a patent on having a child by centrifugal force.

19:45Imagine spinning around here. That was Nan Wells' idea to keep that one in here. Okay, so then why would we own – if we don't own our labor, why do we own things that we homestead? Well, we own it because when we appropriate it first, we have a better claim than anyone else because, with respect to us, they are a latecomer. as Hoppe shows extensively in his argumentation ethics. This is, in fact, in my view, is the distinct libertarian view. Everyone believes in property rights. Socialists believe in property rights. The communists, they just have a different view of who owns it. The state owns it, or the people own it, or the poor people have a right to a claim on part of your money.

20:33But it's always a dispute over a particular piece of property. The question is who gets to own it. In the libertarian view, what is distinct about it is we believe that property rights are going to be recognized in the first user to permit conflict-free use of scarce resources. This argument does not rest upon the assumption that we own our labor. It just rests upon the assumption that if you use or transform or imborder or appropriate a scarce resource that is unowned, first, you have a better claim than anyone else because with respect to you, they're a latecomer. Now, what about creation, this idea that whatever you create is yours? Actually it's not true. It's sort of commonly said that if you – you can acquire ownership and things by appropriating it from the unknown state or by buying it from someone else, contract, or by producing.

21:28But this is actually a little bit misleading. Actually, producing is not an independent source of rights. To produce, you actually already have to own the factors that you're producing the new thing from. Producing just means transforming the property you own already, right? So for an example, this is a simple example to show that creation is not sufficient or necessary for rights. So if you have a big hunk of marble and you carve a statue in it, you already own the statue because you own the marble. So you don't have a new property right. You just have transformed your marble. So that means creation is not sufficient, not necessary. Sorry. If you carve a statue in your neighbor's marble without his permission, you don't own the statue. It's still his statue, so creation is not sufficient. So it's neither one.

22:14Okay, so again, there's only two ways to acquire property, appropriation or contract. That's it. You can increase your wealth by producing. That is, by transforming products you own already, but it presupposes this. Okay. Back to the objectivist. This sort of over-reliance on an imprecise metaphor and on the idea of creation as a source of rights and on the idea that you own labor has led the objectivist, for example, to believe in reputation rights, libel and defamation law, intellectual property rights, the state, legislation, bureaucracies, because these things are all necessary for all these things. You create your reputation, inventions and art, and it has value to you. This is another thing. Another confusion is that a lot of these – they mix up value, labor, and creation.

23:04They believe that value is sort of an independent, objective thing that you don't create a value. You create a thing that has value to people, subjectively valued by different people. David Kelly, someone I respect and admire, wrote, the essential basis of property rights lies in the phenomena of creating value. You see this emphasis here. For things that one has created such as a new product, one's act of creation is the source of the right regardless of scarcity. Now, he said this trying to argue that IP rights are justified. Now, but for tangible things, the creation actually does not – is not the source of the right. He already owned the tangible things, so he's wrong. So creation is not necessary for that. For intangible things, I think he's just begging the question. I mean that's the question.

23:49So as Rothbard has argued and Hoppe has elaborated, there are no property rights and values. You have a property right and the physical integrity of your property. To have a property right and the value means you have a right to what other people believe or assess or feel about your own property. You don't have that right. It's the same reason Rothbard denies reputation rights, and it's the reason that Randians uphold reputation rights. So you don't have the right to what someone else thinks about you, so you don't have a right to your reputation, not directly. Now, in my opinion, patent and copyright – and from practicing from the inside, I mean I'm astounded when people think it could have arisen in the common law system. It's literally inconceivable to me, literally. I mean no more than the Americans with Disabilities Act could have arisen on the free market.

24:35It's just – I mean it's probably easier for monkeys to type Shakespeare. So think about what it would require anyway. It requires a state. It requires legislation, which is artificial law. And it would also require a government agency or bureaucracy to administer this program. I had a debate with an objectivist attorney, Murray Frank, and I made this point, and he said, no, no, no. He goes, I think they could arise on the common law, but even if they couldn't, there's no reason – there's nothing wrong with legislation. In fact, the same judges that make wise common law choices can use the deductive reasoning blah, blah, blah to legislate laws that legislate universal laws. I mean I don't know if this even needs a comment. I mean look at our government. These guys are supporting what the legislation does.

25:24And this is a recent one too. This is just kind of a side point. Another objectivist had something about producers deserve to be rewarded handsomely for their efforts. and this focus on labor and reward. Now, it makes you think, well, if labor deserves a reward, if you labor to create a statue or a book, like some objectivist book or something that doesn't sell enough. What if the copyright is not enough to give you enough profit? What if the patent is not enough to stimulate – what if you can't sell your bird-flipping symbol with a patent monopoly? But it's ingenious. You should be rewarded, so there's going to be an underproduction of labor. So actually there have been – I've seen four or five proposals in the last couple of years.

26:09The government should establish a board which has a panel of experts, which uses taxpayer-funded money to give awards to people that have ingenious inventions. It's sort of like a government MacArthur award or something. Stiglitz suggested this literally just in the last couple of years. A couple years, a medical prize fund to give large rewards for cures or vaccines that could be funded by governments in advanced industrial countries. So I think that this focus on rewarding labor leads to all kinds of the statist measures. Now, how's my time doing? Okay. My suggestion would be to abolish the patent and copyright system. I'll just flip through a few more modest reforms. If you could do a few things that would reduce the harm the most, I would say reduce the patent term.

26:57That would be the first thing. It's 17 years approximately now. Go down to five or seven years. Amazon CEO Jeff Bezos even proposed a three- to five-year term for business method and software patents. Remove patent injunctions. This is a little inside baseball because you have to understand why it's a bad thing. That's a bad thing, but if you're sued for a patent infringement, you can be shut down, not just forced to pay royalties. To me, that's bad enough to have to pay royalties, but at least if it was just a tax. You could pay the tax. It would hamper the economy a little bit, but you wouldn't be shut down. And remember, that's why I said that the Blackberry maker was shut down. I have some other proposals too. This is going to be in another paper I'm working on right now. But there should be a prior use in independent inventor defense too. Under the current law – and this is where Ayn Rand got this wrong by the way.

27:43She was defending something. She misunderstood the patent system, and she was at pains to defend what she misunderstood. She thought we had a first-to-file system, which most countries do. First one to the patent office beats another guy who came up with the same idea. Actually, in the American system, it's the first to invent who wins. So she came up with all kinds of reasons why it makes sense for the American system to reward the first to file, which we don't do. But under the current system, someone who invents something first in secret, however, it never files a patent on it. Or if you invent it independently later, you can be shut down by someone with a patent. So I think this could be provided for with a prior use in an independent inventor defense. This is inside baseball a little bit. Right now, when you file a patent application, it's published at 18 months after you file it, if you don't promise not to file it internationally, some exception.

28:37The idea is that – in fact, the patent system was meant to encourage inventors to publish their ideas, not necessarily to invent, but to publish. So the idea is there's a bargain. We're going to give you a temporary monopoly, and you have to publish everything to the world. So why is there an 18-month delay? It makes no sense. I think they should be published instantly. Give people notice that they're stepping into a minefield if they're infringing on your patent. Right now, there's willful damages. You can – damages can be as much as trebled if it's willful infringement. I think that should be abolished because it's punitive, and other requirements too. And there's some similar reforms I would suggest for copyright in addition to abolishing it. Reduce the term from infinity to a five to ten years. And require active registration. Right now, like I said, it's automatic. So it's impossible to determine who owns a copyright, whether there is a copyright quite often, especially for Orphan Works, which the Mises Institute deals with this problem quite often.

29:38So these are some reforms I would suggest. Also, get rid of the digital millennium copyright acts of criminalization of anti-circumvention technologies. Crazy. People copy, not machines. So – and one other reform I was – I think we should change the name of intellectual property. It's – intellectual property is a little too glorifying. I remember when I first started working in a law firm in Philadelphia, this old attorney got on the elevator with me, and he said, intellectual property, we're all intellectual, something like that. I'm like, okay. UIP guys aren't so smart. He was crusty. But – okay, so intellectual is a little bit of a positive term, so let's get rid of that. Property also has positive connotations, right?

30:28connotations, right? Now, there's an IP advocate named J. Neil Schulman, which most of you probably know of. He has an idea called logo rights. I think it's a little bit extreme on the wrong side, but the term is interesting. Logo in the Greek meaning pattern. We don't want to use the Greek word. Rights has positive connotations. I think what gets at the essence of what IP rights are, especially for patent and copyright, is it's a government-granted privilege that protects patterns. The pattern, the way your machine is designed, the steps you take to create something which is a recipe, or the pattern that describes a painting or a book or a music performance. So basically what IP is, it's a state-granted pattern privilege.

31:16So in conclusion, I would say down with the state, down with state law, down with legislation, and down with pattern privileges. Thank you.