The Case Against Intellectual Property (Springer, 2013)

Intellectual property is a broad concept that covers several types of legally recognized rights arising from some type of intellectual creativity, or that are otherwise related to ideas.⁴ IP rights are rights to immaterial things⁵ – to ideas, as expressed (copyrights), or as embodied in a practical implementation (patents). Tom Palmer puts it this way: “Intellectual property rights are rights in ideal objects, which are distinguished from the material substrata in which they are instantiated.”⁶ In today’s legal systems, IP typically includes at least copyrights, trademarks, patents, and trade secrets.⁷

Copyright is a right given to authors of “original works,” such as books, articles, movies, and computer programs. Copyright gives the exclusive right to reproduce the work, prepare derivative works, or to perform or present the work publicly (17 USC §§ 101, 106 et pass). Copyrights protect only the form or expression of ideas, not the underlying ideas themselves.⁸

While a copyright may be registered to obtain legal advantages, a copyright need not be registered to exist. Rather, a copyright comes into existence automatically the moment the work is “fixed” in a “tangible medium of expression,” and lasts for the life of the author plus 70 years, or for a total of 95 years in cases in which the employer owns the copyright.⁹

A patent is a property right in inventions, i.e., in devices or processes that perform a “useful” function (35 USC § 1 et seq.; 37 CFR Part 1). A new or improved mousetrap is an example of a type of device which may be patented. A patent effectively grants the inventor a limited monopoly on the manufacture, use, or sale of the invention. However, a patent actually only grants to the patentee the right to exclude (i.e., to prevent others from practicing the patented invention); it does not actually grant to the patentee the right to use the patented invention.¹⁰

Not every innovation or discovery is patentable. The US Supreme Court has, for example, identified three categories of subject matter that are unpatentable, namely “laws of nature, natural phenomena, and abstract ideas” (Diamond v Diehr, 450 US 175, 185 (1981); see also 35 USC § 101). Reducing abstract ideas to some type of “practical application,” i.e., “a useful, concrete, and tangible result,”¹¹ is patentable, however. US patents, since June 8, 1995, last from the date of issuance until 20 years from the original filing date of the patent application (35 USC § 154(a)(2)) (the previous term was 17 years from date of issue).

A trade secret consists of any confidential formula, device, or piece of information which gives its holder a competitive advantage so long as it remains secret.¹² An example would be the formula for Coca-Cola®. Trade secrets can include information that is not novel enough to be subject to patent protection, or not original enough to be protected by copyright (e.g., a database of seismic data or customer lists). Trade secret laws are used to prevent “misappropriations” of the trade secret, or to award damages for such misappropriations (See the Uniform Trade Secrets Act [UTSA]). Trade secrets are protected under state law, although recent federal law has been enacted to prevent theft of trade secrets (Economic Espionage Act of 1996, 18 USC §§ 1831–39).

Trade secret protection is obtained by declaring that the details of a subject are secret. The trade secret theoretically may last indefinitely, although disclosure, reverse-engineering, or independent invention may destroy it. Trade secrets can protect secret information and processes, for example, compilations of data and maps not protectable by copyright, and can also be used to protect software source code not disclosed and not otherwise protectable by patent. One disadvantage of relying on trade secret protection is that a competitor who independently invents the subject of another’s trade secret can obtain a patent on the device or process and actually prevent the original inventor (the trade secret holder) from using the invention.

A trademark is a word, phrase, symbol, or design used to identify the source of goods or services sold, and to distinguish them from the goods or services of others. For example, the Coca-Cola® mark and the design that appears on their soft drink cans identifies them as products of that company, distinguishing them from competitors such as Pepsi®. Trademark law primarily prevents competitors from “infringing” upon the trademark, i.e., using “confusingly similar” marks to identify their own goods and services. Unlike copyrights and patents, trademark rights can last indefinitely if the owner continues to use the mark. The term of a federal trademark registration lasts 10 years, with 10-year renewal terms being available (15 USC § 1501 et seq.; 37 CFR Part 2).

Other rights related to trademark protection include rights against trademark dilution (15 USC §§ 1125(c), 1127), certain forms of cybersquatting (15 USC § 1125(d); Anticybersquatting Consumer Protection Act, PL 106–113 (1999); HR 3194, S1948), and various “unfair competition” claims. IP also includes recent legal innovations, such as the mask work protection available for semiconductor integrated circuit (IC) designs (See 17 USC § 901 et seq), the sui generis protection, similar to copyright, for boat hull designs (See 17 USC § 1301 et seq), and the proposed sui generis right in databases, or collections of information.¹³

In the United States, federal law almost exclusively governs copyrights and patents, since the Constitution grants Congress the power “to promote the progress of science and useful arts.”¹⁴ Despite the federal source of patents and copyrights, various related aspects, such as ownership of patents, are based on state law, which nevertheless tend to be fairly uniform from state to state (See [28], and Chisum on Patents, § 22.03; 17 USC §§ 101, 201). Federal trademarks, by contrast, not being explicitly authorized in the Constitution, are based on the interstate commerce clause and thus only cover marks for goods and services in interstate commerce.¹⁵ State trademarks still exist since they have not been completely preempted by federal law, but federal marks tend to be more commercially important and powerful. Trade secrets are generally protected under state, not federal, law.¹⁶

Many laymen, including libertarians, have a poor understanding of IP concepts and law, and often confuse copyrights, trademarks, and patents. It is widely, and incorrectly, believed that in the US system, the inventor who files first at the patent office has priority over those who file later. However, until last year, the US system actually had a “first-to-invent” system, unlike most other countries, which have traditionally had a “first-to-file” system for priority.¹⁷ (The America Invents Act, enacted in late 2011, changed the US system to a first-to-file system similar to that of other countries.)¹⁸

As noted above, IP rights, at least for patents and copyrights, may be considered rights in ideal objects. It is important to point out that ownership of an idea, or ideal object, effectively gives the IP owners a property right in every physical embodiment of that work or invention. Consider a copyrighted book. Copyright holder A has a right to the underlying ideal object, of which the book is but one example. The copyright system gives A the right in the very pattern of words in the book; therefore, by implication, A has a right to every tangible or material instantiation or embodiment of the book – i.e., a right in everyphysical version of the book, or, at least, to every book within the jurisdiction of the legal system that recognizes the copyright.

Thus, if A writes a novel, he has a copyright in this “work.” If he sells a physical copy of the novel to B, in book form, then B owns only that one physical copy of the novel; B does not own the “novel” itself, and is not entitled to make a copy of the novel, even using his own paper and ink. Thus, even if B owns the material property of paper and printing press, he cannot use his own property to create another copy of A’s book. Only A has the right to copy the book (hence, “copyright”).

Likewise, A’s ownership of a patent gives him the right to prevent a third party from using or practicing the patented invention, even if the third party only uses his own property. In this way, A’s ownership of ideal rights gives him some degree of control – ownership – over the material property of innumerable others. Patent and copyright invariably transfer partial ownership of material property from its natural owner to innovators, inventors, and artists. As I have argued elsewhere [32], patent and copyright grant a negative servitude in the property of others to the IP holder.

Libertarian views on IP range from complete support of the fullest gamut of IP imaginable, to outright opposition to IP rights. Most of the debate about IP concerns patent and copyright; as discussed below, trademark and trade secret are less problematic. Therefore, this chapter focuses primarily on the legitimacy of patent and copyright.

Pro-IP arguments may be divided into natural-rights and utilitarian arguments. Libertarian IP advocates tend to adopt the former justification.¹⁹ For example, natural-rights, or at least not explicitly utilitarian, libertarian proponents of IP include, from more to less extreme, Galambos, Schulman, and Rand.²⁰ Among precursors to modern libertarians, Spooner and Spencer both advocated IP on moral or natural-rights grounds.²¹

This theory depends on the notion that one owns one’s body and labor, and therefore, its fruits, including intellectual “creations.” An individual creates a sonnet, a song, a sculpture, by employing his own labor and body. He is thus entitled to “own” these creations, because they result from other things he “owns.”

There are also utilitarian pro-IP arguments. Federal Judge Richard Posner is one prominent utilitarian (although not libertarian) IP advocate [51]. Among libertarians, anarchist David Friedman analyzes and appears to endorse IP on “law-and-economics” grounds,²² a utilitarian institutional framework. The utilitarian argument presupposes that we should choose laws and policies that maximize “wealth” or “utility.” With respect to copyright and patent, the idea is that more artistic and inventive “innovation” corresponds with, or leads to, more wealth. Public goods and free-rider effects reduce the amount of such wealth below its optimal level, i.e., lower than the level we would achieve if there were adequate IP laws on the books. Thus, wealth is optimized, or at least increased, by granting copyright and patent monopolies that encourage authors and inventors to innovate and create.²³

On the other hand, there is a long tradition of opposition to patent and copyright. Modern opponents include Rothbard, McElroy, Palmer, Lepage, Bouckaert, and myself.²⁴ Benjamin Tucker also vigorously opposed IP in a debate in the nineteenth century individualist-anarchist periodical Liberty.²⁵ These commentators point out the many problems with conventional utilitarian and natural-rights arguments given to justify IP rights. These and other shortcomings of standard pro-IP arguments are surveyed below.

Advocates of IP often justify it on utilitarian grounds. Utilitarians hold that the “end” of encouraging more innovation and creativity justifies the seemingly immoral “means” of restricting the freedom of individuals to use their physical property as they see fit. But there are three fundamental problems with justifying any right or law on strictly utilitarian grounds.

First, let us suppose that wealth or utility could be maximized by adopting certain legal rules; the “size of the pie” is increased. Even then, this does not show that these rules are justified. For example, one could argue that net utility is enhanced by redistributing half of the wealth of society’s richest 1% to its poorest 10%. But even if stealing some of A’s property and giving it to B increases B’s welfare “more” than it diminishes A’s (if such a comparison could, somehow, be made), this does not establish that the theft of A’s property is justified. Wealth maximization is not the goal of law; rather, the goal is justice – giving each man his due.²⁶ Even if overall wealth is increased due to IP laws, it does not follow that this allegedly desirable result justifies the unethical violation of some individuals’ rights to use their own property as they see fit.

In addition to ethical problems, utilitarianism is not coherent. It necessarily involves making illegitimate interpersonal utility comparisons, as when the “costs” of IP laws are subtracted from the “benefits” to determine whether such laws are a net benefit.²⁷ But not all values have a market price; in fact, none of them do. Mises showed that even for goods that have a market price, the price does not serve as ameasure of the good’s value.²⁸

Finally, even if we set aside the problems of interpersonal utility comparisons and the justice of redistribution and we plow ahead, employing standard utilitarian measurement techniques, it is not at all clear that IP laws lead to any change – either an increase or a decrease – in overall wealth.²⁹ It is debatable whether copyrights and patents really are necessary to encourage the production of creative works and inventions, or that the incremental gains in innovation outweigh the immense costs of an IP system. Econometric studies do not conclusively show net gains in wealth. Perhaps there would even be moreinnovation if there were no patent laws; maybe more money for research and development (R&D) would be available if it were not being spent on patents and lawsuits. It is possible that companies would have an even greater incentive to innovate if they could not rely on a near 20-year monopoly (see [57, 86, 87], for further examples of costs of patent and copyright laws).

There are undoubtedly costs of the patent system. As noted, patents can be obtained only for “practical” applications of ideas, but not for more abstract or theoretical ideas. This skews resources away from theoretical R&D.³⁰ It is not clear that society is better off with relatively more practical invention and relatively less theoretical research and development. Additionally, many inventions are patented for defensive reasons, resulting in patent lawyers’ salaries and patent office fees. This large overhead would be unnecessary if there were no patents. In the absence of patent laws, for example, companies would not spend money obtaining or defending against ridiculous patents. It simply has not been shown that IP leads to net gains in wealth. But should not those who advocate the use of force against others’ property have to satisfy a burden of proof?

We must remember that when we advocate certain rights and laws, and inquire into their legitimacy, we are inquiring into the legitimacy and ethics of the use of force. To ask whether a law should be enacted or exist is to ask: Is it proper to use force against certain people in certain circumstances? It is no wonder that this question is not really addressed by analysis of wealth maximization. Utilitarian analysis is thoroughly confused and bankrupt: Talk about increasing the size of the pie is methodologically flawed; there is no clear evidence that the pie increases with IP rights. Further, pie growth does not justify the use of force against the otherwise legitimate property of others. For these reasons, utilitarian IP defenses are unpersuasive.

Other libertarian proponents of IP argue that certain ideas deserve protection as property rights because they are created. Rand supported patents and copyrights as “the legal implementation of the base of all property rights: a man’s right to the product of his mind” ([29], p. 130). For Rand, IP rights are, in a sense, the reward for productive work. It is only fair that a creator reap the benefits of others using his creation. For this reason, in part, she opposes perpetual patent and copyright – because future, unborn heirs of the original creator are not themselves responsible for the creation of their ancestors’ work.

One problem with the creation-based approach is that it almost invariably protects only certain types of creations – unless, i.e., every single useful idea one comes up with is subject to ownership (more on this below). But the distinction between the protectable and the unprotectable is necessarily arbitrary. For example, philosophical or mathematical or scientific truths cannot be protected under current law on the grounds that commerce and social intercourse would grind to a halt were every new phrase, philosophical truth, and the like considered the exclusive property of its creator. For this reason, patents can be obtained only for so-called practical applications of ideas, but not for more abstract or theoretical ideas. Rand agrees with this disparate treatment, in attempting to distinguish between an unpatentable discoveryand a patentable invention. She argues that a “scientific or philosophical discovery, which identifies a law of nature, a principle, or a fact of reality not previously known” is not created by the discoverer.

But the distinction between creation and discovery is not clear-cut or rigorous.³¹ Nor is it clear why such a distinction, even if clear, is ethically relevant in defining property rights. No one creates matter; they just manipulate and grapple with it according to physical laws. In this sense, no one really creates anything. They merely rearrange matter into new arrangements and patterns. An engineer who invents a new mousetrap has rearranged existing parts to provide a function not previously performed [90]. Others who learn of this new arrangement can now also make an improved mousetrap. Yet the mousetrap merely follows laws of nature. The inventor did not invent the matter out of which the mousetrap is made, nor the facts and laws exploited to make it work.

Similarly, Einstein’s “discovery” of the relation E = mc², once known by others, allows them to manipulate matter in a more efficient way. Without Einstein’s, or the inventor’s, efforts, others would have beenignorant of certain causal laws, of ways matter can be manipulated and utilized. Both the inventor and the theoretical scientist engage in creative mental effort to produce useful, new ideas. Yet one is rewarded, and the other is not. In one recent case, the inventor of a new way to calculate a number representing the shortest path between two points – an extremely useful technique – was not given patent protection because this was “merely” a mathematical algorithm.³² But it is arbitrary and unfair to reward more practical inventors and entertainment providers, such as the engineer and songwriter, and to leave more theoretical science and math researchers and philosophers unrewarded. The distinction is inherently vague, arbitrary, and unjust.

Moreover, adopting a limited term for IP rights, as opposed to a perpetual right, also requires arbitrary rules. For example, patents last for 20 years from the filing date, while copyrights last, in the case of individual authors, for 70 years past the author’s death. No one can seriously maintain that 19 years for a patent is too short, and 21 years too long, any more than the current price for a gallon of milk can be objectively classified as too low or too high.

Thus, one problem with the natural-rights approach to validating IP is that it necessarily involves arbitrary distinctions with respect to what classes of creations deserve protection, and concerning the length of the term of the protection.

Of course, one way to avoid this difficulty is to claim that everything is protectable by IP, with perpetual (infinite) terms. Spooner [47, 50, 60], for example, advocated perpetual rights for patent and copyright. Schulman advocates a much broader concept of creations or ideas protectable by IP. He argues for property rights called “logorights” in any “logos” that one creates. The logos is the “material identity” or identity-pattern of created things. The owner of a logos would own the order or pattern of information imposed upon, or observed in, material substances.

The most radical of all IP proponents is Andrew Joseph Galambos, whose ideas, to the extent that I understand them, border on the absurd.³³ Galambos believed that man has property rights in his own life (primordial property) and in all “non-procreative derivatives of his life” [45, 46]. Since the “first derivatives” of a man’s life are his thoughts and ideas, thoughts and ideas are “primary property.” Since action is based on primary property (ideas), actions are owned as well; this is referred to as “liberty.” Secondary derivatives, such as land, televisions, and other material goods, are produced by ideas and action. Thus, property rights in material items are relegated to lowly secondary status, as compared with the “primary” status of property rights in ideas. (Even Rand once elevated patents over mere property rights in material goods, in her bizarre notion that “patents are the heart and core of property rights” ([29], p. 133). Can we really believe that there were no property rights respected before the 1800s, when patent rights became systematized?)

Galambos reportedly took his own ideas to ridiculous lengths, claiming a property right in his own ideas and requiring his students not to repeat them [45], dropping a nickel in a fund box every time he used the word “liberty,” as a royalty to the descendants of Thomas Paine, the alleged “inventor” of the word “liberty”; and changing his original name from Joseph Andrew Galambos (Jr., presumably) to Andrew Joseph Galambos, to avoid infringing his identically named father’s rights to the name.³⁴

By widening the scope of IP, and by lengthening its duration to avoid making such arbitrary distinctions as Rand does, the absurdity and injustice caused by IP becomes even more pronounced (as Galambos demonstrates). And by extending the term of patents and copyrights to infinity, subsequent generations would be choked by ever-growing restraints on their own use of property. No one would be able to manufacture – or even use – a light bulb without getting permission from Edison’s heirs. No one would even be able to build a house without getting permission from the heirs of the first protohuman who left the caves and built a hut. No one could use a variety of life-saving techniques, chemicals, or treatments without obtaining permission of various lucky, rich descendants. No one would be able to boil water to purify it, or use pickling to preserve foods, unless he is granted license by the originators (or their distant heirs) of such techniques.

Such unbounded ideal rights would pose a serious threat to material-property rights, and would threaten to overwhelm them. All use of material property would by now be impossible, as every conceivable use of property, every single action, would be bound to infringe upon one of the millions of past, accreted IP rights, and the human race would die of starvation. But, as Rand noted, men are not ghosts; we have a spiritual aspect, but also a physical one ([91], pp. 326–27, 467). Any system that elevates rights in ideas to such an extreme that it overrides rights in material things is clearly not a suitable ethical system for living, breathing human beings. No one living can actually act in accordance with such an unrestricted view of IP. The remaining advocates of IP all qualify their endorsement by limiting the scope and/or terms of IP rights, thus adopting the ethically arbitrary distinctions noted above.

A deeper problem for the natural-rights position lies in its undue emphasis on “creation,” instead of scarcity, as giving rise to property rights, as discussed below.

Let us take a step back and look afresh at the idea of property rights. Libertarians believe in property rights in material goods (resources). Why? What is it about material goods that makes them subjects for property rights? Why are material goods property?

Others who recognize the importance of scarcity in defining what property is include Plant, Hume, Palmer, Rothbard, and Tucker.³⁶

Nature, then, contains things that are economically scarce. My use of such a thing conflicts with (excludes) your use of it, and vice versa. The function of property rights is to prevent interpersonal conflict over scarce resources, by allocating exclusive ownership of resources to specified individuals (owners). To perform this function, property rights must be both visible and just. Clearly, in order for individuals to avoid using property owned by others, property borders and property rights must be objective (intersubjectively ascertainable); they must be visible.³⁷ For this reason, property rights must be objective and unambiguous. In other words, “good fences make good neighbors.”

Property rights must be demonstrably just, as well as visible, because they cannot serve their function of preventing conflict unless they are acceptable as fair by those affected by the rules ([93], p. 138). If property rights are allocated unfairly, or simply grabbed by force, this is like having no property rights at all; it is merely might versus right again, i.e., the pre-property rights situation. But as libertarians recognize, following Locke, it is only the first occupier or user of such property that can be its natural owner. Only the first-occupier homesteading rule provides an objective, ethical, and nonarbitrary allocation of ownership in scarce resources.³⁸ When property rights in scarce means are allocated in accordance with first-occupier homesteading rules, property borders are visible, and the allocation is demonstrably just. Conflict can be avoided with such property rights in place because third parties can see and, thus, sidestep the property borders, and be motivated to do so because the allocation is just and fair.

But surely it is clear, given the origin, justification, and function of property rights, that they are applicable only to scarce resources. Were we in a Garden of Eden where land and other goods were infinitely abundant, there would be no scarcity and, therefore, no need for property rules; property concepts would be meaningless. The idea of conflict, and the idea of rights, would not even arise. For example, your taking my lawnmower would not really deprive me of it if I could conjure up another in the blink of an eye. Lawnmower-taking in these circumstances would not be “theft.” Property rights are not applicable to things of infinite abundance, because there cannot be conflict over such things.

Thus, property rights must have objective, discernible borders, and must be allocated in accordance with the first-occupier homesteading rule. Moreover, property rights can apply only to scarce resources. The problem with IP rights is that the ideal objects protected by IP rights are not scarce; and, further, that such property rights are not, and cannot be, allocated in accordance with the first-occupier homesteading rule, as will be seen below.

Like the magically reproducible lawnmower, ideas are not scarce. If I invent a technique for harvesting cotton, your harvesting cotton in this way would not take away the technique from me. I still have my technique (as well as my cotton). Your use does not exclude my use; we could both use my technique to harvest cotton. There is no economic scarcity, and no possibility of conflict over the use of a scarce resource. Thus, there is no need for exclusivity.

Similarly, if you copy a book I have written, I still have the original (material) book, and I also still “have” the pattern of words that constitute the book. Thus, authored works are not scarce in the same sense that a piece of land or a car is scarce. If you take my car, I no longer have it. But if you “take” a book-pattern and use it to make your own physical book, I still have my own copy. The same holds true for inventions and, indeed, for any “pattern” or information one generates or has. As Thomas Jefferson – himself an inventor, as well as the first Patent Examiner in the USA – wrote, “He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me.”³⁹ Since use of another’s idea does not deprive him of its use, no conflict over its use is possible; ideas, therefore, are not candidates for property rights. Even Rand acknowledged that “intellectual property cannot be consumed.”⁴⁰

Thus, Bouckaert maintains that “only naturally scarce entities over which physical control is possible are candidates for” protection by real property rights ([63], pp. 799, 803). For ideal objects, the only protection possible is that achievable through personal rights, i.e., contract (more on this below).⁴²

Only material, scarce resources are the possible object of interpersonal conflict, so it is only for them that property rules are applicable. Thus, patents and copyrights are unjustifiable monopolies granted by government legislation. It is not surprising that, as Palmer notes, “[m]onopoly privilege and censorship lie at the historical root of patent and copyright” ([61], p. 264). It is this monopoly privilege that creates an artificial scarcity where there was none before.

Let us recall that IP rights give to pattern-creators partial rights of control – ownership – over the material property of everyone else. The pattern-creator has partial ownership of others’ property, by virtue of his IP right, because he can prohibit them from performing certain actions with their own property. Author X, for example, can prohibit a third party, Y, from inscribing a certain pattern of words on Y’s own blank pages with Y’s own ink.

That is, by merely authoring an original expression of ideas, by merely thinking of and recording some original pattern of information, or by finding a new way to use his own property (recipe), the IP creator instantly, magically becomes a partial owner of others’ property. He has some say over how third parties can use their property. He is granted, in effect, a type of “negative servitude” in others’ already-owned property” (See [32]). IP rights change the status quo by redistributing property from individuals of one class (material-property owners) to individuals of another (authors and inventors). Prima facie, therefore, IP law trespasses against or “takes” the property of material-property owners, by transferring partial ownership to authors and inventors. It is this invasion and redistribution of property that must be justified in order for IP rights to be valid. We see, then, that utilitarian defenses do not do the trick. Further problems with natural-rights defenses are explored below.

Some inconsistencies and problems with natural-rights theories of IP were pointed out above. This section discusses further problems with such arguments, in light of the preceding discussion of the significance of scarcity.

As noted before, some libertarian IP advocates, such as Rand, hold that creation is the source of property rights (See [29, 39, 42, 43]). This confuses the nature and reasons for property rights, which lie in the undeniable fact of scarcity. Given scarcity and the correspondent possibility of conflict in the use of resources, conflicts are avoided and peace and cooperation are achieved by allocating property rights to such resources. And the purpose of property rights dictates the nature of such rules. For if the rules allocating property rights are to serve as objective rules that all can agree upon so as to avoid conflict, they cannot be biased or arbitrary (See [93], Chap. 7, esp. p. 138). For this reason, unowned resources come to be owned – homesteaded or appropriated – by the first possessor ([93], p. 142; [76], pp. 172–79; and [97], p. 105).

The general rule, then, is that ownership of a given scarce resource can be identified by determining who first occupied it. There are various ways to possess or occupy resources, and different ways to demonstrate or prove such occupation, depending upon the nature of the resource and the use to which it is put. Thus, I can pluck an apple from the wild and thereby homestead it, or I can fence in a plot of land for a farm. It is sometimes said that one form of occupation is “forming” or “creating” the thing.⁴³ For example, I can sculpt a statue from a block of marble, or forge a sword from raw metal, or even “create” a farm on a plot of land.

We can see from these examples that creation is relevant to the question of ownership of a given “created” scarce resource, such as a statue, sword, or farm, only to the extent that the act of creation is an act of occupation, or is otherwise evidence of first occupation. However, “creation” itself does not justify ownership in things; it is neither necessary nor sufficient. One cannot create some possibly disputed scarce resource without first using the raw materials used to create the item. But these raw materials are scarce, and either I own them or I do not. If not, then I do not own the resulting product. If I own the inputs, then, by virtue of such ownership, I own the resulting thing into which I transform them.

Consider the forging of a sword. If I own some raw metal (because I mined it from ground I owned), then I own the same metal after I have shaped it into a sword. I do not need to rely on the fact of creation to own the sword, but only on my ownership of the factors used to make the sword.⁴⁴ And I do not need creation to come to own the factors, since I can homestead them by simply mining them from the ground and thereby becoming the first possessor. On the other hand, if I fashion a sword using your metal, I do not own the resulting sword. In fact, I may owe you damages for trespass or conversion.

Creation, therefore, is neither necessary nor sufficient to establish ownership. The focus on creation distracts from the crucial role of first occupation as a property rule for addressing the fundamental fact of scarcity. First occupation, not creation or labor, is both necessary and sufficient for the homesteading of unowned scarce resources.

One reason for the undue stress placed on creation as the source of property rights may be the focus by some on labor as the means to homestead unowned resources. This is manifest in the argument that one homesteads unowned property with which one mixes one’s labor because one “owns” one’s labor. However, as Palmer correctly points out, “occupancy, not labor, is the act by which external things become property.”⁴⁵ By focusing on first occupancy, rather than on labor, as the key to homesteading, there is no need to place creation as the fount of property rights, as Objectivists and others do. Instead, property rights must be recognized in first-comers (or their contractual transferees) in order to avoid the omnipresent problem of conflict over scarce resources. Creation itself is neither necessary nor sufficient to gain rights in unowned resources. Further, there is no need to maintain the strange view that one “owns” one’s labor in order to own things one first occupies. Labor is a type of action, and action is not ownable; rather, it is the way that some material things (e.g., bodies) act in the world.

The problem with the natural-rights defense of IP, then, lies in the argument that because an author-inventor “creates” some “thing,” he is “thus” entitled to own it. The argument begs the question by assuming that the ideal object is ownable in the first place; once this is granted, it seems natural that the “creator” of this piece of property is the natural and proper owner of it. However, ideal objects are not ownable.

Under the libertarian approach, when there is a scarce (ownable) resource, we identify its owner by determining who its first occupier is. In the case of “created” goods (i.e., sculptures, farms, etc.), it can sometimes be assumed that the creator is also the first occupier by virtue of the gathering of raw materials and the very act of creation (imposing a pattern on the matter, fashioning it into an artifact, and the like). But it is not creation per se that gives rise to ownership, as pointed out above.⁴⁶ For similar reasons, the Lockean idea of “mixing labor” with a scarce resource is relevant only because it indicates that the user has possessed the property (for property must be possessed in order to be labored upon). It is not because the labor must be rewarded, nor because we “own” labor and “therefore” its fruits. In other words, creation and labor-mixing indicate when one has occupied – and, thus, homesteaded – unowned scarce resources.⁴⁷

By focusing on creation and labor, rather than on first occupancy of scarce resources, as the touchstone of property rights, IP advocates are led to place undue stress on the importance of “rewarding” the labor of the creator, much as Adam Smith’s flawed labor theory of value led to Marx’s even more deeply flawed communist views on exploitation.⁴⁸ As noted above, for Rand, IP rights are, in a sense, the reward for productive work, i.e., labor. Rand and other natural-rights IP proponents seem to adopt a mixed natural rights – utilitarian rationale in holding that the person who invests time and effort must be rewarded or benefit from this effort (e.g., Rand opposed perpetual patent and copyright on the grounds that because distant descendants did not create their ancestors’ works, they deserve no reward) (See also [38], pp. 388–89).

In addition, in a strange admixture of natural-rights and utilitarian thinking, the natural-rights IP approach implies that something is property if it can hold value. But as Hoppe has trenchantly shown, one cannot have a property right in the value of one’s property, but only in its physical integrity ([93] pp. 139–41, 237 n. 17). Moreover, many arbitrarily defined “things” can acquire economic value if government grants a monopoly over the thing’s use, even if the thing is not otherwise a scarce resource (e.g., the Postal Service’s monopoly power to deliver first-class letters).

Thus, because ideas are not scarce resources in the sense that physical conflict over their use is possible, they are not the proper subject of property rights designed to avoid such conflicts.

What, though, is really wrong with recognizing “new” property rights? After all, since new ideas, artistic creations, and innovations continually enrich us, what is the harm in moving with the times by recognizing new forms of property? The problem is that if property rights are recognized in non-scarce resources, this necessarily means that property rights in material resources are correspondingly diminished. This is because the only way to recognize ideal rights, in our real, scarce world, is to allocate rights in material goods. For me to have an effective patent right – a right in an idea or pattern, not in a scarce resource – means that I have some control over everyone else’s scarce resources.

In fact, we can see that IP rights imply a new rule for acquiring rights in scarce resources, which undercuts the libertarian homesteading principle. For, according to Lockean-libertarian homesteading, it is thefirst occupier of a previously unowned scarce resource who homesteads it, i.e., becomes its owner. A late-comer who seizes control of all or part of such owned property is simply a thief, because the property is already owned. The thief effectively proposes a new and arbitrary homesteading rule to replace the first-occupier rule, namely, the particularistic rule “I become the owner of property when I forcibly take it from you.” Of course, such a rule is no rule at all, and is clearly inferior to the first-possessor rule. The thief’s rule is particular, not universal; it is not just, and it certainly is not designed to avoid conflicts.

Proponents of IP must also advocate a new homesteading rule to supplement, if not replace, the first-possessor homesteading rule. They must maintain that there is a second way for an individual to come to own material property. To wit, the IP advocate must propose some homesteading rule along the following lines: “A person who comes up with some useful or creative idea which can guide or direct an actor in the use of his own material property thereby instantly gains a right to control all other material property in the world, with respect to that property’s similar use.” This new-fangled homesteading technique is so powerful that it gives the creator rights in third parties’ already owned material property.

For example, by inventing a new technique for digging a well, the inventor can prevent all others in the world from digging wells in this manner, even on their own property. To take another example, imagine the time when men lived in caves. One bright guy – let us call him Galt-Magnon – decides to build a log cabin on an open field, near his crops. To be sure, this is a good idea, and others notice it. They naturally imitate Galt-Magnon, and they start building their own cabins. But the first man to invent a house, according to IP advocates, would have a right to prevent others from building houses on their own land, with their own logs, or to charge them a fee if they do build houses. It is plain that the innovator in these examples becomes a partial owner of the material property (e.g., land and logs) of others, due not to first occupation and use of that property (for it is already owned), but due to his coming up with an idea. Clearly, this rule flies in the face of the first-user homesteading rule, arbitrarily and groundlessly overriding the very homesteading rule that is at the foundation of all property rights.

There is, in fact, no reason why merely innovating gives the innovator partial ownership of property that others already own. Just because a rule can be proposed does not mean that it is workable or just. There are many arbitrary rules one could dream up by which property rights could be allocated. For example, a racist could propose that any white person can homestead any property already first homesteaded by a black person. Or, the third occupier of a scarce resource becomes its owner. Or, the state can homestead all capital goods, even if already first acquired by individuals. Or, by legislative decree, the state can homestead, in the form of taxes, part of the estates that are already owned by private individuals. All such arbitrary homesteading rules, including the IP rule that innovators homestead partial control of all others’ material resources, are unjustifiable. They all conflict with the only justifiable homesteading rule, first occupation. None of them establish fair, objective rules that avoid interpersonal conflict over scarce resources. Discussions of protecting rights in “ideas,” “creations,” or “things of value” only serve to obscure the fact that the proponent of IP opposes the unadulterated right to homestead and own private property.

The law, then, should protect individual 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.⁴⁹ Suppose, for example, that A writes a book and sells physical copies of it to numerous purchasers B ₁, B ₂ . . . B _N, with a contractual condition that each buyer B is obligated not to make or sell a copy of the text. Under all theories of contract, any of the buyers B becomes liable to A, at least for damages, if he violates these provisions.⁵⁰

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.⁵¹ It does not bind third parties, i.e., those not in “privity” with the original parties.⁵²

Thus, if the book purchaser B relates to third parties T the plot of the purchased novel, these third parties T are not bound, in general, by the original contractual obligation between A and B. If I learn how to adjust my car’s carburetor to double its efficiency, or if I learn of a poem or movie plot someone else has written, why should I have to pretend that I am ignorant of these things, and refrain from acting on this knowledge? 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. Artistic 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 carburetor, or writing a novel using the same plot, physically interferes with the creator’s use of his own material 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 material property. Twiddling my carburetor does not violate the inventor’s rights. At most, my use of this 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 in its physical integrity ([93], pp. 139–41, 237 n. 17).

Thus, the use of contract only gets us so far. A book publisher may be able to contractually obligate his purchasers to not copy his book, but he cannot prevent third parties from publishing and selling it, unless some contract prohibits this action.

Third parties, then, who are not parties to the contract and are not in privity with the contractual obligor and obligee, are not bound by the contractual relationship. For this reason, although an innovator can use contract to stop specified individuals from freely 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 material 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 neighbor 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 material items sold to purchasers.

Rothbard, 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 bind 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 that has already been given away or sold.” In other words, the third party acquires a material 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. Or, the 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 ([11], p. 123).

But surely something is amiss here. Suppose that A writes a novel and sells a first copy, BOOK₁, without restriction (i.e., without a reservation of rights) to B ₁; and a second copy, BOOK₂, to B ₂ – but “reserving” the book’s inherent “right to copy.” The two books, BOOK₁ and BOOK₂, 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. Suppose B ₁ and B ₂ leave these books on a park bench, where they are discovered by third party T. According to Rothbard, BOOK₂ 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 BOOK₂ back to its true owner A, wherever he may be. Thus, even if T finds and homesteads the abandoned BOOK₂, this book simply does not contain “within itself” the right to permit the owner to copy it. It is being continually 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. T homesteads only a book without a right to copy “built in,” and, thus, does not have the right to copy BOOK₂. 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 this way? Even if we can, would it really achieve the desired 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 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. But think of the two books, BOOK₁ and BOOK₂. How could one tell the difference between them? How could one see the rights-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?

But third parties still pose a problem for this theory. Even 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 usinginformation apparent from or conveyed in that object? Reserved rights proponents say more than that the immediate buyer B ₁ 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 ₁. Let us consider a third party, T ₁, who finds and reads the abandoned book, thus learning the information in it. Alternatively, consider third party T ₂, who never has possession of or even sees the book; he merely learns of the information in the book from gossip, graffiti, unsolicited e-mail, and so forth. Neither T ₁ nor T ₂ 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 T ₁ and T ₂ from using their own knowledge? And even if we say that T ₁ is somehow “bound” by a contractual copyright notice printed on the book (an untenable view of contract), how is T ₂ bound by any contract or reserved right?

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 access in order to duplicate evident features of the mousetrap.

Further, ideas in one’s head are not “owned” any more than labor 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 labor 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 labor need not be “owned” in order to be a homesteader, then the trouble caused by these confused notions disappears.

If Black somehow comes into possession of the ideas implicit in an item which Brown invented (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 actions, including action which employs owned scarce means (property), involve the use of technical knowledge [114–116]. 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 a right to do anything at allwith and on our own property, provided only that we do not invade others’ property borders. We must not lose sight of this crucial libertarian point. If I own a 100-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 carburetor or using my ink to print words on my paper. That is, unless I have contractually obligated myself to someone else to restrict my actions with respect to my use of this knowledge. 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’ property borders, are already encompassed within the general right to use my property. In 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 neighbors’ property for a song; they will sell it cheap, too, since they do not know about the oil. In the middle of the night, his nosy neighbor Cooter, suspicious over Jed’s recent good spirits, sneaks onto Jed’s land and discovers the truth. The next morning, at Floyd’s barbershop, Cooter spills his guts to Clem and the boys. One of them promptly runs to a pay phone 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 neighbors now demand exorbitant prices for their land, thus spoiling Jed’s plans.

Let us grant that Cooter can be prosecuted for trespass and harms flowing therefrom. The question is, can Jed’s neighbors be prevented from acting on their knowledge? That is, may they be forced to somehowpretend that they do not know about the oil, and sell their land to Jed for what they “would have” sold it when in ignorance? Of course they may not be forced so. They own their land, and are entitled to use it as they see fit. Unlike material 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 neighbors would not be permitted to act upon their knowledge because they obtained it ultimately from Cooter, a trespasser who had no “title” to that knowledge. Thus, they could not have obtained “greater title” to it than Cooter 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 scarcity imposed by IP. There is clearly no warrant for the view that reserved rights can somehow prohibit third parties from using knowledge they acquire.

It 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 way to avoid the contractual notion that only parties to a contract are bound by it.⁵⁴

Therefore, as a general matter, purchasers can be bound by contracts with sellers 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 recognizable property rights of the seller.

Given this view of scarcity, property, and contract, let us examine the legitimacy of common forms of IP.

As should be apparent, copyright and patent seek to prevent the owners of material 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. Under copyright law, third parties who have not contracted with the author are prevented from copying or profiting from the author’s original work. Clearly, 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 theaters 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 copyright laws using contract alone.

Trade secrets are easier to justify than patent or copyright. Palmer argues that they “emerge” from common law-type rights, and are, thus, legitimate ([50] pp. 854–55; [61], pp. 280, 292–93). Trade secret law allows damages to be obtained for, or an injunction to be issued to prevent, acts of “misappropriation” of a trade secret. 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.⁵⁵

Suppose 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 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 such situations usually arise, however, where the competitor Y wants the trade secret and knows the defecting employee is in breach of contract, it 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 Yactively 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 the 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.⁵⁶

Palmer also argues that trademark law is legitimate ([61], p. 280). Suppose some Lachmannian changes the name on his failing hamburger chain from Lachmann 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 Lachmannian, and I buy a burger. Under current law, Rothbard, the “owner” of the Rothbard Burgers trademark, can prevent the Lachmannian 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. The 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 holder’s. In the foregoing example, I (the consumer) thought I was buying a Rothbard Burger, but instead got a crummy Lachmann Burger with its weird kaleidoscopic sauce. I should have a right to sue the Lachmannian 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 Lachmannian on me, violates Rothbard’s rights. The Lachmannian’s actions do not physically invade Rothbard’s property. He 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 Lachmannian 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 or against certain forms of cybersquatting, cannot be justified. Just as a trademark holder does not have a right to his mark, neither does he have a right against his mark’s dilution. The law against cybersquatting is simply based on an economically ignorant opposition to “scalping” and arbitrage. There is, of course, nothing wrong with being the first to acquire a domain name and thereafter selling it to the highest bidder.