I recently posted a reply to this post over at Jacqueline's blog. The first item of my reply was:

-- Eliminate patents which are an immoral grant of monopoly, thereby drastically lowering the cost of vaccines.

This has prompted quite a reaction. Given that I decided to elaborate my view of patents.

Patents are an immoral grant of monopoly. To give someone a monopoly simply because they are the first to invent something, or worse, first to register it, denies the rights of others to use their own reason to think of the same idea.

History:

Historically patents were grants from the crown to its friends. It gave a particular person or company exclusive rights to make or sell something in a given region, or to exploit a resource in a specific geographic area.

The first recorded patent law was in Venice in the 1200's. These patents were granted for 10 years, only for silk making devices. In 1474 Venice enacted a general patent law. Venice was in the process of restructuring its economy, moving from trade to manufacturing. As part of this process it had banned the emigration of skilled craftsmen and was actively encouraging skilled workers to immigrate. The patent law, granting the person who first introduced a new device into Venice a monopoly for 20 years, was part of this policy.

English patent law dates from 1624 when Parliament passed the Statue on Monopolies. This law took the power to grant monopolies away from the King and gave it to Parliament. This law gave a monopoly for 14 years (double the standard apprenticeship time) to the first inventor of "new manufactures". There were several exceptions to this including devices used in warfare, books and notably, the grant was only to be made if not "mischievous to the state by raising prices of commodities at home, or hurt of trade, or generally inconvenient".

The Untied States enacted a patent law in 1790, France in 1791, the rest of Europe only in the early to mid 1800's.

All patent laws are based on the premise that there is a benefit to "society" if an inventor is granted a limited time monopoly. None of them are based on the concept of individual rights.

It is telling to note that in the two great evolutionary law traditions patents and copyrights are not recognized. Both English Common Law and the Jewish Talmud consider these concepts invalid. Ideas are not property, they cannot be owned. Interestingly they both accord creators the same rights. Namely the right of first publication. If a creator decides not to make their idea public, both of these traditions protect this right. Once it is public, it is no longer property. This is very similar to the concept of trade secrets.

It is also useful to note that while many aboriginal societies have developed sophisticated systems of property rights in tangible objects (all based on the homesteading principle); none has developed the concept of property rights in ideas.

In short, there is no historic case for Libertarian support of patents.

Utility:

Patents are granted on the theory that with a monopoly people will invent more useful things, bringing general benefit to all.

Thomas Jefferson argued against this by noting that there was just as much invention in Europe as there was in England, even though Europe did not have patent laws.

Many modern economists, both Libertarian and not, have studied the economics of patents. There is no evidence to suggest that patents increase innovation. There does not seem to be much question that patents distort research priorities. By making only "useful" inventions patentable more research is done in applied rather than theoretical areas. It is not clear that "society" is better off with less theoretical research.

Additionally the current patent system in the US causes companies to expend a great deal of resources in acquiring "defensive" patents. IBM estimates that 25% of its Research and Development budget is spent on such activities. Many companies exist simply to create patents and then sue other companies for violation of those patents. This is classic rent seeking behavior. These activities clearly waste resources, which hurts "society". Europe is somewhat better in this respect but the reforms currently being discussed are very troubling as they would move European patent law closer to the US model.

By granting monopolies patents tend to over encourage early innovation and discourage later innovation. Once a patent is granted the owner does not have to continue innovating. The grant of monopoly creates a moral hazard. A good example is the Eli Lilly Company which greatly increased its R&D budget only as its patent on Prozac was expiring.

Finally, no one knows what the "optimal" level of innovation is. To the extent that spending resources is encouraged in one area, it is discouraged in others.

A Utilitarian case can be argued for or against patents. Even if the Utilitarian argument proves correct and innovation is increased this is not necessarily a good thing nor is it a reason for Libertarians support patents.

Property:

Either a thing is property or it is not. It cannot be property for an arbitrary period of time and then simply cease to be. With the exception of Rand and the Objectivists, all Libertarian thinkers on this topic recognize this. The 19th century debates in _Liberty_ between Spooner, Tucker, Spencer, Leggett and others were clear on this point. In current times Galambos, Schulamn, Rothbard, and Kinsella are also in agreement. No matter where they stand on the issue itself. If, at the end of the day, it turns out that ideas are property, then they are property in perpetuity.

Current and historic patent laws do not consider patents property. They are grants from the state to further a state policy. Early US patent law as well as early European law clearly stated this. The term "Intellectual Property" came into use in the late 1600s in England, mostly in connection with copyrights. Up until that time patents and copyrights were regarded as monopoly grants of privilege and opposed by many sectors of the population. Those benefiting from these monopolies coined the term in an effort (successful) to make patents and copyright respectable.

In my opinion, the Labor Theory used by the Objectivists to justify property is deeply flawed. Simply because one works to make something does not make it theirs. The most obvious case of this is a child. The mother works a great deal to produce a child, and those who raise him invest a tremendous amount of effort and resources in doing so. This does not make the child their property, nor does it give them any claim over the child's future earnings. I agree with Kinsella's analysis that if the Labor Theory is accepted then it negates the homesteading rule.

When it comes to patents, it does not matter which rule is used. Even under the Labor Theory, patents are invalid (Objectivists do some very strange twisting to get around this). This is because patents deny the rights to all subsequent inventors. Even if it can be shown that the invention was completely independent. This is clearly wrong under any theory that recognizes private property. If it can be property of the first, then it can also be property of all others.

But ideas are not property. Property derives from scarcity. Ideas, once they are communicated are no longer scarce. Period. No amount of artificial structures will make them so. Patents create artificial scarcity.

Modern Libertarian scholars (with the exception of the Objectivists) are in agreement that patents are invalid, even if they disagree on copyright.

There is no Libertarian case for patents based on property.

Pharmaceuticals:

As my reply was in the context of vaccines, a mention of the specific case of pharmaceuticals is appropriate.

One reason drugs are so expensive is that US law requires a lot of expense on the part of the Pharmaceutical companies. Drug companies are required by law to disclose many technical details, not only of the drug, but also of the manufacturing and testing process, in order to get FDA approval. Once the information is disclosed others can use it also.

It is unfortunate that US law places such a high burden on these companies, but that is not a reason to grant patents. The solution is to remove the state burden. The state has caused the problem; more state action will not solve it.

In a Libertarian society drugs would not require government approval. Drug companies could keep their processes secret. Patents would not be necessary to protect their knowledge. One need only look at the example of Coca Cola. The formula has been kept secret for more than a century. It is not patented. And yet, there is no shortage of close equivalents. There is every reason to believe that this same process would happen with drugs.

Some References

The Libertarian Case
Against Intellectual Property Rights
Are Patents and Copyrights Morally Justified?: The Philosophy of Property Rights and Ideal Objects
Intellectual Property: A Non-Posnerian Law and Economics Approach
Against Intellectual Property
IP resources at StephanKinsella.com
The invention of the concept of "intellectual property" and its impact on invention
IAPAC, scroll down to "Issues of intellectual property".
Is Intellectual Property Legitimate?
INTELLECTUAL PROPERTY: Copyright and Patent in Liberty"
English Statute of Monopolies of 1623