Kinsella lecture 4-ip fall 2010

1 | Rethinking IP – Lecture 4: IP Justifications; Property, Scarcity, Ideas Stephan Kinsella | Mises Academy 2010
Rethinking Intellectual Property: History, Theory,
and Economics: PRELIMINARY INFORMATION► _
► _
 Sdf

Stephan Kinsella
C4SIF.org, Mises.org
Mises Academy
November 29, 2010
Rethinking Intellectual Property: History,
Theory, and Economics
Lecture 4: IP Statutes and Treaties;
Overview of Justifications for IP;
Property, Scarcity, and Ideas

Course news
► Optional mid-term test to be posted shortly

Outrages of the Week
► See recent C4SIF.org posts
► Hershey Claims Ownership of Orange, Brown and Tan Candy Wrappi
(trademark)
► UK High Court Ruling Implies Headlines Are Copyright
 Some German publishers have lobbied for this too
► Universities attacking high schools over trademarks (Gators)
► EFF rescues ASL Ally’s sign-language YouTube music videos
 videos that interpret song lyrics in American Sign Language for deaf and
hard-of-hearing people yanked after complaints by Warner and Universal
► Gibson sues WowWee, retailers over Paper Jamz toy guitars; would r
 Trademark

Outrages of the Week
► Judge Bars ‘Fair Use’ Defense in Xbox Modding Trial
 DMCA
► Going Toe To Toe With Medical Device Giants
 Forbes: about the plight of smaller companies who can be bankrupted by
patent lawsuits and threats from the medical device giants
► Jury Rules SAP Owes Oracle $1.3 Billion
 Copyright
► Hollywood Backs State Thuggery Over Free Speech
 COICA
► Copywrong: copyright as censorship
 2005 LRC post: a grocery store in Canada mistakenly sells 14 copies of the
new Harry Potter book a few days before its official release this Saturday,
July 16. So last week a British Columbia Supreme Court judge “ordered
customers not to talk about the book, copy it, sell it or even read it
before it is officially released at 12:01 a.m. July 16.”

Other News
► See recent C4SIF.org posts
► The Effects of Patent and Copyright on Hollywood Movies
► Doctorow: What do we want copyright to do?
 “creators (and, notably, their industrial investors) are notoriously
resistant to new media. The composers damned the record companies as
pirates; the record labels damned the radio for its piracy; broadcasters
vilified the cable companies for taking their signals; cable companies
fought the VCR for its recording “theft.” Big entertainment tried to kill FM
radio, TV remote controls (which made it easy to switch away from
adverts), jukeboxes, and so on, all the way back to the protestant
reformation’s fight over who got to read the Bible.”
► Copyright Troll Backs Down

Other News
► Patent Litigation Facts
 $10 million: Cost to defend a high-stakes patent suit
$3.8 million: Median damages awarded in patent infringement cases
from 2001-07
482,871: Patent applications filed in 2009
191,927: Patents issued in 2009
2,700: Average number of patent-infringement lawsuits filed per year
$1,000: Hourly rate charged by top patent litigators
100: Average number of patent cases that go to trial each year
57%: Percentage of trials won by patent holders
34.6: Average number of months to secure a patent
► Ideas are Free: The Case Against Intellectual Property: or, How Liber
► Don’t Fall for False Copyright Claims

Where we left off…
► Overview of arguments for IP
 Rights based (deontological, creation-based, natural law, principled)
 Wealth-maximization (utilitarian, consequentialist)

Today’s Lecture
► Law Continued:
 Photography
 Key IP Statutes and Treaties
► Overview of Justifications for IP
► Property, Scarcity, and Ideas
 the nature of property rights, role of scarcity, and the function of the
market

Law Continued: Photography
► See Photography and the law (Wikipedia)
► The owner of the copyright in the photograph is the
photographer--the person who creates it
 Watermarks
 Amateur issues (printing etc.)
 Copyright-protected works in the scene
► Music
► Sculptures
► Home videos—children dancing

Law Continued: Key IP Statutes and Treaties
► Historically
 1624: Statute of Monopolies 1623 (England): key patent statute
 1710: Statute of Anne 1709 (England): key copyright statute
 1691: South Carolina enacts first "general" patent law
► as distinguished from authorization to the Crown to make patent grants

Law Continued: Key IP Statutes and Treaties
► Modern IP (US)
 Patent: Constitution; Patent Act of 1790; Patent Act of 1952; now
Title 35, USC
► USPTO (Dept. of Commerce)
 Copyright: Constitution; Copyright Act of 1790; now Title 17, USC
► Copyright Office (Library of Congress)
 Trademark: state law, plus federal
► Lanham Act of 1946: Title 15, Ch. 22 of USC
► USPTO
 Trade Secret: mostly state law
► Restatement (Second) of Torts §757 and Uniform Trade Secrets Act (UTSA)
(1979)

Law: Key IP Statutes and Treaties (cont.)
► Modern IP Additions (US)
 Copyright
► No Electronic Theft Act (NET Act) (1997)
 criminal prosecution for copyright infringement
 Up to five years in prison and up to $250,000 in fines.
► Sonny Bono Copyright Term Extension Act (CTEA) (1998)
 Sonny Bono Act, or “Mickey Mouse Protection Act”
 Extended copyright term by 20 years (life of author plus 70 years, or 95/120)
► Digital Millennium Copyright Act (DMCA) (1998)
 criminalizes use of DRM anti-circumvention technology
 Key “safe harbor” for OSPs and ISPs for copyright liability
► Online Copyright Infringement Liability Limitation Act ("OCILLA”)
 DMCA added “Vessel Hull Design Protection Act”--protection for boat hull designs

► Modern IP Additions (US)
 Trademark: Antidilution
► Federal Trademark Dilution Act of 1995
 Trademark Dilution Revision Act of 2006
 Trade Secret
► Federal Economic Espionage Act of 1996 (18 U.S.C. § 1831–1839)
 makes the theft or misappropriation of a trade secret a federal crime
► Major International Bodies
 World Trade Organization (WTO)
► Organization for liberalizing international trade
 World Intellectual Property Organisation (WIPO)
► UN agency for IP protection

► IP Treaties
 Paris Convention for the Protection of Industrial Property (1883)
► Permits patent filing date in first country to be relied on in others
 Patent Cooperation Treaty (PCT) (1970)
► Unified procedure to file international or “PCT” applications can be filed
► Still examined separately and result in national or regional patents
 Regional: European Patent Convention (EPC) of 1973
► European patents granted by European Patent Office not unitary
► Side by side with national patents
 Berne Convention for the Protection of Literary and Artistic Works (1886)
and WIPO Copyright Treaty of 1996
► International standard for and recognition of copyright of other countries

► IP Treaties
 Madrid System
► international registration of trademarks
► administered by the International Bureau of WIPO
 General Agreement on Tariffs and Trade (GATT)
► 1994 Uruguay Round covers IP
 The Agreement on Trade Related Aspects of Intellectual Property Rights
(TRIPS) is an international agreement administered by the WTO that sets
down minimum standards for many forms of intellectual property
regulation as applied to nationals of other WTO Members

► Pending IP Laws and Treaties
 Anti-Counterfeiting Trade Agreement (ACTA)
► See http://c4sif.org/tag/acta/
► Proposed agreement for the purpose of establishing international standards
on intellectual property rights enforcement
► would create its own governing body outside existing international
institutions such as the WTO and WIPO
► Designed to protect copyright and patent (and trademark?)
► Copyright: Anti-circumvention prohibition as with DMCA
 Combating Online Infringement and Counterfeits Act (COICA)
► See http://c4sif.org/tag/coica/
► Proposed in United States Senate
► allows the blocking the domain names of web sites accused of piracy
 Agitation to add IP laws for fashion, database rights, etc.

Natural Law and Utilitarian: Overview (revisit)
► Utilitarian
 To “maximize” incentives
► To innovate and produce new ideas
► To disclose ideas
 “Necessary” for Innovation and Creation
► Obviously false
 Other Problems
► Methodologically Incoherent (Austrian subjectivism and utility)
► Ethical problems
 Implications:
► justify redistribution
► rape

Natural Law and Utilitarian: Overview (cont.)
► Utilitarian
 Other Problems
► Evidence problems
 Sincerity problems
 should be against IP based on evidence
► Implications: taxpayer funded innovation prizes
 Madison 1787
 Russia 1834
 Soviet Union 1931
 Michael Polanyi 1944 (views on tacit knowledge and spontaneous order
influenced Hayek)
 Recently: $80B medical innovation prize fund: Stiglitz, Bernie Sanders, Tabarrok
(libertarian)

Natural Law and Utilitarian: Overview
► Natural Law
 Locke, Founding Fathers not on board
► Purely civil right
► State constitutions and laws used natural law to mask monopoly privilege
grants to special interests
 Arbitrary scope and term
 Geographic enforcement
 Creationism and labor confusion
 Inconsistency: mix with utilitarian rationales
► Rand, limited terms etc.

Property, Rights, Scarcity
► Why do we need property?
► Imagine Garden of Eden
 No scarcity
 No conflict
 No need for production
 No need for rationing
 Property rights unnecessary
► Property rights meaningless

Property, Rights, Scarcity (cont.)
► “only because scarcity exists is there even a problem of
formulating moral laws; insofar as goods are superabundant
(“free” goods) no conflict over the use of goods is possible and
no action-coordination is needed. Hence, it follows that any
ethic, correctly conceived, must be formulated as a theory of
property, i.e., a theory of the assignment of rights of exclusive
control over scarce means. Because only then does it become
possible to avoid otherwise inescapable and unresolvable
conflict.” Hoppe, TSC, p.158n120

The nature of property rights, role of scarcity, and
the function of the market
► We do have scarcity
► Implications of scarcity
 Conflict
 Exclusive use
► Nature of action: praxeology
 Purposeful use of a (scarce) means to achieve a desired end or goal
 Presuppose categories of action
► Subjective value
► Choice
► Demonstrated preference
► Causality
► Means and ends
► Opportunity cost
► Profit and loss

► Role of scarce resource in action
 Means of action
► Role of knowledge
 Guide to action
 Enriches universe of ends and means
► Recipe/cake examples
► Role of property rights
 Assign owners to scarce resources to permit productive and cooperative
use
► Spoon in cake example: need ownership (control)
 Ideas are non-scarce
► No ownership needed
► Many can use same recipe

► Acquisition of knowledge
 Accumulation of human knowledge
 Informal and formal learning
 Emulation on the market
► Key aspects of free market
 Property rights permit competition
 Property rights allow competition
► Competition benefits consumer
 Competition requires emulation
► Iterative process

Goods, Scarce and Non-scarce
► Ideas, information, knowledge are non-scarce goods
 Recipe, Idea, Tune, Image, Skill, Fire
► Scarce goods
 Bagel, Factory, Shoes, People, Desk
► Scarce non-goods
 Mud Pie, Poison Soup, Slug, Road Kill
► Non-scarce, non-goods
 Bad Idea, Awful Sound, Gibberish Text

Upcoming Topics…
► Market vs. scarcity
► Perversity of artificial scarcity of information and knowledge
► Diluting effect of new rights
 Negative and positive rights
► Welfare rights as trespass
 Four Freedoms
 Inflation analogy
 IP rights as positive right
► Redistribution of rights
► Recall origin in monopoly privilege and censorship
► The basis of libertarian rights and norms
 Big topic

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