Ideas Are Free: The Case Against Intellectual Property


[Lightly edited transcript of speech given at the 2010 Annual Meeting of the Property and Freedom Society, June 6, 2010.]

In addition to defense, security, education, money and banking, scientific research, providing for the poor, space exploration, food and drug safety, roads and transportation, the definition of marriage, immigration and border control, unemployment insurance, and healthcare — all of which have been monopolized, co-opted, or corrupted by the state — the state also monopolizes dispute resolution, the court system, and the production of law, both by government courts and, primarily, by state legislation and rules promulgated by state agencies. And the state’s legal system, and thus most aspects of economic life, is permeated by what is called intellectual-property law.

Intellectual-property law consists primarily of patent, copyright, trade-secret, and trademark law, and also more modern innovations such as semiconductor maskworks, databases, moral rights, boat hull designs, and reputation rights such as defamation, libel, and slander law.

To take one example of a modern patent system, out of all the patent systems of the roughly 200 countries in the world, consider the US patent system. US patents are granted by the United States Patent and Trademark Agency Office (the USPTO). It is an agency of the US Department of Commerce. It has about 10,000 employees; most of them are called patent examiners.

In 2008, about 485,000 patents were filed in the United States; about 185,000 were issued or granted or approved. As of the end of 2008, there were about 1.2 million patent applications pending for examination at the Patent Office. There are about 2.5 million live US patents right now — patents that are enforced, that can be infringed. IBM, for example, one of the largest patent procurers, was awarded over 4,000 US patents in 2008. They hold about 40,000-50,000 live patents at present.

Patents are classified by group, class, and subclass. They’re divided into four main groups: for instance, group number one is chemical and related arts, two is communications and radiant energy, and so on. There are about 1000 classes and several thousand sub- and sub-subclasses.

The PTO grants issued patents after reviewing patent applications filed by individuals and corporations. Corporations have invention-disclosure programs. They tell their engineers, “Submit an idea to us. We’ll pay you $5,000.”

A patent committee usually reviews these ideas and decides which ones to file. A patent attorney files the application. The cost is $10,000–$20,000, for example.

The end result is a patent that is issued after a couple years of what is called “prosecution” with the Patent Office. Prosecution is the going back and forth between the patent attorney and the USPTO. The end result is called a “red-ribbon copy.” I brought one with me. I’m holding pure evil in my hands [laughter]. In fact, I’ll pass this around if anyone wants to take a look. I just need it back because it’s my employer’s [laughter].

So that becomes part of a company’s patent portfolio, which can be used to sue, to countersue, or to license for profit.

Now, what are the results of the patent system itself? The results are distorted research, protectionism, wealth transfers, and enrichment of the patent bar. Large companies, such as IBM, amass giant patent portfolios. And they license them — IBM, for example, makes hundreds of millions of dollars every year off of licensing.

It’s also used for cross-licensing. Larger companies engage in cross-licensing agreements, which makes it difficult for smaller companies to enter; so this practice sets up barriers to entry.

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Reposted from Mises Daily