Tuesday, 19 June 2012

Scarcity and Intellectual Property, 3: Empirical Evidence of Adoption/Distribution of Technology

Guest post by Dale Halling from the State of Innovation blog.

A NUMBER OF ALLEGED SCHOLARS suggest the logical basis for property rights is scarcity[1], since property rights efficiently allocate these resources and avoid conflicts.  These alleged scholars argue that ideas and inventions are not subject to scarcity and therefore intellectual property rights should not exist.  These arguments seem to be particularly prevalent among Libertarians, particularly those at the Cato Institute and Von Mises Institute, and among the open source community.

In this third article we will examine whether there is a lack of scarcity in the adoption and distribution of new technology.

According to this theory, property rights inhere only in the tangible property rights in land and buildings and personal property rights in things like cars and furniture.  Tangible or physical property is scarce since it can only be owned by one person at a time and it takes resources to create.  According to this theory however, intangible or intellectual property such as patents and copyrights (and software in the case of the open source community, is not scarce) so is not property.  Multiple people may own intellectual property without excluding others from the property.  According to Tom G. Palmer a proponent of the scarcity theory of property:

It is this scarcity that gives rise to property rights.  Intellectual property rights, however, do not rest on a natural  scarcity of goods, but on an “artificial, self created scarcity.”[2]

If Mr. Palmer is correct we would expect that in the absence of intellectual property rights new technologies would be instantly and universally adopted. Let’s examine that.

SCIENTIFIC PRINCIPLES ARE NOT subject to intellectual property rights.  Calculus was discovered over 300 year ago and is not the subject of intellectual property rights.  Despite this even in the most advanced economies only a small percentage of the population understands it.  Even though books on the subject can be reviewed for free at many libraries, those people that do understand calculus generally paid an instructor to learn this area of maths.  Almost everything a student learns through formal education, even in graduate school, is information that is readily available.  Even if the text book is copyrighted, the information is usually available in a non-copyrighted form or available for free from a library.  Despite this the U.S. spends over $500 billion a year on all forms of education.  Clearly, the cost of adopting and distribution ideas including inventions is not free and is subject to scarcity.

According to venture capitalists, most start-ups will spend 2-10 times the amount on marketing their inventions than on developing them.  If the distribution of ideas was free, not subject to scarcity, this would clearly be unnecessary.

University professors, doctors, lawyers, engineers, judges, marketers, sales people and computer scientists are mainly in the business of distributing or implementing known information.  If distributing information is free, not subject to scarcity, then all these people should either be thrown in jail for fraud or paid less than the average day laborer.

The U.S. has historically provided the strongest legal protection for inventions.[3]  The U.S. is not only the leader in the creation of new technology, but has had the fastest adoption and diffusion of new technologies.  Countries that had or have weak patent laws are associated with the slowest adoption and diffusion rates for new technologies.  This is in complete contradiction to the expected result predicted by advocates of the scarcity theory of property.

Those libertarians and open source advocates are clearly incorrect that inventions and ideas are not subject to scarcity.  This scarcity is not artificially induced, since strong patent laws are associate with greater rates of technology adoption and diffusion, not less.

Advocates of the scarcity theory of property are correct that two people can understand the same idea (calculus) without diminishing the supply of the idea.  However, this is not the same thing as both people being the inventor of or discover of the idea.  Just because I understand calculus does not make me the discoverer of calculus any more than understanding how a steam engine works makes me the inventor of the steam engine.  If I were to conceive special relativity without any knowledge that Einstein had already discovered special relativity, this would not make me the discoverer of special relativity.  I did not add any information to the store of human knowledge by my independent discovery.  The same is true of inventors, just because someone independently comes up with an idea after the inventor, does not make them an inventor.  An inventor is the person who adds to the store of human knowledge.  Being second, even without knowing that you are second, does not add to the store of human knowledge or make you an inventor.  The patent laws require the inventor to be the first in the world to create an idea.

THE DEBATE OVER WHETHER property rights are conceptually based on scarcity or based on the right of a person to their labor both physical and mental is not just an academic exercise.  Failure to provide strong legal protection to inventors has severe consequences for our wealth and well-being.  The U.S. in particular does not have the luxury of just adopting other countries’ technology to produce an increasing standard of living for its citizens, it must innovate.  By denying the value of intellectual labor, libertarians have more closely aligned themselves with Marx’s labor (physical) theory of value than with the free market. 

Adopting their approach will result in the same disastrous consequences as has occurred to countries that have adopted Marx’s ideas in other realms.

Dale Halling is an American patent attorney and entrepreneur, and the author of the book “The Decline and Fall of the American Entrepreneur: How Little Known Laws are Killing Innovation.”
Read his regular thoughts at his
State of Innovation blog.

[1] Kinsella, Stephen, Against Intellectual Property  and Palmer, Tom G., “Are Patents and Copyright Morally Justified? The Philosophy of Property Rights and Ideal Objects”, Harvard Journal of Law & Public Policy, Vol. 13, No. 3, Summer 1990, pp. 817- 865.
[2] Palmer, Tom G., “Are Patents and Copyright Morally Justified? The Philosophy of Property Rights and Ideal Objects”, Harvard Journal of Law & Public Policy, Vol. 13, No. 3, Summer 1990, p. 865.
[3] Khan, Zorina B., The Democratization of Invention: Patents and Copyrights in American Economic Development, 1790-1920, Cambridge University Press, 2005, p. 298.

1 comment:

  1. Of course patent law leads to fast adoption and diffusion of new technology, because the only alternative is trade secrets. The reason why patent law was developed was to protect property rights and thereby provide a safe alternative to keeping your inventions secret.


1. Commenters are welcome and invited.
2. All comments are moderated. Off-topic grandstanding, spam, and gibberish will be ignored. Tu quoque will be moderated.
3. Read the post before you comment. Challenge facts, but don't simply ignore them.
4. Use a name. If it's important enough to say, it's important enough to put a name to.
5. Above all: Act with honour. Say what you mean, and mean what you say.